The end of new Labour

Switching the leader will be a waste of time if the party does not radically change direction

The end of every summer marks a moment of potential political renewal. Pundits and commentators urge leaders to modernise, consolidate, shift left, move right or die. Reality rarely matches the hype. But the tail end of the wet summer of 2008 lives up to the hyperbole. Labour really must change or die.

Whatever Gordon Brown decides to do as he considers relaunches and reshuffles, something is glaringly apparent: the new Labour project, initiated, perhaps unwittingly, a quarter of a century ago by Neil Kinnock and accelerated to dramatic effect by Tony Blair after 1994, is finished. The centre left needs a new paradigm in thinking and action, one as different from new Labour as this was from the creed it superseded. But a new left project that mixes commitment to principle with a lust for power in equal measure has to be built on an understanding of the rise and fall of new Labour.

For the century before new Labour, the centre left put all its hopes in the basket of the bureaucratic state. The combination of economic Fordism and the elitist politics of Fabianism and parliamentary Leninism created a bureaucratic model of top-down state reform. For the 30 years between 1948 and 1978, the bureaucratic state ruled supreme. It died as society became more complex, decentralisation became popular and we witnessed a welcome end to the age of deference.

The failure of the state was the most important cause of the right-wing response, a market state which ruled for an equivalent 30-year period from 1978 until now.

Servants of the market

Historians will bracket new Labour with this era and with Thatcherism. That does not make it the same as neoliberalism. New Labour was a contradictory and limited response to the free-market forces unleashed during the 1980s. But its failure to make a decisive break with Thatcherism meant new Labour's response to the crisis of the left and of the state was doomed, containing the seeds of its own destruction.

After four electoral defeats, new Labour inverted the principle of social democracy: Labour governments would no longer try to make society the master of the market; it would make society its servant. Social justice would become a product of economic efficiency. Globalisation would not be regulated in the interests of society but would be accommodated.

Unlike under Thatcherism, people would not be left totally alone in the face of open market competition. New Labour believed that, for Britain to compete effectively on the world stage, people had to be trained, educated and encouraged to become flexible and adaptable. So the state would be modernised. Labour would invest in people to help them become individually competitive.

Crucially, in the name of social justice, the private sector and market forces would be introduced into parts of the public sector Margaret Thatcher had not dreamed of.

As Lord Tebbit, of all people, said recently: "There are some things that just shouldn't be privatised." New Labour was better than Thatcherism, but not different in character.

The nature of the new Labour project was contradictory and it is vital that the positive aspects of its legacy be rescued. Its period of government cannot end up as 13 wasted years. There are three aspects of new Labour the centre left must hold on to: first, the will and ambition to modernise and win; second, the active use of the state to determine different social and economic outcomes (despite the now obvious limitations for motive and method); and, third, completion of the social liberalisation project started by Roy Jenkins in the 1960s.

But Labour's next stage should not be a modified form of Blairism, unable to deal with such market failures as the credit crunch because it doesn't have the belief, the will or the institutional mechanisms to do so.

For new Labour, the market must always come first. Lab our's electoral strategy is similarly in tatters. Its foundation was the belief that voters had nowhere else to go if it pushed the Tories to more and more extreme positions. To which the answer from Glasgow East, Crewe and probably Glenrothes is "Oh yes we do". A hugely destructive pincer movement is at work. A mixture of boredom, Iraq and illiberal policies such as 42-day detention has led to new Labour's contract with the middle classes being broken. The working classes are tired of their interests being ignored. Both social groups breathe the same free-market air and want no more of it. David Cameron poses as a friend to all, but has no prescription for the security people are seeking.

New Labour has equally little to offer. It has only the policies of state Thatcherism, a declining rump of supporters and party members, a crisis in Scotland and no money to fight an election campaign. In fact, it is worse than that. An election defeat could leave Labour without a hated enemy (the role Thatcher played after 1979) to galvanise renewal. Cameronism is the heir to Blairism. Even now, the instincts of many new Labour ministers on welfare reform and housing pro vision are clearly to the right, paving the way, as George Osborne has said, for the Tories.

Important Labour policy successes are unlikely to survive Tory rule because they were never advocated on grounds of social morality, but presented as requirements of economic efficiency. The minimum wage will not be updated. Sure Start will be quietly bled dry. They were created by stealth and they will die by stealth.

Acting together

New Labour has run as far as it can up the down escalator of believing that economic efficiency delivers social justice. Free markets tend to inequality: the statistics now show a country more divided on class and mobility lines than the one Labour inherited from Thatcherism.

The starting point for centre-left renewal depends on determining what offers a radical and popular alternative to the market state: the ideas, organisations and vested interests that make the political weather to which leaders have to respond.

Here, there are grounds for optimism. People want security; Thatcherism gave it to them in the form of markets and individualism in the 1980s, just as Attlee did after 1945 with the welfare state. Today, there is no demand for a return to free-market fundamentalism. Even Eddie George, the former governor of the Bank of England, has criticised the effect of free markets. The issues we face today demand collective responses, from climate change to the housing market, from pensions and public transport to rocketing fuel prices.

There are two Rubicon issues for a post-new Labour Party. Globalisation has to be made to work in the interests of society, and democracy must be viewed as an end in itself. The two are linked; democracy is the form by which the management of markets is legitimised and constructed. The future of the centre left rests on the creation of the democratic state as the means by which people can take control of the world around them in ways that individual choices can never match.

A new policy agenda for the 21st century must centre on a democratic state capable of addressing market failure in ways that mix the desirable with the feasible. A windfall tax on the energy companies would be a quick start. It could be followed by taking the railways back into public but accountable ownership at no cost to the Treasury; a graduate solidarity tax to replace the market system of variable fees; a ban on advertising to children under the age of 12; abolition of tax for people earning less than £10,000 and the introduction of a new upper rate; the election of local health boards and the co-production of public services; the creation of a national well-being index; and proportional representation in the Commons, along with an elected second chamber.

Thatcher said people should stand on their own two feet. New Labour said it would help. But people cannot withstand the pressures of globalisation alone. We cannot go back to the bureaucratic state, but we do need ways of acting collectively.

The last time Labour was desperate not to lose power, it lurched to the right and grabbed Tony Blair as a saviour. The party could be in danger of repeating its mistake. A change of leader must mean a change of direction, towards a country that becomes more equal because it is more democratic.

Tony Blair said on 2 May 1997 that "we ran for office as new Labour, we will govern as new Labour". The task now is to ensure that the party does not die as new Labour.

Neal Lawson is chair of Compass: http://www.compassonline.org.uk

Martin Bright is away