At the Crossroads - Review, New Zealand Economic Papers.

Metaphors of the road abound in discussions of social and economic policy, but I had not realised how much until I read Jane Kelsey's latest book. Almost every participant in the debate seems to characterise their position in terms of transport. In addition to the 'crossroads' of the title, we have the 'wobbly bicycle' of neoliberal globalisation, Helen Clark's view of free-market reform as a 'cul-de-sac', the 'Third Way' of Tony Blair and Bill Clinton and the 'High Road' to a sustainable and socially just economy.

There is no doubt that this kind of metaphor is appropriate in describing the era of radical neoliberalism and globalisation, which now seems to be coming to an end. Particularly in English speaking countries, economies and societies were driven at great speed down a narrow road. Warning signs were ignored, turnoffs were scorned, and barriers were crashed through. But after nearly twenty years the promised destination, a dynamic, enterprising and prosperous economy seemed further away than ever.

The time has come then, to look for a different path. For at least a decade, Jane Kelsey has been one of the most effective critics of neoliberalism in New Zealand. In this book, consisting of three essays, she extends her critique from national to global manifestations of neoliberalism and to the attempts to develop a sugar-coated version under the name of the Third Way.

The first of Kelsey's three essays deals with the reaction against globalisation that began in the late 1990s. Kelsey gives a good summary of the role of international organisations such as the World Trade Organisation and the protests that disrupted their activities, beginning the with the famous 'Battle of Seattle'. As Kelsey recognises, the politics of mass protest had run into diminishing returns even before September 11 rendered them infeasible.

Nevertheless, the combination of mass mobilisation and the economic crises of the 1980s fundamentally changed the terms of the globalisation debate. As recently as 1995, the advocates of globalisation combined a triumphalist long-term historical theory (the 'end of history') and a dominant policy framework (the 'Washington Consensus) with unchallenged control over a set of global policy institutions that increasingly aspired to override national governments.

The early signs that the Washington Consensus was not delivering the promised results produced the metaphor of the 'wobbly bicycle' - the solution to problems was simply to pedal faster. But after the Asian crisis of 1997 and 1998, it became evident that the Washington consensus required, at a minimum substantial revision. At the same time, the Seattle protests undermined the strategy of imposing free-market reform through bodies like the WTO that were free from the messy processes of democratic accountability. The advocates of unfettered flows of capital, goods and services (but not people or ideas) are regrouping, but their position is far weaker than before.

Kelsey tells this story well, guiding the reader through the alphabet soup of acronyms (GATS, TRIPS, TRIMS and so on). More significantly, she relates these opaque global developments to New Zealand and to the role of domestic political actors.

In the second and third essays, Kelsey turns her attention back to New Zealand. The second essay is devoted to a critical evaluation of the Clark Labour government's evolving philosophical position and its actual performance in office. The third essay continues the same theme and offers an outline of an alternative approach aimed at achieving fundamental social transformation.

Kelsey begins with a critique of the 'Third Way', which was initially presented as the philosophical basis of the Labour government's approach to policy. The easiest point of criticism is that the Third Way is 'ideological lycra' ,capable of accommodating anything. Indeed, historically the term has been used to cover any ideological position, from fascism to old-style social democracy, that can be presented as transcending the dichotomous choice between communism and capitalism. Even in the 1990s version, the term was used to cover politicians as disparate as Clinton, Blair and Clark.

Clinton's 'Third Way' embodied policy positions far to the right of Tony Blair's, and stood for little more than the time-honoured strategy of seeking the middle ground. By contrast, as Kelsey notes, Blair's Third Way represented a genuine attempt to development coherent alternative to traditional social democracy, appropriate to centre-left governments in the period after the introduction of neoliberalism reforms. In essence, the Third Way involved consolidating the core elements of neoliberalism while smoothing its sharpest and most antisocial edges. Experience has shown however, that the Third Way is, in Kelsey's phrase 'a road to nowhere'. In the US and Europe, the term is no longer even used in public debate. Even in Britain, it has effectively been abandoned.

In New Zealand, the term 'Third Way' has been dumped in favour of 'modern social democracy'. Kelsey regards this change as merely cosmetic, but, at least in rhetorical terms, the difference is significant. Even with the qualification 'modern', the term 'social democracy' implies a commitment to a European-style system of publicly funded community services and social welfare, and a rejection of the idea that unregulated markets can produce sustainable social and economic markets.

Substantively, after a promising start, the Clark government has been disappointingly cautious in its attempts to pull New Zealand back into the mainstream of social democracy. It is hard not to have some sympathy with the view, attributed to the government that 'New Zealanders are tired of restructuring and crave stability' (p52). Nevertheless, the backdowns to business pressure documented by Kelsey seem more than was warranted by either political or economic necessity.

In the third essay, Kelsey puts forward some suggestions for a more radical policy approach aimed at ... There are a lot of good ideas here, including ... The overall impression, though, is that Kelsey is suggesting a more radical, consistent, and vigorous implementation of the social-democratic program rather than a fundamentally different framework for social and economic policy.

In the wake of the failure of neoliberalism, the world of the early 21st century does not yet present the kind of sharp policy choices implied by the metaphor of the crossroads. Rather, we are groping our way forward through a heavy fog, in a land without signposts.

A social democratic government must seek to repair the damage done by twenty years of neoliberal 'reform', in the context of a public debate that is only just emerging from the straightjacket of right-wing 'economic correctness'. Even though their pretences to provide rational economic discipline have been discredited, global capital markets retain immense capacity to damage national economies, both through their random caprices and through their residual ability to punish those seen as deviating from the true path of the Washington consensuse.

Ultimately, the answer must begin, as Kelsey suggests, with a willingness to listen to communities and a commitment to meet their needs. Any coherent program must be based on a return to the social-democratic path initiated in New Zealand by the Savage Labour government and pursued successfully until the crises of the 1970s and 1980s. To the extent that 'modernisation' involves a recognition of the weaknesses exposes by those crises, and an appropriate response, such a program could reasonably be called 'modern social democracy'. On the other hand, the bankruptcy of neoliberal notions of modernity based on deference to the superior wisdom of the market, and the elevation of individual self-seeking above community need is now evident for all to see.

Although progress has been disappointingly slow so far, the outlook for the future is better than it has been for many years. Developments in the UK are particularly encouraging. As in New Zealand, a term in opposition has only increased the unpopularity of the conservatives and the unsalability of their free-market policies. Meanwhile, the demand for impoved public services has pushed the Blair government, unwilllingly, to the left. The increases in taxation and public expenditure announced in the 2002 UK Budget, and their favourable public reception, marked a rejection of the key tenets of the Third Way, and an acceptance that the only way to improve public services is the traditional method of 'tax and spend'.

The big danger for social-democratic governments today is not that of a resurgence of support for neoliberalism. Rather, it is the risk that inadequate progress in restoring a social-democratic community will engender support for the kind xenophobic populism that has emerged in many developed countries, and is manifested in the name and many of the policies of the New Zealand First party. Although this kind of populism represents another dead end, it could do at least as much damage as neoliberalism, if given the chance.

As Kelsey observes 'Before we can break through the TINA [There Is No Alternative] barrier, we need to explore who we are as a 'nation', and how we see our future in relation to each other and the wider international community'. This book is an excellent place to begin that exploration.