In 1997, I knew next to nothing about politics, and even less about British politics. But I remember the debates about the ‘Third Way’ quite vividly. For some, the Third Way was just a buzzword that epitomised the ‘Americanisation’ of European politics. Others denounced it as a capitulation to the economics of Margaret Thatcher. And yet it caught on. Across the continent, social democrats tried to get a slice of the Third Way glamour, by showing how their programme was also somehow a variant of it.

The term ‘Third Way’ may have been ruthlessly overused, but it was more than a media catchphrase. In my reading (in hindsight), it is the idea that Britain should be more like Sweden or Denmark, and less like France or South Korea – more folkhemmet and less politique industrielle. The Swedish and the Danish state are huge in size, but they are not very active in shaping market outcomes. They leave the market more or less to its own devices, but then extract a large share of the resulting economic pie, to spend it on welfare, healthcare, education, childcare, social housing etc. The French state does that as well, but it also has its fingers in every pie during the actual process of wealth creation. I am obviously oversimplifying, but summary measures of economic freedom show that the Scandinavian states really are relatively unobtrusive in the regulation of labour, capital and product markets, as well as international trade (pp. 80-82).

So the Third Way idea was about more than cancelling Clause IV. It was the idea that the state is a terribly bad businessman, but a terrific social engineer, especially when lined with deep pockets. Since the state’s pockets tend to be deeper in an otherwise free economy, there is no contradiction between being in favour of privatisation and deregulation, while also being keen on a big welfare machinery. From a free-market perspective, it is a hopelessly confused concept. Once you have internalised the Hayekian notions of discovery processes and knowledge creation, you will see no more merit in the government running schools and hospitals than it running steel mills. But it is clearly a less bad economic philosophy than state managerialism, especially when coupled with openness about private sector involvement in the provision of social services.

This is why the Labour Party’s switch to ‘predistribution’ represents a huge step backwards. Predistribution is the idea that an ex post ‘correction’ of market outcomes through redistribution is not enough, that the government must intervene in the marketplace before inequality even arises. If redistribution is curative, predistribution is preventive medicine. This means nothing else but a return to a state which does interfere with wages and prices, which does meddle with market processes, and which does try to create politically preferred industries and industry structures. It is an abandonment of the Third Way, and a return to the old managerial state.

Or not? Ed Miliband asserts that predistribution does not mean ‘a return to 1970s-style picking winners’. But it is telling how he substantiates that point:

‘And part of that industrial policy agenda is about recognising the importance of the green economy for the future.’

So apparently, for Ed Miliband, winner-picking is not really winner-picking as long as the winners are green.

Dr Kristian Niemietz joined the IEA in 2008 as Poverty Research Fellow, becoming its Senior Research Fellow in 2013 and Head of Health and Welfare in 2015. Kristian is also a Fellow of the Age Endeavour Fellowship. He studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). In 2013, he completed a PhD in Political Economy at King’s College London. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and at King's College London, where he taught Economics throughout his postgraduate studies. He is a regular contributor to various journals in the UK, Germany and Switzerland.