In the following pages, I sketch out the defining characteristics of what might be called a political economy of knowledge. Third Way ideology is informed, I argue, by a discursive logic of capitalization, a logic whereby social democracy identifies human potential—human knowledge, talent, creativity—as economic goods and ultimately new forms of capital, indeed as the raw material of the new economy. This capitalization is not a new phenomenon to social democracy. Processes of social democratic revisionism have, to a large extent, been about new definitions of what capital is and of how capitalist value is created. Social democratic growth discourses have always been concerned with the rationalization and utilization of labor. In the Keynesian era, social democracy was concerned with manpower and labor resources. In the knowledge era, it is concerned with the rationalization of the human capital of the skills revolution and with exploiting the intellectual resources that drive a knowledge-based economy.
Perhaps we should not overstate the role of the knowledge economy to contemporary social democracy. Social democracy is involved in traditional policies, such as apprenticeships, that had relevance long before the idea of the information revolution. However, the idea of the knowledge economy has provided a neat narrative to bring together policies of the industrial society with new ones, such as distance learning and ICT. The understanding of knowledge as a form of commodity also leads to a rethinking of the postulates of political economy. Unlike the coal and steel of the Industrial Revolution, knowledge is defined by its location within us, in the human capital of knowledge workers. Knowledge is “brainpower,” not steam power. As other production factors lose importance, growth stems from the improvement of the factor of labor through knowledge and learning.1
This understanding of knowledge as a kind of capital within people leads to the creation of new means of economic governance to bring it out. Social policies, education policies, and cultural policies have, thus, become part of modern growth strategies. In this process, somewhat paradoxically, the parameters of state intervention in the age of globalization become, if anything, larger, as virtually everything becomes the object of economic policies. As Alan Finlayson has pointed out, the economy, in New Labour thinking, is almost omnipresent. Almost all New Labour policies, whether they be aimed at social inclusion, the preschooling of young children, or the preservation of the historical heritage, have been primarily economic, in the sense of being given a role for the strategic creation of the human and social capital of the knowledge economy. In the same way, virtually all social and cultural values from trust to curiosity and aesthetics are, in New Labour thinking, also economic values and therefore legitimate objects of economic intervention.2 We might say the same for Sweden, where everything from initiatives for children’s culture to the environment is framed in a pragmatic growth discourse, even if there are also differences, to which we will return.
This expansion of the sphere of economic governance is directly related to the capitalization of knowledge in the Third Way’s economic theory:
When knowledge is understood as the central commodity flowing in the economy, it is a short step to such a cultural mode of governance. After all a culture can, at one level, be understood as a set of shared knowledges. As such the analysis of economic production and the analysis of culture begin to fuse.3
The literature around the knowledge economy includes many references to this expansion of the economic, but it has a particular relevance in the history of social democracy because notions of human potential, culture, and education are notions that historically have referred to values in conflict with the idea of profit. Now they become drawn into the process of capitalist improvement. We can take this back to the argument set out in the Introduction; while the Third Way cannot be set apart from “old” social democracy by means of its fundamental market acceptance, what the Third Way does is to turn arguments that in the history of social democracy were arguments against capitalism into arguments for capitalism.
For the sake of this argument, let us revisit the theory that the Third Way is neoliberal, which was the suggestion of the first wave of studies on the Third Way.
The point of departure of the Third Way project was, as we know, the end of Keynesian demand management and national economic policies in a world dominated by globalization. In contrast to the way that “old” social democracy’s Keynesian policies were focused on controlling capital within the boundaries of the nation-state through macroeconomic policies and demand management, a central tenet of the Third Way, from the mid-1990s, was the idea of globalization and of an open economy, where capital cannot be controlled by the boundaries of the nation-state and where the scope of macroeconomic policies is circumscribed by the constant flux of capital.4 Hence, the Third Way can be described as a political project based on a rethinking of the nature of contemporary capitalism and the logic of capital, as well as of the role of state intervention and the scope of economic policies in this new world. This rearticulation of politics around the imperative of globalization is what has often been described as the neoliberalization of social democracy.
In the British context, New Labour’s economic policies have been seen as the continuation of Thatcherism because of their fundamental acceptance of the monetarist framework, their rejection of collective action, and the refusal to undo the changes in labor law introduced by Thatcher.5 Colin Hay put it most critically when he described New Labour’s political economy as “studiously courting capital,” a “reconception of the parameters of political possibility in terms of the imperatives imposed by economic integration, financial liberalisation and heightened capital mobility—in short globalisation.”6 Based on the political presumption that capital is in a fundamentally uncontrollable liquid state, what is left in terms of macroeconomic strategy is, in Hay’s terms, an accommodation to the perceived interest of capital for political, economic, and social survival. Similar arguments have been made for Sweden by Magnus Ryner.7 According to this interpretation, social democracy accepts the ideological parameters set by Thatcherism, including its use of a strong state in the interest of the market.8 This is clearly so. But the Third Way also contains a strong rejection of both the social philosophy of neoliberalism and the economic doctrine of monetarism, as if not entirely ideologically misconstrued at least economically inefficient in an era driven by skill, knowledge, and information. These are all drivers of change that are understood to require a rethinking of the very scope of politics, similar to the redefinition of politics carried out by neoliberalism. As Hay and others have shown, the Third Way is a political economy based on the assumption of the reality of globalization, and, accordingly, it redefines the role of social democratic politics to act for the creation of wealth within the parameters set by globalization. Because capital is uncontrollable, what government must do is provide a stable framework and infrastructure so as to attract capital and inward investment. The other leg of this strategy, however, is to increase the value of the capital within its borders, that is, the human capital of the nation. Attracting foreign investment has a parallel here in those labor market policies, education policies, and asylum policies that attempt to attract the “best brains.” If the macro strategy can be described, then, in Hay’s terms, as a courting of the liquid financial capital of the information age, the micro strategy could be described as a capitalization of those human, social, and cultural resources that are defined as productive capital. We can bring this macro–micro strategy back to Gordon Brown’s statement—that, in an economy where capital moves “at the press of a key,” the fundamental resource of the nation state is the potential and talent of its people, the “brainpower” that makes up the skills revolution.9 In a manner of speaking, labor’s earlier attempts to control capital have been replaced, in the economic policies of contemporary social democracy, by the attempts to control the capital embedded in labor. New cultural modes of governance aim at creating this capital and at changing the values and dispositions within knowledge workers—in other words, “build human capital.”10
Neoliberalism is not an adequate concept to describe this. The Third Way is, I suggest, better understood as a political economy based on an understanding of knowledge as a specific form of capital that requires new forms of intervention and a new balance between macro and micro, state and individual, economy and society.
The allure of the knowledge economy in social democratic politics from the mid-1990s was its promise of a new industrial revolution that seemed to recreate conditions of prosperity. As we will see in the following chapter, this idea of a revolutionary economic transformation was much more prominent in the United Kingdom, where it fit into a general narrative of renewal, than in Sweden. The Downing Street advisor Charles Leadbeater wrote of an age where you could virtually live on thin air and where growth could be conjured up from the intangible resources of human ingenuity and creativity.11 However, in Sweden too the idea of electronic railways and the promises of new Swedish new economy multinationals, such as Framfab and Spray, seduced a Social Democratic Party coming out of the worst recession since the 1930s.12
Leadbeater’s wildly optimistic account of the knowledge economy was, in fact, not too different from descriptions of the knowledge economy of actors such as the Organisation of Economic Co-operation and Development.13 These 1990s accounts drew on very specific assumptions as to how knowledge behaves as good and capital. Knowledge, because of its fundamental intangibility and the difficulty of measuring it and reining it in, is often presumed to be a virtually infinite resource and a nonrival good.14 Its consumption is also its production. There was a silent assumption, or perhaps dream, that the human capital of the third industrial revolution would prove to be the source of an unprecedented productivity expansion, leading the way out of the austerity of the 1970s and 1980s.15 This dream of the productivity potential embedded in the knowledge-driven economy mirrors social democracy’s postwar growth utopia. This optimistic prospect for a new golden era is what explains the hype around the new economy in the 1990s.
Although much of the new economy hyperbole ended with the dot.com bubble, the knowledge economy has also been the object of a more traditional social democratic growth discourse, focused on the conditions for business and the skills of the labor force.16 Central to this growth discourse as it took shape in the 1990s was the drawing up of a macro–micro strategy designed to promote stability and prosperity. In both countries, the experiences of the devastating social effects of capital flight, in Britain after the European Exchange Rate Mechanism (ERM) debacle and in Sweden after the 1992 collapse of the krona, led to the conclusion that the survival of social democracy and the capacity for social reform hinged on the creation of a stable macroeconomic framework and the restoration of sound finances.17 This led to the emergence of a social democratic economic language construed around the watchword of prudence and the setting in place of a macroeconomic framework designed to foster long-term stability. In the United Kingdom, macroeconomic stability was seen as the key to building international and domestic credibility and facilitating long-term investment decisions, thus breaking with the “boom and bust” of the British economy.18 In Sweden, the main motivation for macroeconomic policy change was to restore sound finances and recreate legitimacy for the Swedish welfare state, which was blamed both domestically and internationally for the economic crisis and galloping budget deficits.19 In both countries, this macro strategy included new framings around public spending, based on New Public Management policies and the principle of “value for money,” created through innovation in management techniques and the strategic use of audits and standards.20 The golden rule in the United Kingdom, which states that borrowing should be undertaken only with the purpose to invest over the current economic cycle, had a cousin in Sweden in the utgiftstak, the cap that was placed on public expenditure after 1992. In both countries, a central strategy of reform was the restructuring of the budget process to increase control over public spending. In the United Kingdom, the Comprehensive Spending Review was designed to monitor the substantial investment in public services that has taken place, while in Sweden the overhaul of the budget process was put in place to tighten public spending, without any significant shifts in its use as a means of governance.21
On the one hand, this approach to public spending and the public sector clearly reflected the neoliberal critique of public expenditure since the 1970s. On the other, particularly in the United Kingdom, it also broke with the blunt privatizations and the internal markets introduced by Thatcher in the public sector, notably in the National Health Service (NHS). Thus crude competition was replaced by such means as spreading best practice through collaboration and learning, a process that nevertheless was based on competition as the best way to create “best value regimes.”22 This remained an approach to the public sector and to key welfare services explicitly based on a market template, an approach that appealed to consumerism; indeed, one that spoke of the public as consumers, used NPM policies to create markets of demand and supply in key services, and also served as a critique of the very notion of public as a special sphere in society. An important aspect of this, to which we will return shortly, was replacing the idea of public good with the notion of public value, defined as value for money and ensured though the strategic use of audits. This was a very different idea of the public than that which shaped postwar public sectors, and in both countries it came with a more or less explicit mistrust of both public sector activities and public sector workers. Arguably, this went further in the United Kingdom, but the critique of the public sector and the introduction of NPM policies was a central part of the Swedish Third Way beginning in the 1980s.23
In both countries, the macro politics of purpose were coupled with a new micro orientation centered on the fostering of knowledge, skill, and innovation. 24 The 1990s saw the articulation of new growth policies around small- and medium-sized enterprises (SMEs) and entrepreneurship and new regional policies around the promotion of clusters of innovation, influenced by endogenous growth theory.
Endogenous growth theory sees growth as stemming from investment in knowledge and skills, a postulate that gives a clear role to the state for investment in ICT and education.25 In the mid-1990s, endogenous growth theory was coupled with the new supply-side economics, aimed at increasing the quantity and quality of labor, which were developed by leading architects of economic and labor market policy in the Clinton administration.26 The rise of supply-side economics was, in many ways, a logical consequence of the abdication of the demand side and the self-binding that followed the breakdown of Keynesian arrangements from the early 1970s; however, the supply side was also given a specific role in new growth theory because of its emphasis on endogenous investment in education and training. The new emphasis on the supply side came with a shift in employment discourses, from Keynesian discourses on full employment to discourses of employability, which focus on individual skill.27 The notion of employability is indicative of a substantial shift in notions of need, risk, and responsibility in modern labor markets . Public responsibility is no longer job protection or job creation but investment in human capital to help workers deal with the risks of a globalized era. The individual is responsible for obtaining and maintaining skills. The shift from employment to employability discourses arguably constitutes a bigger difference for Sweden because the public responsibility for work in the United Kingdom was always more conditional and has in some ways been strengthened under New Labour, while in Sweden it was at the heart of the Social Democratic state.28
The emphasis on the supply side has also brought about a new coupling of economic and social policies, where welfare reform has become an integral part of growth policies. In the United Kingdom, the first reforms of the New Labour government in 1997 were the spectacular decision of giving independence to the Bank of England, immediately followed by the creation of the New Deal for the unemployed. The Treasury’s productivity strategy for the modernization of the British economy has been tightly coupled with a modernization strategy for the welfare state, including an overhaul of the tax and benefits system and the introduction of tax credits with the specific purpose of moving people off benefits and into work. In the New Deals and the welfare-to-work programs, this involved a careful recalibration of the relationship between rights and responsibilities and incentives and benefits to “make work pay.”29 In that way, the creation of a macroeconomic framework for efficiency and parameters for spending on the macro level was combined with means of governance explicitly aimed at modernizing the welfare subject, through supply-side policies and welfare state intervention.30 In Sweden, welfare reform in the 1990s might seem to stand in continuity with the postwar model because supply-side policies and the coordination of economic and social policy were central elements of the Swedish welfare state as it developed from the interwar period onward. However, mass unemployment, fiscal crisis, and new ideological currents in the 1990s have also given these policies new content, closer to the activation and workfare strategies of the liberal model.31
The relative laissez-faire on the macro level has been matched, then, by macro strategies, that, if anything, contain a strengthened emphasis on the role of social democracy for the creation of prosperity. This is more of a break for the United Kingdom. As David Coates has pointed out, from the beginning New Labour profiled itself as the party of wealth creation, more concerned with the creation of wealth than it was with its redistribution. This celebration of prosperity through key elements of the market and the entrepreneur was a central part of its break with old Labour and its “tax and spend” mentality.32 In contrast, Swedish social democracy has always been a party of wealth creation. The party’s 1994 economic report, which introduced the theme of endogenous growth theory, placed itself firmly in the tradition of the labor movement’s economic committees of the postwar period, even though its themes of entrepreneurs and SMEs were new in social democratic ideology.33 The economic strategy drawn up for the 1990s drew on the party’s rejection of Keynesianism in the 1980s, to which were added elements from the conservative growth policies of the early 1990s. These focused on competition, competence, and knowledge. The policies of the conservative Bildt government, in turn, were influenced by the critique of the Swedish model put forward by the Lindbeck Commission in its program for the decorporization of the Swedish economy and the improvement of incentives structures for 34 On social democracy’s return in 1994, these themes were merged into a new social democratic concept of growth.
In their policies from the mid-1990s, both New Labour and the SAP argue, following the postulates of new growth theory, that knowledge is a particular kind of capital that is essentially owned and controlled by the worker and that has fundamental externalities in terms of its social returns (a higher level of knowledge in society promoting further learning and resulting in a skilled, adaptable labor force; better climate for innovation; and the like). Hence the state has to take a larger responsibility for its creation because, if left to the market, the lack of incentives and property rights and the problems of control for the individual firm will result in fundamental market failures, causing fatal underinvestment in knowledge. In consequence, both parties see a new balance between state and market, where the role of the state is to put in place an infrastructure for knowledge, learning, and information technology while the role of economic actors is that of innovation, and creativity—processes that are seen as beyond the capacity of the state.35 As the slogan goes, it is not for the state to pick the winners (or subsidize the losers) but to remove barriers to entry and obstacles for learning, to put in place a stable framework for business and individuals, to foster entrepreneurs and creativity, and to encourage so-called competitive collaboration in clusters and networks. In Sweden, this seems to point to continuities with the corporatist legacies of the Swedish model, despite the novelty of some of the regional policies such as the tillväxtavtal (the partnerships for growth), which are based on local agreements between regional governments and regional industries. In the United Kingdom, the idea of a new economy somehow driven by the common good was the basis of New Labour’s New Deal with business, a new “partnership for prosperity” based on mutual trust and collaboration.36
The notion of partnership established a new relationship between state and market that is central to the Third Way’s political economy. In contrast to neoliberalism, this includes a strong notion of public responsibility in the economy. Similar to the way in which social democracy in the postwar period accepted a responsibility for the public good of the industrial economy in terms of investment in railroads, highways, education, and hospitals for a productive industrial workforce, in the knowledge economy social democracy accepts public responsibility for electronic superhighways and education and learning. The state effectively takes over investment for some of these things, with reference to providing access for all. In Sweden, the creation of a nationwide broadband network was subsidized by public investment.37 In the United Kingdom, the wiring up of schools and the national grid for learning took place in public–private partnership with BT (British Telecom).38
In both countries, the state also uses its power over education and publicly funded research to steer resources to certain areas of research and training. Research funding has thus emerged as a new form of investment policy. This adds up to the social democratic state imposing a specific definition of useful knowledge, that is, of what knowledge production needs to be prioritized and subsidized in the expectation that this knowledge, rather than other knowledges, will contribute to the public good. It is not really that different from old industrial planning. Both Swedish and British policies also include an emphasis on the role of public procurement as a way of steering demand for knowledge-intensive products and of supporting specific industries, for instance, information technology in the NHS in the United Kingdom or green technology in Sweden.39 Indeed, this emphasis on the role of public capital for market innovation is one of the Third Way’s notions of public value and public good. Further, the state assumes a certain responsibility for providing venture capital for research and development (R&D) and for the commercialization of new products. The fate of the Swedish wage earner funds is perhaps the best illustration of how these new forms of state intervention relate to old ones. Conceived in the 1970s by the labor movement’s chief economic architect Rudolf Meidner as a way of increasing wage earner influence over long-term business decisions, the funds were a thorn in the side of the Swedish Right and were dismantled by the Bildt government. In the 1990s, the funds’ means have been funneled back to business through the creation of a number of semiprivate R&D foundations and government agencies such as NUTEK (the Swedish agency for economic and regional growth) or Vinnova (the governmental agency for innovation systems).40 The funds once designed to increase wage earner control over corporate profits have thus become the venture capital of the new economy. In addition, then, to setting frameworks, the state in both countries actually has a much more hands-on investment policy, one that effectively takes over investment decisions from the firm and steers the orientation of knowledge production. While entrepreneurship, innovation, and creativity are considered to take place in the market place of competitive ideas independent of intervention, Third Way policies give a very prominent role to the state for the creation of knowledge through investment in education, through new means to foster creativity or spur competition, for the commercialization of knowledge through the development of competitive products and services, and for the commodification of knowledge through strengthening intellectual property rights regimes that turn ideas into marketizable objects.
Hence, the Third Way is no laissez-faire Manchester liberalism but rather a highly interventionist productivism based on a new active role of the social democratic state in the economy.41 We deploy “new” here in the way set out in the Introduction, “new” as in the sense that it draws on historic social democratic notions of the role of intervention but reconceptualizes these in relationship to new understandings of the economy and the process of value creation. As Alan Finlayson has put it:
Where dogma driven neoliberals sought to liberate the market from the state, New Labour seeks to deploy the state in the name of the market, because it sees that the market itself has changed.42
There are important differences between the parties here in terms of their interpretations of the benefits and limits of the market, to which we will return. New Labour clearly believes that the market is a more efficient provider and more responsive to the individual consumer than the public; it also praises the role of profit as a driver of quality and efficiency. The role of the market in public services is a tension at the heart of the New Labour project; but, clearly, New Labour under both Blair and Brown insists on profit and competition as forces that spur creativity and innovation in the public sector.43 The SAP has a much more ambivalent attitude to the role of the market in welfare state provisions, despite the fargoing privatizations that have taken place in the Swedish public sector. Education policy is a good example of the ambiguities in the parties’ different stances. In both countries, education has come to be understood as a commodity in recent decades, a process that has been more blatant in the United Kingdom but has also structured education reform in Sweden. In the United Kingdom, despite a long-standing debate in the Labour Party on education as a public good, education policies have been steered by the strategic attempt to create a market for education, expected to provide for efficient delivery, choice, and diversity, as well as for crucial injections of capital in deprived areas.44 In Sweden, the creation of a quasi-school market after the introduction of the voucher system is clearly one of the most dramatic changes of the Swedish welfare state. Social democracy initially opposed voucher schools and even promised to overturn the reform but has not touched the issue since. Private actors such as Kunskapsskolan AB have gained a strong bargaining position in the Swedish school system.45
Another illustration of the differences between the parties in their outlooks on the market is the attempts, in both countries, to introduce systems for competence saving or individual learning accounts (ILAs). The idea behind ILAs was to improve incentives for learning though a system where the costs for lifelong learning are shared among state, individual, and employer. ILAs very clearly reflect the idea of knowledge as capital; it can be saved in a bank account like financial capital. ILAs were introduced in the United Kingdom in 2000. The policy failed because of the rapid emergence of a plethora of uncontrolled private providers and of corruption. In the British context, ILAs were framed in a discourse of individual self-improvement, with the idea that individuals would assume a greater responsibility for their learning and choice of provider.46 In Sweden, a system for competence saving was part of the social democratic growth strategy beginning in the late 1990s, but it was framed in a discourse of universalism, addressed as a further extension of the rights of citizenship. There was a strong rhetorical emphasis on the historical institutions of the labor movement’s self-education societies as providers, an emphasis that partly overshadowed the fact that the policy also anticipated the creation of a market of private providers working in partnership with local government.47
Politics of partnership are clearly far from neoliberal in the role that they ascribe to public intervention and a strong state in the economy. Nevertheless, they also clearly differ from “old” social democracy in the way that they place the market at the heart of social relations. In the United Kingdom, the symbolic importance of the Clause 4 debate was that it firmly established that capital, through dialogue and partnership, can work for the common good, a common good that New Labour defined as “prosperity for all.” Consequently, the market has been seen as a driver of social progress, introduced into education policies, social policies, and cultural policies, as a way not only of bringing in investment and financial capital but also of creating a “culture of aspiration” and fostering drive and entrepreneurship.48 Social democratic policies have thus gained an element that is really about fostering market values as part, almost, of what it means to be social. This is not unique for New Labour. In Sweden, fostering market values are an active component of the new pension system.49
This logic of socializing capital—of making capital a part of the common good, not to be confused with socializing the means of production—is not new in the history of social democracy. Rather, as was set out in the Introduction, the specific historical project of social democracy is to make capital work in the interest of a particular definition of the common good. Swedish policies from the late nineteenth century onward contained a fundamentally procapitalist approach, which internalized industrial capitalism as the very meaning of “modernization,” and the famous labor–capital compromise of the Swedish model was quintessentially about making capital work for the common good.50 However, the Third Way’s understanding of capitalism in the knowledge era is highly specific in the way that it denies notions of conflict or differences of interest between labor and capital, market and society, public and private good. Making the market a force for the common good by bringing it further into social relations and defining market virtues as fundamental drivers of social change is not the same as trying to discipline capital in the name of solidarity and equality, which is arguably where New Labour’s notions of partnership and community differ from the idea of corporatism that laid the foundation for the Swedish model. It is important to make this distinction.
Certain specific presumptions as to the nature of knowledge as a nonrival good with positive externalities add to the Third Way’s well-known emphasis on reconciliation and its appeal to politics beyond conflict. Knowledge is created through learning—and learning is a social activity, one that depends on communication and reciprocity.51 The idea of a knowledge-driven economic expansion contains a reappraisal of trust, shared norms and values, partnership and dialogue—all things that stress interconnection and embeddedness rather than conflict or atomism. Economic dynamism in network production stems from partnership and dialogue rather than from asymmetries, hierarchies, and conflicts.52
The idea of partnerships has been described as a new form of competitive corporatism, where the production of surplus takes place in coproduction between state and market, through a new social contract where the state assumes an overall responsibility for creating the competitive environment for industry, while the firm assumes a certain responsibility for fostering social capital and encouraging learning. In this way, the firm—just like the family—becomes a provider of social virtues, trust, and learning in harmony with the surrounding community. The Third Way embraces this understanding of capitalism because it offers a way out of the conflicts and struggles of the 1970s while still escaping the dilemma of neoliberalism. It gives relevance to limited notions of stakeholding,53 and it permits the Third Way’s critique of the state, a critique it inherited from both the New Left and the New Right. The notion of partnership draws on the quintessentially Third Way claim that the new economy challenges both the old Left’s and the New Right’s understanding of the boundaries between market and state. The old Left, or so the New Labour story goes, thought that it could steer innovation and change and did not realize the individualism and private nature of creativity and entrepreneurship, while neoliberalism with its atomistic theory of economic man and free market did not see the fundamental social logic of processes such as learning and creativity. To that extent, the Third Way contains a firm rejection of socialism and neoliberalism, both with reference to knowledge as a good fostered in trust and not in conflict.54
It could be argued that the politics of partnership reflect a new historical compromise between labor and capital, similar to the one that laid the foundations for the Swedish model. Clearly, the historic corporatism of the Swedish model drew on an organic notion of the market very similar to the one that New Labour put in place in its rewriting of Clause 4, which is also why the changes in the Swedish party program in the last decade have been less controversial (although they caused conflict in Sweden, too). However, the corporatism of the Swedish model was based on the mediation of the differing interests of labor and capital, and it was also, arguably, a way of disciplining the market in the name of the wider social good.55 The emphasis on partnerships seems, rather, to avoid the very problem that the historical compromise attempted to solve because it does not recognize the notion of a difference of interest in the first place. Politics of partnership presume that interests and norms are essentially the same among market, state, and citizen. In industrial relations, the notion of partnership is a reference to trust relations that will provide the basis for productivity and competitiveness in the interest of both employer and employee.56 As Chris Howell has argued, the notion of partnership was the basis of New Labour’s New Deal with business, a new “partnership for prosperity” based on mutual trust and collaboration, which also meant that New Labour continued on the path in industrial relations laid out by Thatcher, recognizing the role of unions to protect individual workers rights, such as the minimum wage, but remaining skeptical of collective action. 57 It is possible to see a similar development in Sweden. In the 1990s the SAP has been outspokenly critical of strikes, and Göran Persson is arguably the first social democratic leader to have defined the trade union federation, the LO (Landsorganisationen), a vested interest, much as New Labour has applied the term to trade unions skeptical of the direction of change.58 In 1997 the agreement on industrial development and wage formation (industriavtalet ), signed by Swedish trade unions and business, was seen as a reenactment of the famous Saltsjöbadsavtalet for a new era, but with an increased focus on the competitiveness of business.59
The notion of partnership established a new role for trade unions in the knowledge economy, which is not that of representing the interests of organized labor but one closer to the Japanese capitalism that was a source of inspiration for the debate on the new firm and specialized production in the period from the 1970s onward. As the Swedish historian Bo Stråth has shown, this understanding of capitalism gained in importance in Sweden in a shift, beginning in the 1970s, from discourses of labor capital conflict to discourses of stakeholding and codetermination.60 In the Volvo plant in Uddevalla in the south of Sweden, Volvo experimented with a “Toyotaism,” where workers and unions became more directly involved in the production process. As Ryner has suggested, this held the embryo of a different vision of the post-Fordist economy, one that gave way, however, with unemployment in the early 1990s that undermined the bargaining position of labor.61 Worker influence in the knowledge economy’s predominant conception of industrial relations is not primarily about influence but about making productivity gains through new forms of human resource management, where the role of labor organizations is to reintegrate skills into the production. This includes fostering trust, loyalty, and enthusiasm. Flexible production put workers and their attitudes at the heart of the production process. New forms of management, indeed of Taylorism, are directed at the rational management of the worker’s inner self.62
We can take this argument one step further by contrasting the Third Way’s conceptions of the relationship between private and public production with social democracy’s historic notions of the public good. The knowledge era brings with it a number of challenges to the boundaries between private and public production and consumption because knowledge is often understood as a nonrival good with specific externalities, which give it important characteristics of a public good. In fact, it is hard to think of a resource that would more easily lend itself to a progressive theory of public good than knowledge.63 Indeed, the Third Way has a notion of public good. Its appraisal of the market is matched by a discussion of the limits of the market in an age defined by the dissemination of intangibles, such as knowledge and information. But this is a different notion of public good from “old” social democracy. A theory of public good, for instance in learning and education, that follows from an analysis of what the market needs but cannot do is different from a notion of public good as what the public needs and what the market will not or cannot do because the latter implies a critique of key tendencies in capitalism. Social democracy’s postwar notions of public good were informed by exactly such a critique of the tendencies of industrial capitalism. The mixed economy, for revisionists such as Anthony Crosland, was an answer to the dilemma of advanced industrialism. In Sweden, the expansion of the public sector drew on the notion of social balance put forth by the American economist J. K. Galbraith, who argued that affluence has to be steered by a greater emphasis on public consumption because consumption would otherwise lead to widening social gaps.64 There is not, in the Third Way, such a debate on how to steer the results of production for the public good, or, even less so, for the creation of equality. Contemporary social democracy also lacks what might be called a public ethos. Social democracy’s historic notion of public good was an ethos of solidarity that stated that there are goods in society that should be beyond the control of the market because their public value is of a character fundamentally in conflict with the idea of profit or even property. However, while the Third Way has a theory of the public good of knowledge because of its fundamental intangibility, which seems to make it necessarily part of the commons, this is a very narrow notion of public good, defined by ideas of market failure, as for instance in the double failure of the market to spread access to knowledge and to provide adequate property rights for knowledge. It is neither an ethos of solidarity nor a theory of public good as a limit to private consumption or a balance on the market. Its ethos, rather, is one of the good of market as provider of public value, for instance through more efficient delivery of welfare services but also through more complex matters such as the fostering of creativity and entrepreneurship through public private partnerships in schools and other public institutions. To that extent, its notion of public good is dictated not only by the limits of the market but by the recognition of the fundamental good of the market, of what might quite simply be called the market ethos. In education, then, the market emerges not only as the efficient provider but also as an injection of creativity, entrepreneurship, and best practice and, in the end, as the arbiter of which knowledge, skills, and creativity are useful in society. Policy inventions such as public–private partnership and public finance initiatives are based on the idea that public and private good can be combined in spheres previously protected from the market logic.65
The appeal to a political space beyond antagonism, defined not by ideology or social democratic principle but by what works, where notions of public good were replaced by notions of public value, is a central part of the ideology of the Third Way. What New Labour did in the 1990s was to reenact, albeit in extreme form, the SAP’s Third Way experiment in the 1980s.66
In the previous pages, I have described the Third Way as an economic discourse construed around a new relationship between the macro and micro side of the economy. This redrawing of macro and micro in the economic policies of social democracy has, in turn, brought about a redrawing of the boundaries between the economic and the social. While the logic of socializing capital informs contemporary social democracy’s attempts to rearticulate the market as a force for social progress, the Third Way’s growth policies are construed around the related but different logic of capitalizing the social, that is, a logic that essentially capitalizes social structures and identifies social relationships and processes as the origin of the process of wealth creation. What fundamentally sets the Third Way apart from neoliberalism is its framework for political intervention in the social sphere.67
This capitalization of the social is a central part of the political economy of the Third Way. In her 2000 article, Vivienne Schmidt argued that New Labour has continued Thatcher’s neoliberalization of the economic sphere, but in society.68 The Third Way’s economic theory is based on the idea that what drives growth in the new economy are essentially innovation, curiosity, and creativity—individual activities that cannot be induced or controlled by politics or collective action but that are dependent on certain social and cultural frameworks that can be the creation of politics. Because knowledge is “out there,” the state’s responsibility for ensuring a competitive, knowledge-fostering climate contains an emphasis on social rationalization and social interventionism as an integral part of growth policies and economic regulation. This has led to a new emphasis on the social structures and institutions that foster versus hamper the production of human capital and knowledge. To that extent, it is not true that contemporary social democracy no longer takes an interest in questions of inequality, unemployment, or poverty. On the contrary, the Third Way takes a great interest in these things because it sees them as integral parts of its growth policies. The Third Way is fundamentally interested in social relations because it sees them as producers of wealth. The difference—substantial as it is—is that where “old” social democracy saw inequalities as the effects and outcomes of a specific regime of capital accumulation, the Third Way sees them as the starting point of accumulation.
The capitalization of intellectual and social resources is central to endogenous growth theory with its idea of human and social capital. The term human capital refers to the aggregate level of knowledge, talent, and skill— hence, the sum of the knowledge-potential embodied in the individuals of a society. It is capital that “resides in individuals.”69 Most importantly, human capital comprises not only educational levels and skills: It is also composed of individual dispositions such as motivation, the aptitude for teamwork, the capacity to make ethical value-based judgements, problem solving, and self-discipline. It is quite simply about a certain knowledge-fostering, reflective, innovative individual personality.70 Social capital, in contrast, refers to inter-relational capital, the kind of capital that resides in the social relations among people. Social capital is created through social interaction—it is about values, norms, and trust. These are the central resources that provide the individual with access to a social network that encourages norms of learning, interaction, and reciprocity. These norms, in the discourse of social capital, are considered to be productive. Social capital, like other forms of capital, creates a surplus, in the form of social norms that make up an efficient market economy.71 In a seminal article, the sociologist James Coleman argued that the creation of human capital is dependent on social capital. In other words, the growth of knowledge depends on the quality of our social relations. Consequently, our social relations become objects of economic intervention.72
The notion of social capital has attracted great interest in the United Kingdom. Indeed, the notion of modernization, in New Labour discourse of the mid-1990s, took on a very specific meaning as the modernization of the human and social capital of the British people, through policies aimed at changing the quality of social networks, people’s behavior and attitudes, and the skill levels of the workforce. Another significant factor is that human and social capital can be expanded, through policies such as learning or social investment strategies, in a way that physical capital cannot. Nevertheless, the limit of an economic expansion driven by human capital is also the limit inherent in that capital, which means that it is ultimately defined by individuals and by the knowledge and ability to learn that they possess. In this way, the individual and his or her capacities are, as Michael Freeden has argued, located at the heart of the social democracy’s neo-Keynesian project, subject to investment, expansion, and capitalization, a resource to exploit, potential to be tapped.73 The investment politics of the 1970s have been replaced by what are known as the social investment policies of the 2000s, policies designed to change attitudes and dispositions and invest in the human capital of people.
There are important differences here between the parties, to which we will return in later chapters. While the SAP’s supply-side policies fall back on a historic productivism, which was at times highly socially interventionist, its modern language is far from the blunt social economism of New Labour. The 2001 party program even rejects the commercialization and commodification of social relations, and there is very little mention of the term social capital in Swedish discourse.
The political landscape has changed in such a way that our labels may no longer apply to the mesalliances and compromises that are the outcome of the struggle between Left and Right in the last three decades. The Third Way is hard to define because in its appeal to a conflict free zone of pragmatic politics it borrows freely from more or less all political currents of European modernity. But there is nothing neoliberal about contemporary social democracy if by neoliberal we mean an economic and social philosophy based on the free market and free individuals, both postulates that contemporary social democracy rejects. There is more to be said for the term illiberal liberalism, as Desmond King has suggested, that is, of a morally conservative kind of social engineering that attempts to make coldhearted winners of all.74 The Third Way does draw on important elements of neoliberalism, particularly the idea of competition as driver of social progress and the notion of the market as quintessentially creative. But it fuses these ideas with a social democratic productivism, in which wealth creation depends on collective responsibility. In the new economy, this responsibility is extended to new areas and thereby also reasserted. To this extent, the Third Way contains a distinct interventionism that goes well beyond that of “old” social democracy because it goes further than economic policy and into the social sphere. Indeed, the object of regulation is not the economy, but the “soft” or “wet” capital located within the knowledge worker, his or her very attitudes toward learning, employers, and the community at large. In this respect, many aspects of Third Way policies are closer to social utopian discourses in social democracy’s own history than they are to neoliberalism, indeed, to a Fabian concern with the cultivation of the perfect character in all.