The third way ahead

New Labour's policies have led to real achievements and will deliver more, argues Anthony Giddens.

Suppose that a Labour activist, distressed and disillusioned after the electoral defeat in 1992, settles down for a long snooze. He awakes several years later. When he dozed off, Labour had been out of power for well over a decade and had begun to look unelectable. Coming to, Labour is not only in government with a large majority, it looks almost certain to win a historic second term. The Tories have seemingly been humbled and marginalised.

Unlike all previous Labour governments, this one has not been hit by an economic crisis after a few years. It presides over one of Europe's most vigorous economies. It has achieved significant economic redistribution: a million and a half people have been lifted out of poverty. Large amounts of tax revenue have been generated to spend on health, education and transport. Far-reaching constitutional reforms have been made, including devolution. It is also the first United Kingdom government to seriously address ecological concerns.

Our sleeper might be surprised to find this self-same government subject to relentless attacks, especially from the left. Every leftist party in power finds itself attacked for not being left wing enough, but this amounts to a disavowal of the very innovations - known as new progressivism or the third way - that have produced this success.

The Guardian columnist Polly Toynbee recently wrote that the third way is "utterly redundant". It is "an escape from self-definition - a butterfly always on the wing". The third way is dismissed as a vapid political philosophy, representing the ditching of Labour's social democratic credentials.

Such observations, now the conventional wisdom of the left-of-centre press, are largely mistaken. In transforming itself into new Labour, the party has moved closer to other social democratic parties than it ever was before. All such parties have to some extent broken with their past to make themselves electable again.

The German political scientist Wolfgang Merkel has accurately stated that "the debate about the third way has become the most important reform discourse in the European party landscape". That debate has established a solid and widely shared framework of policy, whose main features are:

• Reforms to make government more responsive and accountable
• A pragmatic view of privatisation
• The maintenance of fiscal discipline and a balanced budget
• Sound macroeconomic governance, geared to low inflation and steady economic growth
• Active labour-market policies coupled with job-creation strategies
• Environmentally sound policies that are positive for economic growth
• An internationalist outlook, given concrete form by support for the European Union and its enlargement.

When Labour's critics talk of social democracy, they have in mind models that have been largely abandoned elsewhere. Consider Sweden, Denmark or the Netherlands. All faced severe difficulties a number of years ago as unemployment escalated and huge budget deficits developed. Radical policy changes, of the sort described, put them back on track. In the Netherlands, welfare and labour-market reforms in the early 1990s transformed it from one of the sick men of Europe into a position of strength, while keeping high levels of social protection.

Far from being redundant, the third way is in the ascendancy wherever social democrats are in power. Of course, problems remain. Social democracy is very much in transition, and more policy innovation is needed. There are some key social issues such as rising economic inequality, to which no government has fully convincing solutions. In its second term, new Labour will have to address problems such as English regionalism, the challenge of regulating big business, and the daunting difficulties of transport policy. But progress will be made only by building on a third-way agenda. When Tony Blair came to power, he declared: "We ran for office as new Labour and we will govern as new Labour." That statement is as valid today as it was in 1997.

Anthony Giddens is director of the London School of Economics and author of more than 30 books, including The Third Way (Polity, 1998, £7.99).

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