The centre of politics has shifted. As Barack Obama’s victory and frantic first weeks in office prove, to talk about equality, fairness, control of markets and environmental sustainability is to reflect not just the aspirations, but the objective interests of the political mainstream. The neoliberal thinking that dominated the industrial world for nearly 30 years has led to a financial crisis, which in turn caused the global downturn. Yet if the United States has been seized by a new sense of hope, here in Britain there is a grim sense of business as usual.

The leaderships of the Conservative and Labour parties may advance different policies in response to the recession, but their underlying analyses are depressingly similar. The downturn is there to be ridden out, whereupon politics and society will return to where they were. A bunkered and backward-looking elite are now ignoring what is happening on the ground: in essence, we are caught in a very dangerous disjunction between the actions of career politicians and the aspirations of wider society.

The government’s responses to changed times have been either too timid or, on the few occasions ministers have still affected to be radical, based on the very ideas that are now part of history. As evidenced by the reluctance to insist on the separation of retail from investment banking, running through the supposed remedies for the financial crisis is a discredited belief in light-touch regulation. Thanks to intense corporate lobbying, it now looks as if promised moves on the gender pay gap, flexible working and parental leave are on hold. The same craven approach to corporate power explained the lamentable decision on a third runway at Heathrow.

Having long heard the claim that social democracy was held in check by powerful forces pushing in the opposite direction, we now find that, even at a moment of unprecedented opportunity, Labour still genuflects to the forces and interests of big business. Look, for example, at the recent debate in cabinet about bonuses, and the contention – reportedly voiced by some ministers – that any harder line might somehow spoil Labour’s business credentials. To cap it all, the government is reprising the tired old trick of defining policy against its own side, and advocates part-privatisation of that totemic public institution, the Royal Mail.

Over the past three decades, private interests have been not just allowed, but encouraged, to eat into the public realm. The dysfunctional consequences of uncontrolled markets have allowed government to grow ever more intrusive and controlling. In the face of a growing environmental emergency, well-being and sustainability have become terms that embody little more than cynical window-dressing. Now we have the worst economic crisis in at least 80 years. Clearly, there can be no turning back to the failed and discredited politics of old. Instead, we need to use this time of emergency to aim for a different future and to get there by different means.

The absence of forward thinking among the political class, however, is absurd. It is as if, when in power, Clement Attlee would have quietly wished to back-pedal to the mess of the 1920s, or Margaret Thatcher had turned out to be nostalgic for the era of the three-day week and incomes policies. Instead, both politicians realised that the people were moving to a new centre and they had the audacity to capitalise on it. Today our leaders speak the language of defensive line-holding and incremental adjustment even as politics is in flux. If the political elite do not address these new times, uglier forces may yet take their chance. Take note: with the European elections looming, the British National Party may gain its first platform within national politics; police intelligence predicts “middle-class riots”.

In response to the crisis of market fundamentalism, certain people (including, ironically enough, some of those who have spent their entire careers spurning anything deemed “Old Labour”) seem to have embraced a revival of a pre-Thatcher politics, whereby increasing the reach of the state becomes an end in itself and any idea of credible progressive values falls away. We see this return to the old ways in the nationalisation of banks that leaves their essential structures and ethos unaltered, and the idea that we might speed our exit from recession only by calling time on sustainability in a dash for state-assisted jobs which leaves the fundamentals of the economy unchanged. That agenda affects to speak to the moment, but has nothing convincing – let alone progressive – to say about the future. We need green jobs, not jobs at any cost.

The old social-democratic promise was of incremental reform, more wage-bargained crumbs from the capitalist table and a larger slice of the cake for the masses – all delivered from the sanctuary of the Labour movement. In 2009, in the face of both increasing social breakdown and accelerating climate change, any renewal of this project will be hopelessly inadequate. If there is to be no turning back to market fundamentalism, there can be no turning back to state and party fundamentalism, either.

Heroically, Old Labour tried to engineer a more equal society from the top down, but in a world that was no longer prepared to put up with deference, that project became suffocating, and was swept away by the new right and by the market fundamentalism that has shaped our world ever since. Under Old Labour, the state failed; under the Tories, markets were made too free. New Labour tried to find a third way between the two. But to split the difference between the old state and the free market was to build on the weakest possible foundations.

We should never underestimate the very real advances and improvements of the past 12 years: hugely increased investment in schools and hospitals, the minimum wage and improved rights at work, devolution to Scotland, Wales and Northern Ireland. But now the contradictions and limits of the New Labour project are fully

exposed. Such is its failure that we face the bitter irony of a Conservative victory in little more than a year’s time – at just the moment that the country needs a leftward change of direction.

The starting point for a better future is the simple recognition that the Good Society is incompatible with market fundamentalism. The purpose of free markets is to maximise profits. This is beneficial for wealth creation and innovation, but there have to be limits. Otherwise, not only will there be the kind of periodic crises we are now suffering, but, as our climate changes, the inexorable march of the market will threaten – indeed, is threatening – our very survival.

Markets never contain themselves. Instead, they always look for new opportunities to make more profit. This leads to no end of disastrous and dysfunctional outcomes: among them, the commercialisation of the lives of our children and the rise of the kinds of complex financial instruments that have brought the whole house down. To turn society in a different direction, markets will have to be regulated and trammelled by social forces – the state and civil society. We must put in place the institutions that

allow society to make the market its servant. We cannot graft our conscience on to capitalism, as it were; the point must be to direct it and constrain it in the interests of society at large.

The good life is one in which we, as citizens, have proper autonomy, the ability to decide and make our own fate. We can achieve only a slim part of that alone. Over the past three decades, the overriding feature of the Anglo-Saxon model of capitalism has been to transfer risk from society to the individual under the pretence of greater freedom. But autonomy comes from collective decisions that change the big things about our lives, communities and planet. The market, by contrast, erodes society and the democratic state because it wants us to make only personal consumer decisions.

When our politics surrenders to such individualised logic, it risks losing any real meaning. Think back, for example, to Labour’s campaign for the election of 2005, and such pledges as “Your family better off”, “Your child achieving more” and “Your family treated better and faster” – not to mention Alan Milburn’s claim that Labour’s essential mission was to help more people “earn and own”.

Yet, even at Westminster, there are hints of something better. Within New Labour there are people – “left Brownites”, crudely put, such as Ed Miliband, Douglas Alexander and Harriet Harman – who believe that more transformative change is desirable, but clearly not feasible. David Cameron and some of his acolytes see the crisis in our politics and are trying to find a way out, talking about “capitalism with a conscience”. Yet this will amount to mere talk unless the new progressives publicly denounce the central tenets of Thatcherism – the creator first of our social recession and now our economic depression.

More promisingly, swaths of people within the Labour movement – up to and including some MPs – know that the party’s leadership is shrinking away from urgent challenges and failing to develop a modern version of progressive politics. In 2007, Jon Cruddas’s campaign for the Labour deputy leadership, and his critique of the government, made him the figurehead of the party’s centre left. Now the unions and the TUC are making daring noises, not least through championing the Putting People First campaign (tying together unions and NGOs under the banner of “Jobs, Justice and Climate”) before next month’s G20 meeting in London.

Among politicians, by far the most convincing and the boldest take on the financial crisis has come from the Liberal Democrats’ Vincent Cable. Within his party, so-called social liberals and

social democrats alike know that the era of market worship is over. The Green Party, too, knows this. Over the past decade think tanks and pressure groups – the New Economics Foundation, the Fabian Society, IPPR, Compass – have been pointing out the fragility of post-Thatcher politics and economics and sketching out what might lie beyond. As proved by the rise of the “Red Tory” thinker Phillip Blond (profiled in the NS, 23 February 2009), even some Conservatives accept that unchecked markets and monopoly capitalism have left our society – and the wider world – weakened and divided.

What is more, the past decade has brought the growth of social movements, many with an international focus, which have implicitly held out the promise of a politics less in thrall to outdated dogmas and vested interests, and genuinely focused on attempts to create a more equal, sustainable world. Those who marched against the Iraq War have resurfaced in organisations such as Plane Stupid, seeking to change the terms of debate about the way we live and the future of our planet. In our communities, groups such as London Citizens are underlining the power of solidarity by winning demands for a living wage.

In addition, campaigns to stop the introduction of identity cards and to define a modern

liberty are going from strength to strength. The case for equality for women in the workplace and in politics is being made as strongly as ever. Moral leadership is coming from the churches. And millions of ordinary people are doing what they can to change their lives and make those of others better – by buying ethically, recycling, volunteering and downshifting. Across the Atlantic, the same was true of the diverse movements and groups which clustered around the Obama campaign. With campaigning on the internet, change might come faster and easier. This is all cause for optimism.

The catalyst for what must happen next is that we must simply refuse to go back. We know the consequences of a desired return to “normality”: house-price bubbles, personal debt, boom and bust, insecurity and long hours at work, anxiety on the streets, stress in our homes, and fears about the survival of our planet.

What all of us who want a more equal, sustainable, democratic and liberal Britain and, indeed, world now have to recognise is that we can no longer go on trying to cope with the symptoms of market fundamentalism. It is time to address their causes. And to succeed in that, we have to work together. Isolated measures on the environment or inequality are not enough; single issues have to be joined up.

What this means is the creation of a politics that transcends tribal party lines. The postwar settlement that delivered jobs, free health care, social insurance and decent education for all was built on the ideas of J M Keynes and William Beveridge (both Liberals) and Rab Butler (a Tory). No party has a monopoly of wisdom. Meaningful and lasting change happens only when people join in the widest possible movements.

In the late 1980s, the Scottish Constitutional Convention brought together a range of people from parties, churches and other civic groups, and eventually delivered its aims, even in the teeth of opposition from Tony Blair. Coalitions such as Charter 88 and the Countryside Alliance have caught people’s imagination and had a palpable effect on organised politics.

We believe form follows function; it is time for like-minded people to listen and speak to one another. A few weeks ago, one of us shared a platform with a Labour-aligned speaker who claimed (as usual) that the party had to “take on” the

Liberal Democrats. We suggested that if Vincent Cable’s pronouncements were anything to go by, we should rather be talking to them. It was encouraging that an audience made up largely of Labour activists heartily agreed.

None of this means that we have given up on the Labour Party or the role of the state. A transformed Labour Party is still desirable – and feasible – as one of the most important means of the change that we seek. But Labour is far from being transformed. Besides, even capturing the state to give power away is no longer enough.

We can build a mixed economy in which the industries and services that the nation relies on to function are socialised, not privatised. We can allow markets to flourish, but know we are better served by more plural and diverse means of production – such as social enterprise, voluntary organisations, mutuals and co-operatives. We recognise that more democracy is nearly always the answer to the problems we face, not just in government, but in our workplaces and communities. We can close the gap between the rich and the poor. And we must put the needs of the planet before the blind pursuit of profit.

Once in a generation you have an opportunity to change society in profound ways. For all the hardship and insecurity bound up in recent events, we are lucky to live in such a moment. What seemed infallible until recently – the essential credo behind the last 30 years of economic history – has crumbled, like communism before it. Yet this is not a crisis of capitalism, but a crisis of a society and democracy that have failed to regulate the market. It will become a crisis for our planet, too, unless we resolve it. l

Neal Lawson is chair of Compass. His book “All Consuming” will be published in June by Penguin

John Harris writes on politics and music for the Guardian

Compass is holding a policy competition called How to Live in the 21st Century. For details visit: www.howtoliveinthe21stcentury.org.uk