Revisiting Third Wayism: Balancing Social Equity and Marketism

Written by Cianan Sheekey for 12/02/25 Research Roundtable

Modern economic policy has failed to provide an array of approaches which facilitate the need for social justice and to meet the demands of market efficiency. Whilst neoliberalism creates ideal conditions for market failures and leftist economics remain disconnected from global capital flows, the Third Way approach provides a pragmatic alternative. Stemming from the work of Anthony Giddens, the Third Way approach was championed by New Labour and facilitated market-driven growth whilst maintaining welfare provision through targeted intervention.

Often referred to as Blairite economics, Tony Blair and Gordon Brown utilised the Third Way approach to achieve impressive economic results whilst the pair were in government. Only 4 days after their landslide 1997 election victory, Chancellor Brown announced the Bank of England would be granted independence from political forces, reflecting the New Labour government's willingness to utilise market dynamics. Establishing divisions with previous socialist economic systems adopted by the party, it was the beginning of the most successful economic era under any Labour PM: the economy grew at an annual per capita rate of 2.4%, with an average yearly growth rate of 2.8%, and record high employment.

Critics of New Labour’s Third Way policies suggested it was taking too much from Thatcher’s neoliberal agenda. This assessment is unfair. Thatcher’s Deregulation of the City of London, colloquially known as The Big Bang, redefined the UK’s economic landscape by encouraging the growth of service-sector employment through mass slashing of red tape. It would be valid to say this left Britain vulnerable to market forces - something that would haunt the UK come the 2008 financial crisis - but the impact neoliberalism had was unshakeable. Third Wayism recognised the disastrous impact reverting these changes would have, and thus had to accept swathes of Thatcher-era policies and the consequential rising wealth disparity and external dependency, to not completely spook the markets. The catastrophic premiership of Liz Truss exemplifies why this had to be avoided.

Third Wayism combined active welfare application with the unavoidable influence of neoliberalism to reach new economic ground, especially for the Labour Party. The system utilised welfare-to-work schemes to ensure individuals felt truly encouraged to seek full employment, correctly ascertained as the only way to reduce state dependents. This meant welfare still existed - individuals were not abandoned by the state like they were within neoliberalism - but it did not become as all-consuming as had been seen with other Labour administrations. Resultant economic growth, high employment and maintainable expenditure facilitated significant investment in public services, particularly schooling. As Blair quipped, “Education, Education, Education”. The utilisation of state expenditure to develop individuals’ economic performance, and therefore their lives, juxtaposes the rugged individualism adopted by Thatcher’s economic policy, and yet New Labour is still unjustly characterised as overtly neoliberal.

Retrospective assessment of New Labour’s economic legacy is mired by the 2008 financial crisis. The collapse of the US subprime mortgage rates, and resultant banking collapses, stimulated mass global economic turmoil. The market mechanisms which had underpinned the British economy since The Big Bang could not be relied upon, and Brown, who had assumed the role of PM following Blair’s resignation in 2007, was punished with a defeat in the 2010 general election. Although belief in the economic competency of the Labour Party dropped following 2008, it must be stated it was by no means Labour’s fault - US and European banker greed foundationally crumbled the beautiful economic architecture Blair and Brown had worked to build. Subsequent PM, David Cameron, returned to neoliberal policy with the implementation of austerity under the pretence Labour’s expenditure was unmaintainable. As the anecdote goes, the coalition government received a note informing them that “there’s no money left” as they assumed office. Indeed the collapse of market growth left Labour’s ever-increasing public expenditure bill unsustainable - but the system was never so before 2008. The unshakeable dependency on foreign markets established under Thatcher ultimately ruined the first iteration of the Third Way economic system, and although Blair and Brown were retrospectively unreasonably optimistic with their projections for continual market growth, they were not in a position to subvert neoliberalism with red tape. Additional governmental market intervention would have done little to avert the impacts of the 2008 crisis on the British economy, as it was built on involvement in external capital flows beyond the control of Downing Street or the Bank of England.

The demise of Britain’s foray into Third Way economics has unjustly tainted its reputation. It operated in a highly successful fashion until the financial crisis, an unavoidable global threat, even if mitigating measures could have been taken. During the Blair years, Third Wayism managed to stimulate the British economy, maintain welfare standards and increase public expenditure, generating rising living standards and inspiring intrastate market confidence. These accomplishments ought to provide hope for the long-term economic prospects of the newly-elected Starmer administration, which is replicating elements of New Labour’s economic agenda with revised leftist measures, such as the nationalisation of railways. Here’s to hoping that, under Reeves’ Chancellorship, the UK can again enjoy such prosperity whilst minimising the risk of catastrophe as a result of overconfidence and excessive reliance on foreign markets.