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The New Depression

The business and political elite are flying blind. This is the mother of all economic crises. It has

We are living through a crisis which, from the collapse of Northern Rock and the first intimations of the credit crunch, nobody has been able to understand, let alone grasp its potential ramifications. Each attempt to deal with the crisis has rapidly been consumed by an irresistible and ever-worsening reality. So it was with Northern Rock. So it was with the attempt to recapitalise the banks. And so it will be with the latest gamut of measures. The British government – like every other government – is perpetually on the back foot, constantly running to catch up. There are two reasons. First, the underlying scale of the crisis is so great and so unfamiliar – and, furthermore, often concealed within the balance sheets of the banks and other financial institutions. Second, the crisis has undermined all the ideological assumptions that have underpinned government policy and political discourse over the past 30 years. As a result, the political and business elite are flying blind. This is the mother of all postwar crises, which has barely started and remains out of control. Its end – the timing and the complexion – is unknown.

Crises that change the course of history and transform political assumptions are rare events. The last came in the second half of the 1970s, triggered by the Opec oil price spike and a dramatic rise in inflation, which marked the end of the long postwar boom. Its political consequences were far-reaching: the closure of the social democratic era, the rise of neoliberalism, the discrediting of the state, the embrace of the market, the undermining of the public ethos and the espousal of rampant individualism. For the next 30 years, neoliberalism - the belief in the market rather then the state, the individual rather than the social - exercised a hegemonic influence over British politics, with the creation of New Labour signalling an abject surrender to the new orthodoxy.

The modalities of this present crisis are entirely different. Extreme as they may have appeared to be at the time, the economic travails of the 1970s were progressive rather than cataclysmic. The old system did not hit the wall, but became increasingly mired and ineffectual. What swept the social democratic era away was not the force de frappe of an irresistible crisis but that it was accompanied by the steady rise of a new ideology and political force in Thatcherism - and Reaganism in the United States - and its victory in the 1979 general election.

In contrast, the financial meltdown of 2007-2008 demolished the neoliberal era and its assumptions with a suddenness and irresistibility that was breathtaking. The political class, from New Labour to the Conservatives, is standing naked. They are still clinging to the wreckage of their old ideas while acknowledging in the next breath that these no longer work. The financial crisis is a matter of force majeure; political ideas and discourse change much more slowly, even when it is obvious that the old ways of thinking have become obsolete. Meanwhile, there is no political alternative waiting in the wings, refining its radical ideas in think tanks ready to storm the citadels of power as there was in the 1970s, notwithstanding the fact that think tanks are now far thicker on the ground. Instead, it has been the mainstream which senses that neoliberalism no longer works, fatally undermined by events and, ultimately, the author of its own downfall. This crisis will have the most profound and far-reaching political consequences and will in due course transform the political landscape, but it remains entirely unclear in what ways and when that might be.

In all these senses the financial meltdown has far more in common with the Great Depression than the Great Inflation. When the financial crisis consumed Wall Street in 1929 and proceeded to undermine the real economy, engulfing Europe in the process, it was not accompanied by a radical shift towards Keynesianism, but rather a reassertion of sound finance orthodoxy, followed in due course by the adoption of protectionism. The political mainstream as represented by Labour's Ramsay MacDonald and Philip Snowden and the Conservative Stanley Baldwin all sang from the same hymn sheet. Only Keynes and a faction of the Liberal Party enunciated a plausible alternative. Eventually a programme of fiscal deficits and public works was pursued by Franklin D Roosevelt in the United States, but in Britain Keynesianism was not properly embraced until rearmament and the approach of war. Indeed, it was not until 1945 that the combined legacy of war and the Depression belatedly resulted in a fundamental political realignment and the birth of the social democratic era.

The Grim Reaper has finally spoken:

a boom pumped up by credit steroids and a bust that takes us back to the 1930s

Since the financial meltdown dramatically intensified in September 2008, Gordon Brown has managed to ride the economic storm rather more successfully than the Conservatives, or, for that matter, than Tony Blair would have done. It is Vincent Cable, the Liberal Democrats' econo­mics spokesman, however, who has indubitably emerged as the political sage, unafraid of confronting neoliberalism's shibboleths, demonstrating a clarity of mind and the political courage to tell things as they are, in a way that has escaped all other prominent politicians. Although Brown was the economic architect of the past decade and was responsible, more than anyone else, for its excesses and was shaping up to be a rather disastrous Prime Minister, he displayed last autumn, at least initially, an agility of mind and nimbleness of foot that defied the expectations of those who believed he was capable of neither. He revelled in the sense of purpose and vision offered by the crisis, seemingly prepared to jettison the thinking that had imbued his previous decade as chancellor.

But Package Part I, widely hailed at the time and imitated elsewhere, proved woefully inadequate, and the financial system remains frozen. Meanwhile the waters are rising up the Good Ship UK, threatening to transform the banking crisis into a fiscal and currency crisis. It seems unlikely that, if that should happen, Brown will survive the next election.

Even if it does not happen, Brown faces a serious problem about his own past role, because Britain’s crisis has been greatly exacerbated by the soft-touch regulation, easy credit, runaway house inflation and overexpansion of financial services over which he presided and for which he is accountable. So far he has refused to admit or accept responsibility for his actions – he initially had the temerity (or foolhardiness) to argue that the UK was better placed than other countries to deal with the credit crunch, even though it has become abundantly clear since that the very opposite was the case. So while Brown remains in denial, the plausibility of his new turn, and his understanding of what is entailed, must be seriously doubted.

Indeed, after its initial boldness, the government now seems trapped by its past actions and its former ways of thinking. Brown's failure to accept the need to nationalise the banks suggests the limits of his new-found political courage, and his inability to embrace the logic and imperatives of the new situation. He is still a prisoner of his old timidity and his conversion to the neoliberal cause. It is his good fortune that the Cameron Conservatives have been hugely wanting in their response to the financial meltdown. Having spent his first years as leader of the opposition seeking to reassure the country of his centrist credentials, David Cameron, at the first whiff of gunfire, has turned on his heels, rejected Keynesianism and, at the very moment when events have shown Thatcherism to be deeply flawed and historically out of time, headed back to the Thatcherite womb of sound finance, arguing that a government must balance its books and that deficit financing, Keynesian-style, is reckless and irresponsible.

But all this, it must be said, is the small change of politics. The crisis threatens in time to sweep away the political world as we know it and those who fail to grasp its magnitude and meaning. Far more is at stake than the fortunes of a few leaders, be their name Brown or Cameron. Who knows where things will be this time next month, let alone next year or, indeed, in 2012? The financial meltdown now rapidly plunging the western world into what increasingly looks like a depression is the first great crisis of globalisation. There was plenty of warning. The Asian financial crisis of 1997-98 proved a salutary lesson about the dangers posed by huge capital movements that were subject to precious little regulatory control. Three economies capsized (South Korea, Thailand and Indonesia) and others stood on the brink.

There were other earlier warning signs, notably Mexico in 1995, when GDP fell by 9 per cent and industrial production by 15 per cent, following a run on the peso. These crises were blamed on the immaturity and fecklessness of national governments - in the case of east Asia on so-called crony capitalism (which, incidentally, prompts the question of how we should describe Anglo-American capitalism) - which the International Monetary Fund obliged to engage in swingeing cuts in public expenditure as a condition of their bailouts.

Yet what if such a crisis were to be no longer confined to the peripheries of global capitalism but instead struck at its heartlands? Now we know the answer. The crisis has enveloped the whole world like an uncontrollable virus, spreading from the US and within a handful of months assuming global proportions, at the same time mutating with frightening speed from a financial crisis into a fully fledged economic crisis. In so doing, it has undermined the foundations on which the present era of globalisation has been built, namely scant regulation, the free movement of capital, a bloated financial sector and immense reward for greed, thereby bringing into question the survival of globalisation as we now know it.

Enormous international flows of unregulated capital have capsized the international financial system - with disastrous consequences for the real economy - in a manner akin to the effect of a roll-on, roll-off ferry shipping too much water. We can now see the cost of free-market capitalism and light-touch regulation. Iceland may provide an extreme example of the consequences of the credit crunch but it also illustrates the dangers facing the more vulnerable economies, the UK included, in a deregulated world where the market rules: a small, open economy; a large, internationally exposed banking sector; an independent currency that is not a serious global reserve currency (of which there are only three); and limited fiscal strength. These propositions have constituted the core economic beliefs - from Thatcher and Lawson to Blair and Brown - that have informed policymaking over the past three decades and without which, it was claimed ad nauseam, an economy could not succeed. Heavy-handed regulation and an overbearing state would serve only to frighten off capital and condemn a country to slow growth, stagnation and global marginality. Now we know the fallaciousness of these claims and the consequences of "letting the market decide".

Like Iceland, albeit not as extremely, Britain has been living in a fool's paradise. A failure to regulate the banks and other financial institutions in any meaningful fashion allowed bankers to behave in a grossly irresponsible and avaricious fashion; a boom that was made possible only by a government-enabled credit binge in which people borrowed recklessly; a bloated financial sector that grew to represent over 8 per cent of the total economy and which was found to have been built on foundations of sand; an overvalued currency that made manufacturing exports uncompetitive and thereby resulted in an unnecessary and counterproductive contraction in the manufacturing sector which must now be reversed; an absurd belief that boom and bust had been banished for ever, allowing the banks to turn a blind eye to the inflating of various asset bubbles and display a profound ignorance of the history of capitalism; a persistently chronic current account deficit that can no longer be compensated for by inward capital flows; monstrous salaries for those at the top of the financial and corporate tree, which were justified in terms of a trickle-down effect that remained a chimera, and as the reward for risk which was, in fact, a reward for greed and failure; growing inequality, which was justified in the name of a more competitive economy accompanied by declining social mobility in the cause of an open and flexible labour market; and, finally, the mushrooming of what can only be described as systemic corruption on a mega-scale as the state ignored the gargantuan abuses of those who ran the banks and other financial institutions, while regulatory authorities willingly colluded in their excesses.

This is the sad story of the New Labour era.

The ultimate cost of this debacle as yet remains unknown. What began as a financial crisis is threatening, as the government seeks to bail out a bankrupt financial sector, to become a currency crisis, with foreign investors concerned about the effects this might have on the value of sterling, and perhaps even worse, ultimately a sovereign debt crisis, with growing doubts about the UK’s financial viability. Until there is some end in sight to the financial crisis, and a line can be drawn under the banks’ indebtedness, we will not know the answer to these questions. One thing is clear, however: whatever the limitations of the social democratic era, it was never responsible for such an all-enveloping and cataclysmic crisis as the one that the neoliberal era – and the Thatcherites and New Labour – have managed to produce. After all the boasting about the virtues of the Anglo-American model of capitalism, the Grim Reaper has finally spoken: a boom pumped up by credit steroids and a bust that takes us back to the 1930s.

There are two key aspects to this crisis: national and global, with the latter promising to be rather solutions are concerned, we are in uncharted territory, with close to zero interest rates, a Keynesian-style fiscal boost that may prove inadequate to the task and could well fail, a hugely indebted financial sector that threatens to leave us with an enormous future tax burden and a greatly expanded national debt. All of this, furthermore, must be addressed in the context of an open-market regime which is very different from those of previous eras, and which could render Keynesian-style national solutions ineffectual. What would greatly assist any national recovery is a co-ordinated global response to the crisis; in other words, global co-operation at the highest level. This cannot be ruled out, but it would be a brave person that would bet on it. It was exactly the lack of international co-operation that bedevilled recovery in the 1930s and eventually led to the Balkanisation of the world into regional currency and trading blocs.

The most important single question in this context is the relationship between the US and China. Will the Obama administration be able to resist the slippery slope of creeping protectionism? Will arguments over the revaluation of the Chinese renminbi be resolved amicably? If the answer is in the negative, then the global outlook will be very bleak indeed and so, also, as a result, will be the prognosis for national recoveries. Indeed, the prospects would look disturbingly like those of the 1930s, with growing international antagonism and friction and a continuingly intractable crisis at a national level, with only the very slowest of recoveries.

Around the world there is growing evidence by the week of a resort to national solutions at the expense of others: measures to subsidise industries that are in severe difficulties; the Buy American clause that was inserted by the House of Representatives into Barack Obama's latest package (though since weakened); the industrial action in Britain against foreign workers; the withdrawal of banks to their national homes; the attack by Timothy Geithner, the US treasury secretary, on China as a currency manipulator. No Rubicon has been crossed but the warning signs are clear. A retreat into protectionism and beggar-thy-neighbour policies will deliver the world into a second Great Depression.

So what will be the political effects of the financial meltdown? Some are already evident. Just as the Great Inflation of the 1970s played to the tunes and concerns of the right, with its invocation of the market, the New Depression suggests the opposite, the inherent limitations of the market and the indispensability of the state. Indeed, the speed with which the neoliberal refrains and invocations have unravelled has been breathtaking. The single most discredited aspect of the social democratic legacy was nationalisation, and yet the government, with the most extreme reluctance, has been obliged to nationalise Northern Rock and partially nationalise the Royal Bank of Scotland and the merged Lloyds TSB and HBOS. Who would have ever imagined, at any point during the past 30 years, that no less than the financial commanding heights of neoliberalism would have ended up in the hands of the state, with precious little opposition from anyone except a few disgruntled shareholders? Even now, however, the Labour government, still trapped in the ideological straitjacket of New Labour and displaying extreme timidity in the face of powerful vested interests, which has always been a New Labour characteristic, is running scared of the inevitable logic of the situation, namely that all the high-street banks should be taken into public hands until the mess is sorted out. Anything else leaves the public responsible for all the debts and risks, while the banks continue to be answerable to the very different interests of their shareholders. But such is the fury and depth of the crisis that this scenario is highly likely.

The state is experiencing an extraordinary revival. The credit crunch is the most catastrophic example of market failure since 1945. It became almost immediately obvious to wide sections of society that there was only one institution that could potentially sort out the mess: the state. Far from being a rational distributor of resources, the market had proved the opposite. Far from bankers and financial traders embodying the public interest, they have been exposed as irresponsible and dangerous risk-takers whose primary motivation was voracious greed. If trade unionists and the nationalised industries were the demons of the 1970s, bankers and the financial sector have assumed the mantle of public enemy number one in the late Noughties. In fact, the irresponsibility of bankers, and the damage they have inflicted on the economy, hugely exceeds anything that the unions could possibly be held responsible for in an earlier era. Meanwhile, the fallen heroes of the pre-Thatcher era, most notably Keynes, are duly being exhumed, restored to their rightful position, and pored over for their ability to throw light on the present impasse and what might be done; if the recession turns into a depression, Marx will once again become required reading.

This political shift is not just a British phenomenon, but a more general western one. The most striking feature of President Obama's inaugural speech was the way in which it embraced and legitimised African Americans for the first time in American history. But it also had another powerful theme, namely its invocation of the public interest and public service. After decades during which American political discourse has been dominated by the language of individualism and the market, it came as a shock to hear a US president articulate a very different kind of philosophy, renouncing private greed in favour of the public good. Obama's election can in part be seen as a response to the failure of the neoliberal era, as well as of Bush's neoconservative agenda; certainly his election represents a remarkable shift to the left in US politics, in contrast not just to Bush, but every recent US president, including Reagan, Bush Sr and Clinton. That Obama is the first African-American president also represents a remarkable redrawing of the political landscape. There is no more powerful - nor difficult - way of redefining society or to embrace a new form of representivity than to include a racial minority that has been excluded.

This brings us finally to what might be the longer-term global consequences of the crisis. Again, we are inevitably stumbling around in the dark because so much depends on whether the recession metamorphoses into a fully fledged depression and in what way and shape the world eventually emerges from the debacle. That said, two key points can be made. First, the credit crunch signals the demise of the Anglo-American, neoliberal model of capitalism, which has exercised a hegemonic influence over western capitalism and been the blueprint for globalisation since 1980. Because of its catastrophic failure there seems very little chance of its resurrection. The process of recovery - whenever that might be - will be accompanied by an overriding concern to ensure that the events of 2007-2009 are not repeated in the future, just as happened in the US in the 1930s with the strict regulatory framework that was introduced for the banks after their comprehensive failure in 1929. This will include the search for a new global regulatory framework that controls and constrains international movements of capital, as well as strict controls over the financial sector at a national level. A new set of political priorities - and with it a new political language - will be born.

Meanwhile, the influence and prestige that the US, and to a far lesser extent Britain, have enjoyed will vaporise in the same manner as their neoliberal model. Their 30-year project has failed and they will be obliged to pay the price in their reputation and the esteem in which they are held. The countries of the former Soviet Union and the casualties of the Asian financial crisis that were forced to swallow the neoliberal medicine will have good reason to feel aggrieved and resentful. The west has been forthright in accusing the non-western world of corruption. The financial meltdown suggests that the west has been guilty of huge hypocrisy. Systemic corruption has lain at the heart of the western financial system. An entirely disproportionate and extortionate level of bonuses has ensured the enormous enrichment of top executives in the financial sector, all in the name of reward for success, when in fact it was the reward for failure. In addition, we have had the collusion of the credit-ratings agencies; a regulatory system characterised by its failure to act as any kind of constraint; and governments that ensured the continuation of this web of relationships and applauded its achievements. The corruption was on a breathtaking scale as evidenced by the size of the bailouts required to rescue the banks. It will be difficult for western governments to make these kinds of accusations of others in the future. That Obama represents such a voice of hope will help to mitigate the inevitable ill-will towards the US, but this should not be exaggerated amid the euphoria surrounding developments in Washington.

The second point is more far-reaching. It is doubtful whether we can still describe ourselves as living in the American era or, indeed, the Age of the West. If not yet quite over, both are certainly drawing to a close, and it seems likely that the effect of the financial meltdown will be to accelerate the rise of China as a global power. The contrast between the situation in China and that in the US could hardly be greater, even though it has been partially obscured by the depressive effect of the western recession on Chinese exports and on China’s growth rate. While the US economy is contracting, China’s grew at roughly 9 per cent in 2008 and is projected to grow at about 6 per cent in 2009. Its banks, far from bankrupt like their US counterparts, are cash-rich. China enjoys a large current account surplus, the government’s finances are in good order and the national debt is small. This is a crisis that emanates from the US and whose impact on China has been essentially indirect, through the contraction of western markets. It is the American model that has failed, not the Chinese.

One of the factors that intensified the Great Depression, and indeed was part cause of it, was Britain's growing inability to continue in its role as the world's leading financial power, which culminated in the collapse of the gold standard in 1931. It was not until after the war, however, that the US became sufficiently dominant to replace Britain and act as the mainstay of a new financial system at the heart of which was the dollar. The same kind of problem is evident now: the US is no longer strong enough to act as the world's financial centre, but its obvious successor, namely China, is not yet ready to assume that mantle. This will undoubtedly make the search for a global solution to the present crisis more difficult and more protracted.

Martin Jacques's new column will be published fortnightly in the New Statesman. His book "When China Rules the World: the Rise of the Middle Kingdom and the End of the Western World" will be published in June (Allen Lane, £25)

the global downturn in numbers

    0.5%

    IMF prediction for global growth in 2009 - worst since WWII

    Up to 40 million

    Number of people who will lose their jobs this year, according to the International Labour Organisation

    $9.7trn

    Total pledged by the US alone towards solving the crisis

    3.6%

    Proportion of GDP pledged by the G7 and BRICs countries towards fixing the crisis (1.5% this year)

    2.3m

    Number of US properties that received a default notice or were repossessed in 2008. In the UK, 45,000 homes were repossessed - another 75,000 are expected to be taken in 2009

    14

    Number of major global banks which collapsed, were sold or were nationalised during 2008

    200,000

    Number of European companies expected to fail this year; an additional 62,000 are expected to fail in the United States. These figures represent record levels of insolvency

    52%

    Increase in UK company failures between late 2007 and late 2008

    14%

    Drop in level of Chinese exports during January

    1%

    Current UK interest rates (down from 5% in October 2008). In the US, rates have fallen to between 0 and 0.25%

How the crisis unfolded

13 September 2007 Run on Northern Rock begins when it is revealed that the bank has requested emergency support from the Bank of England

21 January 2008 FTSE suffers worst falls since 11 September 2001

February 2008 Northern Rock nationalised

17 March 2008 JP Morgan Chase takes over the US investment bank Bear Stearns

12 July Mortgage lender IndyMac collapses - second biggest US bank in history to fail

9 August 2007 European Central Bank pumps ?95bn into banking market

7 September Financial authorities step in to rescue Fannie Mae and Freddie Mac

9 September Bradford & Bingley becomes second British bank to be nationalised

15 September Lehman Brothers files for bankruptcy

16 September AIG, biggest insurance firm in the US, receives $85bn rescue package

3 October 2008 US government announces $700bn Troubled Assets Relief Programme

8 October UK launches its first bank bailout plan, making £50bn available

October 2008 Iceland's banks collapse. IMF extends £1.4bn ($2.1bn) loan a month later

24 November Alistair Darling announces a temporary cut in VAT from 17.5 to 15 per cent

23 January 2009 UK enters recession

28 January US Congress passes Barack Obama's $819bn stimulus package

5 February UK Monetary Policy Committee votes to cut interest rates to 1 per cent - the lowest in over three centuries

Michael Harvey

Martin Jacques is the former editor of Marxism Today. 

This article first appeared in the 16 February 2009 issue of the New Statesman, The New Depression

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The political centre can still change the terms of Brexit – Labour's ambiguity can't last

If Labour continues to favour leaving the single market, then we are essentially for the same policy as the government.

This was on any basis an extraordinary election, unique in recent British experience and with major political consequence. The country is deeply divided: between young and old; metropolitan and outside the cities; better off and worse off.

And the country is suffering from the state of its politics. This time last year we were the fastest growing economy in the G7. We are now the slowest. The international investment community is negative on us. The savings rate is at its lowest in 50 years. Incomes are stagnating. The international reputation of Britain is rapidly losing altitude. There is a daily drip of worrying news on Brexit. The Grenfell Tower tragedy sums up for many the sorry condition of our social cohesion.

There is a slightly anarchic feel to our politics, intensified by the realisation that the government is weak and drifting. There is more followership than leadership.

We feel like a country which has lost its footing and is stumbling; but seemingly with no choice but to stagger on. This is where everything has changed and nothing has changed.

The election result should enable a fundamental re-appraisal of Brexit. Large numbers of people voted to stop a hard Brexit and rejected explicitly the mandate Theresa May was demanding. Instead, both main parties remain wedded to leaving the single market.

Now we argue over long transitional periods, and complicated methods of re-creating new regulatory mechanisms with Europe – which essentially mean we will have to keep close to European regulation – when all such things do is re-emphasise the inherent dangers of the whole venture.

I agree that if the will of the British people remains as it was last June, then Brexit will happen. But, to state what in a less surreal world would be blindingly obvious, it is possible, that, as we know more about what Brexit means, our "will" changes.

Our leaders should at least lead a proper debate about the options before us. They should become the nation’s educators, engaging us, explaining to us, laying out every alternative and what it means.

Rational consideration would sensibly include one option of negotiating for Britain to stay within a Europe itself prepared to reform and meet us half way.

Emmanuel Macron's victory in France changes the political dynamics of Europe. The members of the eurozone will integrate economic decision-making. Inevitably, therefore, Europe will comprise an inner and outer circle. Reform is now on Europe’s agenda. The European leaders, certainly from my discussions, are willing to consider changes to accommodate Britain, including around freedom of movement. Yet this option is excluded.

In the week before the election, my Institute along with Luntz Global Partners conducted a poll in France, Germany and the UK around attitudes to Europe, Brexit and politics.

The British people’s attitude to Europe is ambivalent. They do think "Brexit means Brexit" and for now there is no groundswell for a second referendum.

But, they want a strong relationship with Europe. A majority oppose hard Brexit. The opposition to free movement of people, once you break it down, is much more nuanced. The French and Germans share some of the British worries, notably around immigration, and would compromise on freedom of movement.

There is no evidence that Britain wants to pay a high economic price for Brexit. A majority would probably coalesce around a "soft Brexit".

However, the problem is that the difference between a hard and a soft Brexit has a very simple starting point: membership of the single market and customs union. If we stay within those rules of trade, where more than 50 per cent of our exports go, then the economic damage of Brexit will be limited. But, we will have to abide by the rules. 

The political difficulties of this are evident. It would lead in short order to a scratching of the British collective head and feeling of "well, in that case, what's the point of leaving?"

On the other hand, if we do leave the single market and customs union, then it is also clear that the economic damage is potentially large. No one who has seriously examined these issues believes that a third country free trade agreement (FTA) is remotely a substitute for membership of the single market. A "jobs first" Brexit outside the single market is a contradiction in terms.

So when people blithely say "we will get roughly the same terms as we do now with the single market", I literally know no one in the European system who believes this.

***

We have over-estimated, as ever, the weakness of Europe. Growth rates are recovering. Politics is stabilising. Yes many clouds remain – from Italian and Spanish banks to popular anger at cuts, low pay and immigration concerns. Europe is not out of the woods. But it thinks it sees a path out of those woods and our poll shows that French and Germans see Europe as a guide not an obstacle.

The EU27 will basically stick together in defending the rules of the single market. But we are all learning, as we proceed, the damage Brexit will do. 

Europe knows it will be poorer and less powerful without us. We know our currency is down around 12 per cent; already jobs are going; there is not £350m a week more for the NHS; and we actually need most of the migrants who come to work in the UK. On any basis, leaving is complex and will take years.

Brexit is the biggest political decision since the Second World War. Given what is at stake, and what, daily, we are discovering about the costs of Brexit, how can it be right to deliberately take off the table the option of compromise between Britain and Europe so that Britain stays within a reformed Europe?

We are doing so because the Tories fear that if Brexit in some form does not happen, they will re-open the fissure within their party. For three decades this internal Conservative battle has wreaked havoc with the politics of the country, rather as empire tariff debates did in the late 19th and early 20th centuries.

Meanwhile, the true challenges of the country are unaddressed. The legislative programme is dominated by Brexit to the virtual exclusion of anything else. The Government may ask for "new ideas" from all sides of politics, but the reality is it has no bandwidth seriously to do anything other than Brexit.

It is not too late for the country to grip its own destiny, change the terms of the Brexit debate and turn its attention to the true challenges the nation faces.

This is where what happens to the Labour Party matters so much. The ambiguity of Labour’s position on Europe may have helped us access both Remain and Leave votes, though I am dubious.

However, it can't last. If Labour continues to be for leaving the single market, and the signs are that it will, then we are essentially for the same policy as the government.

This will become apparent to those who voted Remain. But more than that, it puts us in the same damaging position for the economy as the Tories; and in circumstances where we are also trying to end austerity through spending programmes which, to be clear, are larger than any Labour Party has ever proposed.   

I agree Labour had a remarkable result which I did not foresee. I pay tribute to Jeremy Corbyn’s temperament in the campaign, to the mobilisation of younger voters and enthusiasm this generated. His supporters shouldn't exaggerate it; but his critics including me shouldn't under-state it. He tapped into something real and powerful, as Bernie Sanders has in the US and left-wing groups have done all over Europe.

There is a genuine and widespread desire for change and for the politics of social justice. This should alter the context in which we debate politics; and help influence the policy solutions.

But it doesn't alter the judgement about the risks of an unchanged Corbyn programme, if he became prime minister and tried to implement it at the same time as Brexit.

If a right-wing populist punch in the form of Brexit was followed by a left-wing populist punch in the form of unreconstructed hard-left economics, Britain would hit the canvas, flat on our back and be out for a long count.

The conventional wisdom is that the centre ground in British politics is now marginalised. It is true that the country didn't vote for centrist politics on June 8; but neither was it on offer. The space for the centre may seem smaller; but the need for it is ever bigger.

Our poll shows that a majority in all three countries surveyed still identify most with the centre of politics; and that the policies people want are those which produce real change, but from basically a centrist position.

Both main UK parties now face a fundamental choice of direction. The Tories could go back to that of David Cameron, in the style of Scottish Conservative leader Ruth Davidson. Or they could stick with the politics of the last year, defined by Brexit and immigration.

Labour’s leadership could champion a position on Europe radically distinct from the Tories, and reach out to those in the parliamentary Labour Party with experience of government to craft a programme of credibility as well as change.

Or they could dismiss the need for compromise and double down in their efforts to make their takeover of the Labour Party complete. 

The Labour Party should be cautious in thinking "one more heave" will deliver victory next time. The Corbyn campaign was a positive factor in the election result; but the determining factor was the Tory campaign.  

In all the elections since 1979, the result at the end was more or less what I expected at the beginning. Not this time. There is no doubt in my mind that at the beginning of the campaign the public were indeed about to give the Tories a landslide. After all, we had just had a really poor local election result, a normally reliable predictor.

***

What happened is a perfect illustration of why the Greeks were right that hubris is always followed by nemesis. Their error was less in calling the election than in the conduct of it.

The winning strategy was the one they started with: Theresa May is a leader above party, asking for a strong negotiating hand to get the best Brexit deal. But instead of keeping to it, they shattered it. Brexit policy turned into hard Brexit or "no deal" Brexit, rather than the "best deal for Britain". The manifesto was not above party but absolutely of the Tory Party: austerity, typical tough Tory policy on social care and school meals, plus fox hunting.

The public recoiled. The 16m who voted Remain realised they had to vote to defeat the Brexit mandate she was seeking. Anyone who cared about the public realm, and wished for an end to or an amelioration of austerity, understood this was their only opportunity to register that wish. Not foreseeable; but on reflection completely explicable.

The Labour electoral performance was unexpected. But that is exactly why we have to be careful in interpreting it. Victories in Kensington and Canterbury were amazing. But losses in Middlesbrough and Stoke were equally alarming. 

The Corbyn enthusiasm, especially among the young, is real, but I would hesitate before saying that all those who voted Labour voted to make him prime minister; or that they supported the body of the programme rather than its tone.

I think they thought that the likelihood was that the Tories would be the government, but were determined to neuter the mandate. This is why you could have – another unique dimension to the election – candidates standing for Labour overtly distancing from Jeremy Corbyn and yet still being elected, some with big majorities.

The common refrain among some Labour MPs is that the policies were popular, and if we retain them and unite, we will win next time. We should beware our own form of hubris. The Tories are not going to run another campaign like that one.

Next time, Labour’s economic programme will come under vastly greater scrutiny. No one is going to believe that there is not a real possibility of Jeremy Corbyn as prime minister. The campaign mishaps which happened every time the spending figures were put under the spotlight won't pass so easily. 

Understandably, some Labour MPs who, only weeks ago, thought their best hope of salvation rested on disassociation from the leader, now feel disoriented. But policies which were wrong in May didn't suddenly become right in June.

Many in this election voted with profound reluctance. There were an unusual number of voters making up their mind very late. Ultimately, neither party won a majority.

It is true that politics has changed dramatically from ten years ago. Our poll shows people want change and by large numbers, in all three countries. Years of austerity and an acute sense of an elite separated from the rest has led to a belief that the promise of generational progress has ended. This generation believes it has done better than the last. But it does not believe the next generation will do better than them. That is the market of anxiety in which the populists peddle quack solutions. 

But the poll also shows that support for the centre stays strong. People will default to populism when a radical centre is not on offer; where it is, they will vote it in, as Macron has shown.

I am not advocating a new party. Quite apart from the desirability of such a thing, our political system puts formidable barriers in its path. In any event, as a member of the Labour Party of more than 40 years standing, I want Labour to capture this ground.

But there are millions of politically homeless in Britain. They are not going to wander the byways of politics, bedding down uncomfortably, forever, not with their country in the dire shape it is in.

The challenge for the centre is to be the place of changing the status quo, not managing it. If it does, it still beats everything else.

What the progressive centre lacks is a radical policy agenda. This is the most immediate task and the one to which my new Institute is devoted.

One of the most dispiriting aspects of the election campaign was the absence of serious debate about the real challenges Britain faces. AI, automation and Big Data will usher in a new workplace revolution. The NHS, our school and skills system, "early years" education, welfare and retirement need to be redesigned fundamentally to take account of technology, scientific development, and changing demographics and lifestyle.

Communities and people left behind by globalisation need to be helped by specific measures which connect them to the mainstream economy. The infrastructure of Britain has to be built anew to link up the regions of the country and take advantage of our assets – geography, history, language and a culture which, despite everything, the world still admires. We need an ambitious affordable housing programme. Austerity should end; but its ending should place an even greater responsibility on government to seek solutions which change systems and not just pump money into them.

Britain has to escape the cul de sac of backward-looking pessimism with a programme of national renaissance, drawing on the best and most creative minds, to produce the new thinking which can shape our future; and can re-kindle optimism. This is why Brexit matters so much. It is not merely damaging in itself; it is a massive distraction. While other countries are moving down the fast lane of progress, we are stuck on the hard shoulder of nostalgia.

In this time of accelerating change, we are offered two different types of conservatism, one of the right and one of the left. The election was fought like one from the 1980s, but with two competing visions of the 1960s. Neither answers the call of the future.

Politics today is volatile and unpredictable. In these times, best hold to what you believe. The centre may appear marginalised; but in the hearts and minds of many, it simply needs to be renewed. Brexit makes this renewal urgent.

This article first appeared in the 16 February 2009 issue of the New Statesman, The New Depression