THE THIRD WAY: THE RIGHT WAY OR NOT?

A Cross-national Attempt to Measure Social Democracy in Motion

Malika Ait Mallouk & Hans Keman

Vrije Universiteit Amsterdam

Department of Political Science

Paper prepared and presented at the Joint Sessions of Workshops [Grenoble]

Workshop # 11 – THIRD WAYS IN EUROPE

Directed by Giuliano Bonoli & Martin Powell

April 2001

n.b: this is “work-in-progress” do not quote, but do comment!

1

“Having the same job for life is a thing of the past. Social

Democrats must accommodate the growing demands for

flexibility – and at the same time maintain minimum social

standards, help families to cope with change and open up fresh

opportunities for those who are unable to keep pace”

[T. Blair/G. Schroeder: The Third Way/Die Neue Mitte]

1. Introduction

Social Democracy has always been a movement that has to define its direction in such a way

that, on the one hand, it had opportunities to genuinely change society for the benefit of those

who were in need, and at the same time being capable to gain office and make policy within

parliamentary democracy, on the other hand. More often than not this ambition to change

society for the better fell short because of lack of power and the necessity to govern in

coalitions. It is telling therefore that the Blair/ Schroeder Declaration quoted here starts of by

stating that ”Social Democrats are in government in almost all the countries of the Union”. In

other words Social Democracy has the power and – according to this document – the will to

change. Not only contemporary society, but also itself as a movement.

This paper investigates, first of all, with the question to what extent Social Democracy has

indeed changed within the Union – i.e. across Europe. To this end we shall examine the

programmatic change of social democratic policies regarding the welfare state: the

institutionalisation of entitlements to work, welfare and income on the basis of social justice.

In the section below we shall try to describe the shift from the ideology of the traditional

welfare state to the ideas of the so-called social investment state. We measure this type of

change by means of two scales: one representing the traditional social democratic position –

“Socialism”; the other indicating the new direction of Social Democracy – “Capitalism”. As

we shall see, there has been a shift in policy positions of a number of social democratic parties

towards the Third Way. In addition we shall then turn to the question whether or not this

change in ideology has been dictated by vote- and office-seeking behaviour in terms of party

competition. Finally, we will try to establish to what extent the change in policy positions has

had an impact on social democratic policy making. That is: does the Third Way matter or is it

mere rhetorical?

2

The universe of discourse comprises 15 social democratic parties and their two competitors

in: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Great-Britain, Ireland,

Italy, Netherlands, Norway, Sweden and Switzerland. Norway and Switzerland are not

member of the EU, whereas Australia is the non-European [geographical] outlier. These cases

are included for their own sake, but also for the ‘controls’ sake [Third Way discussions tend

to be inside EU]. Due to the process of federalisation in Belgium the Belgian socialist party

broke into two separate parties in 1978; the Parti Socialiste and the Socialistische Partij

(Keman, 1996). In fact there are presently two party systems at work in a federalising

Belgium. Therefore the Flemish and Walloon party systems are treated as separate cases. The

period under review is 1975-1998 measured at a 5 year interval for all variables [see the

Appendix].

2. A new direction? From welfare state to social investment state

Social democracy emerged in response to the challenges posed by industrial capitalism and

the concomitant ideology of [progressive] liberalism. Its strategy was – contrary to

revolutionary socialism - to regulate capitalism by a mixture of trade unionism, political

representation and state intervention. In the course of the last century and especially after

World War II, social democratic parties gained governmental office. Thus arose the modern

welfare state providing social security for those in need and guaranteeing equality by way of

state action, particularly in core areas like education and health. At the same time Keynesian

ideas on controlling the economy in order to stabilise macro-economic developments, in

particular to regulate the labour market belonged to the policy domain of Social Democracy

[see for instance: Castles, 1978; Korpi, 1983; Esping-Andersen, 1985; Keman, 1990; 1993].

Since the 1980s the ideas of the social democrats on socio-economic policy-making have

slowly been changing. Social democrats have since then adapted to a process by which the

welfare state became a political issue for dispute: not its (qualitative) expansion and universal

character was at stake, but rather its dismal effects on society and [big] government which

was seen to be conducive to less economic resilience [see: Kitschelt, 1994; Pennings,1999].

The reasons for this transformation are various. In a world of open international markets and

fast-moving capital flows, traditional left policies are often seen as discouraging inward

investment and undermining national competitiveness. Traditional socialist goals of public

ownership or political control are no longer feasible in a global financial economy. The

internationalisation of economies rendered Keynesean politics outdated and useless. In this

3

interpretation, left governments are prisoners of a harsh global economic environment in

which generous social models are no longer sustainable [Kitschelt 1994]. Similarly the impact

of European integration and particularly the monetary union have also severely constrained

the room for manoeuvre of the European left. The electoral succes of [neo]liberal parties

during the 1980s and 1990s also contributed to the social democratic disadvantage and forced

it to follow a electoral defensive strategies. A final moral blow was the collapse of the Soviet

regime which undermined a belief in the virtues of economic planning and ‘etatism’.

The concept of the Third Way which was formulated by Anthony Giddens [1998] seeks to

renew Social Democracy in addressing contemporary challenges associated with

globalisation, individualism, political polarity, agency, the new dialogue with science &

technology, ecology and the transformation of values and lifestyles. Giddens identifies six

policy areas of the Third Way:

(1) A new type of politics or ‘second wave of democratisation’ by going directly to the

people;

(2) A new relationship between state, market and civil society which ‘joins them up’;

(3) Supply-side policies through social investment, notably in education and

infrastructural projects [ICT etc.] to match contemporary demand;

(4) A fundamental reform of the welfare state by creating a new balance of risk and

security as well as giving new opportunities throughout the individual ‘life cycle’;

(5) A new relationship to the environment by ‘ecological modernisation’;

(6) A strong commitment to trans-national initiatives in a world of ‘fuzzy sovereignty’.

In the remainder of this paper we limit ourselves to the socio-economic policy stance of the

Third Way discourse. Welfare state policies have been central to social democratic policy

formation. If social democrats have adopted Third Way policy stances, so we argue, this will

have its greatest impact on welfare state policies; both in terms of programmatic change and

actual policy-making as regards ‘work & welfare’ [Cuperus & Kandel, 1998].

The Third Way challenges traditional Social Democracy on the following points. Followers of

the Third Way argue that an increase in social expenditure will not automatically lead to a

reduction in socio-economic inequality. The achievement of social justice became synonym to

more spending without taking account of the effectiveness of spending [Blair/Schroeder,

1999; Giddens 1998]. Traditional Social Democracy contributed to the establishment of a

4

welfare state where welfare entitlements had a passive nature. These rigid entitlements to

welfare benefits appear to contribute to discouraging the active search for work. [“Modern

social democrats want to transform the safety net of entitlements into a springboard to

personal responsibility”, Cf. Blair/Schroeder, 1999]. Eventually it did not motivate people to

adapt to a changed labour market, which has moved decisively in favour of highly skilled

employees and decisively against those with lesser or outdated skills. The welfare state,

rooted primarily in the logic of the classical industrial modernity, has been unable to address

the issues of post-industrial society [Merkel, 2001]. Changes in family structure, the active

role of women in the labour market and changes in life expectancy are not being taken into

account in the traditional [social democratic version of the] welfare state.

According to Giddens [1998] the traditional welfare – or: social security state - must be

replaced by the social investment state. In the social investment state social justice is no

longer to be achieved by an ex-post reduction of socio-economic inequalities, but by

providing equality of opportunities [Giddens 1998]. Employment and employability are the

key issues in a social investment state; welfare to work. The access to employment should be

facilitated through the provision of education and thereby establishing equality of opportunity.

The central policy idea is that the state has the responsibility of guaranteeing access to certain

goods but the state need not directly provide these goods. Welfare in a social investment state

presupposes a correct balance between incentives, opportunities and obligations for its

citizens: no rights without responsibilities [Giddens, 1998: 65]. Social justice defined by

inclusion is no longer to be solely achieved by the state, but also by the market. Traditional

social democratic trust in the state as problem-solver by public goods makes way for an

increasing faith in the market as allocator of resources and the creation of jobs.

Third Way adherents argue that the social investment state is not a social democratic

capitulation to neo-liberalism: social justice and emancipatory politics are still at the core of

its program. A reformed welfare state still has to meet criteria of social justice and provide for

citizens in need. That means that social democrats want to keep a reasonable level of welfare

spending and that they reject the neo-liberal position to privatise large parts of the welfare

state or its retrenchment, leaving only a minimal safety net for those who cannot care for

themselves.

5

The development from traditional Social Democracy to the Third Way can therefore be

summarised as the abandonment of an explicit policy stance regarding a generous welfare

state with a high degree of state interventionism towards a social investment state favouring

work and market regulation instead of rigid [if not unconditional] welfare entitlements and

state interventionism regarding the market economy [Merkel, 2001, Van Kersbergen, 2000].

Below we shall therefore inspect to what extent and in what direction social democratic

parties have moved position in terms of Left versus Right and in their programmatic policy

stance.

3. Social democratic ideas: From Left to Right?

In order to measure the change in position of social democratic parties regarding welfare

policies we use data from the Party Manifestos Project [Volkens, 1992; see also Volkens,

2001]. This dataset provides information on the policy positions of the parties. If social

democratic parties have moved position and, in particular, have indeed changed their

preferences for a welfare state into a social investment state, this can be traced form their

party manifestos [or: electoral platform]. Manifestos play an important role, debate at election

time centres on these documents. While few voters ever read the document, it is certain to be

disseminated by the media, thus it is a good measure of the change and movement of social

democratic policy stances.

We measure the social democratic party positions in threefold way: (1) by looking at a State

versus Market-scale; (2) by using an Electorate scale and (3) by employing a Left-Right scale.

The latter scale, which has been developed by the MRG-group [see: Budge & Laver, 1992;

Klingemann et al., 1994] is considered here as a standard to assess not only the movement of

social democratic parties but also of the national party systems under review here [Keman,

1997]. The Electorate scale is meant to observe whether or not the change in policy stance has

also implications for targeting certain groups in society, i.e. has the social democratic

constituency changed? Finally the Market versus State scale is – of course – developed to

measure the change and movement towards a Third Way policy position.

Although this latter scale is not a direct measure of a preference for traditional welfare statism

or social investment statism, we think it still a useful one. In a highly developed welfare state

government tries to control the economy and soften the negative effects of the market system

by means of a high level social security spending and other ways of state interventionism.

6

Conversely, the social investment state presupposes a more reserved stance of government

vis-à-vis direct market interventions. In the social investment state government gives more

way to the market and assumes that the market is capable to ensure job growth and a

reasonable level of allocation of income. The condition for this to happen is that everybody is

capable to participate in the market. This is provided for by educational programmes, which

would foster a flexible supply of labour.

The emphasis on state regulation will be operationalised by means of the following variables:

controlled economy, nationalisation, Keynesian demand management and welfare state

expansion [see Appendix for detailed information]. The emphasis on market regulation will

be operationalised by using the variables: free enterprise, incentives, economic orthodoxy,

education and welfare state reduction. The scale is computed by deducting the emphases on

state regulation from the emphases on market regulation, a higher score on the scale thus

means a greater emphasis on market regulation and a preference for the social investment

state.

The abandonment of a traditional social democratic policy also may imply that the social

democratic parties are turning towards new electorates. A shift towards the Third Way is an

attempt to overcome their traditional electorate and to open up middle class sources. The

original emphasis of Social Democracy on the traditional welfare state clearly coincides with

the interests of the labour movement and disadvantaged groups on the labour market. If there

is a tendency towards Third Way policy stances, these groups may well get less attention or

even negative attention in party programs. Issues regarding the middle class could well be

more frequently mentioned. The electorate scale is constructed by deducting the emphases on

labour and disadvantaged groups on the labour market from positive references to the middle

class and negative references regarding the labour population.

If there is a change towards Third Way policies a comparison with a Left-Right scale will

enable us to establish if the change in welfare policies has been a thing by itself or that it has

been accompanied by an overall change in left right positioning of the party systems. The

adherents of the Third Way believe that they have overcome the Left-Right distinction and

they see the Third Way as an alternative perspective and ideology. Hence, if a shift in the

market-state scale strongly correlates with a shift in Left-Right positioning, however, this

7

would mean that there is little to nothing unique about the Third Way but that it is just another

reflection of the Left-Right distinction that has moved over time as part of the party system.

Figure 1: Party system change

YEAR

1998,001995,001990,001985,001980,001975,00

Mea

n

20

10

0

-10

RILE

SWW4

ELECT

In figure 1 the aggregated means of the party systems on the State versus Market-scale

[SWW4]; the Left-Right scale [RILE] and the Electorate scale [ELECT] are presented. The

results indicate that the structure of the party systems has since the 1970s changed in a

rightward direction, i.e. towards the ‘centre of gravity’ of the party system. Only the

electorate – or the constituencies addressed by the parties remains stable. Figure 2

demonstrated that this conclusion appears even more valid for social democratic parties:

8

Figure 2: Social democracy through time

YEAR

1998,00 1995,00 1990,00 1985,00 1980,00 1975,00

Mean

10

0

-10

-20

-30

RILE

SWW4

ELECT

The trends for the social democratic parties are plotted in figure 2. It is obvious that there is a

common pattern observable directed to Third Way policy stances. The strength of this

movement however varies over time. In 1990 there is a sharp rise in favour of the market, this

may well be influenced by the European integration process – in particular the Maastricht

Treaty and the introduction of the EMU criteria - on public policy making. The changes on

the State versus Market scale are accompanied by changes in Left-Right positioning, the

overall movement of Social Democracy is thus directed to a more centrist position. Although

the movement on the State versus Market scale towards the middle of the distribution [= 0] is

closer than on the on the Left-Right scale, it can be observed that the overall change is

considerably larger. As already mentioned the electoral groups addressed [or: targeted

constituency] remain quite constant over time. Yet, as Table 1 of the Appendix clearly shows,

the variation across the parties and by country is considerable:

Table 1

Scales Mean Minimum Maximum Skewness

Right-Left - 16.7 -58.0 43.2 0.6

State-Market -2.4 -45.5 22.3 -1.19

Electorate -8.5 -8.5 0.0 -1.36

9

Whereas the traditional Left versus Right positions are evenly distributed albeit with large

cross-national differences this is not the case with the Third Way indicator [State-Market] and

regards the constituency addressed used in our analysis. From these descriptives we infer that

not only the movement toward a Third Way position is not a general one, but also that to a

large extent the position of most social democratic parties still tend to be ‘leftish’ [in the

traditional sense]. However the change over time is large: in terms of Left versus Right social

democratic parties moved on average from –4.5 to 9.1 and regarding their Third Way ideas

the change is 13.1 points [+ 8.9]. Only a minor shift occurred as regards the electorate.

In Table 1 of the Appendix the changes in policy position on the three scales are listed in

detail for all the social democratic parties in our analysis. This detailed listing confirms the

previous observations and shows that there is considerable cross-national variation regarding

the change in policy positioning of the social democrats. The Australian and Norwegian social

democrats seem to be the most stable parties regarding their policy position on the State vs.

Market scale. Finally, as already noted, the electorate scale is, in comparison with the two

other scales, rather stable over time. However, it should be also notices that this is not only

the case with the social democratic parties but for the party systems as a whole.

Below the British and German cases are separately visualised. These clearly strengthen the

general idea that these parties have moved toward the centre of gravity of their respective

party system. Apparently both Blair and Schroeder have benefited from leaving behind the

traditional left wing issues by stressing the values the ‘new left’.

10

Figure 3: Labour party UK

YEAR

1998,001995,001990,001985,001980,001975,00

Me

an

20

10

0

-10

-20

-30

-40

-50

RILE

SWW4

ELECT

Figure 4: SPD Germany

YEAR

1998,001995,001990,001985,001980,001975,00

Me

an

20

10

0

-10

-20

-30

RILE

SWW4

ELECT

Now that we have established that there has been a shift in policy position of social

democratic parties away from a clear cut left wing position, which in turn coincides with a

movement into the Third Way direction we shall now turn to the question whether or not this

change in ideology has been influenced by vote- and office-seeking behaviour of social

democratic parties.

11

4. The power resources of Social Democracy: Votes and Office

Not surprisingly social democratic parties have changed their programmatic stance. In

particular this is true for the most recent period [the 1990s]. Yet, at the same time it is also

clear that the overall movement within most party systems in Europe show a tendency

towards a more right-wing position. In other words: the overall trend in Europe is a changing

point of gravity together with a concomitant movement of Social Democracy away from its

traditional policy stance. This is what we see as an indicator of Third Way politics. The

question we shall now turn to is to what extent party system change and the ‘new’ politics of

Social Democracy has affected its power resources, i.e. votes and office [Keman, 1993;

Kitschelt, 1994]. Wolfgang Merkel [2000: 33 ff.] notes that European Social Democracy has

experienced almost historically high levels of voters’ support (30.9%) and participation in

government. This is, however, a slightly optimistic interpretation: if one corrects his figures

for the Mediterranean countries then the average is lower and the participation is government

too. Hence the question begging for an answer is whether or not Third Way politics is also

driven by vote and office seeking behaviour. And, of course, whether or not this is paying off?

Table 2: Indicators of Vote- and Office Seeking by social democratic parties [1975-1998]

Indicator:

Period:

Vote Share [%] Net Volatility Share in Gov[%] Status in Gov.

1975-1988 24.7 8.5 41.8 2.60

1989-1998 21.4 11.5 40.0 2.70

1975-1998 23.0 10.0 40.9 2.65

From the aggregated overview across time and across 15 democracies it appears that little or

no change has occurred. On the contrary, the vote share has gone down [- 3.3%], government

participation and relative strength in government also remains roughly the same and judging

the increase in volatility, it appears that its core vote seems to be influential factor. Viewed in

this way one could well suspect that the Third Way is not only a result of ‘modernising’ the

ideological baggage of Social Democracy but is also born out of necessity: to maintain its

share in political power. We expect therefore that the observed changes in social democratic

policy stances have as much to do with vote- and office-seeking behaviour as with the

changed social and economic environment and the related challenges of the new century.

12

To answer the question regarding social democratic electoral strategies we shall employ two

instruments of analysis. First we examine the social democratic parties within their national

party systems by employing a modified version of Downs theory of party competition. Then

we will turn towards the outcomes of their party strategies: are shifts in policy position indeed

accompanied by electoral success and gaining government office?

Parties viewing government participation as their main goal play down their ideology in order

to maximise their votes or in order to become attractive coalition partners. This assertion is in

accordance with the Downsian model of party competition, which predicts that parties are not

primarily ideologically driven but predominantly tend to follow voter preferences to maximise

their votes. If social democratic parties have followed a vote maximising strategy regarding

their policy stances as regards their Left versus Right position we expect them to have moved

towards the centre of gravity of their party system. In addition it follows that – given this

movement towards the centre – that the State versus Market policy stance will become more

important and will have a greater bearing on the votes and offices gained.

In the analysis we will therefore take into account the variation in party systems (Keman,

1997; Strom 1990).

In summary: the shift in programmatic stance is – so we argue – at least in part driven by vote

& office seeking behaviour of parties, and thus also by social democratic ones. To scrutinise

this idea we shall inspect the relationship between social democratic vote share and

government participation, on the one hand, and the programmatic change of social democracy

within the party system [towards the centre of gravity or not] and the extant competition of

the parties in the centre and on the right, on the other hand. In the second place we shall

control for external, in particular economic influences as well as the idea that social

democratic parties are reputed “big spenders” and levy high levels of taxation which might

well scare off voters and possible coalition partners. Let us first inspect whether or not

programmatic change is related to the development of vote share of the left, centre and the

right and the degree of government participation by social democratic parties after 1989:

13

Table 3: Bi-variate relations between scales and votes & office after 1989 [N = 271]

Variables Right versus Left State versus Market Electoral Groups

Left wing Vote Share 0.13 0.06 0.10

Centre Vote Share 0.02 0.01 -.05

Right wing Vote Share -.06 -.06 -.12

Net Volatility 0.13 0.22 0.02

Status in Government 0.21 0.11 0.12

note: Pearson Product-Moment correlations; see Appendix for description of the variables.

Obviously there is no strong relationship between the programmatic position and its relative

position within a party system of Social Democracy and the result in terms of vote and office

seeking. The same conclusion can be drawn for the parties of the centre and right. This is not

too surprising as most electoral studies claim that many other factors do play a strong(er) role

with respect to party competition and electoral [micro-] behaviour. Yet, it should also be

noticed that although the programmatic changes that have occurred do appear to have had

little effect, it does not necessarily imply there is not an indirect or mediated effect. Another

part of the literature suggest that if and when socio-economic circumstances alter this may

well affect electoral behaviour and the opportunities of the left to gain governmental office

[Schmidt, 1996; Kitschelt, 1994]. This brings us to the question whether or not this new

direction of Social Democracy in Europe has been conducive to electoral success and [more]

government participation. In other words: is the Third Way strategy paying off in votes and

office? To answer this question we have conducted a regression analysis in which we control

for the other factors mentioned: the state of the economy [by means of the measure ‘Misery’]

and the potential impact of the ‘Tax State’, on the one hand, and the growing volatility of the

electorate – especially in the 1990s [Mair, 2001].

To these matters we shall turn now by examining the following model.

Figure 5: Modelling Social Democratic Change and Votes & Office

Social Democratic Policy Stance Votes & Office

Electoral Volatility Economic

misery Tax State

14

To examine the relative impact of changes in policy position on election results we control for

electoral volatility and the socio-economic situation. Controlling for electoral volatility will

enable us to determine if there is indeed a policy effect or that electoral success merely

reflects the dynamics of a party system. Furthermore it is important to take account of

economic considerations. In a situation where there is a high level of prosperity taxpayers

may not be longer willing to fund the public provision of collective goods and thus will move

away from the social democrats. Conversely, one may also expect that if there is a situation of

relatively high rates of inflation and unemployment [i.e. Misery] that the public wishes a

stronger role of the state as regards controlling the economy [Schmidt, 1982; Keman, 1988;

Castles, 1998]. Below we have scrutinised these hypotheses by means of regression analysis:

Table 4: Votes & Offices of social democratic parties

Independent

variables

Dependent Variables

Modelling: Votes for Parliament SD in Government

Equation 1 2 3 4 5 6

Intercept α 23.5 19.9 17.8 -.29 -1.4 -1.5

Votes Social β

Democracy

- - - 0.56

(5.52)

0.60

(3.63)

0.56

(3.45)

State-Market β - - 0.25

(2.27)

- - 0.22

(2.07)

Left-Right β 0.15

(1.62)

0.23

(2.00)

- 0.17

(1.88)

0.07

(0.5)

-

Volatility β -.36

(-3.68)

-.51

(-4.38)

-.52

(-4.53)

- - -

Misery β -.44

(-4.76)

-.62

(-5.52)

-.66

(-5.90)

0.25

(2.48)

0.34

(2.07)

0.33

(2.01)

Tax State β 0.31

(3.17)

0.38

(3.31)

0.39

(3.44)

0.11

(1.20)

0.22

(1.62)

0.24

(1.76)

Adjusted R² * 100 33.8% 55.5% 56.9% 33.9% 30.2% 38.7%

N = 85 42 42 85 42 42

Note: All models are OLS-regressions; the coefficients are standardized values;

Equations 1 & 4 are for 1975-1998; all other concern the period 1989-1998.

The first conclusion we can draw is that – in particular after 1989 – programmatic ideas do

play a role as regards gaining votes and office. Yet, the paradox is that both the traditional

views and the ‘modern’ policy stance matter. Hence, it appears less to be a case of ‘either/or’

and more of a combined impact [if the two scales are combined it appears that the Left/Right

15

distinction is relevant for vote-seeking, whereas government participation is driven by the

Third Way indicator; hence, we can speak of a mixed blessing in combination].

There seems to be a relation between both the Left-Right and a Third Way policy stance with

electoral success. Yet, more important is the observation that this relation is by and large

dependent on ‘economic misery’ and the degree of electoral volatility within a country. In the

period after 1989 – so we conclude – the combined effect of internal party system dynamics

and the level of economic misery do have a significant effect on the electoral faith of social

democratic parties. Electoral success of Social Democracy is thus mainly dependent upon the

internal dynamic of the party system and of the economic situation as viewed by the

electorate. The indirect effect of both types of programmatic stance of Social Democracy is

even more visible as regards its office seeking success. It is interesting to note however, that

the immanent logic seems to be reversed. The conditional factors – Misery and Tax State –

are positively related to social democratic participation in government. This finding can be

interpreted as follows: if and when there is a large tax state in existence and although

economic misery is high it appears to be conducive to social democratic government

participation exactly because of this and regardless whether or not the programmatic stance of

the social democrats is ‘traditional’ or ‘modern’. If our interpretation is correct then this

would mean that not the ideological shifts matter but rather that Social Democracy is seen as

capable to solve societal problems by means of public goods. Let us therefore move to the

final part of our inquiry: in what way and to what extent is there a change in policy

performance of social democratic parties taking into account their policy stance.

5. Third Way Rhetoric? Is there a shift in social democratic policy performance?

In this part we will try to establish if the Third Way is merely social democratic rhetoric or

that changes in policy position have resulted in changes in socio-economic policy making. A

change in policy position in combination with social democratic dominance in government or

parliament should lead to shifts in expenditures. If social democratic parties have moved from

a preference for the welfare state towards a social investment state, social democratic

dominance in parliament and government should lead to relatively higher expenditures on

education and active labour market policies and to lower social-security expenditures. A

social investment state also means a less economic active state, thus not only the social

security contributions should decrease but there should be an overall decrease in the size of

the public sector. As economic factors also account for variation in socio-economic

16

policymaking we will control for the impact of economic growth, the unemployment rate and

the inflation rate. Next to that we will also control for the effect of policy differences on the

Left right scale. The independent variables to be used thus are: the change in policy position

measured on the market-state scale, inflation, unemployment and economic growth. The

dependant variables are the education expenditures as a percentage of gdp, the expenditures

on active labour market policies, social security transfers as a percentage of gdp and the total

receipts of government. We will first look at the correlations between the output variables and

the two policy scales.

Table 5: Bi-variate relations between scales and policy output for social democratic parties

Left-Right State Market

Social security

transfers

-.061 .024

Government Receipts

-.011 .025

Education

expenditures

-.079 -.127

Active Labour Market

programs

-.179 -.126

Note: correlations are not significant

Let us start with looking at the correlations between the Left Right scale and the State Market

scale with indicators of policy output for the period 1975-1998 applied to the social

democratic parties. The above table contains the outcomes of the correlations. What is striking

is that neither the Left right scale nor the State Market scale strongly correlates with the

output variables, moreover none of the correlations is significant.

17

Table 6: Change in scales and variation in Policy Output

Independent

variables

Dependent Variables

Social

security

transfers

Government

Receipts

Education

expenditures

Active Labour

Market programs

1975-1989

α 8.25 8.53 2.29

Left-Right β -.137(-.801) -.068 (-.359) -.041 (-.215)

State-Market β -.049 (-.297) .000 (.003) -.258 (-1.43)

Misery β -.070 (-.472) -.188 (-1.15) -.203 (-1.26)

Ec growth β -.392 (-2.67)* -.055 (-.340) -.086 (-.521)

Cabinet Com β -.173 (-1.15) .094 (.568) -.086 (-.521)

Adj R² 12.8 % 7% 8%

N=42

1989-1998

α 7.61 10.60 2.87 3.32

Left-Right β -.161 (-.806) -.225 (-1.09) .048 (.213) -.202 (-1.16)

State-Market β .109 (.551) .133 (.659) -.081 (-.360) -.032 (-.186)

Misery β .404 (2.73)* .110 (.729) -.137 (-.823) .146 (1.09)

Ec growth β -.113 (-.752) -.087 (-.567) .055 (.324) -.073 (-.538)

Cabinet Com β .159 (1.05) .372 (2.40)* -.009 (-.051) .236 (1.70)*

Adj R² 12,7% 6.8% 10.9% 2.7%

N=42

Note: OLS procedure has been employed; the significant results are flagged (*); T-values are

between brackets; the results for active labour market programs concern the period 1985-

1998, due to the lack of comparable data for the previous period.

We will move on to testing the regression models, here we distinguish between two periods

1975-1989 and 1990-1998. If there is a relation between a preference for the social investment

state and policy output we expect this relation to be stronger in the 1990s. The regression

analysis is presented in Table 6. It is obvious that that the amount of explained variance by

these models is rather low. A high score on the State Market scale is positively associated

with the level of social security transfers and the level of government receipts and negatively

associated with education expenditures and expenditures on labour market programs. This

means that a programmatic preference for the social investment state is not acted upon. The

change towards a Third Way policy position even results in higher levels of social security

transfers and growth of the public sector. We should note however that in both periods there

impact of the change in policy position on the level of expenditures on the various programs

is not significant. When social democrats are dominant in cabinet they do tend to spend more

on active labour market programs, this relation is however independent from the state market

18

position. There are no indications of a significant impact of policy preferences, as stated in

manifestos, and variation in public policy making. We thus conclude that the ideological

change of social democracy is merely rhetoric and has no impact on the policy making

process.

Conclusion

In this paper we have shown that Social Democracy across Europe has indeed changed. There

has been a movement into the Third Way direction in combination with a shift in policy

position of social democratic parties away from a clear cut left wing position. We then turned

to the question whether or not this change in ideology has been dictated by vote- and office-

seeking behaviour in terms of party competition. Although the overall trend of the social

democratic change has been a movement towards the centre of gravity of the party systems

indicating votes and office seeking behaviour, gaining votes and office has been mainly

dependent on ‘economic misery’ and the degree of electoral volatility within a party system.

Finally, we tried to show to what extent the change in policy positions has had an impact on

social democratic policy making. Our findings suggest that the renewal of social democracy

does not have any impact on social democratic policy performance.

19

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21

Appendix

Table 1: Convergence between State-Market scale and Left-Right scale

Party Year State-Market Left Right Change

SWE: SdaP 1975 -7,70 -7,70 ,00

SWE: SdaP 1980 -2,60 -15,30 -12,70

SWE: SdaP 1985 -8,90 -18,50 -9,60

SWE: SdaP 1990 -14,30 -23,90 -9,60

SWE: SdaP 1995 22,33 23,79 1,46

SWE: SdaP 1998 9,77 -3,52 -13,28

NOR: DNA Labour 1975 -8,80 -36,60 -27,80

NOR: DNA Labour 1980 -8,20 -31,60 -23,40

NOR: DNA Labour 1985 -3,20 -22,70 -19,50

NOR: DNA Labour 1990 -4,50 -36,00 -31,50

NOR: DNA Labour 1995 -3,87 -19,71 -15,83

NOR: DNA Labour 1998 -3,87 -19,71 -15,83

DEN: SD 1975 3,00 1,50 -1,50

DEN: SD 1980 -6,00 -11,40 -5,40

DEN: SD 1985 -4,73 -23,67 -18,93

DEN: SD 1990 9,15 -20,26 -29,41

DEN: SD 1995 1,84 -7,37 -9,21

DEN: SD 1998 1,84 -7,37 -9,22

FIN: SSDP 1975 2,00 -58,00 -60,00

FIN: SSDP 1980 8,64 -40,12 -48,77

FIN: SSDP 1985 ,00 43,24 43,24

FIN: SSDP 1990 -45,45 -45,45 ,00

FIN: SSDP 1995 -4,71 1,18 5,88

FIN: SSDP 1998 9,80 -13,73 -23,53

BEL: PSB-BSP 1975 -11,43 -39,05 -27,62

BEL: SP Flemish 1980 -12,45 -29,46 -17,01

BEL: PS 1980 3,33 ,51 -2,82

BEL: SP 1985 -6,91 -23,36 -16,45

BEL: PS 1985 ,11 -19,86 -19,97

BEL: SP 1990 -5,29 -28,00 -22,71

22

BEL: PS 1990 5,51 -13,68 -19,18

BEL: SP 1995 -2,66 -11,22 -8,56

BEL: PS 1995 3,93 -9,60 -13,53

BEL: SP 1998 -8,11 -15,63 -7,52

BEL: PS 1998 -2,25 -22,99 -20,73

NET: PvdA 1975 -11,20 -44,50 -33,30

NET: PvdA 1980 -13,20 -45,60 -32,40

NET: PvdA 1985 5,50 -20,70 -26,20

NET: PvdA 1990 -1,80 -20,60 -18,80

NET: PvdA 1995 4,08 4,26 ,18

NET: PvdA 1998 -,99 -22,07 -21,08

FRA: PS 1975 -4,90 -41,50 -36,60

FRA: PS 1980 -4,40 -39,20 -34,80

FRA: PS 1985 -6,00 -27,80 -21,80

FRA: PS 1990 3,30 -13,60 -16,90

FRA: PS 1995 -8,00 -23,20 -15,20

FRA: PS 1998 2,80 -13,29 -16,08

ITA: PSI 1975 -8,30 -40,17 -31,88

ITA: PSI 1980 5,05 -11,19 -16,23

ITA: PSI 1985 -4,24 -6,75 -2,51

ITA: PSI 1990 2,12 4,24 2,12

ITA: PSI 1995 11,56 8,02 -3,55

GER: SPD 1975 -3,33 -14,44 -11,11

GER: SPD 1980 -3,47 -20,79 -17,33

GER: SPD 1985 2,95 -7,17 -10,13

GER: SPD 1990 -1,78 -13,88 -12,10

GER: SPD 1995 -6,93 -18,15 -11,22

GER: SPD 1998 9,76 ,87 -8,89

AUT: SPO 1975 -2,50 -13,80 -11,30

AUT: SPO 1980 2,30 -5,70 -8,00

AUT: SPO 1985 -3,40 -21,20 -17,80

AUT: SPO 1990 -8,30 -7,10 1,20

AUT: SPO 1995 5,12 -11,06 -16,17

23

AUT: SPO 1998 4,25 20,85 16,60

SWI: SPS-PSS 1975 -1,62 -19,43 -17,81

SWI: SPS-PSS 1980 -7,53 -18,66 -11,12

SWI: SPS-PSS 1985 -13,19 -34,03 -20,83

SWI: SPS-PSS 1990 -2,20 -9,61 -7,41

SWI: SPS-PSS 1995 -4,91 -24,54 -19,63

SWI: SPS-PSS 1998 -7,76 -19,59 -11,84

UK: Labour 1975 -9,20 -27,50 -18,30

UK: Labour 1980 -5,40 -26,60 -21,20

UK: Labour 1985 -15,50 -39,20 -23,70

UK: Labour 1990 -1,60 -13,55 -11,94

UK: Labour 1995 -4,00 -30,40 -26,40

UK: Labour 1998 1,20 8,07 6,87

IRE: Labour Party 1975 -10,10 -19,10 -9,00

IRE: LP Labour Party 1980 -,70 -16,00 -15,30

IRE: LP Labour Party 1985 -15,26 -40,00 -24,74

IRE: LP Labour Party 1990 -11,05 -29,28 -18,23

IRE: LP Labour Party 1998 5,49 -5,95 -11,44

AUL: ALP 1975 -10,00 -34,80 -24,80

AUL: ALP 1980 6,00 -11,40 -17,40

AUL: ALP 1985 5,60 8,60 3,00

AUL: ALP 1990 4,00 -4,50 -8,50

AUL: ALP 1995 10,38 -,16 -10,54

AUL: ALP 1998 3,72 29,26 25,53

24

Explanation of Manifesto Variables

Controlled Economy

General need for direct government control of economy; control over prices, wages, rents, etc;

state intervention into the economic system.

Economic Orthodoxy

Need for traditional economic orthodoxy, e.g. reduction of budget deficits, retrenchment in

crisis, thrift and savings; support for traditional economic institutions such as stock market

and banking system; support for strong currency.

Education Expansion

Need to expand and/or improve educational provision at all levels. This excludes technical

training.

Free Enterprise

Favourable mentions of free enterprise capitalism; superiority of individual enterprise over

state and control systems; favourable mentions of private property rights, personal enterprise

and initiative; need for unhampered individual enterprises.

Incentives

Need for wage and tax policies to induce enterprise; encouragement to start enterprises; need

for financial and other incentives such as subsidies.

Keynesian Demand Management

Demand-oriented economic policy; economic policy devoted to the reduction of depressions

and/or to increase private demand through increasing public demand and/or through

increasing social expenditures.

Labour Groups: Positive

Favourable references to labour groups, working class, unemployed; support for trade unions;

good treatment of manual and other employees.

Labour Groups: Negative

Abuse of power of trade unions; otherwise as 701, but negative.

Middle Class and Professional Groups

Favourable references to middle class, professional groups, such as physicians or lawyers; old

and new middle class.

Nationalisation

Favourable mentions of government ownership, partial or complete, including government

ownership of land.

25

Non-economic Demographic Groups

Favourable mentions of, or need for, assistance to women, old people, young people,

linguistic groups, etc; special interest groups of all kinds.

Welfare State Expansion

Favourable mentions of need to introduce, maintain or expand any social service or social

security scheme; support for social services such as health service or social housing. This

category excludes education.

Welfare State Limitation

Limiting expenditure on social services or social security; otherwise as 504, but negative.

Sources Other Variables Used

Variables Sources

Social security transfers Comparative Political Data Set 1960-1998

Active Labour Market programs OECD Economic Outlook, various issues

Centre Vote Share Comparative Political Data Set 1960-1998

Economic growth OECD Economic Outlook, various issues

Education expenditures OECD Economic Outlook, various issues

Government Receipts Comparative Political Data Set 1960-1998

Inflation OECD Economic Outlook, various issues

Left wing Vote Share Comparative Political Data Set 1960-1998

Net Volatility Lane and Ersson 1999 and own computations

Right wing Vote Share Comparative Political Data Set 1960-1998

Unemployment Comparative Political Data Set 1960-1998