NS Essay - 'From Churchill to Macmillan on to Thatcher and Blair, British leaders have encouraged the idea that we can still be a global player. It is a fantasy'

New Labour prides itself on "thinking the unthinkable", but its policies are still guided by the sta

It is a general rule in Britain that "thinking the unthinkable" means exaggerating the conventional wisdom to a point of near-absurdity. In this country, intellectual seriousness means finding clever-sounding reasons to support whatever most people take for granted at any given time, and there is no surer way of gaining a reputation for fearless iconoclasm than by breathlessly repeating the cliches of the moment. As in so many things, Tony Blair has shown that we can do better than this. For him, thinking the unthinkable means embracing the cliches of a generation ago.

Early on in the Blair era, the MP Frank Field was given the task of developing some radical new thinking on pensions. He did so, and was promptly sacked. Field was criticised for not coming up with workable policies, but his real mistake was in doing what he was told to do - thinking outside the established policy framework. For Blair, only ideas that have been around for 20 years or more qualify as new. His scheme for charging university tuition fees was first mooted by Keith Joseph in 1984. The Prime Minister appears genuinely to believe that plodding on with our heads full of the stale platitudes of the Thatcher era is the sole way for Britain to modernise.

The expression "thinking the unthinkable" passed into common use in the Sixties with a book of that name by the American strategic analyst Herman Kahn, who became infamous for his claim that a nuclear war involving tens of millions of deaths could be survivable and even winnable. Kahn's arguments were of doubtful value, and may have increased the risk of nuclear weapons being used, but his work had the merit of exposing the lethal reality concealed by conventional notions of deterrence. Truly thinking the unthinkable means facing up to painful facts, and not being afraid to confront the choices that flow from them. It means being ready to scrap inherited ideas and think experimentally.

The continuing dominance of neo-Thatcherite nostrums shows how far we are from any such thinking. We are led to believe that we have moved beyond the all-purpose ideological packages that wreaked so much harm in the past, but the idea that every social institution should be based on market exchange is ideological thinking of the most primitive and simple-minded kind. There is no inherent reason why services that are very different in nature should be supplied in the same way. Different goods meet different human needs, and the idea that we always need choice is silly.

The coffee you can buy at railway stations today is better than that which was served before privatisation, and this is the result of market competition giving us a choice. When it comes to the trains, however, it is not choice we need. We need efficiency, reliability and economy - precisely the attributes that railways at present lack. Rail privatisation has delivered a worse and more expensive service at a higher price in subsidy, and yet London Underground is being broken up on much the same model. It is tempting to see continuing privatisation as no more than a scam devised to enrich the few, but I fear this is too rational an explanation. The notion that public services are there to mimic market choice has lodged itself in the minds of a generation of politicians, and they are incapable of thinking in any other way.

At the same time, voters resist thinking about what they really want from public services and how much they are prepared to pay for them. On a deeper level, there is no public consensus on which goods should be treated as commodities and which have some kind of inherent worth. We lack the common values that would allow a collective choice to be made on the boundaries of the market. In these circumstances, the idea that public services will be improved by the introduction of market forces is practically irresistible, for it trades on one of the few common values to which we cling - the sanctity of consumer choice.

If we were capable of thinking clearly on these matters, we would decide what we wanted from public services and accept that these goals were best achieved by a variety of methods. What works well in one context may not work well - or at all - in another. Different institutions and kinds of public funding may be required in different areas of provision, and there is no one model that fits all cases. Tax-funded state services may be the best policy in some areas, compulsory saving or insurance schemes in others, and in yet others wholesale privatisation may be the answer. There are many possibilities. Ken Livingstone's congestion charge is an example of using a version of market pricing for sound environmental purposes, and carbon trading may be another. There is nothing wrong with using market mechanisms to achieve social goals, as long as the market is not adopted as a matter of doctrine. One of the functions of the public sector is to act as a countervailing force against the dominance of market processes, and this requires institutions that function independently of the market and of government.

Over the past 20 years public services have developed in a very different direction. As we find them today, they enshrine market mechanisms while obeying governmentally imposed targets, and the result is a public sector without any distinctive ethos. Society would be more balanced if the public sector were smaller and composed of institutions animated by non-market values. For example, it may well be that the NHS can no longer be expected to cover all aspects of healthcare. We may need an NHS with a well-defined remit that covers only core areas of medical provision, with the burdensome apparatus of the internal market dismantled and some activities hived off altogether. We have vast public organisations operating in a climate in which the very idea of public service has lost much of its legitimacy. Yet redefining the scope of public services is not on the agenda of any party, because that involves asking questions about their purposes which cannot be answered in the limited discourse of choice and diversity.

Similar questions need to be asked in international relations. Aid and development policies continue to be based on neoliberal ideology, while the power structures that hold back emerging economies are ignored. The policies of institutions such as the IMF and the World Bank continue to be based on the belief that free trade and deregulated capital markets serve development everywhere. The practical result of these policies has been uniformly disastrous, and yet they grind on regardless. Progressive opinion sees the solution in reforming international agencies so they can protect developing countries more effectively, but this is impossible so long as these agencies serve the interests of a few powerful states.

Consider the example of Russia. International institutions have been quick to condemn what they see as departures from democracy and market reform by Vladimir Putin. They were strikingly less vocal about the political skulduggery and spectacular corruption of the Yeltsin era. It is hard to avoid the conclusion that when international institutions condemn Russia, it is because it can no longer be relied upon to serve western geopolitical goals. If Russia is to go forward, it will need to carve out a path of its own rather than blindly adopting the one-size-fits-all model that the west has for its own reasons tried to impose on it. The same is true of other developing countries. What the world needs is not another model of development, but many different models. States must be able to pursue their own paths without risking punitive action by international institutions - or the threat of regime change.

Nowhere is the need to challenge accepted thinking more urgent than in regard to the Iraq war. There is a pervasive view that while military intervention may have been a dreadful mistake, it would be no less mistaken to pull out now. To leave the Iraqis to their own devices would be shameful - we must stick it out and "finish the job". The implication is that a legitimate government can somehow emerge on the back of a criminal invasion. In reality, no Iraqi government that relies for its survival on foreign forces will ever be accepted as legitimate. The Americans seem to be gearing up to stay in the country indefinitely, but as casualties continue and the crippling cost of the war mounts, they will be forced to accept that the insurgency cannot be quashed.

At that point they will begin to pull out, and Britain will follow on their heels. Given this scenario, it would be far better for Britain to announce a schedule for withdrawing its troops, but that is not within the realm of political possibility. Pulling out in the near future would require fundamentally altering the way we view our position in the world. Ever since the Second World War, Britain has used the American alliance to "punch above its weight" - in other words, to avoid facing up to the reality that it is now a middle-ranking European power. From Churchill to Mac-millan and on to Thatcher and Blair, British leaders have encouraged the idea that we can still be a global player. It is a fantasy deeply embedded in establishment thinking, and will ensure that we stay alongside the Americans in Iraq to the bitter and bloody end.

When the Prime Minister and his advisers talk about thinking the unthinkable, they are telling us to accept orthodoxies that have long outlived their usefulness. The plain fact is that the Blair government has never shown much interest in new thinking. Policies on law and order remain fixed in the authoritarian mould that has left Britain with the largest prison population in western Europe, and some of the worst crime figures. Drug policy continues a pattern set in the Sixties, when Britain imported a prohibitionist philosophy from America. The result has been that drug use has spiralled, and a US-style guns-and-drugs culture has taken root in our cities. In environmental policy, the Kyoto Treaty is being treated as an icon at just the moment when it is ceasing to be relevant. Even if it were accepted by the US and speedily implemented on a global level, it would not stop global warming.

What we need is new thinking about the mix of energy sources we rely on - in particular, about reducing our dependency on oil. We also need to think about feasible ways of altering our energy-intensive lifestyle. Instead, the government seems bent on building more roads and houses, and littering what remains of the countryside with inefficient and unsightly windfarms.

The Blair regime is often attacked for being too focused on the short-term news impact of its policies, but that is too simple an explanation for its intellectual deficit. The deeper reason is that it has a neo-Thatcherite world-view, and sees policy-making as a managerial exercise conducted within parameters set by the market. This is the style of thought associated with Lord Birt, who is in charge of "blue-sky thinking" for Blair, and it is reflected in the innumerable initiatives that pour out of the government. The underlying assumption is that policy-making is a matter of using resources cost-effectively to tackle known problems.

Yet if thinking the unthinkable stands for anything at all, it must mean asking fundamental questions and re-examining basic assumptions. What does economic development mean at a time when the way of life of affluent societies is ceasing to be sustainable? If scarcity of energy is going to shape our future, should we not be reinventing our cities as places of high-density living, where people can live on foot? Does a middle-ranking country such as Britain need a new generation of expensive nuclear weapons?

Answering such questions is not easy. It requires breaking with ideology and viewing the world and our place in it with unflinching realism. This is never going to be a popular activity, and in feel-good Britain - where psychological comfort is prized above anything else - it runs against a powerful cultural trend. In the end, thinking the unthinkable means asking how we want to live. Unless policy debates are guided by values, they are meaningless. The real deficit of the Blair government is not just intellectual. It is also ethical, and until we have a government with a clear set of values, we will be ruled by ideas from the past.

John Gray is the author of Heresies: against progress and other illusions, published by Granta Books