In the wake of George W. Bush's freakish victory in America's 2000 presidential election, it's fair to ask: Does the Third Way have a future in the land of its birth?

The first systematic effort to modernize progressive politics, after all, began with Bill Clinton's 1992 election as president. Dismissing the conventional left-right debate as "brain dead," Clinton and his "New Democrat" allies fashioned a new political synthesis. Stressing economic growth over wealth redistribution, the Clinton White House restored fiscal discipline, expanded trade and deregulated key economic sectors to spur innovation. It struck a new balance between individual and collective responsibility, replacing welfare paternalism with work while also expanding public supports for working families. And it began to drag government into the information age, breaking down old bureaucratic monopolies and equipping local communities and individuals with the tools they need to confront their own problems.

The New Democrats' success in reviving a moribund Democratic Party inspired rising political leaders of the democratic left in other countries. By the latter half of the decade, the progressive comeback had reached full tide with Clinton's reelection, Tony Blair's 1997 "New Labour" triumph in Britain and the Social Democrats' subsequent return to power in Germany under Gerhard Schroeder. The striking convergence of center-left thought and action across national borders prompted an unprecedented series of gatherings of world leaders, including Italy's Romano Prodi and Massimo D'Alema.

Last year, however, the Third Way's momentum received its first serious check when Vice President Al Gore failed to hold the White House for the Democrats. A key factor in that defeat was Gore's peculiar decision to discard the New Democrat formula that had worked so well in 1992 and 1996. Instead of proposing a second wave of modernizing ideas intended to build on the New Democrat successes of the past eight years, Gore recast himself as an old fashioned populist fighting big corporations on behalf of working class families and his party's traditional interest groups.

So even had Gore won, Democrats would still have to grapple with the question that confronts them today: Whether to stay the course of centrist, Third Way reform or go back to the left-wing and constituency group-oriented politics that characterized the party before Clinton. As Democrats make the painful adjustment to their new status as the opposition party (the last time the Republicans controlled both the White House and Congress was in 1954), it is not yet clear which tendency will prevail.

On the left, there are essentially two views of the legacy of Clinton and the New Democrats. The ideological or hard left, including much of organized labor, sees Clinton as an opportunist who abandoned the party's core values and constituencies to curry favor with affluent suburbanites and independent voters. The pragmatic or soft left, including most of the party's Congressional leaders, concedes the political necessity of the New Democrats' push to identify the party once again with growth, mainstream social values and resolute global leadership. But both groups agree that the party's move to the center has gone quite far enough, thank you, and that it's now time to get back to the "real Democratic" agenda. This apparently means throwing off the shackles of fiscal discipline and returning to Kenyesian efforts to stimulate growth through more government spending, slowing down if not stopping trade and economic globalization, and ending the New Democrats' heretical experiments in using choice and competition to advance a host of public goals, from improving the public schools to modernizing the big social insurance programs like Social Security and Medicare.

The 2000 election left New Democrats facing a paradox. On the one hand, their most effective leader, Bill Clinton has passed from the scene and his heir apparent, Al Gore, was more intent on distancing himself from the scandal-plagued Clinton than on carrying on his legacy of policy modernization and public sector reform. This has left the U.S. Third Way momentarily headless and bereft of a compelling reform agenda for its post-Clinton era.

On the other hand, the election swelled the ranks of self-identified New Democrats in Congress, making them the largest and fastest growing faction in the House and Senate. Moreover, some key New Democrat leaders figure prominently in the early speculation about who may be seeking the party's presidential nomination in 2004. These include Sens. Joe Lieberman, Gore's vice presidential running mate and Evan Bayh, an attractive Midwest centrist who succeeded Lieberman as Chairman of the Democratic Leadership Council (DLC), the New Democrats' base camp.

The challenge facing these and other emerging New Democrat leaders is to identify the large tasks of progressive reform after Clinton. They must offer ideas for modernizing ailing public sector systems grounded in an analysis of America's changing electorate and the need for Democrats to build a wider progressive coalition. In some areas, such as spurring "new economy" growth and modernizing America's basic public schools, they already have begun to plow new ground. Lieberman and Bayh, for example, have spearheaded a radical change in national education policy. They call for a new bargain in which Washington offers the states more money and flexibility in using it in return for much greater accountability for results. Henceforth, schools would have to show that they are raising student performance and closing the troubling achievement gap between children from low-income and middle class families. Otherwise they could forfeit the federal aid. This is a radical departure from Democrats' traditional approach, which stresses more spending but defines accountability in terms of compliance with programmatic rules, not actual outcomes. In negotiations with the White House, Lieberman and Bayh have also wrung important concessions from President Bush, including more spending that Republicans wanted and a tacit endorsement of the principle that Washington has a vital role to play in improving America's basic public schools. Unfortunately, on other issues New Democrats have been less successful in shaping the terms of the national debate. This creates openings for Bush to drive wedges between liberals and centrists on some issues, and to appropriate the mantle of reform on others.

Trade poses a particularly knotty problem for Democrats. President Bush is expected to ask Congress for authority to negotiate a Free Trade Agreement for the Americas (FTAA). While Bush would merely continue his predecessor's policy, Democrats remain deeply divided on trade. Organized labor, a potent Democratic constituency, fought Clinton's key trade initiatives which as a result seldom received a majority of his own party's votes. New Democrats, while resolutely pro-trade under Clinton, will come under fierce pressure to maintain party unity in opposition to a Republican President's request. But such "solidarity" would carry a stiff price: Democrats would be indelibly stamped as the party of economic reaction and protectionism, wiping out a decade of progress toward refurbishing their image as the party of prosperity. Scuttling FTAA might also be taken as a slight by America's Latino voters, a fast-growing constituency the party cannot afford to ignore.

This pattern may be repeated on other issues. Many New Democrats, notably Lieberman, agree with the premise of Bush's initiative to forge a closer partnership between government and faith-based organizations in tackling the nation's social problems. The initiative, however, draws reflexive opposition from the militant secularists of the left, who see it as a plot by the religious right to breach the separation of church and state.

But the biggest test for Democrats is likely to come over Social Security and Medicare. Both programs already face massive unfunded liabilities and risk being swamped by the demographic tsunami that will hit when the baby boomers, 77 million strong, begin retiring about a decade from now. Traditional Democrats, however, view these programs as the holy of holies and resist fundamental changes in how they are funded or the benefits they will pay out in the future. This has ceded the reform initiative to Bush, who wants to allow workers to divert part of their Social Security taxes into personal savings accounts invested in stocks and bonds. While many Democrats reflexively denounce this "privatization" scheme as a plot to take the "security" out of America's biggest social insurance program, the idea has proved popular with the public, especially younger workers.

Democrats should be wary of the trap Bush has set for them. If they merely decry his proposal as a right-wing bid to "ruin" Social Security, they will appear to large swathes of the public as obdurate defenders of the status quo at a time when the public broadly recognizes the need for a modernizing the system. This is why the party needs New Democrats -- to fashion a progressive alternative to Bush's proposal that would not only encourage personal savings and wealth creation, but also restructure Social Security to strengthen its vital achievement of reducing poverty in old age and to constrain its currently unsustainable growth rates which threaten to squeeze out other progressive priorities.

By this analysis, some tension and indeed competition between old and new Democrats is essential to preserve the party's intellectual dynamism as well as its electoral appeal. In an era of political parity -- Democrats and Republicans constitute about a third each of the electorate, with self-described Independents accounting for the other third -- Democrats must reach beyond their base or core constituencies to build a durable progressive majority. Simply defending the programmatic monuments of the New Deal and the Great Society won't do that, because it doesn't speak to the needs of the new forces that are reshaping the American polity - knowledge or "wired workers," upscale suburbanites, rising Latino and Asian minorities and the Generation X and Yers just emerging from the baby boomers' giant shadow.

Despite the Republican's present dominance of the federal government, the outlook seems bright for Democrats. For all Bush's talk of a more modern, "compassionate conservatism," the Republicans remain at heart an anti-government party. The idea of wielding government's authority energetically to help Americans cope with the new challenges presented by the information economy, globalization and the confusions and conflicts of a multipolar world is finally repugnant to the conservative mind. Therein lies the progressive opportunity. By philosophy and temperment, leaders and parties of the center-left are best suited to deal with big tasks that face all advanced societies. They understand the need to write global rules to govern global commerce and to protect the environment and the rights of labor; to improve the quality of public education, so that all citizens can compete in the knowledge economy; to create opportunities for workers to refresh and augment their skills continuously; to ground social welfare policies in an ethic of work and reciprocal responsibility; and to forge common approaches and institutions for building a new international system on principles of economic and political freedom and human rights.

The right has no answer to these looming challenges. That is why the Third Way still has a future -- in the United States and beyond. What's critical now is that New Democrats find their voice, give new expression to their core values of "opportunity, responsibility and community" and craft bold ideas for modernizing the means by which progressives pursue their ends in a new economy and a new century.

Will Marshall is the president and co-founder of the Progressive Policy Institute.