The ?Third Way? Or the Old Way?

Abstract

This paper is part of a Symposium entitled ?American Regulatory Policy: Have We Found A Third Way?? In the decades following World War II, until the oil shocks of the 1970s, Western European countries developed generous, inclusive, exemplary welfare states. Despite the differences between the countries, the defining principle was inclusion ? all citizens within the nation were deserving of support. Unions, under corporatist bargaining arrangements, exercised wage restraint in return for benefits. The welfare states rested on full employment prosperity. In other words, most people contributing to the welfare state rather than drawing benefits. In the past two decades, these countries have been suffering from sluggish economies and, most seriously, high rates of long-term unemployment. Many policymakers are looking to emulate the United States and, more recently, the United Kingdom. They argue that the welfare state is too generous and that labor has to be made more flexible. The paper then examines the U.S. welfare system, where the emphasis is on work and exclusion. It argues that rather than being the so-called ?Third Way,? this has been the historic mission of the liberal welfare state. The paper concludes with proposals for reform.