The antidote to Brown's caution

The Nobel prize-winning economist Joseph Stiglitz recently said that the financial crisis of 2008 was to "market fundamentalism" what the fall of the Berlin Wall was to communism: history's definitive verdict on an ideology that had failed in spectacular fashion. "[After] the collapse of great banks and financial houses," Stiglitz said, "only the deluded would argue that markets are self-correcting or that we can rely on the self-interested behaviour of market participants to guarantee that everything works honestly and properly". These discredited assumptions were of course the same ones adopted by New Labour during the 1990s, as it embraced the agenda of expanding and deregulating markets, while becoming " intensely relaxed about people getting filthy rich". So the questions uppermost in my mind at Saturday's Fabian Society conference were: to what extent has the Labour party, and its broader intellectual family, learned the lessons described by Stiglitz? What discussions were going on among them, and how would they respond to these seminal events? As it happened, the prime minister's speech to the conference picked up on precisely these themes. The financial crisis, he said, signified "a fundamental rupture with the past" from which we must derive three lessons. The first concerns the deficiencies of markets. Markets "won't self-regulate" and "will sometimes self-destruct". Specifically, "financial markets can become overweening, just as the state can", and must be made to serve the people, not the other way around. The second lesson is that there is a danger in too little government as well as too much. Government had a short-term role to play in keeping the economy running when credit lines dried up, thus preventing unemployment from rising higher than it in fact did. In the longer term, "industrial activism" is required to ensure a better-balanced economy. Brown's third lesson, both from banking bonuses and MPs expenses, is that the public is acutely conscious of fairness in social outcomes. Fine so far. But how would this be taken forward in terms of future policy? Here disappointment began to creep in. The old New Labour theme of expanding education to create a new high-skilled workforce was given another airing. But how can this be consistent with slashing £600m from the higher education budget? There was talk of upward social mobility, but what about some equally meritocratic downward social mobility for those whose irresponsible behaviour had caused the recession? No mention was made of serious and long-term rather than minimal and temporary measures to deal with the extravagant rewards-for-failure still being enjoyed by the City, or the bonus culture that played such a central role in causing the crisis. This was the real problem. Brown spoke of public service guarantees, expanded education and an increased role for the non-financial sectors of the economy, but offered no detailed or specific reforms for the sector of the economy that had actually caused the recession. The government has been forced to run up a record deficit both to bail out the bankers and to mitigate the effects of their reckless behaviour on the wider economy. That crisis was the result of fundamental problems with the way in which successive governments had allowed financial markets to operate. Yet over a year later, financial reform commensurate with the historic moment that Brown himself had acknowledged was entirely absent from his keynote speech on economic policy. Although Brown declared that "Keynesianism is back", it seems to have been revived for little purpose other than to bail out the status quo. Challenged in the subsequent question-and-answer session, Brown said that regulatory change had to come at the international level. Presumably he fears unilateral measures would drive away the "dynamism" of the City's talents. But does the scale of the deficit not present a powerful argument that the City has in fact become a "toxic asset" on the national balance sheet? Does the country need the sort of "dynamism" that shoves the economy off a cliff and then blithely hands us the bill? Elsewhere at the conference, however, one found cause for optimism. Will Hutton , long a prominent advocate of serious financial reform, spoke on a panel on "The Next Capitalism", and the fact that many delegates were turned away as the room quickly filled to capacity indicates a strong appetite on the centre-left for a real change of economic course. Next door, Compass chair Neal Lawson gave a bracingly passionate critique of New Labour's economic approach. Rather than frame aspiration in terms of material ownership, as Brown had done, Lawson saw it as wanting more time to do the things that mattered to you, such as reading your kids a bedtime story, or spending more time with your partner. This was likely to be the real aspiration of people who had to work such long hours to get by that they weren't able to do those important things. To that end, Jenni Russell argued for sharp increases in the minimum wage, and capping chief exectives' pay at 10 times that of the lowest paid employee. Oxford University's Stuart White advocated a luck egalitarianism where wealth reflected a person's own efforts, rather than accident of birth or other factors outside of one's control. The conference finished with a "Dragons' Den" for a major idea that could beat the right at the next election. The pitch receiving the most enthusiastic response from delegates was to adopt a radical "Green New Deal" for reordering the economy to deal with the challenge of climate change. This was clearly a reference to the plan of the same name drawn up by the New Economics Foundation , involving major structural changes to the financial system and serious investment in green industries to create new jobs. Revealingly, the pitch was opposed by one "dragon", Brown's pollster Deborah Mattinson, who said that, while climate change was clearly "the biggest issue facing humanity", a "Green New Deal" was not an idea she could sell to voters. This encapsulated the impression that I took away from the conference: a grassroots bursting with enthusiasm and ideas about how to respond to the new economic realities, versus a frustratingly conservative and cautious leadership. It's a picture that is unlikely to change before the general election, but the subsequent battle for Labour's future could make for an interesting contest.