Is new Labour rowing back to social democracy? The fuel protesters have shown that it is futile to rely on stealth taxes, which deceive no one, and breed anger rather than acquiescence. Michael Portillo has proved that the government cannot win a tax-cutting auction with the Conservative Party. The Third Way has followed stakeholding, communitarianism and Cool Britannia down the memory hole. Belatedly, ministers seem to realise that they have no option but to stand and fight for the fundamental social democratic propositions that decent public services are the prerequisites of a civilised society and that they have to be paid for by taxation. "Tax and spend" - the sin that dared not speak its name up to the first half of this parliament - has at last come in from the cold. Dyed-in-the-wool social democrats like me cannot fail to rejoice.
But we should not rejoice too loudly. The version of social democracy that the government has rediscovered is half-hearted and backward-looking. Its stance is rather like Neville Chamberlain's in 1939. Ministers have stopped appeasing the tax-resistant populism of the tabloid press, but they have done nothing to recover the territory already lost to it. After three years of Labour rule, Britain still lags far behind the rest of western Europe in public services, as a visit to any French hospital or a journey on any French high-speed train will show. Public servants are still routinely traduced - not least by a prime minister who ought to be their most confident champion. Above all, nothing has been done to heal the wounds inflicted by the Thatcher and Major governments on the public domain, or to safeguard it from the market imperialism of the past 20 years.
Yet, in modern Europe, social democracy and the public domain are inextricably intertwined. Although the public domain emerged before social democracy became a serious political force, it needs an ideologically confident and politically effective social democratic movement to protect it. And, without a vibrant public domain, ring-fenced from the market and private domains, social democratic politics cannot flourish. For the public domain goes much wider than the public sector as conventionally defined. It is an area of social life, which cuts across sectoral boundaries. It has its own distinctive culture - a culture of citizenship and equity - within which citizenship rights trump both market power and bonds of kinship. The values of professionalism, equity and service rank higher than the love and friendship of the private domain and the calculating self-interest of the market. Professional pride in a job well done or a sense of civic duty, or a mixture of both, replaces the hope of gain and the fear of loss as spurs to action. That culture - the civic culture on which pluralist democracy depends - is also the culture of social democracy. It was celebrated in Tawney's The Acquisitive Society, presupposed in Crosland's The Future of Socialism and embodied in the lives of social democratic champions as varied as Kurt Schumacher, Clement Attlee and Leon Blum.
The mean and ugly final decades of the 20th century taught us that that culture is much more fragile than we used to think. The public domain is, above all, the domain of the public interest. It can take shape only in a society in which the notion of a public interest, distinct from private interests, has taken root. Historically speaking, such societies are rare. In the public domain, to take only a couple of obvious examples, parents may have to subordinate the interests of their children to that of a remote general public; monetary reward has to count for less than the sense that a job has been well done. In most cultures at most times, such behaviour and the attitudes that sustain it would have seemed (and, in many, may still seem) cold, hard, impersonal, even a little inhuman. The social solidarity engendered in the public domain is austere and slightly distant. Its values run counter to the kinship loyalties and patronage networks of pre-modern societies: they imply a certain discipline, a certain self-restraint, which have to be learnt. Where the market domain of buying and selling and the private domain of love and friendship are the products of nature, the public domain depends on careful and continuing nurture.
The great achievement of Victorian Britain was to carve out an unmistakable public domain from the adjacent private and market domains. Two reform acts, the Ballot Act, the Northcote- Trevelyan reforms in public administration, the abolition of the sale of commissions in the army, the creation of the Public Accounts Committee, the first factory and the three public health acts - all were milestones in this process. (Gladstone thought seriously of adding railway nationalisation to the list.) These were the products of central state intervention. But the growth of civic universities, art galleries, libraries, co-operatives, trade unions, friendly societies and self-governing professional associations was equally important. So was the municipalisation of public utilities - "gas and water socialism" - in the great northern cities.
By the mid-20th century, the public domain had expanded so far that its growth seemed irreversible. Indeed, social democrats of Anthony Crosland's generation took it for granted. But the single most important element in the new right project of the 1980s and 1990s was a relentless Kulturkampf, designed to root out the values of the public domain, accompanied by an equally relentless attack on the institutions in which they were embedded. Deregulation, privatisation, so-called public-private partnerships, proxy markets, performance indicators mimicking those of corporate management and a systematic assault on professional autonomy narrowed the public domain, blurring the distinction between it and the market domain. Public functions of all kinds were farmed out to unaccountable appointed bodies, dominated by business interests and managed according to market principles. Intermediate institutions such as the BBC, the universities, the schools, museums and the National Health Service were forced, as far as possible, into a market mould. So was the senior Civil Service, where the frontiers of the public domain had been most zealously guarded, and in which its values had been most thoroughly internalised. Meanwhile, the diverse rhetoric of private sector management and public-choice economics corrupted the language and undermined the self-confidence of defenders of the public.
The resource-starved public services of 21st-century Britain are the most obvious legacy of this Kulturkampf, but they are not the most dangerous one. Incessant marketisation has done even more damage than low taxation and resource starvation. It has generated a culture of distrust, which is corroding, like an acrid fog, the values of professionalism, citizenship, equity and service. For those who control the market, the professional, public service ethic is a con. Professionals are self-interested rent-seekers who try to force the price of their labour above its market value. The service ethic is a device to legitimise a web of monopolistic cartels whose real purpose is to rip off the consumer. There is no point in appealing to the values of common citizenship. There are no citizens: there are only customers. In the public sector, as in the private, the only safe motto for customers is caveat emptor - let the buyer beware. Public servants cannot be trusted to give of their best; they are inherently untrustworthy. If they are allowed autonomy, they will abuse it; professional autonomy is another word for monopoly. Like everyone else, they can be motivated only by sticks and carrots. If possible, privatisation must expose them to the sticks and carrots of market competition. If not, they must be kept on their toes by repeated audits, assessments and appraisals.
Twenty years of this have left the public domain demoralised. It still has devoted custodians among doctors, teachers, nurses, social workers, academics, broadcasters, judges, trade union officials, local government staff and non-governmental organisation workers. But the danger signals are everywhere. The most spectacular have appeared in Whitehall. First the Scott report, and now the Phillips report, have shown that the public service ethic, born of the Northcote-Trevelyan reforms which rooted out the corruption and nepotism of the early 19th century, is in tatters. And that is only the beginning. The growing interpenetration of politics and business; the sleaze that has accompanied it; the dumbing down of the BBC and the broadsheet press; the culture of sponsorship, which has invaded virtually every form of public entertainment, from opera to football; the diversion of academic energies from the pursuit of knowledge and the education of the young to a desperate scrabbling for advantage in mindless assessment exercises - all tell the same story. They show that the dykes our Victorian ancestors built to protect the public domain from invasion by the market domain have been breached at point after point. Even more damagingly, so does the virtual disappearance of the notion of the public interest from public discourse.
The result is a deadly paradox. Wise economic liberals have always known that trust is fundamental to a healthy market order. Without mutual trust, markets are mere playgrounds for mafias. The market domain consumes trust, however; it does not produce it. The example of Asia shows that trust can be produced in the private domain. But in 21st-century western cultures, the private domain has decayed along with the public, as the divorce rate shows. In the Atlantic world, at any rate, the mutual trust on which capitalism ultimately depends can be generated only by a vibrant and autonomous public domain. By eroding the values of the public domain, incessant marketisation has undermined the foundations of the market order itself. It has also undermined the foundations of democratic governance. Citizenship rights are, by definition, equal. Market rewards are, by definition, unequal. If the public domain of citizenship and equity is annexed to, or invaded by, the market domain of buying and selling, the primordial democratic promise of equal citizenship will be negated. The Gore v Bush contest in the United States showed where that road leads. Who can doubt that Britain is already speeding along it?
The priority for 21st-century social democracy is to retrieve, perhaps to reinvent, the public domain and to erect new barriers against incursions from the market domain. As in 19th-century Britain, success will depend on a mixture of state intervention, private initiative and local authority action. The most urgent need of all, however, is to develop a public philosophy centred on the propositions that a healthy public domain is essential to a free society; that belief in the possibility of a public interest is essential to the health of the public domain; and that, in the public domain, goods must not be treated as commodities or surrogate commodities. It is time to remember that the language of buyer and seller, producer and customer, does not belong in the public domain; that doctors and nurses do not "sell" medical services; that students are not "customers" of their teachers; that the police do not "produce" public order - and that attempts to force these relationships into a market mould corrupt the service ethic on which social democratic politics depends.
The social democrats of the past acknowledged this: Tawney said much the same thing 80 years ago. But more is needed, and the "more" involves borrowing from other traditions with which social democrats have been less comfortable. A reinvented public domain cannot be imposed from the top; it must grow from the bottom. The service ethic is hollow without a supporting ethic of accountability, transparency and diversity: a civic culture delivered from on high to a passive society would be a contradiction in terms. Marketisation made headway because it spoke to a popular revolt against the condescension of the elites that used to manage the public domain, and to a popular demand for accountability. The accountability it offered - that of the market place - was deformed and corrosive. But it does not imply a return to the public domain of the old days: it implies that accountability should be sought through participation and openness, not through the price mechanism or its surrogate. That, in turn, implies that social democrats cannot revitalise the public domain all by themselves. What is needed is a marriage between the social democratic emphasis on civic solidarity and the social liberal emphasis on pluralism, decentralisation and autonomy.
This is exactly what Tony Blair seemed to offer in his early days as Labour leader. He went out of his way to identify himself with the social liberal tradition. Keynes, Beveridge and Lloyd-George, he insisted, were as much at home in the new Labour pantheon as Attlee, Bevin or Bevan. He picked up the mantle of constitutional reform and political decentralisation where the Asquith government had dropped it in 1914. He fought the 1997 election on the ticket of a "democratic renewal", involving constitutional changes more radical in toto than anything seen in this country since the Act of Union of 1707. More remarkably still, he then proceeded to deliver. A constitutional revolution was set in motion. The old constitution - based on the ancient doctrine of the absolute and inalienable sovereignty of the Crown in Parliament - had been growing threadbare for years. In the first three years of the Blair government, it was torn to pieces.
Then the revolution stalled. The revolutionaries, it turned out, had not understood what they were doing. They had learnt the vocabulary of citizenship, democracy and decentralisation, but they did not know what the words meant. They thought they could combine decentralisation with centralism, pluralism with populism, defence of the civic culture with further marketisation. They announced that they were handing over varying degrees of power to the Scots, the Welsh and the citizens of London. When the beneficiaries took them at their word, they tried to backtrack, and ended by looking mean, clumsy and incompetent. Meanwhile, their earlier commitments to a referendum on proportional representation and to a radical reform of the Official Secrets Act faded away. The result is an incoherent and unstable melange of incompatibles. Pluralism reigns in Edinburgh and Cardiff, but bureaucratic centralism and corporate sector managerialism prevail in Whitehall and Westminster. The old constitution has gone. It has been replaced by a vacuum.
This intellectual and policy paralysis reflects a tragic lost opportunity. The late 1980s and early 1990s saw a remarkable ferment of ideas on the British left and centre left. Writers such as Will Hutton, John Gray, John Kay, Ralf Dahrendorf and Harold Perkin began to grope towards a new intellectual and political paradigm, combining insights from traditional social liberalism and traditional social democracy. There were differences between them, but the notions of a stakeholder economy, a public domain and a pluralistic polity were common to nearly all. The Social Justice Commission, set up by John Smith, and the Dahrendorf Commission, set up by Paddy Ashdown, struck essentially the same chords. Charter 88 mobilised a surprisingly wide constituency behind constitutional reform. The emerging paradigm was fuzzy and inchoate, but five features stood out. It was broadly liberal in politics, but broadly social democratic in economics. It was for capitalism against socialism, but it implied profound changes in the architecture of British capitalism and a challenge to powerful corporate interests. Although it drew heavily on American academic writing, its vision of the political and moral economy was much closer to mainland Europe than to the US. In the British context, it was new - newer than anything offered subsequently by new Labour. Above all, it was pluralistic. It implied a multiplicity of power centres, economic and political, and it rejected the notion of a single modern condition to which there was a single route.
The emerging new paradigm was not a programme for government, but it did offer a path towards a programme. New Labour closed it off. The radical Blair - the Blair who ditched Clause Four and dreamt of a new progressive coalition - was overwhelmed by the conservative Blair who berated the public sector and shied away from pluralism when it became politically inconvenient. The question, now, is whether he and his followers will retrace their steps and start again.
David Marquand is principal of Mansfield College, Oxford