In the second part of his recent speech, Mark Latham explores some of the alternatives to old-style left-wing collectivism.

A second strategy involves the development of a learning society. Whereas nations once relied on machine and muscle power to generate wealth and prosperity, they must now harness the brainpower of their people. Across the economy, production is becoming less resource-intensive and more knowledge-intensive. A small country like Australia can only succeed in the global chase for capital through the creation of a well-educated population and workforce.

This is also the best way of rebuilding social capital. As a nation, we do not have to choose between the values of community and the economics of capitalism. A highly skilled population can enjoy the benefits of both. Education is a unique public investment. It not only generates a more efficient economy, it creates a more cohesive and trusting society.

Talking about the benefits of education is one thing. Knowing how to deliver lifelong learning is a different matter altogether. It is tempting for Left-of-Centre parties to apply the old politics of statism to the needs of the new economy. This is a recipe for failure. A narrow reliance on public funding will not satisfy the resource demands of a learning society. So too, traditional industry policies are ill-suited to the dynamic nature of the modern economy.

Lifelong learning is an expensive exercise, especially once it becomes universally available. This task is beyond the financial limits of the state. It can only be achieved through the development of learning partnerships across society – mobilising extra resources from households, communities and corporations, as well as governments. Education needs to be the work of the nation, not just a handful of government departments. This approach is set out in my book What Did You Learn Today (2001). It is a Third Way program for Australia’s transition to a learning society.

New thinking is also needed in terms of economic policy. In the past, social democrats tried to plan, regulate and subsidise the development of industry sectors. In the new economy, this approach is likely to be counter-productive. It is a barrier to inventiveness and the open transfer of knowledge and technology. Public policy needs to shift to the supply side, to generating the right kind of economic inputs. This approach places a heavy emphasis on skills development, research scholarships and competitive market structures.

The problem with the “spaghetti and meatballs” in Barry Jones’s Knowledge Nation Report is not that the diagram is over-ambitious or silly. Rather, it accurately reflects the complexity of the new economy: the dense interaction between a large number of public institutions, corporations, educators and researchers. It is foolish, however, to think that government can control and plan for this kind of complexity. The new economy has made industry policy redundant.

Paul Keating once told the Labor Caucus a story from his early days in Canberra. Over dinner a group of Labor Senators would sit around drawing up five-year plans for the Australian manufacturing sector. Keating thought to himself, “these old blokes have enough trouble filling out their TA forms, how could they possibly know where the private sector is headed?”

If the task of industry planning and picking winners was difficult in the old economy, it has become insoluble in the new. How can slow moving government bureaucracies make provision for technologies that have not yet been invented, for jobs that have not yet been conceived? How can politicians second-guess the complex knowledge and decision making of a dynamic market economy? Those who still believe in this approach are deluding themselves.

More than most, Jones should be aware this problem. In his 1982 book, Sleepers Wake, he tried to pick the industries that would experience “future work expansion.” He forecast how “the greatest hope for future employment opportunities lies in work which is not based on a new invention or technological form.” On this basis, his predictions excluded the software sector, financial services and telecommunications – all areas of substantial employment growth over the past 20 years.

By today’s standards, most of the industries on Jones’s list are insignificant. Others have actually experienced a loss of employment. His list included public sector employment, solar energy, craftwork, subsistence farming, nature-related work, the development and care of footpath networks, the collection of antiques and the provision of drink, drugs and commercial sex. Obviously, it is easier to Pick-A-Box than Pick-An-Industry-Winner.

The great challenge of globalisation is to make it work for all citizens, to disperse its benefits as widely as possible. International economic governance and lifelong learning are essential to this task. I am incredibly optimistic about the things that can be achieved on our side of politics, once we modernise our thinking and policies.

I can never understand why so many on the Left are so pessimistic. Their only purpose in public life is the promise of a better past. They are more interested in the history of the 1980s than the possibilities of the Information Age. Ultimately, this is why the Third Way matters. It believes in a new era of progressive politics and most importantly, it knows how to get there.

The Rise of Mass Capitalism

Perhaps the greatest shortcoming of Left-of-Centre politics has been its failure to recognise the dynamic nature of the capitalist system. Most Left economists write about the market as if nothing has changed for 200 years. This is one of the reasons why social democracy has so many sacred cows. Outdated economic theories have been used to justify outdated economic policies.

At one level, it is not difficult to understand this problem. On our side of politics most of us grew up with the stereotype of “robber baron” capitalism: the image of greedy industrialists exploiting workers and consumers at every opportunity. It was part of our social justice identikit. This view of the market continues to inform the values and policies of many on the Left. It is a feature, for instance, of the militant campaign against globalisation.

In reality, however, capitalism is in a constant state of evolution. In Schumpeter’s famous phrase, markets constitute a perpetual exercise in “creative destruction”. This not only involves the destruction of old products and industries, it involves the creation of new economic and social conditions.

Across two centuries, the capitalist system has passed through several stages of development: from its robber baron origins to the rise of the public company and more recently, the emergence of a knowledge-based economy. This has been one of the great transformations of economic history. It has produced what might be thought of as “mass capitalism” – a system in which ownership and economic capacity have been dispersed across a wider share of society. This can be seen in the following trends:

the emergence of mass capital ownership, with a larger proportion of people owning shares and other market investments (over the past decade, for instance, share ownership in Australia has increased from 10 to 54 per cent)

the growth of intellectual capitalists – the high skill, high wage workers of the new economy – who often have greater labour market bargaining power than the owners of investment capital

the extraordinary increase in the number of people going into business for themselves (the number of small businesses in Australia has increased from 180,000 to 950,000 over the past 30 years)

a significant increase in market competition, not just through the new economy but also, a growing number of market entrants and competitors in old industries

the rise of mass consumerism, whereby a large section of society now enjoys the benefits of choice and consumer sovereignty

and finally, the increased exposure of corporations to public scrutiny, producing higher expectations for the social responsibilities and accountability of the private sector.

This transformation represents a huge challenge for social democratic thinking. There was a time, of course, when Left-of-Centre politics was dedicated to the elimination of capital. Now, with the emergence of mass capitalism, we have an opportunity to use the economic system for egalitarian purposes. Just as capitalism has changed, our strategies for social justice must also change.

Russell Long, a Democrat Senator from Louisiana, once declared that, “the only problem with capitalism is that there are not enough capitalists.” This is the stance social democrats should adopt in relation to the new economy. Our objective should be to democratise the market by further dispersing the ownership of assets. The question is not whether to support economic markets, but to ensure that all citizens have the capacity to succeed within them. We need to create a society of stakeholders.

While up to 60 per cent of the population is participating in the benefits of mass capitalism, a large number of people remain outside the ownership tent. Without a tangible stake in the new economy, they feel threatened by the prospect of economic restructuring and exclusion. The purpose of welfare policy should be to increase the number of stakeholders. Sixty per cent is not enough. We need to aim at universal participation, giving all Australians access to a range of assets: financial capital, human capital and social capital.

Internationally, this approach is known as asset-based welfare reform. It recognises the need to move from a system of recurrent income transfers to one based on asset accumulation. Unfortunately, this new wave of welfare policy has not touched the Australian debate. We have much to learn from asset-based programs in the United States and Western Europe.

In the old system, social democrats tried to redistribute economic resources through tax and spend strategies. As noted earlier, there are now clear limits to this approach. In any case, recurrent transfers are not a good way of generating economic and social participation. Instead of fostering self-reliance and economic security, they force people to rely on the benevolence of government.

People need a tangible stake in society and its economy. In effect, they need to be freed from the vagaries of the welfare state. For those facing insecurity, assets are an essential buffer against the contingencies of change. They allow people to smooth out their income capacity and economic circumstances. In particular, they allow workers to bounce back from the impact of restructuring, thereby avoiding the poverty trap.

Asset accumulation is also vital for the long term poor. One of the mistakes of the Left has been to under-estimate the capacity of disadvantaged people to save. Programs overseas, for instance, have shown that the poor can save and invest, once they receive the right kind of incentives. This process, in turn, creates spin-off benefits in terms of self-esteem, health care and employment. Assets are essential to a common sense of belonging in society.

The only way to leave poverty on a permanent basis is to save and accumulate assets, whether in the form of financial, education or social resources. Incredibly, the welfare state has emphasised recurrent income transfers rather than assets. Rich people, of course, have no problem with the question of asset accumulation. Family inheritances pass on the benefits of financial capital and a good education from one generation to the next. The welfare state needs to provide a similar set of opportunities for the poor.

In the past, public policy has encouraged a limited range of financial assets, such as home ownership and superannuation. These schemes, however, have been available to everyone bar the poor. It seems surreal that the Left has tolerated such a massive inequity. It has been happy to pay income support to the underclass and asset support to the middle class. Indeed, means tested payments have actively discouraged asset accumulation: if welfare recipients save more than a small amount they become ineligible for income support.

Not surprisingly, these arrangements have made the poor welfare dependant and the rich asset dependant. Inequality has been institutionalised in society. The true Left-wing policy is to give low-income earners equal access to asset support. The best type of welfare safety net is a trampoline.

The new role for government is to facilitate asset accumulation among the victims of poverty and economic insecurity. It needs to develop a stakeholder welfare state, in which all citizens have access to the benefits of mass capitalism. This is one of the basics of an inclusive society: common membership of the new economy and with it, a common sense of social membership.

In summary, stakeholder welfare aims to:

Disperse the ownership of economic assets, especially through participation on the stock market. The Federal Government, for instance, should introduce a First Shareowners Scheme to strengthen Australia’s credentials as a share-owning democracy, especially among low-income groups.

Establish a network of welfare savings accounts, with strong incentives for poor people to put money aside and accumulate assets. The accounts would be available for a range of purposes, such as education, home ownership and equity investment.

Create a highly skilled and capable population. This means ensuring that people have access to a bank of resources from which they can meet the costs of lifelong learning. A proposal for Lifelong Learning Accounts is set out in What Did You Learn Today.

Develop new and innovative ways of creating social capital in disadvantaged communities. Governments need to back the work of social entrepreneurs and allow them to access new forms of finance, such as social venture capital.

On balance, the rise of mass capitalism is an opportunity for social justice. This is not to suggest, however, that the market economy is beyond question or critique. The primary flaw in modern capitalism is its lack of social responsibility. As investment continues to move to the global arena, it bears less allegiance to particular locations. The connection between business interests and community interests has been stretched, sometimes to breaking point. The process of economic restructuring has left many traditional institutions and communities confused about their relationship with the private sector.

The new social democracy aims to apply the principles of mutual responsibility to the market economy. In recent decades, corporations have won many more rights, particularly the right to trade and invest on a global scale. These rights need to be matched by the exercise of social responsibility. The traditional emphasis on the economic regulation of capital needs to be supplemented by new forms of moral regulation.

The Productivity Commission, for instance, has reported that Australian governments outlay $18 billion each year in corporate welfare. This financial assistance should only be paid to companies that comply with a Code of Corporate Citizenship, based on decent labour, environmental and social standards. If the global economy is to work properly, it needs to be founded on the responsibilities of the privileged, not just the poor. The reform of capitalism has become an ethical question.

The Dispersal of Power

In the Industrial Age, social democracy embraced the politics of bigness. It was thought that large, centralised institutions were needed to stand between the public and the prospect of market failure. Our side of politics became synonymous with big government departments, big trade unions and big protest groups. We tried to create collectivism on a mass scale.

In retrospect, this was a mistake. Bureaucratic organisations are more likely to destroy social capital than to create it. The mass production of services inevitably leads to the depersonalisation of service delivery. Big companies and big government share a common methodology. They rely on standardised rules to deliver a standardised product to a large number of individual clients. This process leaves little room for the development of personal relationships, the mutualism and co-operation upon which a good society relies. It is not a good way of creating collectivism.

In practice, there is no such thing as a large scale community. Every community is different, based on a unique set of relationships and experiences. The social capital generated in one setting cannot be transferred to another. While the private sector has mastered the art of franchising and the public sector is experienced in the mass delivery of income support, the same cannot be said for community life. It can never be standardised.

Questions of scale and organisation have produced a deep paradox within Left-wing politics. It demonises global capital as distant and depersonalised yet it turns a blind eye to the failings of government bureaucracy. It criticises McDonalds yet congratulates Centrelink. In a world of rapid organisational change, the Left desperately needs a new organisational strategy. The politics of bigness will no longer suffice.

One of the characteristics of Information Age politics is a growing sense of self-reliance. With the spread of mass information and education, the public wants to make more of its own judgements, to take greater control of the decision making process. Across society, institutions that tell people what to do are losing support. This is true of all forms of hierarchy, whether expressed through government agencies, political parties, trade unions or churches. We have entered an era of institutional rebellion.

Left-wing politics is the most prominent victim of this process. Each of our major institutions is in crisis. Trade union membership in Australia, for instance, has fallen to below 25 per cent of the workforce. The union movement has been crippled by an organisational contradiction: while economic activity has become more decentralised, it has gone down the path of amalgamations and centralised super-unions. This is one of the most ill-advised strategies in the history of Australian labour.

Likewise, the old politics of statism is in decline. Contrary to the promise of the welfare state, there is not a government program for every social problem. Indeed, it is difficult to find a section of society that remains enthusiastic about the work of government. At one level, these shortcomings are entirely predictable. The state has adopted the organisational principles of the Industrial Age: hierarchies, mass production and standardisation. It is out of step with the demands of an increasingly diverse and self-reliant electorate.

The concept of working class solidarity has also lost its significance. In an open economy and diverse society, people are more mobile. They want to share in the skills and enterprise of the new economy. The fixed boundaries of class and social distinction are fading away. Not surprisingly, this environment has created a new set of political values. People are less willing to cut down tall poppies, as they see themselves as occupying this position one day. Aspirational politics is here to stay.

This is a significant challenge for social democracy. More than ever, when we talk about ripping down the rich and redistributing wealth, we are talking to ourselves. The public has no time for the politics of envy. It wants its political leaders to encourage opportunity and social mobility, while also building a stronger sense of common purpose and co-operation in society. In summary, it supports a new politics of common aspiration.

While, to be certain, these changes are wiping out the old politics, they are also creating new opportunities. Collectivism is not dead. It has just changed its organisational structure and values. Instead of supporting large, centralised institutions, the public is in search of meaningful participation, a chance to cut out the middleman and engage in acts of self-governance. Instead of positioning public life as a divisive contest between Left and Right, the electorate wants a new politics of partnership and collaboration.

The Third Way hopes to make the most of these opportunities. Institutional power needs to be pushed downwards, so that a self-reliant public can make more of its own decisions at a community or neighbourhood level. People are longing to belong to something more inclusive than markets and states. Community schools, municipal libraries, health mutuals, sporting clubs and co-operatives have become the natural agents of collectivism.

In the age of globalisation, the politics of neighbourhood matters more, not less. If people are to cross boundaries and reconcile the conflicting loyalties of a complex world, they need to first learn the habits of community and self-governance. It is in this civic realm that the foundations of social capital can be found. Civic socialism is our best hope for accommodating the diversity of modern society while also recapturing the shared bonds of a collective society. Etzioni calls it a “community of communities.”

In the struggle to create the welfare state, Left-wing politics became obsessed with the size of government. Statism was seen as an end in itself, rather than merely the means to a better society. As a result, the processes of governance, the interactions between people and institutions, were overlooked. Yet in practice, it is these relationships that define our society. They tell us about the level of mutual trust and cooperation between people, about the way in which society is acting on its common aspirations.

The new social democracy is more interested in the processes of governance than the size of government. This is why it seeks to empower the networks of civil society, rather than the hierarchies of the state. There is, of course, no rulebook for this approach. There is no set of bureaucratic guidelines for the creation of civic associations and interests. Rather, this process relies on the dispersal of social power: opening up the relationships and forums in which civil society can flourish.

Hierarchies and bureaucracies are the antithesis of community life. The objective must be to weaken the influence of centralised organisations and small elites. Effective power needs to shift to a network of small scale associations, each supported by the funding and regulatory role of government. The enabling state is an active yet junior partner to communities.

This approach is also essential for social justice. Hierarchy allows power and privilege to be concentrated among the few. A network society disperses economic, social and political power to the many. The new political divide is between insiders and outsiders – those who occupy the centres of authority and influence in society and those who have been disenfranchised by the power elite.

The Third Way is a political cause for outsiders. It aims to democratise power and spread the benefits of ownership as widely as possible. It is against centralisation of any kind, whether in the form of corporate power, super-unions, big government or an out-of-touch political system. This approach is evident in all aspects of its work program:

the devolution of economic power through a system of stakeholder welfare

the importance of competition policy as a way of dispersing market power and economic privileges

the devolution of social power through a community-led approach to public policy

and the dispersal of political power through new forums of public participation and direct democracy.

The choice for Left-of-Centre politics is clear. Across society and its economy, the Information Age is flattening hierarchies and weakening the established centres of power. We need to replicate this process in the reform of public governance. We need to swim with the tide of devolution.

We also need to right an historic wrong. We have called ourselves social democrats but, in many respects, we have failed to live up to this title. In fact, post-war social democracy has been a misnomer. It has not tried to democratise power and disperse the benefits of mass capitalism. It has simply vested more control and influence in the hierarchies of the state. This has fostered a culture of authoritarianism and even elitism among parties of the Left.

The Third Way, by contrast, is committed to a truly democratic society – not by concentrating power in states or markets but by creating social capital through the decentralisation of power. It wants every citizen and community to be an active stakeholder in the assets of a good society. It envisages a community of communities, held together by the most important asset of all: the shared habits of collective action.


In its current form, Left-of-Centre politics is insoluble. It sees the state as an agent for collectivism yet, in practice, the delivery of government services has been individualised. It talks about the need for more public investment yet, for electoral reasons, it is unwilling to broaden the public revenue base. It hopes to intervene and develop industry plans yet, in the new economy, planning has become impossible. In most countries, our side of politics feels somewhat empty. The true believers have precious little to believe in.

We have set ourselves the task of varying by two or three per cent the way in which government works, when the real challenge is to change by 10 to 20 per cent the way in which society functions. Social democracy needs to free itself from the limits of the state, to rediscover its ambition for social reform. This is why there is so much debate about a Third Way. Those who truly believe in the cause of Labor are not prepared to ignore its policy contradictions. The project needs to be rethought from first principles.

During a time of rapid change, it is not unusual for organisations to define themselves in the negative – to know the things that they oppose but not the things that they favour. This is how the Left now defines itself. Ask a union leader or S11 protestor what they oppose and the list never ends: globalisation, workplace change, enterprise bargaining, share ownership, welfare reform, non-government schools, aspirational politics and so forth. The strongest movement on our side of politics over the past decade has been the rise of Left conservatism.

The new social democracy is a direct response to this trend. As it confronts change, it looks for opportunities rather than threats. At its core, it is optimistic and iconoclastic. It also has a distinctive technique. The Third Way is willing to live on the edge of politics, to look beyond the orthodoxy for new paradigms of reform. It has developed a radical pragmatism, a determination to learn from social practitioners in the search for new forms of collectivism.

In the Information Age, the best approach to reform comes from the fringe of the system, rather than the hierarchies and power plays of conventional politics. There is more to be learned from listening to social and business entrepreneurs than any number of parliamentary sessions, party meetings and interest groups. Entrepreneurs talk a language of change, creativity and enablement. Machine politics, by contrast, has narrowed its conversation to an exchange of slogans, spin and electoral manipulation. This is why the old politics is dying.

As Tom Bentley puts it:

“Today’s politicians are trapped in a contest between two inherently limited models of policy delivery. The Left offers the promise of strong public services, developed and managed by a strong political centre, using new technology to individualise the services each citizen draws upon. The Right, meanwhile, continues to offer the chimera of a minimal state, with social need met by private action. The striking fact is that both models continue with the myth that government can deliver on behalf of the people it serves. The truth, of course, is that politics cannot change society unless it can persuade people to change the way they themselves behave. In other words, we must now move towards grown-up government – institutions which respect the intelligence and self-determination of individuals, but which expect people to take active responsibility for producing collective solutions.”

If this is the Third Way then it should be our way.

* Mark Latham, ALP Member for Werriwa, delivered this paper to The Third Way Conference, Centre for Applied Economic Research, the University of New South Wales, Sydney, 12 July 2001.

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