The rise and fall of New Labour

The architect of the Third Way argues that although the Blair-Brown years may not have been the new

The era of Labour hegemony is over. How should we assess its legacy? It is conventional these days to disparage Labour's record in government over the past 13 years. Even sympathetic observers argue that little of substance has been achieved. For the more determined critics, Labour in power - Labour as New Labour - has been more than a disappointment; it has been a disaster. The party led an onslaught on civil liberties, betrayed leftist ideals, failed to make any impact on inequality and, worst of all, embarked upon a calamitous war in Iraq. New Labour had promised a "new dawn", and many feel betrayed.

I have some sympathy with these criticisms. Yet it is possible, nevertheless, to mount a robust defence of many of Labour's core policies. And a balanced assessment is needed if the party is to chart an effective path in the future. A realistic starting point for doing so is to compare Labour's period in government with those of its sister parties in other countries over roughly the same period - Bill Clinton and the Democrats in the US, Lionel Jospin's Socialists in France and Germany's SPD, led by Gerhard Schröder.

Labour managed to stay in power longer than any of these - longer, indeed, than any other left-of-centre party in recent times, including those in Scandinavia. The ideological changes associated with the invention of the term "New Labour" were a large part of the reason for this electoral success. "New Labour" was not an empty soundbite designed to disguise a vacuum where policies should have been.

From the outset, the architects of New Labour offered a compelling diagnosis of why innovation in left-of-centre politics was needed, coupled with a clear policy agenda. In outline, this diagnosis ran as follows: the values of the left - solidarity, a commitment to reducing inequality and protecting the vulnerable, and a belief in the role of active government - remained intact, but the policies designed to pursue these ends had to shift radically because of profound changes going on in the wider world. Such changes included intensifying globalisation, the development of a post-industrial or service economy and, in an information age, the emergence of a more voluble and combative citizenry, less deferential to authority figures than in the past (a process that intensified with the advent of the internet).

Most of Labour's policy prescriptions followed from this analysis. The era of Keynesian demand management, linked to state direction of economic enterprise, was over. A different relationship of government to business had to be established, recognising the vital role of enterprise in wealth creation and the limits of state power. No country, however large and powerful, could control that marketplace: hence the "prawn cocktail offensive" that Labour launched in the mid-1990s to woo the City of London.

The expansion of the service economy went hand in hand with the shrinking of the working class, once the bastion of Labour support. Henceforth, to win elections, a left-of-centre party had to reach a much wider set of voters, including those who had never endorsed it in the past. Labour could no longer represent sectional class interests alone. In Tony Blair - not a Labour tribalist by any description - the party seemed to have found the perfect leader to help it further this aim.

Labour's policies evolved during its years in government. However, some core ideas remained the same. Economic prosperity, in a global­ised marketplace, had to take primacy as the precondition of effective social policy. An increasingly prosperous economy would generate the resources to fund public investment, dispensing with the need to raise taxes. Labour sought to break away from its previous predilection for tax-and-spend. "Prudence" was Gordon Brown's watchword as chancellor. Prudent economic management was essential if welfare spending was to rise and social justice to be enhanced.

Here, Labour had to struggle with the disastrous legacy of the Thatcher years. Inequality had increased more steeply in the UK during those years than in any industrial country except for New Zealand (which had also followed Thatcher-style policies). The welfare system was run-down, so investment in public services, coupled with reforms designed to make them more flexible and more responsive to the needs of their users, became a guiding principle. Labour was to be the party not of the big state, but of the intelligent state.

A further important strand of New Labour policy was its refusal to allow any issues to be "owned" by the right. The task, rather, was to provide left-of-centre solutions to them. This strategy became the focus of attacks by critics worried about its implications for civil liberties, but was vital to Labour's longevity in power. Social democrats fell from power in other countries because of their failure to do the same. In the past, the left had tried to explain away, rather than confront directly, questions having to do with crime, social disorder, migration and cultural identity - as if the concerns citizens had about such issues were misplaced or irrelevant. It was assumed, for example, that most crime resulted from inequality, and that once inequality was reduced, crime would inevitably decline. Without denying the connection, New Labour took a different view. Tony Blair's 1997 manifesto pledge "tough on crime and tough on the causes of crime" was not just a slogan; it was adopted as a principle of policy.

It might seem a long way from these concerns to New Labour's emphasis on the need for an activist foreign policy. But it is not. Because of globalisation, domestic and foreign policy now overlap each other far more than previously. Britain faces no visible threat of invasion, but must be prepared to assume an active role in the wider world. Interventionism becomes necessary doctrine when national sovereignty has lost much of its meaning and where there are universal humanitarian concerns that override local interests. Transnational terrorism, itself a creature of globalisation, is a threat far greater than the more localised forms of terrorism prevalent in the past.

How far did these strategies and policies bear fruit? Labour's record is distinctly patchy, but it would be hard to deny that it has had far more impact than did any of the other centre-left governments mentioned above. The UK enjoyed ten years of unbroken economic growth, not to be dismissed as simply based on a housing and credit bubble. That growth took place alongside the introduction of a national minimum wage. Large-scale investment was made in public services and significant reform was achieved in the areas of health and education.

Wage and income inequality was contained, though not significantly reduced. The position of the poor, however, improved substantially. Targets to reduce child poverty were not met, but before the recession 600,000 children were raised out of relative poverty; measured against an absolute standard, the number is about twice that figure.

The New Deal, Sure Start and tax credit policies have all had their difficulties, but have mostly proved their worth. Even the much-derided PFI has worked, at least when measured against public procurement. Devolution of power to Scotland and Wales has largely been successful, and what looks like a lasting peace has been achieved in Northern Ireland. Crime rates have come down substantially in the UK as a whole, and Britain has made a more fruitful adaptation to increasing cultural diversity than most other European countries.

From a party so often seen as illiberal and authoritarian, there were substantial achievements in the opposite direction. Labour signed up to the EU Social Chapter, together with the European Convention on Human Rights, introduced a Freedom of Information Act and endorsed civil partnerships for same-sex couples. Britain is a more liberal and tolerant society than it was, and Labour's policies played a part in this change. In foreign policy, overseas aid was increased well beyond anything preceding Tory governments had managed.

The military interventions in Bosnia, Kosovo - where Blair played a crucial role in persuading the Americans to contemplate deploying ground forces - and Sierra Leone were widely regarded as successes. If only he had stopped there! Nothing corroded Blair's re­putation more than his ill-starred decision to become George Bush's main partner in the invasion of Iraq.

Other far-reaching mistakes were made. The experiment with spin and media management during Labour's early years in power backfired and helped to create the impression that New Labour was about presentation rather than policy. Blair did not succeed in integrating Britain more closely into the EU, and some of his closest relationships with other European leaders - notably with the Italian premier, Silvio Berlusconi - were puzzling.

It was right to argue that Labour should become more business-friendly, and it was also right to recognise the importance of the City to the British economy. But it was a fundamental error to allow the prawn cocktail offensive to evolve into fawning dependence, with the result that the UK was transformed into a kind of gigantic tax haven. The idea that Labour should be "intensely relaxed about people getting filthy rich" not only exacerbated inequalities, but also helped to create a culture of irresponsibility. Bosses protected themselves from the risks they asked their employees to bear.

I don't accept the simplistic idea that New Labour was just a continuation of Thatcherism. Labour's policies involved extensive government intervention in economic life, although mainly on the supply side. And there was a genuine preoccupation with increasing social justice - a notion alien to Margaret Thatcher, Keith Joseph and their guru Milton Friedman. Yet Blair and Brown should have made it much clearer than they did that recognising the virtues of markets is quite different from prostrating oneself before them. Market fundamentalism should have been more explicitly criticised and its limitations exposed. As for proportional representation and wider constitutional reform - surely Labour should have endorsed these as a matter of principle, not as a result of political expediency?

The other parties have had to respond to the agenda that New Labour set. The Tories now endorse gay rights, accept the necessity of reducing poverty, support the Climate Change and Energy Acts that Labour introduced, and will continue most of the labour-market reforms that were made. In propagating the idea of the "big society", the Conservatives are drawing upon the same communitarian traditions that Tony Blair also endorsed. Naturally, they may retreat from these emphases, but at the moment they look genuine.

The global financial crisis, foreseen by very few, seems to have put an end to the world that helped to shape New Labour. Suddenly, everything has gone into juddering reverse: Keynesianism and government economic intervention are back. No one denies that we should seek to regulate the financial markets that once seemed so omni­potent. A tax on world financial transactions, previously dismissed as unrealistic, is now on the cards. It is, after all, possible to elevate the tax rates of the rich.

Meanwhile, there is talk among all the main parties of a return to an active industrial policy and of a renaissance of manufacturing. Climate change and other environmental risks, which Labour did little to confront until late on, are now at the heart of mainstream political concerns. Planning, for years in the shadows, is once more on the agenda, as are severe public spending cuts - the very opposite of the bold, expanding social investment on which New Labour policy was built. Fiscal prudence has ceded place to huge borrowing and very large accumulated debt.

New Labour as such is dead, and it is time to abandon the term. Yet some of the core social and economic trends to which it was a response still obtain, and significant portions of its policy framework remain relevant. In the future, Labour will still need to attract mainstream, affluent voters, against the background of a changing political culture in which the electronic media play a growing role. While it makes eminent sense to aim to reduce the dominance of the financial sector in the economy and encourage a renaissance in manufacturing, the UK will continue to be a post-industrial economy, with service- and knowledge-based occupations dominant.

Welfare reform will loom as large as ever, even more so when efficient spending will be a priority. The problem of sustaining progressive policies on immigration and multiculturalism without losing voter appeal will remain, as will that of how to reduce citizens' anxieties about crime. So, too, will that of finding an appropriate balance between civil liberties, on the one hand, and protecting the country against the threat posed by international terrorism on the other. Keynes is back in fashion, but there can be no return to Keynesian demand management as practised between 1945 and 1979. The challenge ahead of us is to preserve and enhance the flexibility and creativity that markets engender, while turning these qualities to long-term, socially desirable goals.

Fundamental rethinking is needed and a fresh set of policies has to be created. The key problem for Labour out of power will be to minimise the internal squabbling that afflicts so many parties, especially on the left, following an election defeat. Ideological reconstruction could have a decisive role here. The starting point should be to redefine the role of the public sphere.

“Blairites", it could be said, leaned more towards the market than "Brownites", who were keener on the state. However, the public sphere is distinguishable both from markets and from the state, and can be used as a platform for reconstructing each. Labour can be seen to be groping towards such an insight with its attempts, in the wake of the financial crisis, to reintroduce the idea of mutualism to political debate. These rather primitive efforts should be developed further and applied to the task of constructing a form of responsible capitalism, coupled to a sophisticated approach to issues of sustainability.

Anthony Giddens is a former director of the London School of Economics and a Labour peer.