The lessons of neo-liberalism.

Jones, Daniel Stedman

Bill Clinton and Tony Blair made accommodations with neo-liberalism that have bequeathed a troubled and unresolved legacy to today's left. In my forthcoming book, Masters of the Universe (Stedman Jones, 2012), I argue that a particularly virulent form of neo-liberal ideas came to dominate politics in Britain and the United States after the 1980s which encouraged an acceptance of social and economic inequality. Almost as much as the reality of the growing gap between rich and poor itself, this acceptance allowed the liberal left in both the United States and Britain to become detached from what had usually been its central purpose, a more equal and more just society.

A belief in the moral and economic necessity of inequality was found explicitly in the work of neo-liberals like Friedrich Hayek, Milton Friedman and George Stigler. The idea embedded itself in the party programmes of the left as they responded to the right's electoral success during the 1980s and early 1990s. The influence of this neo-liberal idea on Labour and Democratic Party agendas in the 1990s and 2000s led to an identity crisis when the neo-liberal settlement teetered on the brink of collapse in 2008. Instead of champions of an alternative or balanced economic vision, they found themselves the rampant market's sustainers.

The reasons for this were complex. Dependence on tax income from the City of London to fund the government's programme, and the deregulation which accompanied it, made New Labour's leaders supplicants to the financial sector. Redistribution from the rich to the most vulnerable in society was done, as the old Tory charge suggested, by stealth through tax credits. Neil Kinnock's 1992 election defeat cast a long shadow. Despite significant domestic policy successes in terms of democratic reform, healthcare, education and child poverty, no positive alternative argument was made about the shape of society or its economy.

The Party was thus emasculated in the face of a financial crisis which Gordon Brown's finance-friendly policies had helped create. Subsequent efforts to push policy in a more social democratic direction such as the introduction of the fifty pence tax rate were met with cynicism not enthusiasm. President Obama's response to the crisis was even worse. He appointed Timothy Geithner and Larry Summers, key architects of financial deregulation in the 1990s, to the most senior economic positions in his administration.

A debate has been joined recently about the status and significance of neo-liberalism. Two contributions, one of which underpinned Ed Miliband's party conference speech about capitalist predators and producers, present starkly different assessments. The first, by Miliband's chief strategy adviser Stewart Wood, pronounced the neo-liberal settlement dead (Wood, 2011). The second, by New Labour critic and cultural theorist Stuart Hall, reached a much more pessimistic conclusion (Hall, 2011). For Hall, the coalition's radical market experimentation spells the enduring strength of a revolution which began in the 1970s. These divergent positions provoke questions. What is neo-liberalism and what is its historical importance? What have the consequences of its recent electoral success been for the Labour Party? Most importantly, how should Labour reckon with neo-liberalism, dead or alive?

This article begins with the history of neo-liberalism - the creed of free markets, deregulation and limited government. It examines its nuances, political breakthrough and the impact it has had on the left in order to understand how the current political settlement arose and the shape it has taken. It argues that Ed Miliband should reposition the Labour Party around the historic aim of a more just and equal society. As New Labour well understood, the Party must represent aspiration and hope for a better future. Any such principles, unlike those put forward by 'Blue Labour' advocates for example, must be built upon a clear grasp of the global, as well as the local, nature of today's policy challenges. Clinton and Blair understood the reality of globalisation but they never intended to be radical about political economy. The deep disillusionment that followed their time in office was therefore a misreading of their aims. They helped to entrench the neo-liberal settlement. Now Labour must combine aspiration with a critique of the unbridled markets and celebration of financial and corporate power that have ruled since 1979.

Two liberalisms

The liberal philosopher Isaiah Berlin famously distinguished between two concepts of liberty, negative and positive. His division between a negative freedom from the interference of the state, on the one hand, and a positive freedom that enables self-actualisation, on the other, found concrete expression in the political history of liberalism in Britain and the United States after 1900 (1). In the first years of the twentieth century a new activist liberalism challenged the sparser laissez-faire philosophy which had dominated Britain in the nineteenth century.

Gladstonian liberalism, which built upon the free trade mantra of the 'Manchester School' leaders, Richard Cobden and John Bright, was increasingly criticised for its inability to address the surging poverty and searing inequalities of late-Victorian and Edwardian society. A 'new liberalism' was promoted in the ideas of T. H. Green, John A. Hobson and Leonard T. Hobhouse, which emphasised the importance of social justice and responsibility as an essential accompaniment to the commerce and trade of free markets. The central plank of 'new liberalism' was the need for state intervention in economic and social life to alleviate the worst effects of capitalist growth and development. Such ideas were embodied in the policies of the Liberal Governments of 1906-16, led by Herbert Henry Asquith and David Lloyd George, which, in a series of reforms, introduced pensions and unemployment insurance, labour exchanges and limited health and sickness benefits for workers.

This nascent welfare state was expanded by Clement Attlee's post-war Labour governments who also built upon the efforts of liberals. A new policy framework to manage the worst excesses of capitalism revealed by the Great Depression was expounded by the economist John Maynard Keynes in his General Theory of Employment, Interest, and Money (1936). A universalist, cradle-to-grave, social insurance model for the British welfare state was designed by the former head of the LSE and senior civil servant William Beveridge in his seminal Report on Social Insurance and Allied Services (1942). These liberal foundation stones were buttressed by the Labour Health Minister Nye Bevan's National Health Service (founded in 1948) and his ambitious programme of council house construction - built to basic but high-quality specifications.

In the United States too, a progressive and interventionist liberalism had been championed by President Franklin Delano Roosevelt in his 'New Deal' of the 1930s. The American welfare state constructed in these years was limited in several important ways when compared to its British counterpart. Most women and African-Americans were initially excluded, for example, and healthcare was never a comprehensive component. But the reaction to the catastrophes of capitalism visible in Britain was similarly felt in the United States. The Social Security Act (1935) delivered a social insurance safety net. Keynesian deficit investment was put into action through a sweeping programme of public works carried out by the Public Works Administration, the Civil Works Administration and the Works Progress Administration. The Wagner Act (1935) established the rights of trade unions. A system of regulation of the stock exchange and the financial sector was created through the Glass-Steagall Act (1933) which separated the commercial and speculative operations of the banks and established the Securities and Exchange Commission and the Federal Deposits Insurance Corporation. (The Act was later repealed in 1996 by Robert Rubin and Larry Summers). These developments amounted to a revolution in government.

But such a revolution, both in Britain and the United States, also brought with it a slow-burning reaction. The reaction arrived in the ideas of the neo-liberals. A group of activist academics during the 1930s and 1940s criticised the trends of large-scale government growth, increased state intervention and planning of the economy, and the development of the welfare state (2). They viewed the new activist social liberalism as of a piece with totalitarianism, fascism and communism, merely another form of a 'collectivism' which was beginning to erode the (negative) liberties enjoyed by individual citizens.

This disparate group included the 'Freiburg School' of William Eucken, Alexander Rustow, and Wilhelm Ropke; the 'Austrian School' economists, Ludwig von Mises and Friedrich von Hayek; and participants from France, Switzerland and Britain. The movement solidified after the Second World War with the organisation by Hayek of the famous Mont Pelerin Society (MPS), whose first meeting occurred in 1947. At its founding, the MPS included three future American Nobel Prize-winning economists, Milton Friedman, George Stigler and the founder of Virginia public choice theory, James Buchanan, as well as Lionel Robbins, Ronald Coase, and Hayek's fellow Austrian emigre Karl Popper from the LSE.

The emergence of the neo-liberal critique of collectivism marked a serious split between liberals in the mid-twentieth century. The fissure was between those who espoused an egalitarian social democracy, such as Roosevelt, Keynes, or Beveridge; and neo-liberals like Hayek, Mises, and Friedman who saw in such a development the dangerous onset of a new slavery beholden to government bureaucracy and planning. Neo-liberals argued that any freedom was impossible without economic liberty, which they saw as intrinsic to the free market.

The early neo-liberals must not be caricatured. Hayek and his MPS colleagues saw in collectivism a grave threat to individual liberty. But they also saw the threat to freedom of market failure. This might be due to monopoly power, imperfect regulation or even, in some cases, poverty and deprivation. Hayek's polemic, The Road to Serfdom (1944), recognised that a free market system was not 'incompatible with an extensive system of social services' (Hayek, 1944, 37). German neo-liberalism was an important example of this complexity. Their programme was implemented after 1948 by MPS and 'Freiburg School' member, Ludwig Erhard. The Soziale Marktwirtschaft, supported and developed by both social democrats and Christian democrats, was centrally committed to the establishment of the conditions for fair market competition - including the practice of codetermination by employers and employees - and to a substantial and effective social welfare safety net.

In the 1950s and 1960s, however, neo-liberalism's main locus moved from Europe to the United States, especially to Chicago and Virginia. As it did so, neo-liberal theory became cruder in its advocacy of free market solutions and the virtues of corporations. The Chicago School critique was less compromising than the earlier European neo-liberals (3). As historian Rob Van Horn has shown, Chicago theory abandoned its concern with monopoly. Instead the Free Market Study (1946-52) led by Aaron Director fostered a theory that competition would automatically undermine monopoly and could be created and sustained benignly by large corporations themselves rather than through robust government anti-trust action (Van Horn, 2009). Friedman eulogised inequality as an irreplaceable motor for growth in Capitalism and Freedom (1962). James Buchanan and Gordon Tullock's Virginia School of Public Choice built upon Chicago economist Stigler's theory of regulation, applying rational expectations - the belief that individuals act rationally and in accordance with their economic self-interest - and free market analysis to public administration and government (4).

In these years, neo-liberalism acquired a simple clarity that could be developed into a forceful political message. Markets and the corporations who operated within them were good. Government, the state and all forms of regulation and taxation were bad. This message was expertly communicated through a transatlantic network of think tanks, businessmen, politicians and journalists. As American historian Kim Phillips-Fein has shown, in the United States neo-liberal activism was funded by bastions of American capitalism such as Du Pont, Chrysler and General Electric (Phillips-Fein, 2009). These firms fought to destroy the policy reality which had created the so-called 'Golden Age' of capitalism of which they were such a lauded part.

Hayek and Friedman held this network together, but ideological entrepreneurs such as Antony Fisher (the Atlas Foundation), Leonard Read (the Foundation for Economic Education), Ed Fuelner (the Heritage Foundation) and Ralph Harris (the Institute of Economic Affairs) ran think tanks which honed key neo-liberal arguments and promoted them to policy-makers. Consequently, after the collapse of Bretton Woods in 1971, and the 'stagflation' that followed, central neo-liberal insights - monetarism and deregulation in particular - could take hold. Drawn like a Trojan horse into government by converted policy technocrats, these policies paved the way for a guileless faith in free markets to spread after the elections of Thatcher and Reagan, and eventually prevail, right up to the financial crisis in 2007-08 (Pemberton, 2009).

The neo-liberal revolution and the left

Governments of the left, led by Jimmy Carter and James Callaghan, first opened the door to neo-liberal policies in Britain and the United States. Callaghan, spurred by his adviser Peter Jay, adopted monetarism in 1976. Carter enacted a programme of deregulation of airlines, banks and transport, and appointed Paul Volcker to head the Federal Reserve to face down inflation. But it was the Conservative and Republican parties who permanently transformed the political landscape during the 1980s.

Thatcher and Reagan, haltingly at first, embedded the neo-liberal commitment to free markets as the new political consensus. They benefited from political good fortune. There were the wars in the Falklands and Grenada and set-piece showdowns with the trade unions, Reagan with the air traffic controllers, Thatcher with the miners. But eventually the new orthodoxy was built around privatisation, hostility to the unions, tax cuts, contracting out of services, and in Britain, Thatcher's challenge to the independence and professional status of alternative social institutions such as doctors, teachers and university lecturers. It was the virulent individualism of Chicago and Virginia, not the measured and socially responsible German model, that underlay the Thatcher and Reagan governments.

The new settlement took hold because it reflected certain truths about the way that society was changing. The defeat of the unions was possible, and even desirable in certain ways, because of the basic problems of British industrial stagnation. The absence of social and educational support for former manufacturing communities was devoid of responsibility or compassion. But the fact of structural economic change was better understood by the neo-liberal right, even if their proposed solution of 'flexible labour markets' was disturbing. They recognised that Britain lacked productivity and competitiveness in the face of the onset of increased globalisation in finance and trade. The seeds of Britain's current despair were sewn, however, in the deregulation of the City of London begun by Geoffrey Howe's abolition of currency and credit controls in the early 1980s and compounded by Nigel Lawson's 'Big Bang' bonfire of controls in the financial sector in 1986 (Lawson, 1992). The grand claims of Thatcher-era Tories to have rescued the British economy spelled the destruction of manufacturing and the beginning of Britain's dependence on the financial sector.

This brand of neo-liberalism was so radical not just because it denied the importance or even possibility of state action to achieve positive freedoms, but because it accepted and enshrined inequality as an important characteristic of a free society. Thus it was not just the simple fact of growing inequality, much lamented among liberal and social democratic commentators, that unsteadied the left. It was the idea that inequality didn't matter. This became the central legacy of neo-liberal politics as it was practised by Conservative and Republican Governments. The myth of trickle-down and that a rising tide lifts all boats became the justification for a form of class warfare against the more disadvantaged sections of society. Though born of a seriously held faith in wealth creation, the tax cuts, deregulation, privatisation, and targeting of the public sector with market forces, severely stretched the social fabric (5).

In the wake of the electoral successes of the neo-liberal right, however, the left faced a challenge: how to respond to the supposed victory of markets and onset of globalisation which was decimating its heartlands and eroding the wellsprings of a large part of its political culture? Both Thatcher and Reagan appealed to aspirational former Democratic Party or Labour-supporting voters. How could such support be recovered?

This was the question which New Labour, like Bill Clinton and the New Democrats in the United States, sought to answer. The twentieth century split within liberalism between the advocates of positive and negative liberty was fateful for the democratic left in this instance. Bill Clinton, Tony Blair and Gordon Brown, despite rhetoric to the contrary and in Brown's case a deep-rooted and countervailing centralising statism, chose to accept the neo-liberal settlement. They did not attempt to renew the moderate, reforming tradition of social democracy, to which the new liberals contributed as much as Attlee, Crosland or Bevan. In its desperate attempts to appear modern and, of course, anything but socialist, New Labour made a historic mistake in allying itself to the wrong strand of liberalism. This was ironic given Blair's expressed desire for a grand realignment of British politics that was supposed to lead to a 'progressive century'.

The pact with neo-liberalism was apparent in several ways. First, Labour strategists decided that most of the Thatcherite heritage should be accepted, including trade union reforms and privatisations (even the deeply unpopular and enduringly chaotic railway privatisation of 1996). Second, the Party went into the election promising no income tax increases and to stick to the tight Conservative spending plans which even outgoing Chancellor Kenneth Clarke subsequently admitted he was unlikely to have met. Tony Blair and Gordon Brown's stringent attempts to convince the markets and Murdoch that they were economically credible in the lead up to the 1997 election laid the foundations for their unhealthy and crippling love affair with the City of London in the years that followed. Most importantly, the new New Labour government cemented the neo-liberal settlement through its political economy. It depended on tax money from finance and it promoted the light touch regulation of the City that fuelled the credit boom.

There were other manifestations too. New Labour advanced wholesale the neo-liberal model of citizen as consumer. This model was advocated in the 1940s by Ludwig von Mises in a letter to Hayek when he stated: 'laissez-faire does not mean let the evils lie. It means let the consumers, ie: the people decide' (6). The marketplace was the most important democratic arena because it reflected people's real choices, unencumbered by good intentions. New Labour developed this view in government by deepening and expanding the role of the private sector in certain forms of public service delivery. The government also utilised private finance through PFI to build hospitals and schools. Educational reforms were seen in purely instrumental terms as the way to equip people with the skills for the knowledge economy. The 1998 White Paper on Public Service reform and new efforts to introduce e-Government and forms of e-service delivery reflected the new vision. Such reforms applied a neo-liberal model of efficiency and choice for the citizen as consumer (Stedman Jones, 2001). Alternative hopes that these technologies might help to further other policy goals such as democratic engagement were left unfulfilled. There was no challenge to the received wisdom which elevated the efficiency of the market as the prime object of public policy.

This was avoidable. An alternative vision could have been promoted. After 2000, Labour helped to rebuild and properly resource the public sector after many years of neglect. Sure start centres, paternity leave, and robust equalities and employment laws brought real assistance to women, families and the disabled across Britain. Initiatives like free museum entry, the improvement of local bus networks and the most far-sighted carbon emissions legislation in Western Europe have helped to enhance public space. Devolution and the Human Rights Act enacted important democratic reforms. Most importantly, tax credits (ironically similar to the negative income tax once proposed by Milton Friedman), winter fuel allowances and free television licences for the over-seventy-fives helped to ensure a measure of redistribution. Increased national insurance contributions went directly to raise health spending to the European average. By 2009, Labour even introduced the fifty pence tax rate.

But despite these achievements, New Labour was timid about challenging the neo-liberal faith in markets, deregulation and low taxes. The tenacity of these neo-liberal tenets had a profound impact on British politics and their dominance reveals important lessons for the left in the current economic crisis.

Permanent neo-liberalism?

Stuart Hall suggests that the political breakthrough of neo-liberal politics in the mid-1970s and its radicalisation under Thatcher's governments in the 1980s inaugurated a neo-liberal revolution from which we have yet to emerge (Hall, 2011). Arguably, the Tory-led coalition has embarked on the most sweeping and ambitious plans to extend the remit of the market of any post-war government, Thatcher included. The disingenuous plans to extend student 'choice' in higher education through the abolition of the teaching grant for the humanities and to semi-privatise the NHS are just two indications of its radical ambition (Collini, 2010, 2011; Meek, 2011). They are complemented by a refusal to challenge seriously the power of the financial sector with fundamental reform, preserving the supremacy of the neo-liberal settlement.

It would compound New Labour's mistake not to recognise the failure of neo-liberal politics. The early signs are good. First, Ed Miliband speaks of the need to create a 'new bargain' in the economy and argued in his party conference speech that the rules of Britain's political economy in the age of neo-liberalism must be re-written in order to foster more than short-term profit. Second, there is clearly awareness among Labour leaders that the coalition plans a dangerous experiment with markets. Third, attempts have been made by Labour thinkers to come to terms with the neo-liberal legacy, most prominently in the ideas of Maurice Glasman, Marc Stears, and Jonathan Rutherford associated with so-called 'Blue Labour' (Glasman et al., 2011). An important conversation about the reasons for Labour's defeat in 2010 and the sources of potential regeneration for the Party is underway.

'Blue Labour' has rightly targeted the dependence on the financial sector and the obsession with markets as areas ripe for reform. It has articulated a healthy scepticism of the command and control and instrumentalism of the worst aspects of Brownite New Labour's statism. It has also elaborated a refreshing restatement of some of the best aspects of Labour's past: the importance of reciprocity, of community, of relational organisation and of the common good (Glasman, 2011; Stears, 2011a; Rutherford, 2011).

One strand of 'Blue Labour' thinking offers particular promise for democratic renewal. Marc Stears in his recent ippr pamphlet, Everyday Democracy, advocates reform based around deeper social and economic relationships. He envisages proposals to expand shared public space, to develop innovative approaches to the workplace and for a thorough-going reform of the welfare state in time for the next election (Stears, 2011b). Importantly, Stears's vision, unlike the 'Blue Labour' caricature, avoids nostalgia and offers fertile territory for rebuilding social democracy in both old and new democratic arenas.

But there are serious problems with the 'Blue Labour' approach. The first is that while the emphasis on the Labour tradition of community-based organisation and its own brand of localism is welcome, the nature of the problems faced by a forward-looking social demo-cratic movement are often extra-national or global in scope. It is an important paradox of New Labour's acquiescence to neo-liberal economics that it gave Blair and Brown a correct understanding of two things in particular: globalisation and aspiration.

Blair and Brown understood that the structures of the British economy, in fact those of all developed democracies, had irreversibly changed. Globalisation was here to stay. Competition for labour, goods, and capital now played out internationally. This remains true. The BRIC (Brazil, Russia, India and China) countries will not disappear and it is increasingly hopeless to compete in areas where these countries have a competitive advantage in terms of cheap labour. Protectionism is no answer, though a considered industrial strategy might be part of one. Despite the tendency of New Labour politicians to instrumentalise education rather than value its inherent qualities, Gordon Brown was at his best when he was committed to high-level skills and training for more and more of the population.

The other New Labour legacy (which 'Blue Labour' appears to forget at its peril) is the importance of aspiration to the success of a political message. The call for a conservative and inward-looking restoration of family, faith, and flag sounds too much like a wistful desire for the return of 'Butskellism'. The economic realities have changed significantly and most people's lives have improved beyond recognition in the last fifty years. There are no heart-lands to appeal to in the same way as there once may have been--yet another legacy of neo-liberalism. It is doubtful that such a backward-looking vision of community will work as the agenda of a credible and electable Labour Party.

A second and more significant problem with 'Blue Labour' is its tendency to downplay the importance of distributive politics. Redistribution still matters. The material conditions which determine an individual or family's ability to look after children, educate them, and become educated themselves, to gain qualifications and ultimately find jobs, and to care for the old and infirm, matter before the forms of relational organisation that they may engage in. Though of course it should be remembered that sometimes one flows from the other.

Most importantly, greater equality delivered through redistribution is essential to equality of opportunity and individual freedom. Raising poorer incomes matters morally because securing more equal life chances ensure that people are better able to live lives that they choose by helping them access the resources they need to compete, survive and thrive. But it also matters politically and pragmatically, because more equal societies tend to be happier and healthier (Wilkinson and Pickett, 2009). The obscene income differentials now evident between the low paid and the wealthy have eroded social cohesion and trust between different groups in society. This gap has increased exponentially over the last thirty years. That there is a gross mismatch between reward and value is glaringly apparent in the tangible public anger about banker and executive pay.

The third problem with 'Blue Labour' is its suspicion of the state. As historian Ben Jackson has pointed out, the task for Labour and the left more broadly should not be to substitute 'the politics of the movement' for the 'politics of government' but to find space for both (Jackson, 2011). The state was essential to the central pillars of the Labour Party's most enduring social democratic achievements: the NHS, public housing, and the expansion of educational opportunities at all levels since 1945. At the same time, the power of legislative frameworks enforced by the state have been central to the progressive ambitions of successive Labour governments, be it through democratic reforms such as devolution, or in the liberalisation of moral frameworks through equality for women, gays and the disabled.

A social democratic future

A forward-looking and realistic Labour agenda must recognise the nature and shape of the most difficult issues that people face today. Here the 'Blue Labour' scepticism of the state is problematic. The most pressing challenges, both in terms of international cooperation and the next stage of guaranteeing the health and security of the population, require state action.

The state should not withdraw, rather the state, including its emanations in the public sector, must be reformed to be more responsive, more adaptable and more accountable. Some of this was begun under the last Labour government. The agenda of holistic public service reform around personalisation and improved choice introduced valuable improvements to the operation of the public sector. This has been evident in the operation of Sure Start centres or with, for example, the ability to see a doctor at a time more likely to suit the patient rather than just the doctor. The focus on better targets for cancer treatment or waiting times also indicated a commitment to responsiveness. The key to these improvements, unlike the coalition's plans, was that they were introduced within a robust framework of public accountability that trumped profit.

But there is a democratic challenge which was avoided by the last government, and now also by most 'Blue Labour' commentators: how can we democratise international cooperation? Despite the eurozone's current problems, there really is no long-term alternative to ever-increasing cooperation at a European level to solve some of the biggest problems. A good current example of this is the European Commission's attempts at more robust reform of finance through the introduction of a Tobin tax on transactions. Another example, especially in an age of austerity, is the need for greater foreign policy and defence cooperation. The fact that Europe's unpopularity makes such things hard to discuss cannot be an excuse. Useful ideas such as Andy Tarrant's proposal in these pages for the harmonisation of European election timetables should be considered (Tarrant, 2011). The Labour Party must enter and lead a debate about how Europe can prosper. Regardless of the fate of the European currency, or Britain's eventual participation in it, Europe must be made more democratic and responsive to people's needs.

A second big challenge is what a social democratic party can do without any money in an age of austerity (Sen, 2011). This is the crux in the current economic climate. In such conditions, the state's role will change rather than decline. It will continue to be the best vehicle to ensure equity and access to health, education and other vital services. It will have a central role to play in any future expansion of quality care for children, the elderly and the disabled. It has an advantage in terms of its ability to raise cheap finance and to exert its influence through procurement. But crucially, the state's role as a regulator will have to become more nuanced and effective. Given that the typical social democratic model of tax and spend is close to exhaustion and the financial crisis is likely to stunt its further growth in the near future, legal, legislative and regulatory tools must be developed which are capable of adaptation in the face of the near-certainty of unforeseen consequences.

These are monumental challenges for the current political generation. Ed Miliband recognises this when he talks about the need for different rules of political economy. The German neo-liberals also understood this. Unlike the corrosive neo-liberalism of the Chicago School, the architects of the German model were able to generate a legal framework which encouraged social responsibility and codetermination within corporations alongside a generous welfare state. These elements of the ordo-liberal state enacted in post-war Germany are ripe for rediscovery. Miliband is presumably groping towards this realisation in his attempt to define a more productive capitalism (Miliband, 2011).

Importantly, a new agenda is emerging. The campaign for a Living Wage, led by London Citizens, could be realised in comprehensive legislation. A job working on national infrastructure projects could be guaranteed for the long-term unemployed (Cooke and Purnell, 2010). Proposals for a Tobin tax should be expanded, campaigned for internationally and agreed with our European partners. Structural banking reform that ensures the separation of speculative and retail activities, a British 'Volcker Rule', could be enacted (Volcker, 2011). The Liberal Democrat idea for a 'mansion tax' should be revisited and a bonus levy introduced. Codetermination ought to become a core part of British management as Miliband has suggested. Financial and remuneration transparency must be required through, for example, the publication of median worker-executive income ratios in companies and businesses. These proposals must form the basis of a coherent package to tax excessive pay and reduce income inequality. Ways should be found to democratise pension fund investment decisions. The Labour government should commit to returning public accountability to the NHS if Andrew Lansley's reforms are passed. Finally, as ambitions if growth returns, Labour should aim to create a National Care Service for the elderly, proposed by Andy Burnham in last year's leadership election, and universal pre-school childcare for two-year-olds.

These important strands, and no doubt others, could come together to form a new and convincing social democratic programme. There is certainly a rhetorical and communication difficulty here: how to ensure that the language used connects policy and ideas to the reality of people's lives? But a language could be found that was based on the 'Blue Labour' critique of credit and finance, its renewed emphasis on mutualism, associational and relational political organisation and the rebuilding of the public sphere and revitalisation of local democracy. But these would be supplemented by a recognition of global problems, the need for international cooperation, and the continued importance of a dynamic and adaptive state, both locally and nationally, as a vehicle for regulation and redistribution.

These policies attain coherence around a renewed commitment to a more open, just and equal society. Equality can be defined in terms of income, life-chances, capabilities, or power. However defined, the Labour Party, and the left more broadly, needs to recover its sense of purpose. Tony Crosland's revisionist restatement of the guiding goal of equality in The Future of Socialism (1956) is just as relevant now as it was then. It is the principle that was forgotten in the embrace of neo-liberalism. That ethic must now be recovered.

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Notes

(1.) Berlin's distinction has been criticised by, for example, Quentin Skinner (2002). But here I emphasise the important point that Berlin's two dimensions of the meaning of liberty were in conflict in political liberalism in the twentieth century.

(2.) As a previous edition of Renewal has explored, neo-liberalism emerged from a group of thinkers in the inter-war period in Europe, who first came together at the Colloque Lippmann in Paris in 1938, convened by Louis Rougier to discuss Walter Lippmann's 1937 book, (An Inquiry into the Workings of) The Good Society (Jackson, 2009).

(3.) Although there were members of the pre-war Chicago School, such as Hayek's friend Henry Simons, who shared this view. Simons died in 1946, but he was instrumental in the foundation of the Free Market Study group in Chicago after the Second World War, which was run by Aaron Director (Van Horn and Mirowski, 2009).

(4.) At its simplest, Stigler argued that, far from representing a neutral public interest, the regulator is often captured by the regulated.

(5.) The introduction of markets to the public sector was an idea straight from the pages of the Virginia School theorists (see for example Buchanan, 1978). Public choice theory was explicitly picked up by the Adam Smith Institute in the 1980s, which, in turn, was a key influence on the Thatcher government's introduction of both the contracting out of local services and the internal market in the NHS.

(6.) Ludwig von Mises to Friedrich Hayek, 31 December 1946, Box 38, Folder 24, Hayek Papers, Hoover Institution.

Daniel Stedman Jones is a pupil barrister at 39 Essex Street in London. He formerly worked at the think tank Demos and as a policy adviser at the New Opportunities Fund. He received his doctorate from the University of Pennsylvania in 2009 and was called to the bar in 2011. His book, Masters of the Universe: The Origins of Neo-Liberal Politics will be published in September 2012 by Princeton University Press.