Why Has the French Socialist Party Shunned the Rhetoric of the Third Way?

An Explanatory Model Extended to Britain, Germany, and Italy
David Leifert The Lauder Institute, University of Pennsylvania

A THESIS Presented to the Faculties of the University of Pennsylvania in Partial Fulfillment of the Requirements for the Degree of Master of Arts April 2006 Thesis Supervisor: Dr. Julia Lynch

Reginald Jones Thesis Prize Nominee

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Table of Contents 1. European Social Democracy and the French Exception: Introductory Analysis 1.1. 1.2. 1.3. 2. The Evolution of European Social Democracy The French Exception Introduction of the Empirical Question: Why the French Exception? 4 4 5 6 8 8 9 11 14 14 16 20 24 25 29 33 34 38 41 41 44 47 47 51 54

The Third Way – Analysis of a Political Phenomenon 2.1. 2.2. 2.3. Reactions to the Emergence of the Third Way Description of the Third Way – The Schröder/Blair Manifesto Critics of the Third Way and Alternative Interpretations

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Explanatory Model for Socialist Party Adoption of the Third Way 3.1. 3.2. 3.3. Explanatory 5-Factor Model Categorization of Policy Factors Categorization of Political Factors

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Application to the French Case – A Missed Opportunity for Change 4.1. 4.2. Assessment of the French “Goodness of Fit” Assessment of the French “Mediating Factors”

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Application to the British Case: Blair’s New Labour 5.1. 5.2. Assessment of the British “Goodness of Fit” Assessment of the British “Mediating Factors”

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Application to the German Case – Schröder’s Neue Mitte 6.1. 6.2. Assessment of the German “Goodness of Fit” Assessment of the German “Mediating Factors”

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Application to the Italian Case – D’Alema’s Progressive Initiatives 7.1. 7.2. Assessment of the Italian “Goodness of Fit” Assessment of the Italian “Mediating Factors”

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Conclusion

Bibliography

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1. European Social Democracy and the French Exception: Introductory Analysis 1.1. The Evolution of European Social Democracy The political landscape of Western Europe following the end of the Second World War was characterized by a generalized rise to power of Social Democratic parties and the emergence of extensive welfare states. By the early 1960s, social democracy had established itself as the major political force in most West European countries. The social democratic experiment lasted for two decades, before the political situation was transformed by the advent of market liberalization and a return of neo-liberalism in the 1980s (Zijderveld 1999, page 3). The drastic changes in the political and economic landscape driven by conservative doctrines such as Thatcherism and Reaganomics (Sproule 2005) dealt a major blow to socialists. Whether motivated by electoral desperation, an authentic shift in government ideology, or both, many social democratic parties began to reposition themselves towards the political center in the last two decades of the 20th Century, and endorse a modernized and progressive social democracy (Teixeira 2000). This phenomenon, dubbed the Third Way movement, was strongly championed by the social democratic parties of Great Britain and the United States, namely the “New” Labour party and the “New” Democrats. The Third Way was epitomized during the historic forum entitled "The Third Way: Progressive Governance for the 21st Century," hosted at the White House in April 1999. The leadership of the global Third Way movement present at the meeting included United States President Bill Clinton, British Prime Minister Tony Blair, Netherlands Prime Minister Wim Kok, German Chancellor Gerhard Schröder, and Italian Prime Minister Massimo D'Alema (From 1999). 4

1.2. The French Exception Among the four G-7 European countries, the only nation missing was France. Indeed, “of all the socialist and social democratic parties in Western Europe…, the Parti Socialiste Français appears to be the most strongly committed to a traditional statist policy” (Merkel 2001, page 68). The antagonism of the Parti Socialiste Français (PSF) is fittingly exemplified by a press account of the social democratic summit hosted by Gerhard Schröder in June 2000 organized to symbolize the advance of the Third Way. The press account stated that “the gathering was stamped with the handwriting, so to speak, of French Prime Minister Lionel Jospin, rather than that of Tony Blair. The state was to be accorded a greater role in relation to the economy” (Schwartz 2000).

After five years of cohabitation between conservative President Jacques Chirac and socialist Prime Minister Lionel Jospin, the 2002 presidential election, which was expected to be dominated by these two national leaders, bitterly surprised the Prime Minister and the PSF. The left vote was split among various faction candidates and the PSF failed to advance to the final round of the elections, placing third behind an ever stronger extreme-right Front National. The defeat was largely attributed to three phenomena: record-breaking voter abstention, a fragmented presidential vote due to both an overstretched coalition of the left and the unusual sequence of elections, and the actual success of satellite parties from both the left and the right of the political spectrum. Although a better result emanated from the legislatives, the struggling PSF was once more confronted with a dilemma worthy of French existentialism: either adopt the legacy of Mitterrand that the “party is won from the left” (Bell 2003, page 47) and reinforce

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socialist and statist ideologies, or follow the path paved by sister parties that embraced the centrist approach to government of the Third Way.

A similar dilemma was faced by large socialist parties of Europe as they struggled with the choice between left-wing ideology and the principles of the Third Way. Three successful breaks with the old left following long and powerful conservative governments occurred in Great Britain, Germany, and Italy. While former German Chancellor Gerhard Schröder defeated 14-year incumbent conservative Helmut Kohl, Tony Blair succeeded 18-year conservative incumbents Margaret Thatcher and John Major, and Romano Prodi of the Democratic Party of the Left (PDS) inherited an Italian political landscape characterized by over 40 years of Christian Democratic government. At the upcoming 2007 presidential elections, conservative Jacques Chirac will have accumulated 12 years of power and, given two consecutive defeats of a weak coalition of the left, it is arguable that the time may have come for the PSF to follow the footsteps of its sister parties in the three nations mentioned above. Although this paper will focus on the 2002 elections, its findings are applicable to the elections of 2007 and beyond.

1.3. Introduction of the Empirical Question: Why the French Exception? This paper analyzes the reasons why the PSF has not embraced the rhetoric of the Third Way as of the 2002 presidential elections despite a major political crisis in 1993, and the factors that would eventually bring it to do so. The term Third Way has been used to identify a variety of center-left parties, sometimes even including the PSF as one distant variant that will be further explored in a later section. To avoid fallacious argumentation,

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this paper bases its analysis on the Third Way manifesto co-authored by Britain’s Tony Blair and Germany’s Gerhard Schröder, which is referred to in the following pages as the Schröder/Blair manifesto. An analysis of Third Way politics is presented and an explanatory model is proposed to evaluate the susceptibility of the PSF to a shift in political direction and adoption of the Third Way rhetoric.

The methodology focuses on a 5-factor model, which is applied to the case of France and extended to the cases of Britain, Germany, and Italy to gauge its robustness. The periods chosen for the comparison show the paths taken by the socialist parties of these three countries immediately preceding general elections that followed significant political events, as was the case for the PSF in 2002. The 5-factor model argues that a political crisis of the incumbent right-wing party or of the socialist party of opposition is required to set in motion the adoption of the Third Way by the socialist party. Once a crisis takes place, the model proposes an explanation of the degree of adoption of Third Way rhetoric. It does so by assessing the nature and performance of three policy factors comprising the building blocks of the Third Way – the welfare system, the government machinery, and the economic system – as well as two important political factors represented by party system type and the potential of party leaders to become successful champions for change. The composition of each of these factors, and their combined make-up, will prove to bear great influence on the political choice of socialist parties.

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2. The Third Way – Analysis of a Political Phenomenon 2.1. Reactions to the Emergence of the Third Way The Third Way is a term that is filled with meanings and at the same time charged with having none in the context being analyzed. Among the meanings associated with the “Third Way” are the description of a Cold War-era alternative to siding with either the United States or the Soviet Union and of an alternative to capitalism and socialism in the form of fascism (Giddens 2000, page 1). The Third Way of relevance to this paper, however, is the term resurrected by Tony Blair and also referred to as the “Radical Center,” which embodies an economic and political ideal positioned between democratic socialism and laissez-faire capitalism. The Third Way phenomenon has drawn criticism from politicians on both the left and the right. Oskar Lafontaine, former German finance minister under Gerhard Schröder, openly condemned the Chancellor’s manifesto written in partnership with Tony Blair by declaring that “the Third Way is the wrong way – Der dritte Weg ist ein Holzweg” (Lafontaine 1999). Lafontaine presented his resignation in 1999 due to irreconcilable differences with the Chancellor’s political stance. The magazine Der Spiegel characterized his resignation as another “victory of capitalism over the planned economy,” and lobbyists and business associations celebrated his departure (Hogrefe 1999). Criticism also abounded from right-wing public figures, which portray the Third Way as either a “mishmash of already familiar ideas and policies, or as lacking any distinguishable content at all” (Giddens 2000, page 7).

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2.2. Description of the Third Way – The Schröder/Blair Manifesto What are the characteristics of the Third Way, and how do they differ from the traditional socio-economic rhetoric of the traditional left? According to the joint manifesto written by Gerhard Schröder and Tony Blair in 1999, the Third Way proposes a clear break with the old left and goes as far as abandoning the “dogmas of left and right” (Blair and Schröder 1999). Before describing the progressive policies of the Third Way, the manifesto identifies the main policy areas explicitly rejected by the new movement. The main policies rebuffed by the Third Way are based on the premise that the government is all-knowledgeable and should be all-powerful in ensuring the well-being of its flock, the people. The main policies developed by the traditional left to support this ideology are the imposition of social equality, incentives for large government spending, comprehensive administrative and economic intervention, and the undisputable prevalence of individuals’ rights over responsibilities. These are identified as policies the Third Way wishes to disassociate itself from.

The alternative policies proposed by the Schröder/Blair manifesto are based on a government that is granted the responsibility to “not row, but steer” (Blair and Schroeder 1999) the economy, with power decentralized towards the local level and freedom of activity for individual business and enterprise. In addition to decentralization and limited central economic planning, a modern and efficient public sector is paramount to restraining overbearing bureaucracies that suffer from internal politicization and overprotective labor laws. The focus is no longer on the size of government expenditure but rather on the effectiveness of its initiatives. The proposed platform further decreases

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the role of government by significantly overhauling the welfare state. Instead of a blindly egalitarian policy, the state is to promote investment in human capital and reward effort as a means to address poverty and unemployment. Although a social floor should be provided to all, it should not act as a replacement for productive employment, but rather as support for reinsertion into the workforce. Education and training become central to the effort of providing equality of opportunity, and a sense of responsibility and community spirit is expected from the population. Mutual obligation is encouraged at the levels of the family, the neighborhood, and the society. The Schröder/Blair manifesto proposes the championing of a “go-ahead mentality,” whereby solidarity replaces a portion of state provisioning and firms negotiate with workers and unions with the benefit of the whole in mind.

Additional areas addressed by the manifesto, which are related to the main points described above, are an elaboration of labor market policy with greater flexibility, promotion of environmental responsibility, the introduction of supply-side economics as a complement to demand-side economics in order to succeed in the face of globalization, and a stance on the role of the European Union in national government. The manifesto states that the Union itself, however, is not to develop into a homogeneous super state but rather into a facilitator of socio-economic development. It is also noteworthy that the underlying aspects of the "social market" promoted by the Third Way can also be found in article I-3 of the Treaty establishing a Constitution for Europe. It states that “the Union shall work for…sustainable development…based on balanced economic growth and price

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stability, a highly competitive social market economy, aiming at full employment and social progress.…”

2.3. Critics of the Third Way and Alternative Interpretations The Third Way platform described above comprises a general set of political concepts that has been embraced by different socialist parties to varying degrees. In order to better understand the concept of the Third Way and design a robust explanatory model for its adoption, it is imperative to consider the analytical literature that sheds a critical light on this topic. Much of this literature focuses on the ambiguity of Third Way proposals and inherent conflicts of interest between policy characteristics.

The critics argue that although a broad framework can be presented, there are “differences of opinion concerning the interpretation of the core values associated with Third Way thinking and how the state should seek to advance them” (White 1998). Stuart White identifies two main lines of division amongst subscribers to the Third Way framework. One line of division is “between ‘leftists’ and ‘centrists’ over the commitment to real opportunity,” where discrepancy of interpretation exists on the meaning of commitment and real opportunity. Centrists interpret this concept in meritocratic terms, while leftists interpret it in a more egalitarian light. This discrepancy impacts the role and methodology of income redistribution. The second line of division is “between ‘liberals’ and ‘communitarians’ over the commitment to civic responsibility.” Liberals limit the power of the state to impose “legal welfarism,” while communitarians welcome state-led definition and enforcement of good behavior. The

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result of these lines of division is the identification of four types of Third Way government: leftist liberal, leftist communitarian, centrist liberal and centrist communitarian. White concludes that such ambiguity can play to the advantage of party candidates as they reach out to different constituencies (White 1998).

Wolfgang Merkel characterizes the Third Way in a similar manner to Stuart White. Different types of Third Way governments are also identified, although not along the same lines of division as presented above. Merkel identifies four types of Third Way government based on existing European parties (Merkel 2001). The first type is the market-oriented way of the British New Labour party. It has ample room for maneuvering given the weakness of interest groups, the absence of coalition constraints, and the inheritance of a strong-fisted and hierarchical administrative culture established by outgoing conservatives. The British New Labor party is considered to have the most radical implementation of Third Way policies. The second type is the market- and consensus-oriented way of the Dutch “polder model,” whereby the Partij van der Arbeid comes closest to the results obtained by New Labour. It does so, however, through negotiations with political parties and social partners instead of the majoritarian strategic implementation of New Labour. The third type is the reformed welfare state way of Sweden, where social democrats have encouraged an open market economy and the use of supply-side economics. The country has also experienced cut backs on income redistribution efforts while maintaining the highest level of labor market policy expenditure of all OECD countries, reaching 2.1% of GDP in 1997 (OECD Database). Despite a decrease in the reach of its universalistic welfare state, it is still the most

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comprehensive in the Western world. The fourth type is the statist way of the French PSF, which “promotes the state much more than its sister parties do…for macroeconomic, industry, employment, and social policy” (Merkel 2001). Additional analysis of the PSF platform is provided in a later section.

Unlike Merkel, this paper does not consider the PSF to be a type of Third Way party due to the party’s outright rejection of the concept. As recently as 2005, Lionel Jospin declared that social-liberalism is unconceivable since “socialism is not a liberalism, not even a social one” (Reuters 2005). The explanatory model of socialist party adoption of the Third Way that follows takes the Schröder/Blair manifesto as its benchmark and develops a methodology to explain why a socialist party adopts or rejects it. The results will not yield a binary prediction since the determinant factors of each country will differ, but will rather provide an assessment of the suitability of each party for the adoption of the Third Way rhetoric.

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3. Explanatory Model for Socialist Party Adoption of the Third Way 3.1. Explanatory 5-Factor Model Although the Third Way is not the only alternative to an “old left” rhetoric, it has certainly taken central stage as the consensus alternative due to its adoption, to a greater or lesser degree, in various European countries. The explanatory model presented in this section is tailored specifically to the Third Way but could be calibrated to reflect different policy factors pertinent to other political rhetoric. The model stipulates that a trigger in the form of a political crisis from the perspective of the incumbent conservative party, the socialist party, or both, must exist in order to provoke a shift in political rhetoric. The trigger itself, however, is not sufficient, as the actual shift will depend on the nature and success of existing policy and political factors of the model. Accordingly, the model is based on a 5-factor model that combines three major policy factors proposed by the Third Way ideology with two decisive political factors. The characteristics of each factor will impact the direction and strength of the political process set in motion by the triggering crisis and will significantly influence the success or failure of the process. The three policy factors that characterize the Third Way ideology as presented in the previous section are the nature of the welfare state, the degree of state-led economic planning, and the balance of administrative power between the state and civic society. The two political factors are party system type and the strength of socialist leadership within the party and/or the political coalition landscape of the left.

The 5-factor explanatory model draws on the mechanics of the “Three-Step” approach to Europeanization proposed by Cowles and Caporoso (Cowles and Caporoso 2001). In 14

their approach to analyzing Europeanization, the authors predict the degree of Europeanization of member countries’ domestic structures based on two criteria: “Goodness of Fit” between existing structures and those proposed by the European Union and “Mediating Factors” in the form of facilitating institutions and empowerment of relevant actors. The Three-Step Model to Europeanization is presented below for illustrative purposes: Figure 1: A Three-Step Approach to Europeanization and Structural Change

Europeanization Process

“Goodness of Fit” with domestic structures = “adaptational pressures”

Mediating Institutions Actors’ Practices

Domestic Structural Change

The 5-factor model proposed herein is constructed based on a similar framework. Domestic Structural Change is replaced by the adoption of the Third Way rhetoric, “Goodness of Fit” is evaluated based on the national characteristics of the three main policy factors of the Third Way, and “Mediating Factors” are composed of the political factors of the model. The resulting model is illustrated by the picture below. Figure 2: A Three-Step Approach to the Adoption of the Third Way
Triggers Trigger - Incumbent Party Crisis - Socialist Party Crisis Policy Factors Goodness of Fit 1) Welfare State 2) Centralization 3) Economic Planning Political Factors Mediating Factors 1) Party System Type 2) Leadership Strength Outcome Rhetorical Shift 1) Full 2) Partial

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The approach above is iterative. As a party adopts a more centrist platform on the broad policy areas representing “Goodness of Fit” with the Third Way, the three preceding processes may be affected by a dampening or reinforcement of the trigger crisis. This, in turn, may strengthen or weaken “Goodness of Fit” and possibly change “Mediating Factors” as shifts along the left/center spectrum will translate into greater or lower perceived leadership strength, fragmentation, or both. Every major political decision will therefore affect this iterative model and push a political platform towards the center or away from it to different degrees. This push will depend on the Third Way’s impact on characteristics of “Goodness of Fit” and “Mediating Factors.” The stronger the mix of 5factors, the more likely a party is to adopt the rhetoric of the Third Way. A strong policy factor occurs either if a factor is successful and consistent with the Third Way, or if it is unsuccessful and inconsistent with it. As the application of the model will show, different countries have experienced different degrees of adoption. The application to the case of the PSF, which rejects the rhetoric of the Third Way, is complemented by the application of the model to the socialist parties of three major European countries immediately preceding pivotal elections of national or regional scope. Parallels are drawn between the countries, and the results are used to evaluate the model. Before application of the model, further clarification is provided on the categorization of policy and political factors.

3.2. Categorization of Policy Factors The model is comprised of three policy factors, namely the welfare state, the economic system, and the government machinery. The welfare state refers to the nature of the

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social policy regime prevalent in a given country. The model’s categorization of the welfare state is based on Esping-Andersen’s differentiation between three types of social policy regime. The “liberal” welfare state is similar to Titmuss’ residualist regime (Zidjerveld 1999, page 12) and relies on “needs-tested assistance, modest universal transfers, and modest social insurance” (Esping-Andersen 1993, page 26). The “conservative” welfare state is “shaped by a strong corporatist and statist legacy…where social rights [are] attached to class and status…in a non-universalistic exclusionary way, [and where] interference only occurs when the family is not ‘capable of serving the needs of its members’” (Zijderveld 1999, page 102). Finally, the “social democratic” welfare state is closest to Titmuss’ institutionalist regime (page 12) and promotes “an equality of the highest standards, not an equality of minimal needs, [where] all strata are incorporated under one universal social insurance system, yet benefits are graduated according to accustomed earnings” (Esping-Andersen 1993, page 26). The social policy regime of “real opportunity” proposed by the Third Way differs from the three types of welfare state identified by Esping-Andersen. According to the Schröder/Blair manifesto, the Third Way proposes a regime of equal opportunity that is comprehensive but places responsibility on recipients to make the most out of the assistance that is largely based on training and insertion. It is less comprehensive than the social democratic regime, more extensive than the liberal regime, and less exclusionist than the conservative regime, hence respectively addressing the problems of excessive taxation, insufficient assistance, and exclusion. The model does not argue that one type of system is more adaptable to the Third Way than another: equally strong opposition to change could be expected from taxpayers in a liberal regime, recipients in a social democratic regime, and the beneficiary

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strata in a conservative regime. Instead, the model argues that the less successfully established a regime type is, the more susceptible the socialist party will be to the adoption of the Third Way.

The second policy factor is the degree of state-led economic planning within the realm of capitalist societies. The 5-factor model categorizes state-led economic policy based on the classification of economic planning into three types: “liberalism,” “statism,” and “corporatism” (Katzenstein 1985, page 20). Liberalism relies on macroeconomic policies and international market competition molded by free enterprise and private ownership. It further stipulates infrequent state intervention through targeted protectionist measures. Statism, on the other hand, relies on the ability of the state to plan the course of its economy. Although statist economies are not isolated, the nature of international competition is dictated by the state through targeted industrial protectionism, significant domestic intervention in the form of shielded internal competition or collusion, or outright ownership of the means of production. While liberal and statist economic systems are “options for those large industrial states whose power is sufficient to [control parts of] the international environment [or of] their own societies” (Katzenstein 1985, page 23), smaller open economies cannot afford such systems. Economic corporatism addresses this issue by providing a system where nations accept the changes imposed by international markets but apply a “variety of economic and social policies that prevent the costs of change from resulting in political eruptions” (Katzenstein, 1985, 24). Different types of corporatism depend on internal negotiations in devising reactionary policies and can be categorized across two axes: market-driven versus statist-driven policy drivers and

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democratic versus non-democratic decision-making. The Third Way stipulates that the state should “steer, but not row,” an economy where “the essential function of markets must be complemented and improved by political action, not [replaced or] hampered by [government]” (Blaire and Schröder 1999). The model argues that the closer an economic system is to a successful liberal or liberally bent corporatist system, the more susceptible the socialist party will be to the adoption of the Third Way.

The third policy factor is the extent to which a strong civil society provides a balancing weight against state preponderance. According to Alexis de Tocqueville, “spheres of organized power outside the state are essential not only to liberty but also to prosperity” (Levy 1999, page 9). The 5-factor model bases its categorization of state preponderance on the classification proposed by Jonah Levy, who differentiates between dirigisme, associational liberalism, and neo-liberalism (Levy 1999, page 58). The dirigiste state centralizes decision-making for social, economic, and administrative policies at both the national and regional levels. This type of state engenders a strong center-periphery cleavage and significantly weakens the civil society. Neo-liberalism promotes a minimalist state and blames “flabby institutions such as bloated welfare states, overzealous regulators, almighty trade unions, and clubby financial establishments” (Levy 1999, page 59) for obstructing the proper functioning of the economy. Associational liberalism is a compromise between the preponderant dirigiste state and the minimalist neo-liberal state. This alternative form of government follows the Tocquevillean political philosophy and encourages intermediary institutions to “perform coordinating functions and provide public goods that are essential to economic

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dynamism” (Levy 1999, page 59). In practice, this translates into a delegation of decision-making and execution to trade unions, employer associations, financial institutions, and local government authorities. The Third Way promotes both decentralization and streamlining of government functions. The model argues that the closer an economic system is to successful associational liberalism, and to a lesser degree neo-liberalism, the more susceptible the socialist party will be to the adoption of the Third Way.

The three policy factors described above – social, economic, and administrative – provide a simplified but sweeping basis for assessing the overall “Goodness of Fit” of a country to the proposed policies of the Third Way. The relevance of each policy should not be assessed on a stand-alone basis, but rather based on the impact it has on other policies as well as on the political factors described in the following section.

3.3. Categorization of Political Factors The model is comprised of two political factors: party system type and leadership of the socialist party. The model bases its categorization of party systems on the typology developed by Giovanni Sartori, in which he differentiates between seven classes of party system. Sartori’s typology identifies differences in fragmentation based on the number of parties, their relative strength, and the ideological nature of party dispersion (Mair 1999, page 327). Sartori identifies three major types of party systems that are further split into more granular variants. The single party system is split into the one-party system (monopoly), the hegemonic party system (satellite parties permitted), and the

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predominant-party system (continued absolute electoral majority). The two-party system is one of exclusionist competition between two parties and is not split further. Finally, the multiparty system is split into moderate pluralism (low fragmentation or high nonideological segmentation), polarized pluralism (high ideological fragmentation), and atomization (atomized pre-consolidation stage). The 5-factor model simplifies this typology by recombining the single party system variants and excluding the atomized party system, since they are of limited relevance to the Western world. Because the Third Way disassociates itself from the dogmas of left and right (Blair and Schröder 1999), the model argues that the less polarized a dual or multiparty system is along the socio-economic axis, the more susceptible the socialist party will be to the adoption of the Third Way. In addition, a two-party system would pose less coalition constraints to the adoption of the Third Way than a pluralist party system would.

The political economy of a nation can be defined by the party system type and the policy factors previously described. When the political economy is favorable to the adoption of the Third Way, it still needs to be complemented by strong party leadership and coalition control for actual rhetoric change to occur. The study of political leadership includes, “at the one extreme, ‘great man theories’…focused upon the role of the individual, and, at the other, theories emphasizing the structural, institutionalized aspect of leadership [that] minimize the role played by both individuals and the office or positions they hold” (Gaffney 1996, page 11). While the first set of theories focuses on the impact of political leadership upon the political environment, the second set focuses on the reverse relationship. When a coalition exists, assessment of leadership strength should measure

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not only control over the party, but also the degree of consent from, and submission of, other parties. The 5-factor model takes this concept into account and categorizes political leadership along two axes: (1) strong party leadership versus weak party leadership and (2) coalition consent versus coalition dissent. The model argues that the stronger the party leadership of Third Way advocates and the higher the level of coalition consent, then the more susceptible the socialist party will be to the adoption of the Third Way. In addition, leadership and control should be assessed in both absolute and relative terms, since a clash between very strong leaders of opposite ideology or a moderately strong leader facing weak opposition would not be expected to be as successful as strong leadership and coalition control in the face of weak opposition.

The 5-factor model presents a framework for assessment of the susceptibility of socialist parties to adopt the Third Way ideology in the context of a political crisis given the existing set of policy and political factors. An additional characteristic of the nations under study that is implicit in the 5-factors but deserves explicit mention is the degree of success of each policy and a general desire for change. The evolution and success of each policy is just as important as the existing policy type. In practice, the model argues that the less successful a policy that discourages the Third Way, and alternatively the more successful a policy that endorses the adoption of the Third Way, the brighter the prospects for adoption. We begin the application of the 5-factor model with the French case to answer the original empirical question proposed at the outset of this document: “Why has the French Socialist Party shunned the rhetoric of the Third Way?” We provide an analysis of the French situation preceding the 2002 elections, which followed a 5-year

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cohabitation between Jospin’s left coalition (gauche plurielle) with the conservative right of incumbent president Jacques Chirac. The explanatory powers of the 5-factor model are then validated with an application to the cases of the German SPD under Gerhard Schröder and the British New Labour under Tony Blair shortly before their joint authoring of the Schröder/Blair manifesto of 1999, as well as to the emergence of the Third Way rhetoric in Italy after forty years of conservatism.

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4. Application to the French Case – A Missed Opportunity for Change The elections of 2002 marked a low point in French democracy, with voter abstention of 30% and a second-round run-off between parties of the right that did not reflect the original preference of the French electorate, as evidenced by the contrast between the smashing second-round victory of Jacques Chirac with 82% of the vote and his relatively weak accumulation of barely 19% of the vote in the first round (Sofres 2002). The disconnection with voter preference is further illustrated by the fact that almost 45% of the votes in the first round went to the dispersed presidential candidates of the left, including the greens. During his time as government leader, Lionel Jospin “used his authority to bring the left back to power, but not to revise the party’s doctrine or to modernize its appeal on a centrist or ‘realist’ line” (Bell 2003, page 2). We use the 5factor model to assess the “Goodness of Fit” and “Mediating Factors” in France preceding the 2002 elections. The trigger that set in motion the process that could have led the PSF to adopt a partial or full version of the Third Way was the near obliteration of the party in the 1993 elections, in which the PSF amassed only 11% of the vote and won 53 of 577 National Assembly seats. The immediate response of the PSF was to name Michel Rocard, a moderate socialist with centrist views, as leader of the party. The policy and political factors that molded the trajectory of the PSF following the 1993 trigger are analyzed in the following sections.

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4.1. Assessment of the French “Goodness of Fit” The welfare system in France, as in the majority of continental Europe, was predominantly conservative. The result of the conservative welfare state had been the significant exclusion of certain strata of society, particularly the younger working population and the long-term unemployed. From 1991 to 2002, the unemployment level of the active population aged between 15 and 24 had hovered around 20%, with a peak of 25% in 1994, the year following the 1993 political trigger. The youth unemployment level contrasted with a level of 10% for the active population aged between 25 and 50 (LABORSTA database). In response to this appalling situation, the French government initiated a transformation of its welfare system from an exclusionist corporatist system to a system of social insertion. In 1998, ten years after the introduction of the Revenu Minimum d’Insertion (RMI) (minimal insertion income), the government launched a new law dubbed LOLE (Loi d’orientation sur la lutte contre les exclusions), consisting of an ambitious set of policies aimed at combating exclusion (Gilbert and Parent 2004, page 94). Although the system of insertion is a step closer to the Third Way social system of equal opportunity, it does not reach the level of real opportunity stipulated by the Third Way. While real opportunity is tied to the custom of deservingness of dependent citizens, insertion is tied to the custom of solidarity towards the excluded (Gilbert and Parent 2004, page 94). The state of social welfare in France in the years preceding the 2002 elections distinguished itself from the OECD averages with a paradoxical contrast whereby it provided more generous social benefits through higher out-of-work benefits (68% versus 40% net replacement rates), higher social spending (29% of GDP versus 21%), and low relative poverty (7% versus 10% below poverty threshold), but suffered

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from lower social success as measured by a high unemployment rate (10% versus 7%), lower subjective well-being (65% versus 70% life satisfaction), and higher social isolation (8.1% versus 6.7% feel isolated) (OECD database). In sum, the welfare system in France during the decade from the 1993 crisis to the 2002 election experienced a very slight move towards the policies of the Third Way, but fell short of the success of the average OECD countries. It can therefore be characterized as a positive factor for the adoption of the Third Way, since it is an unsuccessful, non-Third Way policy.

The second and third policy factors, economic and administrative policy, further characterize the French “Goodness of Fit.” Statism has long been a defining characteristic of France and is reflected in both the role of state-planning in the economy and a domination of the state over civil society. French statism, already well-established during the Third Republic, was further reinforced after the liberation from Nazi Germany by a leadership that “extended state control over key sectors of the economy and established several institutions designed to reinforce the economic will and capacities of the state” (Hall 1986, page 139). Since that time, the government has had to yield to increased pressures from different interest groups and ease the traditional stance that the “state should remain independent from the pressure of social groups in order to guard the social interest” (Hall 1986, page 176).

In regards to state-led planning of the economy, the average level of economic and administrative regulation in France was above the average of OECD countries, particularly in comparison to large advanced economies. According to the OECD

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working paper “Product Market Regulations in OECD Countries: 1998-2003,” and excluding the newly accepted or aspiring members of the EU for a remaining total of 25 countries, the French government exerted high regulation and control in both inward- and outward-oriented policies (Nicoletti et al. 2005). Inward-oriented policies are assessed based on the level of state control (e.g. scope and size of the public enterprise sector, control of business enterprises, price controls, and command & control regulation) and barriers to entrepreneurship (e.g., regulatory and administrative opacity, burdens on startups, and barriers to competition). France had the fifth-highest level of state control with particularly high ratings in public ownership regulation and barriers to entrepreneurship. Outward-oriented policies were assessed based on barriers to trade and investment (explicit and regulatory), and France ranked relatively badly, with the seventh highest rating in 1998. As the numbers show, France still exerted strong state-led economic planning relative to other OECD countries and was classified by the working paper as a “relatively restrictive country,” even though the general level of state control and regulation had decreased in all countries with that classification (Nicoletti et al. 2005, page 19).

In addition to strong state-led economic planning, French statism also permeated the administrative sphere. Despite an attempt to decentralize in the early 1980s promoted by the newly elected socialist administration under Francois Mitterrand and epitomized by the Deffere Decentralization Laws, the central government still played a large role in the administration of France. The goals of decentralization were “not…economic…but administrative and financial in character” (Meny 1985, page 188). The objective of the

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socialist decentralization effort was to change France from a system of local administration to one of local government, where local decision-making, as opposed to simple execution of central directives, would provide the necessary autonomy for responsiveness to local needs (Baguenard 2002, page 121). The difficulties encountered were manifold, and the decentralization effort resulted in a “civil society without social capital” (Levy 1999, page 166). The socialist laws emancipated regions by introducing democratic regional elections and provincial authorities. These authorities were bestowed with new responsibilities paired with allocation of resources, while general local autonomy was increased by the lifting of numerous restrictions on local action. The economic achievements of decentralization were less impressive, however, particularly as excessive decentralization resulted in a plethora of small localities that were unable to function independently and therefore did not gain de facto autonomy from the central government. By 2000, the number of communes in France had grown to 36, 779, compared to 16,068 in Germany, translating into 1,500 inhabitants per commune versus 5,000, respectively (Baguenard 2002, page 81). In his statist two-step model, Levy attributes the failure of France to effectively move away from its dirigiste model to a low degree of societal coordination. As a result, the state was compelled to intervene to alleviate social dislocation, notably in the labor markets, and to rescue failed attempts at economic progress (Levy 1999, page 284). The prevalence of the central state is further illustrated by the high level of central versus periphery public sector employment. In 1997, the central state accounted for 52% of total public sector employment, which in turn accounted for 22% of total employment (LABORSTA database).

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The policy factors described above portray France as a nation trying to move away from a heavily conservative welfare state, a system of state-led economic planning, and a centralized dirigiste government. While the direction of policy change has clearly been away from the heavy hand of the state, France is still significantly more rigid than other OECD countries. Because of the positive direction of change and pressures from globalization and sister socialist parties in Europe and abroad, strongly positive political factors should lead the PSF to fully or partially adopt the Third Way. The following section analyzes the “Mediating Factors,” namely, party system type and leadership strength that would lead the Third Way to win over, or lose, the PSF.

4.2. Assessment of the French “Mediating Factors” The party system type of France has had a long history of polarized pluralism since the end of the Second World War that is still in existence today. After the liberation, the political landscape of France was characterized by a clear left-right cleavage fragmented at first but increasingly consolidated on each side of the political spectrum. The rationalization of the French party system resulted from increased incentives for coalition politics as a result of the enhanced prestige of the presidency established by de Gaulle in the 1960s, the bipolarizing pressures of the direct presidential election after 1962, and the strengthening of the executive government mandated by the constitution of the Fifth Republic (Evans 2003, page 12). Following this reform of the party system, three significant developments shaped the political landscape at the turn of the millennium: the emergence of a series of minor but relevant parties including the greens and the extremeright Front National, the change in strategic dynamics within party factions and within

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coalition members (exemplified by the decline of the communist PCF and the emergence of the PSF as the main party of the left), and patterns of growing electoral instability in the form of electoral volatility resulting in six consecutive changes of government since 1978 and disaffection towards traditional politics as demonstrated in higher abstention rates. The fractioning of the electoral vote is clearly illustrated by the fact that while the quadrille bipolaire, composed of the PCF and the PS on the left versus the UDF and RPR on the right, obtained an evenly divided vote exceeding 90% in 1978, this domination floundered in 1997 and 2002 when these parties obtained around 67% (Evans 2003, page 14). While the 1997 legislatives consecrated the PSF as the governing party, the victory was largely due to the lack of coordination in the right. The results of the 2002 presidential elections supported the hypothesis presented by Grunberg and Schweisguth in 1997 that the French political space was no longer simply one-dimensional with LeftRight polarization but had developed into a two-dimensional space with three poles: the Left, the Right, and the Far Right. In an updated publication, the authors analyzed the logic of considering the candidates labeled as “extreme left” as a fourth pole but hastily rejected it due to the relative proximity of their ideals to those of the moderate left (Grunberg and Schweisguth 2003, page 342). In whatever way the French electorate was partitioned, one thing is clear – it was fragmented, polarized, and built on weak coalitions.

Based on the potentially positive policy factors but clearly negative party system type described above, party control and coalition leadership would be expected to play a decisive role in swaying the PSF into, or away from, the camp of the Third Way. In the

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early 1990s the French left was at a major juncture in its political history. As previously stated, the disastrous 1993 elections dealt a crushing blow to the PSF. Evidently, although Francois Mitterrand was very successful in promoting himself, he left his party in dire straits. In distress, however, lies opportunity for change. The PSF was faced with a dilemma: given the low votes for the left across the board, either consolidate its leadership on a leftist platform and break with the stigma of a deceivingly centrist Mitterrand government, or establish itself as a centrist party and target the moderate left and moderate right electorates with the international support of strong Third Way proponents including Tony Blair, Gerhard Schröder, and Bill Clinton. The most likely contender to PSF leadership for the promotion of the Third Way was Michel Rocard, who had been chosen as Prime Minister by Mitterrand in 1988 “in a move which intended to facilitate the centrist entry into government” (Bell 2000, page 179). Rocard, a “modernizer,” became head of the PSF after the 1993 defeat and led the centrist faction of the PSF in the clash of ideals against the left-leaning faction led by J.P. Chevènement, who eventually left the party in 1994 (Bell 2003, page 55). The Rocardian ideology and the departure of Chevènement and his followers pointed to a possible move towards the center (Evans 2003, page 174). However, just as Rocard found little support for his promarket speech at the 1977 congress of Nantes, even from his closest followers, his main supporters once again decided “for internal reasons not to make their voice too forceful” (Bell 2003, page 54). Unable to sidestep the left-right ideological cleavage, Rocard resigned after his “Big Bang” coalition approach resulted in the worst-ever defeat of the socialist party in the 1994 European Parliament election (Stevens 2003, page 207). Lionel Jospin took the leadership of the left coalition with a more pro-left platform and, despite

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losing the 1995 elections, was able to win the legislative elections of 1997. Although Jospin’s government actions followed some Rocardian policies, including privatizations, a decreased role for the state, and social insurance reform, his rhetoric was measured to avoid alienation of coalition partners (he used, for example, the term “private participation” instead of privatization) (Bell 2003, page 47). In fact, leftist rhetoric was followed by leftist action, most notably with the unlikely implementation of the 35-hour week, but also the Aubry Law, which aimed to create 700,000 state-sponsored jobs for the youth (Sferza 2002).

The policy factors described above would have allowed the Third Way rhetoric to discernibly challenge the status quo. However, economic performance was positive in the mid-nineties and the center-right was not likely to be easily won over by a fledgling centrist PSF. Furthermore, the political factors were strongly unfavorable to the adoption of the Third Way rhetoric, since the leftist faction of the PSF and its leftist coalition partners were too strong for Michel Rocard, the lead PSF proponent of the Third Way.

The 5-factor model is applied below to three other major socialist parties at conjectural crossroads, each with its own characteristics and faced with the very different economic, social, and political landscapes of Britain, Germany, and Italy. The explanatory power of the model will be tested as it fits the actual rhetoric chosen by these parties.

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5. Application to the British Case: Blair’s New Labour We begin application of the model to socialist parties of other major European countries with Britain. The British New Labour Party emerged in 1997 as the benchmark for European socialist parties considering embracing the rhetoric of the Third Way. The Third Way of the New Labour Party represents today the most radical embodiment of the concept. Some even argue that New Labour amounts to “consolidation of Thatcherism” and that Blair “is little more than the ‘son of Margaret’” (Schmidtke 2002). Application of the model to the British case investigates the policy and political factors that led the New Labour Party to adopt the rhetoric of the Third Way as its unconditional political platform for the 1997 general elections. The triggering crisis was a simultaneous political crisis of both the incumbent party and the socialist party. After almost two decades of Conservative government the Labour Party began to seriously reconsider its most basic social and economic electoral platforms in order to avoid continued obliteration from the political scene. By the mid-nineties, the conservatives were the ones experiencing a political crisis. Internal strife over EU issues and the crash of the pound from the European Exchange Rate Mechanism crushed confidence in the Conservatives’ long track of economic successes. In addition, the weaker leadership of John Major, in comparison to Thatcher, provided a great opportunity for Labour to ride on the ideological and electoral momentum gained in 1992 and win over the middle class.

In order to take advantage of the situation, the Labour Party had to decide whether or not to adopt a new electoral platform. This decision depended on the policy and political factors existing in Britain in the mid 1990s. One option was to develop a customized

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version of the new election platform that democratic leader Bill Clinton proposed as he won the presidency of the United States in 1992. Clinton faced a very similar situation to that of Tony Blair, including a long-reigning incumbent Republican government and the imminent threats of globalization, and adopted a more liberal rhetoric that encouraged real opportunity, market liberalization, and a small government – the main tenets of the Third Way. According to our model, adoption of a similar rhetoric by the Labour Party would depend on the policy and political factors in Britain that preceded the 1997 elections, which are discussed in the sections below.

5.1. Assessment of the British “Goodness of Fit” In the period leading to the 1997 general election, the British welfare state, unlike that of France, was based on a combination of minimum universal rights and means-tested distribution of resources. The system was residualist in that it “delivered meager benefits, on the basis of need, as a last resort for those who are unable to support themselves through paid work” (Levy 1999). The predecessor of the British welfare state is the set of laws called the Poor Laws, which provided assistance to the very poor and were amended repeatedly until 1941, when the destructions of war incited a more equitable treatment of the people. The 1942 Beveridge Report triggered an attempt to shift towards a universal welfare state that gave “security from the cradle to the grave” (Field 1999). Actual implementation of a universal welfare state, however, resulted in fixed-level benefits below those recommended by Beveridge, which were insufficient to many and led to the introduction of a means-tested system. Although not comprehensive, the welfare state did pose a major burden to the government and the economy,

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representing 23% of GDP in 1979 when Margaret Thatcher came to power (Wilding 1997). Interestingly, the expected dismantling of the welfare state by a state-minimizing liberal government did not occur during the first two terms of the Thatcher administration, as the percentage of GDP it represented remained unchanged until 1988. Between 1987 and 1990, however, government took a “major offensive against the bureaucratic structures of welfare provision” (Le Grand 1993). Both central and local authorities saw significant cut-backs in their social services budget, and the system was “replaced by a more pluralist system of provision dominated by quasi or internal markets [which] radically changed the face of the NHS, Education, Social Care, Local Authority Housing and the role of the local authority more generally” (Wilding 1997). The Conservative government redirected welfare responsibility both by putting great stress on the family as the cradle of civic virtue and by privatizing social services operations.

The British economy, one of the most liberal in the world, highly contrasted with that of dirigiste France. Indeed, the “New Right ideologues…rejected indicative planning, public ownership, incomes policy, exchange controls, and sectoral intervention” (Wilks 1997). Britain, whose economy was significantly liberalized by the Thatcher government following the New Right ideology, was characterized in the OECD study on Product Market Regulation as a “relatively liberal” country (Nicoletti et al. 2005, page 19). The study ranked Britain as having the lowest level of control in outward-oriented policies and levels well below average in regards to control and regulation in inward-oriented policies. In the realm of outward-oriented policies, represented by barriers to trade and investment, Britain ranked highest in all sub-domains, followed closely by its neighbor,

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Ireland. Although it did not achieve such absolute ranking in inward-oriented policies, it did rank higher than every other European country in both barriers to entrepreneurship, where it is only outpaced by Canada, and state control, where it ranks 5th. Although Britain experienced a roller-coaster economic performance under the Conservatives, with two major recessions in 1983 and 1992 separated by a major boom, as well as a mature recovery leading to the 1997 elections (Wilks 1997), the legacy of the Thatcher and Major governments was the establishment of a clearly liberal overall economic policy.

In regards to the government machinery, Britain had adopted an interesting mix of public and private provision of public services, where public provision was shared by local and central government. Britain had a long tradition of democratic local self-government in which there was no regional tier of government imposed between central government and local authorities. From 1950 to 1994, the number of local authorities in Britain decreased drastically as a result of the Local Government Act of 1992, which replaced the two-tier system of local government in certain areas with a single-tier system (OECD, 1997). Government in Britain was administered in England through a series of central departments and subsidiary organizations and through national departments in the remaining countries. Two legislations of the Thatcher government significantly altered the make-up of government, with the creation of Executive Agencies in the 1980s that acted as policy implementation bodies and the merger of four central departments into Government Offices for the Regions (GOs) in 1994, with the purpose of fostering efficiency without increasing the power or cost of central government. In addition to altering the operations of local government through the encouragement of voluntary

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tendering – and compulsory for some services – the Conservative government increased the number of special-purpose agencies, the Quangos, which often operated at the local level and were not subject to local democratic control. In 1992, Quangos spent about £46.65 billion of public money (OECD 1997), or 17% of public expenditures (CIA World Fact Book 1992), while local government accounted for 25% of the budget (OECD 1997). The uniqueness of the British administrative organization, which did not incorporate a regional level interfacing the central and local levels, was well-reflected in the make-up of public sector employment figures. If regional government is considered local rather than central, Britain’s central government 47% of public sector employment was well above the OECD average, and only slightly below France’s 52% mark. This paper considers regional governments as central, bringing Britain’s central government employment to much lower levels than that of its counterparts whose regional governments represented a significant portion of public sector employment. Despite the reliance of social services on private contractors, private sector employment from 1985 to 1997 was in line with that of other OECD countries at about 80% of total employment.

The policy factors presented above characterize Britain as a country with a relatively unsuccessful liberal welfare state, a successful liberal market economy, and a decentralized government where both central and local governments inherited many of the powers normally held in other countries by regional governments. Rhetoric adoption of the Third Way could therefore be coherently developed to offer an alternative to the welfare state and bank on recent mishaps of the British economy.

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5.2. Assessment of the British “Mediating Factors” The political scene in Britain since the late nineteenth century had been dominated by alternating periods of two-party and three-party systems. The Liberal and Conservative parties battled virtually unchallenged until the First World War. Following the war, the 1922 general elections were characterized by the dramatic rise of the Labour party, which captured 30% of the vote despite having become politically relevant less than two decades earlier. The period from 1922 to 1929 experienced a three-party system, with the tightest race taking place in 1923, when the Conservatives won 38% of the vote versus 30% for the Liberals and 31% for Labour. Between 1931 and 1970 the Liberals never amassed more than 11% and played only a limited role in the duel between Labour and the Conservatives (Boothroyd). This situation has changed since the 1974 elections, when the Liberals won 20% of the votes and essentially allowed the Conservatives to stay in power for 18 years, from the 1979 elections to the 1997 elections. Party coalitions, although a decisive factor in some election years, played a subdued role in the general political history of Britain. The 1918 coalition government served as training ground for future election coalitions. The elections of 1931 marked the most significant coalition formation in Britain’s electoral history as Conservatives joined forces with their longtime opponents, the Liberals, and other minor parties, to defeat the rising Labour party and its coalition with the Independent and Irish Labour parties (which the conservatives would have achieved on their own anyway, with 55% of the votes). Between 1935 and 1966, only the Conservatives continued their coalition with other minor parties that aggregated from a high of 5.5% of the vote in 1935 to a low of 0.6% before the coalition

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was dismantled. In recent electoral history, the Liberals and the Social Democrats joined forces in 1983, with 26% of the vote placing them less than 1% behind Labour. The two parties ultimately merged for the 1992 elections and became the Liberal Democrats, amassing 19% of the vote. Interestingly, following Tony Blair's election as leader of the Labour Party in 1994, the Liberal Democrats controversially pursued a policy of cooperation with Labour, which eventually failed over proportional representation issues and other key Liberal Democrat demands.

The rhetoric of the Labour Party had already moved towards the center during the 1992 elections as Kinnock, leading Labour into his second campaign, was by then at the “head of a disciplined and well marshaled party, with changed policies and little remaining from the Foot era” (BBC 1992). Following the 1992 elections, Labour underwent several changes, with the replacement of Neil Kinnock by John Smith as leader, who was himself replaced by shadow home secretary Tony Blair after succumbing to a heart attack. A public school, Oxford-educated barrister, Blair was “no son of the left or the Labour movement, although he was a onetime supporter of the Campaign for Nuclear Disarmament” (BBC 1997). His tenure as shadow home secretary gave him no direct experience of government since he entered Parliament in the Thatcher years, but support of his powerful colleague Gordon Brown helped him win the contest for party leadership against John Prescott and Margaret Beckett. Blair oversaw dramatic changes that epitomized him as a powerful and commanding leader. Under his leadership, the modernization of the party stepped into a much higher gear than under Kinnock. Of particular relevance were the party’s eradication of the commitment to nationalization as

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set out in Clause IV of the party constitution and the adoption of its new name, New Labour, which Blair came to personify during the election campaign. In contrast to Conservative opponent John Major, Tony Blair showed true party leadership, as he himself stated: “I lead my party, he follows his” (BBC 1997). Besides strong party leadership, the lack of coalition constraints gave Tony Blair great power to adopt the rhetoric of the Third Way.

Given the policy and political factors described above, namely, successful economic and administrative policies in line with the Third Way, unsuccessful social policy misaligned with the Third Way, a political system characterized by a three-party system free of coalition constraints, and a strong leadership committed to the Third Way, the 5-factor model would support adoption of the Third Way rhetoric. New Labour did chose indeed to base its 1997 election campaign on the rhetoric of the Third Way, pushing its platform further to the center than had been proposed in 1992. This strategy, running on the back of a mild crisis in the Conservative party with a weak leadership and economic setbacks, rewarded New Labour with a landslide victory, stealing 16% of the votes from the Conservatives but only 2% from the Liberal Democrats. The latter became a new force to be reckoned with, particularly given their center-left rhetoric relatively similar to that of the Labour Party and their adopted stance against the war in Iraq.

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6. Application to the German Case – Schröder’s Neue Mitte Application of the 5-factor model to Germany focuses on the period preceding the 1998 elections that consecrated SPD Gerhard Schröder as Chancellor of Germany. Schröder’s electoral platform went counter to the traditional socialist platform that heavily promoted a strong welfare state and socialist economic policies. This change in rhetoric was triggered by a similar phenomenon as that of Britain’s described above. Just as Tony Blair banked on the lethargy created by the long reign of Thatcher and her cronies, so did Gerhard Schröder rely on 16 years of right-wing reign under Kohl and a burning desire of the German people for something “new” following the disappointing impact of unification on the German economy as a whole. Instead of following the traditional socialist platform, Schröder aligned himself with concepts of the British Third Way, but at the same time proposing a milder version of it due to Germany’s different social, economic, and political landscape, as analyzed below. 6.1. Assessment of the German “Goodness of Fit” The German welfare state, similar to that of France, was based on “Bismarckian traditions, supported by family values…, work position and social entitlements” (Zeitlin and Tubek 2003, page 107). Germany prided itself on its Wohlfahrtstaat status and provided a comprehensive set of social benefits in the forms of social security, social welfare, and other social programs. Contribution rates to the social security system increased from 26.5% of gross wage in 1970 to 42.2% in 1998. In the late 1990s it accounted for approximately 22% of GDP, placing it ahead of France (Siebert 2005, page 128-134). Besides social insurance, social welfare, or Sozialhilfe, represented an

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increasing portion of government expenditure, as it grew from approximately 15% of expenditures in 1970 to over 25% in 1998 (Siebert 2005, page 134). OECD social indicators pointed to successful social results across the board in comparison to OEDC averages, except for the rate of unemployment (9.3% versus 7%) and the old age strain reinforced by low fertility rates. Germany had indeed a large welfare system with high net salary replacement rates (67% versus 40%), low income inequality, high social and health care spending (33% of GDP versus 26% and 10.9% of GDP versus 8.4%, respectively), and healthier levels of subjective well-being and isolation, particularly in comparison to France. Finally, youth unemployment hovered around 10% in Germany versus 20% in France, reflecting lower exclusionist effects.

In comparison to France, the German social market economy imposed fewer constraints on free enterprise and open markets. The OECD study on Product Market Regulation categorized Germany as a “middle of the road” country (Nicoletti et al. 2005, page 22). According to the study, the German government exerted above-average state control and regulation in inward-oriented policies but significantly below-average control in outwardoriented policies. In regards to inward-oriented policies, Germany had the 10th and 9th highest levels of public ownership and involvement in business operations, respectively, placing it slightly above the average OECD country in terms of state control. In terms of barriers to entry, Germany fared slightly better. Although it had a similar ranking as state control for “administrative burdens on startups” and “regulatory and administrative opacity,” the ranking was much better regarding “barriers to competition,” where it had the 3rd lowest level of constraint, bringing the aggregate “barriers to entry” category

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closer to, although slightly above, the OECD mean. In regard to outward-oriented policies, Germany fared very well. This category is based on the degree of barriers to trade and investment, and Germany ranked 20th in 1998.

The level of dirigisme in Germany was low in comparison to France, particularly due to its federalist form of government. Federalism is rooted in German history, where for centuries people lived in a number of independent municipalities. Although unification occurred in 1871, the regional states continued to be relatively independent (Siebert 2005, page 278). Despite the traumatic transformation of the previously centrally planned economy of eastern Germany into a market economy, by 1998 the reunified Germany was running an enlarged federal system where administrative and financial responsibility was largely bestowed on the states. Besides strong decentralization, Germany relied on a system of governance that combined market forces with non-market mechanisms that were controlled by different levels of government as well as social groups, including trade unions, employers associations, and workers’ councils (Siebert 2005, page 325). Levy characterizes the German model of government as one of high social coordination and a tendency for a market economy opposed to statism (Levy 1999, page 285). In terms of public sector employment, the central government accounted for only 15% of the total public sector in 1997 (less than a third of the French percentage), which in turn accounted for 18% of total employment in Germany.

The main policy factors countering the Third Way were the comprehensive welfare state and a relatively constrained internal market. Differentiation from the existing right-wing

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government could therefore be based on these points, should the socialist party decide to adopt the rhetoric of the Third Way. 6.2. Assessment of the German “Mediating Factors” The recent party system type in Germany can be qualified as a moderate pluralism. After the First World War, a democratic republic replaced the monarchy. However, the strength and mutual antipathy of the Communist and National Socialist parties, reflecting an extremely polarized party system, precluded the formation of strong majority governments. The virtual obliteration of both Nazi and Communist ideological parties after the Second World War and the collapse of the Soviet Union resulted in a party system of moderate pluralism. German politics became dominated by the reformist Social Democratic Party (SPD) on the left and the two-party conservative alliance of the Christian-Democratic Union (CDU) and its Bavarian ally, the Christian Social Union (CSU). The SPD formally abandoned Marxism in 1957, and the CDU-CSU replaced the old collaboration parties of the right. Between 1949 and 1998, the SPD held office only between 1969 and 1982, while the remaining periods were under CDU-CSU leadership (Carr). The 1994 Bundestag election results, immediately preceding the 1998 elections, were 41.5% for the CDU-CSU and 36.4% for the SPD, with the remaining votes closely split between the minority parties, including the liberal Free Democratic Party (6.9%), the environmentalist Green Party (7.3%), and the left-wing Party of Democratic Socialism (4.4%). Interestingly, the coalition of the right had obtained 54%, 55%, and 57% in 1983, 1987, 1990 respectively, but only around 50% in 1994 (CDU/CSU, FDP) as the Greens and PDS gathered more power and set the stage for a potential coalition of opposition in 1998. This repartition of votes characterized the German party type as a

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moderate pluralism, although closer to a two-party system than to a polarized pluralism. This stage offers an easier task for its proponents to gather support than under the French party system, but not as straightforward as under the British system.

Based on the three policy factors and the party system type analyzed above, the second political factor, party leadership, though it faced an easier task than the PSF in promoting adoption of the Third Way, still faced an uphill battle to persuade all factions that the signature aspect of German economic and social life, the Wohlfahrtstaat, needed substantial reform. Unlike his French counterparts Rocard and later Jospin, however, Schröder did not face the constraints posed by powerful left-wing coalition partners. In addition, his charismatic reach far outplayed that of his French counterparts. At age 54, Schröder stood out as new blood with a socialist background and a progressive discourse to “redress Germany” with a new Wirtschaftswunder. A captivating politician and savvy campaigner, he was able to form a coalition with the Greens and steal center-right voters away from the right-wing coalition. In fact, “throughout the campaign Mr. Schröder has put aside left-wing ideology, trying rather to win over what he calls the new centre of German politics” (BBC News Online, 1998). According to Schröder, the SPD platform was based on the “renewal of Germany's economic system, cuts in unemployment, and trimming of the state's overgenerous welfare payments without harming those in real need” (BBC News Online, 1998). Under Schröder and with the move to the center, the SPD gained about 7% over previous elections, which in conjunction with the Greens comprised 51% of all votes. Because economic planning and government organization did not need as much change as the welfare state to conform to the Third Way, the latter

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was the main focus of the chancellor. This corroborates the explanatory results of the model, which pointed to a rhetoric based on reduction of the welfare state and of unemployment through a “real opportunity” approach to workforce reinsertion. Indeed, proposal of both the Hartz 4 program and decreased unemployment through internal labor market reform comprised the heart of the new socialist platform. The shift towards the center, however, did not occur without opposition. In March of 1999, the head of the SPD and finance minister, Oskar Lafontaine, presented his resignation in response to divergence with the ideologies of the newly elected Chancellor. In opposition to the business wing of the SPD, “Lafontaine advocated a program of state measures to counter the negative social effects of globalization and an unrestrained market…[and] advocated increasing incomes in order to increase domestic demand – so flying in the face of the dominant supply-side orientated policies” ( Schwarz 1999). Schröder handled the notable Lafontaine with authority and further reinforced his leadership of the party and internal support of the policies of the Third Way.

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7. Application to the Italian Case – D’Alema’s Progressive Initiatives The last application of the 5-factor model in this paper is to the main Italian socialist party of the mid 1990s, the Partito della Sinistra (PDS). The case of Italy provides a clearly different economic, social, and political landscape than that of the previously analyzed countries, as further described in the following sections. As in France, the Communist party, Partito Comunista d’Italia (PCI), drew a very large percentage of votes during the country’s First Republic, with a peak above 34% in 1976 that gradually decreased thereafter (Schmidtke 2002) but never amassed enough votes to come to power. The fall of worldwide Communism and the general consent for the EMU objective in the early 1990s, however, allowed for the waning of a First Republic that condemned the left, and the PCI in particular, to eternal opposition. The trigger for a potential adoption of the Third Way by the PDS in 1996 was the build-up of legitimacy since spinning off from the PCI in 1991, the dismantling of the Christian Democratic Party, and the major blow to the center-right government by the departure of the Northern League from the Forza Italia alliance of the North. We now analyze the policy and political factors of 1996 Italy in order to predict whether the PDS would have been likely to embrace the rhetoric of the Third Way. 7.1. Assessment of the Italian “Goodness of Fit” The Italian welfare state belongs to the Christian Democratic welfare system, which is characterized by the polarization of social benefits where privileged insiders enjoy disproportionate protection at the expense of the mass of citizens, who receive little or no coverage. The case of Italy, however, represents an extreme version of this system

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whose problems are aggravated by “large state administration …and the operation of patronage politics” (Levy 1999). During the Christian Democratic hegemony throughout the First Republic until the 1980s, partisan politics took central stage through corruption, inflated benefits, and conscious oversight of tax evasion by the critical political constituency. As the supremacy of the Christian Democrats (DC) faded, the government in the 1980s was led by a five-party coalition, the pentapartito, whose members instead of eradicating corruption and partisan politics became part of it. As a result, by the early 1990s Italy found itself in dire straits with a budget deficit and public debt reaching 10% and 100% of GDP, respectively (Levy 1999), as well as a welfare state increasingly polarized. One example reflecting the level of fiscal burden and polarization is that of the pension system, which provided a basic pension in manufacturing of “89% of average net earnings of current workers, [while] the minimum social pension for those who did not accrue was 19% of average earnings, barely one half of the European Union level” (Levy 1999). It was only in 1992, with the advent of application to the EMU, that a mani pulite investigation destabilized the parties of the pentapartito, most notably the Christian Democrats and the Socialist Party of Italy (PSI), and permitted three governments of technicians, led by Amato, Ciampi, and Dini between 1992 and 1996, to redress the spiraling budgetary and social crisis. Progress was made in the period leading to the 1996 elections, and the operations of the technicians was supported by a PDS eager to establish its governing credentials (Levy 1999).

On the economic planning front, Italy placed amongst the most interventionist OECD countries. Despite a high savings rate, funds were directed to government debt rather

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than to commercial banks that could help spur the postwar boom. The equity markets were very small in comparison with other European countries. Most investment activity and control was sponsored by merchant banks, the government, and a small group of families. An example of concentrated ownership is that of the Mediobanca, the commercial bank that “influenced the direction of many industrial holdings by being the principal financial instrument for over 40 years” (Schmidtke 2002). In the late 1990s, the market economy of Italy was ranked as “relatively restrictive” by the product market regulation study conducted by the OECD, surpassing France as the most restrictive of the original 15 EU members besides Greece. Inward market regulation was very high, as Italy had the highest level of public ownership and second highest level of state control and barriers to entrepreneurship, behind Greece and France, respectively. Outward market regulation was less restrictive but still above OECD averages, with the 7th highest level of barriers to trade and investment (OECD 2003).

Government administration in post-war Italy was characterized by the democratic consensus stipulated in the country’s new constitution, which was “based on a widespread consensus whose basis lay in the fear of a return to an authoritarian regime” (Schmidtke 2002). With an unwillingness to yield power to the opposition, both left- and right-wing parties adopted a commitment to accommodation, which was solidified by the provision of a number of access points to political and social groups. Civil society in post-war Italy, with the exception of some regional associational heritage, was weak at the national level and lacked autonomous structure (Putnam 1993). This lack of local self-government ability allowed the ruling parties to “appropriate state agencies,

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nationalized industries, and even government departments” (Pasquino 1985) in what was called the partitocrazia. Another factor that characterized Italy was the gradual decentralization of power based on the principles of regionalism laid down in the 1948 constitution. In 1948, devolution of power was granted only to five regions rejoicing in special status, while devolution to the 15 ordinary regions was delayed until 1970, and only in 1993 did the parliament approve the direct election of mayors and presidents of provincial governments (Economist 2004). There are two tiers of government below the regions—the provincial (provincie) and municipal (comuni) administrations. Central government employment represented 62% of total Italian public sector employment in 1990, a figure that dropped slightly to 59% before the 1996 election, but stood at a level well above even that of dirigiste France. Besides this mild decentralization of public employment, further downsizing of government in general was reflected by the dramatic decrease of public sector employment from 23% to 16% of total employment between 1990 and 1996.

The policy factors of the 5-factor model were completely misaligned with the rhetoric of the Third Way, which proposes equal opportunity instead of corruption and specialinterest privileges, free markets instead of a restrictive economy, and decentralized power instead of a heavy, inefficient central government. Because all three policies were failing in Italy and threatened to keep it outside the EMU, proponents of the Third Way would have no difficulty in formulating a coherent rhetoric that included all three policy areas.

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7.2. Assessment of the Italian “Mediating Factors” After 20 years of authoritative absolutism under Benito Mussolini, Italian parties of both left and right adopted a democratic consensus aimed at upholding the newly-obtained democratic political system. Under the First Republic, the political landscape was characterized by a predominant-party system, in which government was always composed of coalitions of the DC and one or more smaller parties, including the PSI from 1963 onwards. There was no alternation in power between right and left, as a centrist consensus was reached with the aim to keep out the PCI because of its "anti-system" rhetoric. However, as Communism collapsed worldwide, the PCI transformed itself into the non-Communist PDS, whose change of orientation drew hard-line Communists to establish the Communist Refoundation Party (PRC). In addition, the mani pulite investigations of 1992 led to a complete renewal of the political landscape, with the obliteration of the PSI, the creation of the centrist Northern League and the populist Forza Italia, the reincarnation of the MSI as the National Alliance (AN), and the split of the DC into the Popular Party (PPI) and the Christian Democratic Center (CCD). Coalitions came to play a major role in Italian politics, often across the left-right spectrum. Forza Italia responded to a failed three-party coalition attempt with the AN and the Northern League by establishing separate and contradictory alliances with each of them. Because Italian politics had for decades been based on fluid coalitions with the DC, the political landscape of the mid 1990s was very unstable and coalition possibilities abounded.

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While a coherent Third Way rhetoric could be developed by its proponents given the contemporaneous policy factors, the unstable nature of the moderate pluralistic party system of Italy would require strong leadership and strategic alliances for the rhetoric to be adopted by the party and allow it to win the 1996 elections. After the 1994 defeat of the PDS-PRC coalition to the coalition led by Berlusconi, Massimo d’Alema, a 30-year veteran of the PCI and shrewd strategist (BBC 1999), became party leader of the PDS, a change in helm that had “strategic consequences rather than any significant impact on PDS policy positions” (Schmidtke 2002). D’Alema understood the importance of a broad coalition in the new context of proportional representation and in 1995 orchestrated the Ulivo (Olive Tree) coalition between the PDS, the PPI, and other parties of the centerleft, with the separate support of the PRC. This coalition further benefited from the withdrawal of Northern League support for Berlusconi, which dealt a major blow to the coalition of the right. The Ulivo coalition was led by former Christian Democrat Romano Prodi, which helped draw centrist support to a coalition of the left. Prodi, a calm and focused politician, had served as Minister of Industry and proved his managerial skills as chairman of the powerful state-owned industrial holding company IRI in the late 1980s and early 1990s, turning huge losses into profit and launching privatization programs.

The Ulivo Coalition won the election with a narrow margin by adopting a platform largely based on the rhetoric of the Third Way, with a special focus on corruption eradication, fiscal responsibility, and EMU ascension. Romano Prodi became leader of the first genuine center-left government in Italy since the fall of fascism until the PRC

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withdrew its support and created its own Communist party. Massimo d’Alema took over as Prime Minister in 1998, presiding over two short-lived coalition governments.

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8. Conclusion Application of the 5-factor model to the French case showed various reasons for the reluctance of the PSF to adopt the rhetoric of the Third Way. The political crisis engendered by the staggering defeat of the PSF in 1993, coupled with pressures from globalization and sister socialist parties, ignited a movement led by Michel Rocard to shift the rhetoric of the PSF towards the center. However, the combination of policy and political factors in France prevented the proliferation of Rocardian ideals. In theory, unsuccessful policies misaligned with the Third Way should provide ammunition for a coherent electoral discourse encouraging change. This was the case in France, as fledgling reforms had barely begun to address the failures of the corporatist welfare state, the dirigiste government machinery, and the restrictive economic system. However, because these reforms were in a very preliminary stage, an overbearing amount of effort would be needed to significantly implement the policies of the Third Way. Given the nature of the policy factors, which were theoretically positive but difficult to change in practice, very strong political factors would have needed to be in place to enable adoption of the Third Way rhetoric. In the period leading to the 2002 elections, however, the political situation could not have been more unfavorable. The French party system was a strong polarized pluralism characterized by weak coalitions of both the right and the left. In addition, the potential Third Way leadership within the PSF was eclipsed by a leadership based on compromise with left-wing ideals, at least at the rhetorical level. The surprisingly positive performance at the 1997 legislatives, which forced a coalition government and consecrated Third Way opponent Lionel Jospin as prime minister,

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further depressed the possibility of a change in rhetoric in the period leading to the presidential elections.

Looking forward, since the 5-factor model requires a triggering political crisis for adoption of the Third Way rhetoric, the choice of old-left rhetoric for the 2002 electoral platform, combined with the favorable outcome of the subsequent legislatives of that year, should significantly decrease the likelihood of PSF adoption of the Third Way at least until another political crisis occurs. In fact, given the tripartite nature of the French political landscape, it would not be surprising that the rhetoric of the Third Way be adopted by the Center Right coalition instead of the PSF since the newly formed centerright UMP finds itself between a left-wing coalition and an increasingly strong extremeright. In order for the PSF to become the driver of change, significant changes would still need to take place in the aggregate conduciveness of the model’s policy and political factors. The highest impact could be expected from a change in the party system type, which represents a major obstacle to the emergence of strong leadership, and the dirigiste nature of the French government, which impacts both the economic and administrative policies of the nation.

Extension of the 5-factor model to the cases of socialist parties in Britain, Germany, and Italy validates the explanatory power of the model. Our analysis concludes that the British New Labour, the German SPD, and the Italian PDS adopted the rhetoric of the Third Way to different degrees based on the composition of each of the model’s policy and political factors, as well as their combined make-up. We find that the more in tune

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the policy and political factors were with model requirements for adoption of the Third Way, the more comprehensive and long-lasting was the adopting government. Accordingly, the strongest fit to the 5-factor model, British New Labour, has remained in power from 1997 to this day. The second-strongest fit, the German SPD, stayed in power from 1998 until the victory of the CDU/CSU in 2005, although it still represents a major power in the grand coalition government, whose proposed reforms do not stray significantly from those of the Third Way. Finally, the third best fit, the Italian PDS, remained in power for only four years, with a change in leadership in between, although it was able to pursue some of its proposed reforms and gain ascension to the EMU.

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