City & Business: Forget the Third Way, go for the Fourth

THE BIG news at the Labour conference last week was the news that didn't happen. Tony Blair omitted to announce the Government's new economic programme. To be named the Fourth Way, this programme is being cobbled together as the Third Way goes down in flames with the global economy.

Interviewed on Radio Four's Today programme on Tuesday, the Prime Minister put on a brave face as the carefully constructed edifice of his Thatcherism- with-a-human face prescriptions tumbled all about him. The Third Way, after all, is built on the assumption that the era which began in 1979- 80 with the elections of Mrs Thatcher and Ronald Reagan would continue on into the future.

But the Thatcherite-Reagan era ended in July, when the stock market peaked and the economic tide began running with those seeking new measures to forestall the full effects of the gathering world economic crisis. Globalisation is not dead, nor entirely discredited. But no one today can argue that it is generating satisfactory economic growth or even guaranteeing satisfactory economic stability. The Third Way presumes it will do both.

Mr Blair told John Humphries that there are three ways we can move on now the 1990s boom is over. The first is to continue as before. This, the Prime Minister declared, was not on. The Asian financial crisis, Russia's implosion, the prospect of the contagion spreading to Latin America, the collapse10 days ago of LTCM, the hedge fund so gilt-edged that even the central bank of Italy invested in it, the pounds 10bn bankruptcy of Japan Leasing, the possibility that a major Japanese or even American or European bank may fail, and the fact that we will be lucky to escape a global recession at least as severe as the 1990-92 recession all make this an impossibility.

The second way to go is to put a clamper on the free flow of capital around the world, Mr Blair said. This is not on either, he argued, as it would inevitably lead to global trade wars and a return to the 1930s.

The third way to go is to do more or less what President Bill Clinton declared he wants to do on Friday - go for a reform of the international financial regime in recognition that the global financial markets that grew up during the Thatcher-Reagan era are good, but not perfect.

Not announcing the Fourth Way at Blackpool was politically astute. The global economic situation remains unsettled, to say the least. Anything could happen. The Government wants to give itself room for manoeuvre. By claiming there are three ways to respond to the global economic crisis and opting for the middle way, Mr Blair certifies himself as the Great Centrist.

His call for "more transparency" - i.e. an opening of government ledgers in Kuala Lumpur, Moscow, and Mexico City as well as the hated hedge funds - sits well with Tony's mates in Washington.

If Clinton and his economic team can stop the coming bear market and recession in their tracks, so much the better for all of us. And so much the better for Tony politically for signing up to Bill's emergency programme right from the start.

If, on the other hand, Bill and his economic team are swamped by economic events and are fated to go down in history as the Baby Boomer soulmates of Herbert Hoover, the US president who ushered in the 1930s depression, then Tony can always distance himself from Washington, and throw Britain's lot in with the continent. The advent of the euro signals many things. But what it has always signalled at bottom is a circling of the European wagons in the face of a perilous global economy.

The Bundesbank would like nothing better than to run European monetary policy for the benefit of Europe alone while lecturing the world on the need for Teutonic self-discipline. This prescription will not appeal to many British voters, but if worst comes to worst, it will do.

The Blackpool conference, then, and Mr Blair's appearance on Today were holding actions. Make no mistake, as our politicians like to say - typically, with an emphatic hand gesture - the Fourth Way is on its way.

When he does announce the Fourth Way, the Prime Minister will, of course, be at pains to clarify the situation. The Third Way, he will explain, was predicated on very, very conservative economic forecasts. But these are not normal times, he will say, so the forecasts on which plans for increased health, education, and welfare spending were based have had to be revised - downward.

Second, he will reaffirm his commitment to a modified form of globalisation. Not to do this would be to make himself vulnerable to the left of his party. In Blackpool last week, the spectral figures of Tony Benn and his stepchildren in the Grassroots Alliance lurked on the fringes singing the siren song of renationalisation and a return to central state planning.

The Tories may yet find a new wind in the rural shires turned off by the metropolitan cast of New Labour. But the heaviest challenge to the Government in the new, harsh economic environment is going to come from people saying: What's wrong with Old Labour?

Explaining the Fourth Way, the Prime Minister will talk up the medium- term benefits of a new, "21st century architecture" for the global financial regime rather than a dismantling of it.

He will thus show himself as astute in his understanding of the limits to British national sovereignty as ever. We will still be ruled by bond traders. Our economic health, even in its diminished state, will still depend on developing a labour force well educated and flexible enough to outsmart the billion-strong Chinese labour force.

These, however, are the easy predictions. The hard call is the most important. How is Mr Blair going to build on the principles of his Government in the face of a difficult, if not awful, economic situation. How will he follow through on his promise of bringing prosperity through social justice?

Digging into the personal and collective resources of the nation to overcome adversity chimes well with the Dunkirk spirit. Evoking this spirit has never seemed more timely. It hardly chimes well, however, with the widening gap between rich and poor. So how does the Government reduce this gap during a recession in 1999 when it was already having a tough time doing it during boom times in 1997?

The way ahead is for radical, imaginative political action. Boil down this phrase and what it means is tackling political taboos - putting on the political agenda things long off the agenda.

If, for example, Mr Blair is seriously interested in "transparency" he might call for the repeal of bank secrecy laws in the Channel Islands and Switzerland. Imagine an opening of the books in hoary, deeply, cynical Zurich! Imagine what would crawl out of the woodwork.

Simultaneously, if the Prime Minister is interested in maximising our human resources, he might call for an end to offshore tax havens. The great unchronicled story of the 1990s boom is the grab for wealth by a tiny international elite riding high on the back of globalisation. It is hard for all those not participating in this grab - whose material lives are still proscribed by national boundaries - not to feel as if they are being played for suckers.

The Fourth Way thus might prove better than the Third Way. But Mr Blair will have to differentiate himself from the politicians with whom we have all grown dismally accustomed - and from whom we have all grown dismally alienated. Let's hope he has it in him. Let's hope the Fourth Way shines as a model of coherent, honest, and plain-spoken politics.