The New Statesman Essay - A new map for our lost politicians

Socialism versus capitalism? Forget it. Go back to the pre-Marxist era and renew the battle between

Let us start with a proposition that should command general, if not universal, consent. British politics is in a less than perfect condition. None of the main parties exudes much self-confidence. All behave as if they have blundered into a strange new land. Labour looks ill at ease and at odds with many of its supporters, despite its second landslide victory. The Conservatives do not know whether they will survive at all as a major political force. The Liberal Democrats have more MPs than any third party for 70 years, but cannot decide whether to be Labour's critical friend or implacable foe.

Enveloping all three parties is the knowledge that fewer people belong to political parties than for many decades. Worse, on 7 June last year, for the first time since the arrival of full adult suffrage, the true victor was the abstention party.

Could all these things be connected? Are we facing not a series of separate malaises, but a single transcendent phenomenon? My thesis is that British politics is in the throes of a fundamental transition, of the kind that happens every 70 or 80 years. From the early 1920s until the 1990s, the main contest was between socialism and capitalism. One of the principal tasks of national politics was to manage that contest in a democratic manner. As long as it remained unresolved, the battle lines remained comfortably familiar. Labour activists mused about building a Clause Four paradise; Tories dreamt about banishing socialism for ever.

Then capitalism won. Not primitive, laissez-faire capitalism of the type that Marx deplored, but a more qualified and regulated version, operating within political systems where the state plays a far greater role than the founder of communism ever imagined. The best form of capitalism remains a matter of dispute, but the large question - which basic form of economic organisation is most likely to advance prosperity - has been settled. Look to the streets of Seattle or Genoa, let alone the caves of Afghanistan, for a credible blueprint for a modern, non-capitalist world, and you look in vain. The central truth of our time remains: within the democratic world, there is no significant group that proposes to abolish capitalism altogether, even as a long-term objective.

Yet the language and institutions of the old contest linger on, like fading film stars revered more for their past Oscar-winning performances than for their current roles. We still talk about left and right; the two biggest parties are still Labour and the Conservatives. But there is no agreed 21st-century goal for either.

That, fundamentally, is why the parties look lost. They are lost. The political terrain has changed and they do not have a map.

This should be a great historic opportunity. We have the chance to move on from a debate that finally grew sterile and restricting. Once we acknowledge that both traditional socialism and completely laissez-faire markets are bad ideas, even as distant dreams, we are able to move on to new ways to debate the nature of social progress. Ours should be an age of political liberation.

Liberation, note: not revolution. Not everything from our recent past should be thrown away. The contest between capitalism and socialism provided a framework in which pragmatic democracies could evolve. This framework is worth preserving. Whatever the details - whether or not they have proportional representation, for example - almost every stable, mature and efficient democracy is dominated by two large, competing political blocs. One is in government, while the other aims to replace it at the next election.

The democratic glory of the contest between capitalism and socialism was that it gave shape, purpose and valuable stability to political competition in much of the world. Britain offers a perfect example. Providing that neither side in the argument pushed its power too far when in government, both enjoyed room to dream. As a result, most people felt that they had a proper choice, and a voice in the overall political process.

The core political contest of the past 80 years, then, was both ideologically and democratically efficient. The end of the ideological struggle has destabilised this neat arrangement. Parties have become confused, the public disenchanted. And not just in Britain: election turnouts are down in most democracies.

What is needed now is a new axis along which parties can contest power in the 21st century: two rival dreams that can stir passions, reconnect the public to the world of party politics and so regenerate efficient democratic competition.

Is such a solution available? I believe it is. It is rooted in the observation that western politics embarked on a detour after the mid-19th century. Before Marx, the big political battles between progressives and traditionalists concerned the definition of democracy and large philosophical questions to do with freedom and fairness, and how to balance the sometimes conflicting demands of individual liberty and collective benefit. Economics mattered - it has since the dawn of time - and the discipline flourished as part of the Enlightenment. But not until Marx's ideas took hold did rival economic ideologies become the dominant battleground of party conflict.

The Marxist detour is now over. We live in a post-Marxist world, and in many ways it looks like the pre-Marxist world. Today's political debates are essentially the same as those of the pre-Marx Enlightenment. They concern the nature of liberty and equality, the rights of the individual, the role of the state. Dialectical materialism is dead: long live dialectical utopianism. Despite social and political changes, the ideas of Jean-Jacques Rousseau, Tom Paine, Edmund Burke and John Stuart Mill still resonate.

In those days, freedom and fairness tended to be two sides of the same democratic coin. The campaigns against slavery, the struggles for votes for all and fights for trade union rights and civil liberties were all waged in the name of both liberty and equality. To some extent, they remain progressive causes. There is both an egalitarian and a libertarian case for repealing Section 28, for fighting sex discrimination and for treating asylum-seekers more humanely. In the business world, anti-trust legislation can be advocated on the grounds of either fairness (to stop near-monopolies crushing small rivals) or freedom (to give everyone the chance to participate in a market economy).

Yet freedom and fairness are not the same. Individual liberty can clash with social equality. Either, taken too far, undermines the other. A completely "free" country that failed to impose rules or collect taxes would be horrid and divided. In the 1990s, Russia and Nigeria went far to proving this. But complete equality would require laws and taxes so onerous that liberty would be snuffed out. The nearest examples today are Cuba and North Korea.

Sensible democracies oscillate around different positions on the freedom-fairness spectrum. Compared with Britain, the United States (especially the Republicans) veers towards the libertarian end of the scale, while Continental Europe (especially the social democrats) veers towards the egalitarian end. Indeed, you could say that the contest between individual liberty and collective well-being is where most of the political action takes place these days. Consider some of the most fraught arguments that Labour and the Tories have faced in recent years - over the minimum wage, Europe's social chapter, race and gender discrimination, the level of taxation, welfare benefits, "fat cat" salaries, and our systems of education and healthcare. All these are more usefully depicted as freedom-versus-fairness issues than as capitalism-versus-socialism issues. So are many of today's other issues - over the environment, for example, or over international trading arrangements (globalisation).

The fundamental flaw with some versions of the Third Way - and particularly the Blairite articulation of it - is that they try to remove this conflict, between freedom and fairness, from the democratic process. They advocate a political system in which market and state, bosses and workers, society and individuals, can live together in harmony and mutual respect.

But a future dominated by a single Third Way would leave us with an incomplete democracy, with rival scenarios, neither of them attractive. In the first, one party would be a modern, relevant, Third Way party, while the other would be stuck in the past. That is precisely how Tony Blair would like floating voters to think of today's Labour and Tory parties. This would be good for Labour, but bad for democracy. In the second scenario, both main parties would sign up to the same Third Way. This might create a more equal contest - but only by depriving voters of a real choice between different philosophies and programmes. More subtly, an excess of agreement between the two parties would lead to an intellectually lazy consensus, drain passion from political debate and make it increasingly hard for either party to recruit members.

What we need is not a single Third Way, but competing Third Ways: rival programmes, driven by different passions, but both relevant to the new era. Freedom and fairness can provide these rival passions. That is not to say that a freedom party need deny the case for a significant degree of fairness, or that a fairness party need trample on all our freedoms. Both parties would recognise the need to balance the two objectives. But they would come to the debating table from different sides. The process of arbitrating between the claims of freedom and fairness would be open and democratic.

In some ways, this proposal would bring to the forefront ideas and debates that have never really gone away. They were, rather, subsumed within, and often distorted by, the contest between socialism and capitalism. In fact, arguments about freedom and fairness are more enduring than arguments about economic organisation. They are also more fundamental. This is because, in a modern democracy, a freedom-lover and a fairness-enthusiast do not simply make different value judgements about how to trade off the two virtues when they conflict. More importantly, they start from very different philosophies.

Anthony Crosland offered this description of his brand of social democracy: "It is about the pursuit of equality and the protection of freedom - in the knowledge that until we are truly equal, we will not be truly free." Roy Hattersley cited this view to justify the title of his 1987 book, Choose Freedom. To anyone who thinks that "freedom" in a modern democracy is largely about the liberty to act autonomously with the minimum of interference, Hattersley's title would seem at best ironic, and at worst downright misleading, as a rallying cry for the kind of high-tax, high-regulation society that he advocates. He should have called his book "Choose Fairness".

At the other end of the scale, Friedrich von Hayek argued that fairness, at least in the form developed after the Second World War by social democrats (and, for that matter, many Christian democrats), is a barren concept: provided that individual liberty is fully protected, the result would automatically be "fair".

In other words, to a fairness purist, equality is the prior condition for "true" freedom; to a freedom purist, individual liberty is the prior condition for "true" fairness. The point here is not to say which view, if either, is correct, but to observe that this is a vital argument that goes to the heart of post-ideological politics.

This analysis suggests lessons for all three main parties. Labour needs to define its mission as the fairness party. Many of this government's measures, especially those devised by Gordon Brown, are easily depicted as part of a fairness strategy. So is Blair's commitment to abolish child poverty. Yet new Labour's tone and rhetoric, and its reputation for being infatuated with rich business leaders, have given it a different image. The Prime Minister's standard response is to say that social progress and economic dynamism should go together - indeed, without a successful market economy, the government would not be able to afford its social programme. This proposition is true, but it is not enough. It wishes away inevitable conflicts between market freedom and social equality. It establishes no principles on which Labour can design policies to tax the wealthy or run the railways.

To say that Labour is in favour of "what works" does not help. Hands up who wants policies that fail. We all want policies that don't disintegrate, just as we want taps that don't drip. The prior question is: policies for what purpose? By repositioning itself explicitly as the fairness party, Labour would have a powerful answer. It could then acknowledge openly that freedom, especially market freedom, must often take second place to social justice and environmental well-being. This would give coherence to the government's strategy, on everything from reform of the NHS to the battle against child poverty.

The Conservatives' obvious role is as the party of individual liberty. Yet to transform themselves effectively, they need a broader view of what freedom means. At present, many Tories give the impression that their passions are greed rather than liberty, and prejudice rather than tolerance. Their party is not yet a natural home for freedom-loving black and Asian Britons, single mothers, gay couples or cannabis-smokers. Michael Portillo tried to address this issue in last year's leadership campaign; as a result, he did not even reach the run-off ballot.

To be fair to Iain Duncan Smith, the new Tory leader shows some signs of recognising the need for a fresh approach. His recent speeches and some policy initiatives have contained Portillo-like assertions of the need for the party to be more inclusive. But the mountain the Tories must climb is so high, and their pace so slow, that they may run out of time to persuade voters that their quest for true freedom is more noble and ambitious than the quest for more cash.

It is possible, therefore, that the Liberal Democrats could become the freedom party. They are already enthusiasts for personal and civil liberties; but in recent years they have become more sceptical about the market economy, especially in relation to the environment and the delivery of public services. Like the Conservatives, they believe in half of the freedom package, but it's a different half.

Can they become a thoroughgoing freedom party without selling out on the environment and well-funded public services? They can call on their long-standing commitment to devolved power and voluntary, community-based politics. Where Labour instinctively believes in solidarity, with its implication of a powerful role for central government, the Lib Dems offer the virtues of fraternity, which embodies a similar concern for human fellowship, but without solidarity's statist overtones.

The Lib Dems could reach back to the works of John Stuart Mill and Thomas Hill Green (a late 19th-century Oxford philosopher who was a major influence on Tawney, Beveridge and Keynes). Mill stressed the need to curb liberty when - but only when - this was necessary to protect the liberty of others. Green developed the case for positive state action to promote individual liberty. Together, their ideas could be, and deserve to be, updated by a party that is serious about making freedom work for everyone. But the Lib Dems would need to jettison some of the high-tax, big-government ideas that they advocated at last year's general election.

The potential prize is enormous. Charles Kennedy has a rare chance to lead his troops from third to second place at Westminster - not simply by default as the leader of the biggest non-Labour party that happens to be around at the time the Tories implode, but by coming to terms with the new politics. This prospect belongs to the realms of the possible rather than the probable, but it is worth striving for. A progressive freedom party versus an economically competent fairness party; new Lib Dems versus ultra-new Labour: that would be a democratically attractive contest for Britain over the next few decades. It could come true, unless the Conservatives do what they have shown all too few signs of doing over the past nine years, and come to their senses.