Constrained discretion: New Labour's third way for economic and social policy?

Purpose – This article attempts to unravel the ways in which New Labour's economic and social policies differ from those of previous Conservative and Labour administrations. Design/methodology/approach – The article analyses Treasury documents, which outline the philosophy underpinning the Government's measures. Findings – Gordon Brown has adopted a third-way strategy between Monetarism and Keynesianism, which seeks to maintain stability whilst adapting to shocks. It is based neither upon fixed rules nor complete flexibility, but upon constrained discretion, i.e. the belief that long-term stability requires a comprehensive framework, which constrains policy to achieve sustainable goals, but provides discretion to respond to shocks. If policy-makers possess a sufficiently credible commitment to overall stability, they can exercise discretion in response to shocks without damaging long-run expectations. Originality/value – Founded upon the concept of ‘constrained discretion, the paper argues that New Labour is neither abolishing nor extending the welfare state, but rather is changing its character. Further empirical research in particular sectors is indicated.