A Third Way, to Palookaville
Jude Wanniski
June 10, 1999


Memo To: William F. Buckley, Jr.
From: Jude Wanniski
Re: Kemp's Rome speech

Our old friend Jack Kemp may not be running for political office anymore, but his public speeches seem to be getting better as a result. I'm almost ashamed to say I did not read until Wednesday afternoon the speech he gave a week ago in Rome, at an international conference on "Europe, 10 Years After the Fall of the Berlin Wall." You can read the speech in its entirety at the website of Empower America, but I selected the latter half which deals with "The Third Way," the evil idea that has enraptured British Prime Minister Tony Blair and has infected the Conservative Party in the U.K. as well. Of course, President Clinton and Al Gore think it is a swell idea, when in fact it is a new way to Orwell's 1984. We spent the 20th century defeating fascism, then communism, now there is this "Third Way," which sends Kemp up the wall. It should send you up that wall too.

The opening of the speech is about the German Miracle wrought by Finance Minister Ludwig Erhard after WWII. We pick up the speech here...

What caused this Wirtschaftswunder—this economic miracle? Well, first of all, it was not a miracle! Chancellor [Conrad] Adenauer and his economics minister Ludwig Erhard both said that Marshall Plan aid had little to do with it. They didn't try socialism, and it wasn't some government industrial policy. It certainly wasn't a World Bank or IMF-imposed austerity program.

Erhard established a stable currency, and maintained its integrity as a storehouse of value and a unit of account. He allowed the markets to work freely in setting prices and wages, and in allocating resources by eliminating, in one bold stroke, all rationing and price controls. He dramatically reduced the steeply graduated tax rates on working, saving, investing and producing. He applied orderly principles of law to private property, patents and contracts. And, he began to weave a safety net, not a tax-and-transfer hammock, to take care of those who, for one reason or another, couldn't take care of themselves.

Erhard's reforms all rested on one fundamental principle of democratic capitalism: that prosperity, wealth and opportunity can only be created by people acting freely and entrepreneurially—by strengthening the people and relying on their talents and potential—not government planning. Ladies and gentlemen, the key to wealth and prosperity is allowing people freedom—freedom to work to save, freedom to own their own property and homes, to succeed, and yes, to fail, but try again. The ultimate source of the wealth of nations—and indeed the wealth of the world—is free people, free trade based on sound, honest money, reasonable tax regimes, and the certainty that the rule of law will prevail and that the sanctity of contracts will be enforced.

In my view, Eastern Europe's problems are no worse than those of post-war West Germany. The governments of Eastern Europe cannot expect to bring back growth without using the same classical economic approaches that restored prosperity to West Germany and helped revitalize the American economy under the policies of Ronald Reagan. There is no third-way. Eastern Europe really doesn't need more development banks; it doesn't need industrial policies; it doesn't need government-to-government grants and massive infusions of Marshall-style aid or politicians feeling people's pain. The people themselves are a source of wealth. Government doesn't need to invent new things to do; it just needs to do the traditional things well: protect property rights and civil rights, enforce contracts, and maintain order in a fair and just manner.

President George Bush expressed it well: "We know what works -- freedom works....We know how to secure a more just and prosperous life for man on earth: through free markets, free speech, free elections, and the exercise of free will unhampered by the state." The most important lesson of history is that the right policies lead to the right results. The sudden shift away from communist and socialist central planning has sometimes resulted in great pessimism about just what the "New World Order" will be. Here are people who have lived with the heavy boot of government central planning and dictatorship on their necks for some forty or fifty years -- suddenly breathing the air of freedom and hope -- only to be told by some intellectuals in the West that what they will experience is years of pain and unemployment, sacrifice and difficulty, poverty and despair.

Jeffrey Sachs from Harvard, using the conventional wisdom, advised Poland's first noncommunist government to impose devaluations and austerity. Poland increased taxes, rationed credit, postponed privatization of enterprises, imposed strict wage controls, dramatically devalued the zloty, raised consumer prices, and crushed demand, causing so much pain and bickering that the great movement of Solidarity broke up into factions and disputes.

The IMF went about its merry way prescribing what it always had prescribed, and continues prescribing to this day: more burdensome debt on overextended governments along with austerity policies and higher taxes on the people, all the while currencies sink rather than float. And United States officials and intellectuals did their share to contribute to the confusion and uncertainty. President Clinton's first labor Secretary, Robert Reich, who is now a professor at Harvard, was spouting Third-Way mumbo jumbo even before it became all the rage. He declared an end to the "myth" that "the little guy who works hard and believes in himself" will succeed in America -- claiming that we have entered an age of "collective entrepreneurialism." A new age where investment will be directed [by government presumably] for the "good of society."

Or, listen to another one of President Clinton's brain trusters, Lester Thurow. He argues that the "individualistic, Anglo-Saxon, British-American form of capitalism" has failed. Our economy, he contends, can no longer rely on "the brilliant entrepreneur, Nobel prize-winners, individual responsibility, and the Lone Ranger." It comes as no surprise that his most famous book is titled Zero-Sum Society, nor is it surprising that at the very moment Ronald Reagan and Margaret Thatcher were preparing to restore prosperity in the U.S. and Britain, professor Thurow stated that the economic engines were shut down in America and across Europe, and they would not be starting up again in the foreseeable future.

This is Third-Wayism at its best -- a theory that prefers the collective over the individual. Planning over initiative. Industrial policy over competition. "Public investment" over private choice. And, it is publicly justified by an appeal to "fairness" and "security." Security in our jobs; in our health; from cradle to grave. A powerful appeal -- but also what a great American entrepreneur and philanthropist, Ted Forstmann, has called "a false promise and a fool's gold."

The answer to poverty is not austerity, nor is the answer international welfare forced on countries by international bureaucracies like the IMF and the World Bank. The real answer is economic growth that flows from the freedom of individuals to work, save, invest and trade with each other, and produce new wealth. The role of government is to protect these freedoms, and in so doing invite economic growth and an end to poverty.

1. This means preserving the value of the people's money, not cheating them out of their savings through currency devaluation. This will encourage them to produce and save more.

2. This means relying on the rule of law to defend their property rights to maintain the sanctity of their contracts, so the people need not fear the confiscation of the fruits of their labors. This will encourage them to labor more.

3. This means levying taxes carefully and lightly, permitting the people to keep as much of their production as possible, and thereby encouraging them to produce more.

4. This means taxing solely to raise revenues for the legitimate needs of the state, not to punish wealth and success to promote egalitarian ends.

5. This means liberalizing global trade rather than creating protectionist trading blocs.

6. This means preserving the competition of the marketplace at all levels of enterprise, resisting the impulse to protect big business and state enterprise at the expense of young and small entrepreneurs who can ultimately create most of the new wealth.

These are the lessons we have learned in the West in the last 250 years, beginning with the linkage of Jeffersonian democracy and Adam Smith's economic system of natural liberty. We have relearned and refined these lessons most recently with Ludwig Erhard's miracle in Germany, Ronald Reagan's revolution in the United States, Margaret Thatcher's revitalization of Great Britain. So-called Third-Way politics and economics carried to their logical ends will result in stultified economics and a radical redefinition of the meaning of internationalism, perverting it into an aggressive interventionism.

What does the Third-Way Movement seek in the coming decade on the economic front? To use multilateral environmental agreements such as the Kyoto Protocol to impose a regime of slow growth by using bogus science and scare tactics to smuggle in all manner of social and economic regulations. The Third-Way Movement is really about how international bureaucracies are to be stitched together and mobilized into an integrated bureaucratic infrastructure, and how that global bureaucracy will advance Third-Way globalism at the expense of individual freedom and national sovereignty.

We have seen these nefarious forces at work in the Balkans, as NATO and Third-Way leaders have sought to impose on Yugoslavia an untenable peace, usurping its sovereignty. The promise of rebuilding the war-torn region is touted as a way to preserve the peace, but in reality would bolster the international bureaucracy and stifle individual freedom. Tony Blair describes the war in Kosovo as the "first progressive war, which is being waged in pursuit of a new internationalism." NATO's secretary general, Javier Solana, says the purpose of the war is to lay the predicate for a "new strategic concept," by which he means the distortion of international law to legitimize the intervention of unelected international institutions into the internal affairs of sovereign nation states for humanitarian reasons, and the selective use of international courts to enforce this new global order. The intellectual guru of the Third-Way Movement, Anthony Giddens, talks enthusiastically about "cosmopolitan interventionism."

U.S. Secretary of State Madeleine Albright explained her vision of continuous humanitarian intervention around the globe when she told the Brookings Institution that she conceives of NATO being involved in two or three such "out-of-area" adventures at any given time in the future. She said, "Some suggest that Europe should take care of Europe, freeing America to concentrate on responsibilities elsewhere. But this makes no sense. It would create the twin false impression [sic] that America does not care about Europe and Europe does not care about the world." By implication, "elsewhere" becomes NATO's new field of operations. Breathtaking, reckless and arrogant.

The Third-Way Movement seeks to do nothing less than fundamentally shift the center of gravity around which the world has organized itself politically for the last 200 years, away from sovereign nation states and toward a set of interlocking, supra-national bureaucracies, each specialized in its own niche -- from the IMF and World Bank, to the various world courts, to the Kyoto Protocols, to NATO. They seek no less than a new, post-national world order, stitched together like a monstrous bureaucratic Frankenstein, in which sovereign nation states increasingly cede to unelected and unaccountable international bureaucracies their power and authority to tax and regulate and to use military force.

The war in Serbia is a case in point. Here we have an international entity (NATO) threatening literally to destroy a sovereign nation state (Serbia) so that it can constitute a new protectorate (an "independent" Kosovo) under its auspices, after which one of the international courts will apportion blame and the international financial institutions will be sent in to reconstruct the societies and their economies along the lines envisioned by the Third-Wayers. If the Third-Wayers succeed and the IMF and World Bank have their way, we can expect the Balkans to remain an economic and social basket case and in need of the "international community's" ministrations indefinitely into the future.

While Third-Way politicians sell the end of big government in their own countries for domestic political reasons, they are busy about the business of building even bigger, more intrusive government at the international level. I read Tony Blair's disturbing speech before the Economic Club of Chicago on April 22, which the Chicago Tribune reported under the headline "Blair unveils bold intervention doctrine." In the speech, Mr. Blair acknowledged that the existence of none of the world's democracies, as states, is under threat and that under the same circumstances 20 years ago, we would not have been at war in Kosovo. Nevertheless, Mr. Blair argues for a radical transformation of the principles that govern international relations and said, "Now our actions are guided by a more subtle blend of mutual self-interest and moral purpose in defending the values we cherish." He averred that human rights are more important than national sovereignty and that it must be the "international community" (read, "international bureaucracies") that enforces these rights and defines the values on which they are based.

In the Chicago speech, Tony Blair proposed a "new framework," which he labeled a "Doctrine of International Community." He called for a complete overhaul of the world financial system, a "more efficient" United Nations, organizational changes to NATO, better cooperation on the environment and a reexamination of Third World debt. And, by proposing a set of guidelines that stress Western humanitarian values as the basis for military intervention, even when no aggression against another sovereign nation has occurred, the prime minister jettisoned the long-held principle of non-interference in the internal affairs of sovereign nations as the basis for international order. The great irony is that most of his five criteria are not even met in the case of Kosovo, only confirming the suspicion that Kosovo is more a pretext for trying out the new "cosmopolitan interventionism" than anything else.

The air strikes against Serbia and Serb targets in Kosovo are wrong. They are counterproductive. The bombing has backfired and should stop immediately. There should be a simultaneous cease-fire on both sides. The refugees should be allowed to return to their homes while negotiations are underway and we must mount whatever humanitarian effort is necessary to assist them. We can't reward Milosevic but we do need to put an international peacekeeping force in place that is acceptable to all parties involved. The objective should be the preservation of the true national interest and the encouragement -- but not the imposition -- of freedom and democracy throughout the world. Peace is not contingent on American-lead NATO forces, neither in the air over Yugoslavia nor on the ground over Kosovo. We cannot bomb people into making peace with one another. Nor can an occupying NATO army bring peace to this troubled region. Peace is dependent on the Serbian people and the Kosovar Albanians.

We didn't have to bomb, but we arrived at this situation through a series of blunders on all sides. In reality, there was nothing approaching systematic ethnic cleansing occurring in Kosovo until we launched an unprovoked attack on Serbia. And there is no evidence to support the Clinton administration's assertion that the Serbs would have driven more than a million refugees out of Kosovo anyway had the bombing never occurred. In fact, the weight of the evidence is precisely the opposite.

The Serbs had in place a contingency plan for the deportation of large numbers of Albanians from Kosovo primarily, it appears, for the purpose of deterring NATO bombing, but also to exploit the bombing as a shield and excuse behind which to deport Kosovar Albanians if NATO actually were stupid enough to bomb. Indeed, the Serb vice-president Vojislav Seselj is on record before the bombing began promising in parliament that as soon as one NATO bomb fell on Yugoslavia, "all the Albanians would vanish from Kosovo." When it became clear that the war was to begin, the plan was implemented. Clearly, it was wrong for the Serbs to implement the plan, but that does not absolve us of responsibility for triggering its implementation, especially when it was perfectly obvious before the fact that that was exactly what would happen if NATO bombed.

What actually was going on in Kosovo was a two-year civil war between the government of Yugoslavia and a terrorist separatist group involved in drug trafficking, gun running and prostitution, in which about 2000 people -- both Serbs and Kosovar Albanians -- had died and many more made refugees when they were displaced from their homes (sometimes intentionally, sometimes as a happenstance of war).

Ronald Reagan won the Cold War not only because of his nerve in confronting the Evil Empire but also because of his ability to recognize a mistake like the one he made in Lebanon and reverse course before he made a bad situation worse. What would Ronald Reagan do in Kosovo? First, he would never have gotten us in, but had he made the mistake of getting us involved, he certainly would not have allowed a misplaced sense of machismo to compound the mistake with more mindless violence.

Vision! That is what this war is really coming down to; about how Bill Clinton, Tony Blair and Gerhard Schroeder envision the Third-Way global order and what a conservative alternative vision will be. In my heart, I believe they have chosen to lead the West into war in this particular "humanitarian" adventure in order to lay down the predicate for the Third-Way's new global order. It is, in my opinion, the dark and frightening globalist vision of the Third-Way Movement: an undemocratic vision of unelected international bureaucracies running the world, supported by the bluster, bravado, and ultimately violence of the NATO heads of state, acting more like a concert of monarchs than democratically-elected executives. It is not a vision worthy of America and Europe.

I regret to say that conservatives in America and around the world are split. By far the largest group consists of those who have yet to form a coherent vision of America's appropriate role in a post-Cold-War world. They are still in the process of articulating what American foreign policy should be in the 21st Century but they know instinctively that the Third-Way leads away from the light and into the heart of darkness. The other group of conservatives is vastly smaller and consists of old cold warriors who have become frozen in time; who refuse to say yes to success. They are even more bellicose than our President is, and they wander the landscape relentlessly in pursuit of new enemies to confront and new conspiracies to counter with bigger armies and more bombing.

Conservatives around the world who correctly place their faith in free individuals and a benign (as opposed to aggressive) national sovereignty constrained by democracy must begin to articulate an alternative to the grandiose Third-Way nostrums. It is time to get off the Third-Way Detour and get back on course toward global Democratic Capitalism.