First, why now?

Many of the Treaties that define the UK’s relationship with the EU were signed by Conservative PMs, e.g. Maastricht Treaty. We didn’t have referendums when these Treaties were signed. Are Conservatives now saying that we should have done? And should now retrospectively do so?

The priority for all MPs and MEPs should now be economic recovery. Almost everything else is a distraction. Resolving the euro-zone crisis would significantly improve the economic prospects of the EU and the UK. This is, therefore, a more pressing issue for debate than whether or not the UK should have a referendum on EU membership.

Second, how do Conservatives propose that the euro-zone crisis be resolved and how would this impact the UK’s relationship with the EU?

The UK’s interests here are: That the euro-zone members find a durable solution to their crisis, while properly allocating responsibility within this solution to EU and euro-zone members and ensuring that the benefits of EU membership continue to be enjoyed by non-euro EU members.

What matters, therefore is: encouraging and supporting euro-zone members to find a durable solution; requiring that euro-zone members properly face up to whatever responsibilities are created for them in this solution; and guaranteeing that this solution does not forego the benefits of EU membership enjoyed by the UK. We, for example, must insist on UK access to and involvement in shaping a deepened single market, even in the context of further consolidation amongst the euro-zone members.

Third, do Conservatives not accept that we should return to this debate on an EU referendum in the UK after these pressing and profound issues with the euro-zone have been properly and fully addressed?

We should be focusing all of our energies on resolving these issues in a durable manner, which protects the UK’s interests, as a non-euro EU member, both in the near and longer-term. It may be that these solutions necessitate changes that are constitutionally significant to the UK. In which case, a referendum would be entirely appropriate. But we are a long way from resolving the euro-zone crisis. Until we get to this stage, all debate about the EU amounts to shuffling deckchairs on the Titanic.

Fourth, why can the Conservatives not work constructively to resolve the euro-zone crisis, instead of re-hashing debates of the 1980s and 1990s?

Let’s return to the here and now, as this could not have more serious questions to answer. These are questions that will impact the incomes and wellbeing of all British citizens. It ill behoves any elected representative to create distractions to the resolution of these questions.

When these questions are resolved, with the euro-zone crisis behind us and the UK’s interests protected, if this resolution has necessitated a constitutionally significant change in the UK’s relationship with the EU, let us then return to this debate on a UK referendum on EU membership.

Blue Labour seems less in fashion than previously. It was never the answer to every challenge facing Labour. But it does have contributions to make to Labour’s renewal. Whatever it is, blue Labour seems defiantly rooted in our country and the traditions which have shaped and continue to comfort and inspire its people. Global and jet-set it isn’t.

It feels odd, therefore, to see the core motivations of a creed as unabashedly Anglo-Saxon as Britpop reflected back in the protests convulsing India and Israel. These protests, like blue Labour, are, fundamentally, about rejecting contemporary materialism for the perceived morality and communality of exalted past eras: the dignity of Gandhi’s India; the solidarity of the Israeli kibbutz; and the warm embrace of the Labour party before the middle class dilettantes stole it from the working class. It’s easy to be cynical. There were, of course, no golden ages. But it’s what blue Labour and the protests say about the present that is most interesting.

Tobias Buck recently observed in the Financial Times that 250,000 Israelis have taken to the streets calling for social reform. He described them as ranging “from students to pensioners, and Holocaust survivors to taxi drivers” and as “perhaps the most serious challenge yet to the government of Benjamin Netanyahu”. He went on: “Many Israelis, regardless of their wealth and social status, say they still long for a return to the years when the country was less materialistic and more egalitarian. Even in cosmopolitan Tel Aviv, the ideals of the kibbutz live on”.

Anna Hazare’s anti-corruption protests have evoked the spirit of the independence struggle. Jason Burke explained in the Observer that his “asceticism – he eats yoghurt for breakfast, chapatis and a single portion of vegetables for lunch and has just a glass of lemon juice for dinner – has a deep resonance in a time when unbridled materialism is the dominant social ethic”. The bigger question, according to Burke, that Hazare has posed is: “What is this new India that is being created with its 8% year-on-year economic growth rates”?

The financial crisis brutally forced Iceland to confront its national purpose. Sam Knight wrote of this in August’s Prospect. He was told by an Icelandic campaigner: “Everyone said, ‘Let’s go back to fishing’”. Another Icelander said: “It (fishing) is a strong part of our identity”. The ideals of the kibbutz and the asceticism of Gandhi also persist as powerful parts of Israeli and Indian identity. This is in spite, or perhaps because, of the pervasive materialism of these societies.

Globalisation is man-made but, as its pace ever quickens and all that is solid melts into the air, it feels beyond human control. This leaves ever more people in circumstances that seem perilous, arbitrary and unfair. This leads them to questions of belonging and identity. I’ve written previously that the rise of the English Defence League is not the only instance of the search for identity turning ugly. In different ways everything from the birther movement to the success of the True Finns and Thilo Sarrazins can be seen through the same prism.

There are two lessons for the left.

First, without retreating to an unhelpful protectionism, actions need to be taken that re-claim globalisation for what it is: less arbitrary and more man-made. Globalisation isn’t some indestructible genie unleashed from the bottle, leaving us only with its wreckage. If we don’t like this globalisation – tax havens for the few; squeeze for the many – we can have another, so long as we have the political will and imagination.

Second, while talk of another globalisation isn’t fanciful, it is technocratic. Tumultuous times demand more visceral consolations. This can produce the ugly fear of the other, as in the birther movement, True Finns and Thilo Sarrazins, or it can celebrate the past glories of the kibbutz, Gandhi and fishing villages. The left can be more comfortable with the latter than the former, but shouldn’t be uncritically so. Eagerness to return to the Icelandic fishing villages of yore is leading to misguided reform to the Icelandic fishing quota system, while the authoritarianism of Hazare is troubling.

The point remains that people now require reassurances in ways that were denied them by New Labour’s narrow and shrill emphasis on the chill winds of global change. If romanticising aspects of national folk stories provides this, then we should be romantics. At the community level, romance means preserving the things that people want to see preserved, while fighting for change where it’s needed. The romance of preserving that with collective meaning should be as much of Labour’s lexicon as the hard-headed rationalism of confronting change.

While his views on immigration are as batty as the Icelandic fishing quota reforms, Maurice Glasman is quite the romantic. Globalisation can be re-made by human agency, but humans must be at ease and up-lifted in their hearts if their heads are to achieve all that they can. Let us be romantic, so that we may be rational.

People make their own history, as Karl Marx knew and Angela Merkel and Barack Obama cannot deny, but under circumstances existing already, given and transmitted from the past. Over hundreds of years America has evolved to a fiercely divided, uncompromising polis wedded to a system demanding compromise. Over decades Europe has achieved monetary union. Thousands of years of history hang over its fiscal consummation, which is required to avoid collapse and further calamity. The tradition of all dead generations weighs like a nightmare on the brains of the living.

One of the ironies of Marx is that communism was supposedly inevitable, but his tombstone declares that the point is to change the world, not interpret it. What’s to change if history’s terminus is already determined? What was the point of agitating publications like the Communist Manifesto if we were all, in spite of ourselves, destined for communism?

Such publications imply that Marx himself may not have seen communism as quite the iron certainty that rigid interpretations of his writing suggest. But one of the divisions between Marxism and much of the rest of the left concerns the extent to which we are prisoners of history. Parties such Labour predicate themselves on an assumption that the institutions of advanced capitalist democracies can be moulded to serve socially just ends. Ed Miliband’s father, of course, like other Marxists, thought this naive.

Recent economic events seem to vindicate Ralph Miliband. Political leadership seems oxymoronic when our nominal leaders appear only witnesses to events that they can barely fathom, let alone command. (In the non-economic sphere, our Tuscan prime minister is similarly bemused by the revenge of the lumpenproletariat). Nothing has happened to undermine James Carville’s famous wish to come back as the bond market and intimidate everybody. It’s these markets that are in the box seat and our political leaders that are cowered.

What they demand are credible plans from governments to repay their creditors. This isn’t unreasonable. I expect you’d want to see credible repayment plans before you leant non-trivial amounts of money. The governments of the third and fourth largest economies in the eurozone, Italy and Spain, seem increasingly unable to produce such plans. The downgrade of the USA, though unjustified, speaks to a similar lack of confidence in America’s ability to manage its debts.

While events seem to lead towards the largest country in the world that still professes to be communist, China, being an ever more dominant geo-political force, the Marxists should not be too triumphant. The markets are, of course, as powerful as James Carville’s wildest dream and Ralph Miliband’s bleakest nightmare. But they do not remain beyond the capacity of political leaders to have them becalmed. That is if political leaders do what it says on their tin; lead.

This doesn’t mean interpreting opinion polls as immovable. Germany, for example, could swing behind the full steps required to save the euro if Merkel articulated them well enough. It means seeing your electorate as intelligent beings capable of being won over by the force of your argument and your actions. Merkel and Obama can still do this. But only if they stop being intimidated not only by the bond markets but also by opinion polls, their political opponents and their own inevitable failure to hold in their minds every relevant fact and figure.

As the Irish leader, Enda Kenny, has said the answer from Merkel, whether the question is bailouts or debt restructuring, is always no – until it is yes. We all know the big question hanging over all of this: will the single currency underwrite the debts of all of its members? These debts would be eminently manageable under such an arrangement; so long as the political will to enact such an arrangement can be found. It is for Merkel to find this will. If she cannot, then she should say so speedily. The longer she delays the worse the fallout when she confirms her inability to rise to her historic purpose.

In spite of the tea party and the fractious nature of US politics, things are more straight-forward for Obama. He has no unprecedented, continent-wide institution building project to contemplate as a matter of existential necessity. His outlook would suddenly look much rosier if he could only say yes, we did achieve growth rates in 2011 equal to the hardly spectacular rates of 2010.

Can the US really not grow at 2.8 per cent this year? Can unemployment really not be significantly reduced from the historic high of 9.2 per cent? While markets fret over the ability of governments to manage their debts, they are also increasingly worried that the US cannot do better on growth and unemployment. Surely if the social democratic faith in the power of government is justified then Obama can prove them wrong?

Merkel and Obama can rise to their challenges or we succumb to capitalism’s latest crisis. These crises will not, however, give way to something as pleasant as Marx envisaged communism to be. It will be something with much more of a Chinese flavour.

Tony Blair, according to his economics advisor as prime minister, isn’t much of an economist. In contrast – the only leader to take Labour to three general election victories – Blair is a politician par excellence. While others are better on economics, what Blair says and doesn’t say on the economy is politically insightful.

Let’s take four points made in his speech and the Q&A at a recent Progress event.

First, Labour should focus more on microeconomic debates and less on the macro-economy.

This seems an oddly technocratic point but reminds me of the view of Douglas Alexander and Jim Murphy that “Labour needs a draw on the deficit and a win on growth”. I suspect I took Alexander by surprise when I asked how we achieve this at a CLP dinner earlier this year.

I also suspect that Blair is giving his answer. We get a draw on the deficit by maintaining a strong line that closes it on the trajectory first specified by Alistair Darling. We get a win on growth not by making arguments about the economy as a whole but by crafting a series of bespoke policy offers sector by sector.

The combined impact of these offers would enable a win on growth and creates a series of talking points with business, which, as Blair stressed, matters because we won’t have this win until we have a phalanx of leading business people prepared to back us.

Second, these are distinct questions:

-          How do we make sure the crisis never happens again?

-          How do we get the economy moving again?

Separating these questions misses the golden thread of confidence. The economy won’t be moving again until we have confidence in a brighter future. We won’t have this until steps are seen to have been taken to mitigate the risk of the crisis of recent years repeating. Rock bottom public confidence attests that this isn’t coming from government.

There is opportunity in this for Labour. But we would create problems for ourselves if in reaching for this we undermine our deficit closure strategy or underplay the emphasis placed upon the tailored microeconomic offers suggested above. The priority should be these offers, rather than grasping for an elusive confidence bullet. As we roll out these offers, though, we should be thinking hard about what mix of financial, trade and fiscal policy that bullet might be composed of. We would be better placed to argue that our bullet is real on the back of some winning microeconomic arguments.

Third, the UK should join the euro when the economic conditions are right.

He’s been saying this for years. Yet the euro, at least as currently constituted, seems in contradiction with reality. As Italy looks ever more like a larger Greece, it threatens to make Lehman Brothers look like a tea party.

Blair, nonetheless, maintains that the geo-political clout of the UK would be maximised by euro membership. While this may or may not be true, euro membership now seems so far from the UK’s economic interest as to beg the question: What steps, if any, can a UK that remains outside the euro for at least the foreseeable future take to maximise our geo-political influence?

Targeting euro membership seems as 1990s as Britpop. Redolent of a time when BRICs were things you built housing bubbles with. Labour should, of course, continue to play a constructive role in the EU. However, we should also more strongly stress our support for updating the institutions of the global economy (e.g. the World Bank and IMF, including the global reserve currency advocated by Roger Bootle). Such reform would contribute towards minimising the chances of the crisis of recent years repeating. Labour advocacy would have us be the internationalist, far-sighted party that we should be.

Fourth, he rightly trumpeted his many achievements as prime minister.

While his government was characterised by much needed increases in public spending, unsustainably high tax revenues from the city afforded a large chunk of this. This un-sustainability goes a long way to explaining the deficit. These tax revenues were recycled through tax credits and similar but the distribution before this secondary redistribution was so skewed that many could only have the lives they wanted through accessing easy credit. This built up a stock of private debt that households are now struggling to pay down.

If a more equal distribution of income and wealth could be achieved without resort to secondary redistributions, these problems would be more containable. And Labour would have achieved its historic purpose. To serve this end, though, we need to return to government.

If done properly, thinking through and taking forward the ideas suggested by the economics of Blair can both make ourselves more electable and better able to realise our historic purpose in government.

Politicians of all parties claim to favour rebalancing the economy; whether this is rebalancing from the public sector towards the private sector; from domestic consumption to exports; from finance towards manufacturing; or from London and the South towards the North and Midlands. These various kinds of rebalancing all enjoy broad political support but these consensuses risk being as glib as saying that all mainstream British politicians believe in, say, liberty. They mask deeper complexities and challenges, which must be overcome to achieve meaningful economic rebalancing. Labour should seek policies which will enable this, as well as language and demeanour that will allow us to reap the political benefit of tapping into the popular desire for a less financial-centric society and economy. We should, however, focus on the substantive issues and avoid puerile bashing of bankers. Let’s consider in turn each kind of rebalancing.

Rebalancing from the public to the private sector

The Office of Budget Responsibility (OBR) predicts that by the end of this parliament there will be 1.5 million more people working in the private sector and 400,000 fewer in the public sector. The political and economic strategy of the Government largely depends upon something of this order coming about. While their cuts are faster and deeper than is prudent, it is not inconceivable that extremely lax monetary conditions – rock bottom interest rates and quantitative easing – and a low pound allow something approximating to the OBR prediction to become real. Equally, there are many reasons why it may not; not least on-going instability in the eurozone.

It would be as unwise for Labour to be wholly pessimistic about the prospects for private sector recovery as it would be for the UK to gloat about troubles in the eurozone. Labour has to be the party of optimism, which should include being optimistic about the ingenuity of business, particularly if the Bank of England contains its fear of inflation and doesn’t raise interest rates too rapidly. Labour must avoid the perception that we see fiscal stimuli as the only motor of growth and monetary and exchange rate conditions as irrelevant. We should also acknowledge, through a credible deficit reduction programme, that a key reason for deficit reduction being important is that it reduces upward pressure on interest rates.

Part of this programme should involve a shift in the tax base to sharpen incentives towards hard work. This means less tax on income and more on wealth. A land tax could form part of this transition. It would do something to dampen the British tendencies towards property speculation and bubbles. It might also form part of a Labour drive towards tax simplification. Because taxation of land is simple it would be difficult to avoid. Labour could win friends from UK Uncut to the CBI with a considered drive towards tax simplification. UK Uncut should appreciate simplifications that make tax harder to avoid and the CBI should value simplifications that support economic growth. A land tax offset by reductions in taxation on employment would reduce the capacity of the rich to avoid taxation and increase the extent to which everyone keeps the fruits of their hard work. Tax simplification should not be owned by the right. It should be part of Labour’s arguments for rebalancing from the public and private sectors.   

Rebalancing from domestic consumption to exports

The global recession has demonstrated the utility of exchange rate and monetary flexibility and vindicated the decision to keep the UK out of the Euro. It is far from certain, however, that policy thus far has successfully contained the banking and fiscal crisis in the eurozone. Given the importance of eurozone growth to UK growth, the UK should play a constructive role in arriving at such policy, while not confusing our responsibilities with those which properly belong with eurozone members. As debates about the future of the Euro and the EU are disentangled – or, as has been more the case to date, conflated – British interests are ill-served by the chair left vacant at the negotiating table by David Cameron.

The prime minister has been eager to champion trade with the BRICs (Brazil, Russia, India and China) and bored by Europe. Not realising the connection between the BRICs and the EU. In 2009 Ireland’s 4.5 million people accounted for more UK exports than the BRIC countries combined. It should be an economic priority for the UK to deepen our comparative advantages with the expanding middles classes of the BRICs. The development of these countries does much to explain the expectation of Gerard Lyons, chief economist at Standard Chartered, that the global economy will at least double in size between now and 2030.[1] However, the extent to which the UK benefits from this development depends on how quickly we advance trade with the BRICs. We need an EU that is recalibrated towards adaptation to a global economy that is increasingly driven by Asia. Cameron is too scared of Bill Cash to properly work towards such an EU. His carpet bagging of UK PLC to the BRICs counts for little next to this.

Rebalancing from finance to manufacturing    

We need to be realistic about employment prospects in manufacturing. The UK’s manufacturing sector remains the sixth largest in the world by output but no manufacturing sector in the developed world, even in Germany, a country with a stronger modern manufacturing reputation than us, has been able to avoid a considerable long-term decline in manufacturing employment.

We should not give in to the presumption that finance and manufacturing cannot be complements. We should be asking: what kind of financial sector would be most complementary to manufacturing in particular and the wider economy in general? And how can public policy best encourage such a financial sector?

The objectives set for the Independent Commission on Banking – minimise systematic risk and moral hazard; promote competition in both retail and investment banking – are vital. George Osborne won’t hold the Commission to these objectives. But Labour should. We should also be advocating a financial sector that is as complementary as possible to the wider economy. This argument probably goes beyond the remit of the Commission but the work of the Commission gives Labour a chance to firmly place it within the national debate.

Alongside rock-solid retail banks we need a flourishing of nimble financial services firms that are prepared to provide capital to enterprising SMEs. Such firms must be developed in green manufacturing but they will be more likely to do so if a credible price for carbon can be established. At the moment the carbon price comes from the ineffective EU-ETS. This carbon trading scheme either needs meaningful reform or replacement by a carbon tax. Either approach should be taken forward at the EU level, rather than in the form of the cack-handed move towards a carbon price contained in Budget 2011. Again Cash haunts Cameron.   

Rebalancing from London and the South towards the North and Midlands

As well as having sharp economic disparities between our regions the UK has one of the most centralised political systems in the democratic world. Labour should take ownership of the localism debate with the intention of creating forms of localism that reduce these disparities. This means holding localism proposals to the real localism standards proposed by IPPR – localism be effective and efficient; properly funded; at the heart of a drive for social justice; accompanied by a step-change in the transparency and accountability of local decision-making; and framed within a constitutional settlement between central and local government.[2]

Local government should be where the next generation of Labour leaders and ideas emerge. When we were last in opposition Lambeth was ill governed by Red Ted Knight. Now it pioneers the ground-breaking co-operative model. Liverpool was once troubled by Militant. It should soon have a resonant voice in national policy debates in the form of a Labour mayor. That Andrew Adonis, as Transport Secretary, reports battling to identify the views of great regional cities like Liverpool, while Transport for London made constant demands of him, is indicative of how skewed our national conversation has been.[3]

Regional cities haven’t only lacked voice in national debates. They have also lacked private sector employment. While Brighton and Milton Keynes both grew their private sector jobs bases by 25 per cent between 1998 and 2008, some cities slipped backwards: Stoke (-16 per cent), Blackburn (-12 per cent), Blackpool (-6 per cent).[4] The Government’s response – Enterprise Zones, Local Enterprise Partnerships (LEPs) and the Regional Growth Fund – is inadequate. The Regional Growth Fund is one quarter the size of the budget for the (now abolished) Regional Development Agencies (RDAs) in 2009/10.

The future of funds previously allocated by RDAs has been keenly debated. But these funds account for less than one per cent of total government spending in the regions.[5] Mainstream budgets, such as transport, skills and housing, are much larger. The principles of real localism should be applied to these budgets. The interface between LEPs and mayors remains to be worked out but the real localism case for devolving mainstream budgets to mayors, given their transparency and accountability, seems stronger than to LEPs.

Irrespective of whether it is to mayors or LEPs that mainstream budgets are devolved it is imperative that these resources are allocated to maximum incremental impact. This means working with the grain of markets, ironing out market failures and only intervening where there is a clear rationale for doing so. That many of these markets are global, both underlines the interconnectedness between the domestic and global economies and the scale of the challenge facing policy makers who are seeking to achieve on much reduced resources objectives that often proved sadly illusive during the New Labour boom. Yes, the resources available in the boom years were not always as well targeted as they could have been. Yes, real localism hasn’t been applied before and should enable better targeting. Nonetheless, it remains the case that politicians eulogise economic rebalancing, due to its popularity with voters, without acknowledging that it often runs contrary to the underlying drivers of our economy or facing up to the tough policy choices that will be required to make it more of a reality.

Conclusion

Voters are strikingly confused as to what Labour stands for.[6] Economic rebalancing, in every sense, given the ineffectual policy, lip service and lack of resources provided by the Government, can be a policy area commanded by Labour, in which we find new expression of our values of equality and fairness. But it raises many challenges, which the party’s policy review should seek to navigate. Only by rising to these challenges will Labour be able to move beyond the dismal record of politicians over-promising and under-delivering on economic rebalancing.

While the country almost aches for politicians capable of doing better than this, Labour will need to be bold reformers of both state and market to be these politicians. Applying real localism principles to mainstream budgets and fully realising the promise of mayors would, for example, be profound reforms of the state. Reforming the financial sector to make it as complementary as possible to the wider economy is as far reaching a reform of the market. Nothing less than such thoroughgoing state and market transformations will be needed for the UK to prosper in an increasingly Asian age.

The Labour front bench might not welcome advice from retirees, no matter how dignified. But they’ve got some. “Be a little bit more interesting”, said Peter Mandelson, in response to a question at a recent Progress event. National recovery from the major economic crisis of recent years requires big, bold ideas. He wants Labour to rise to this challenge.

This is the stuff of pragmatic radicalism on economic rebalancing. Pragmatism demands workable solutions to national concerns. The support that politicians, of all parties, proclaim for rebalancing the economy indicates that this is such a concern. The persistence of the imbalances in our economy – between domestic consumption and exports; finance and manufacturing; the south east of England and much of the rest of the UK – attest that this support is inadequate to purpose. A dash of radicalism is needed, for not only rebalancing to be achieved, but for Labour’s arguments to cut through the white noise of mainstream politicians professing support and delivering so little.

Many more elected city mayors are the stuff of this radicalism. Our top heavy state is a drag on economic performance. Elected city mayors are the next step on the devolution journey begun by the last government. The centre for cities and the institute of government recently called for their powers to be beefed up – through, amongst other things, chairing integrated transport authorities and co-chairing local enterprise partnerships. The common sense of people in cities voting for their leaders and retaking command of their destinies should be a truth loudly proclaimed by Labour – as should be the common sense of rewarding hard work.

The tax system can further help to make us into a nation of grafters. This means less tax on income and more on wealth. A land tax could form part of this transition. It would do something to dampen the British tendencies towards property speculation and bubbles. It might also form part of a Labour drive towards tax simplification. Because taxation of land is simple, it would be difficult to avoid.

Labour could win friends from UK uncut to the CBI with a considered drive towards tax simplification. UK uncut should appreciate simplifications that make tax harder to avoid and the CBI should value simplifications that support economic growth. A land tax offset by reductions in taxation on employment would reduce the capacity of the rich to avoid taxation and increase the extent to which everyone keeps the fruits of their hard work. Tax simplification should not be owned by the right. Nor should backing for dynamic financiers and entrepreneurs.

Labour should insist that the Vickers review ends with rock solid retail banks. These, and an expansion of our credit unions, are needed to support household saving. This isn’t just important for households themselves, but to generate funds to be recycled by financiers as investment in firms. Alongside this we need a flourishing of nimble financial services firms prepared to provide capital to enterprising SMEs. Such small businesses must be developed in green manufacturing but they will be more likely to do so if a credible price for carbon can be established.

At the moment this price comes from the ineffective EU emissions trading scheme (EU-ETS). Its failure merits much stronger condemnation, which should come from Labour. It either needs meaningful reform or replacement by a carbon tax. Either approach should be taken forward at the EU level, rather than in the form of the cack-handed move towards a carbon price contained in budget 2011. The likes of Bill Cash bar sensible policy from David Cameron on this. The prime minister is unable to lead in Europe but securing a robust carbon price should be part of the more tightly focused Europe that Labour champions.

Most immediately, the eurozone needs to face up to the tough choices of its on-going crisis. The EU also needs to recalibrate itself to our Asian century. The turbocharged development of the BRICs (Brazil, Russia, India and China) and similar does much to explain the expectation of Gerard Lyons, chief economist at standard chartered, that the global economy will at least double in size between now and 2030. Europe, though, will be in the slow lane unless trade links deepen with the rapidly developing world.

This means more EU activity where it can add value – a properly functioning EU-ETS, completion of the single market in energy, and a sticks-and-carrots offer to all Mediterranean countries equivalent in ambition to that given to eastern Europe on its transition from communism – and much less where it provides little but muddle and duplication. Subsidiarity needs to be taken much more seriously. Not just in terms of Brussels deferring to member states, but to regional and local bodies, such as elected mayors, and, in turn, to communities and individuals themselves.

This hard edged devolution would be driven by a sense of mission. This is what fires the best of the private and public sectors. It’s making Apple great that motivates Steve Jobs. The profits are a by-product. The Steve Jobses of a reformed British state have to be Labour politicians. The government are u-turning themselves into an ever decreasing circle of failed reforms and unfulfilled ambitions, and not least among these is their commitment to economic rebalancing.

Labour can do better. And we will be very “interesting” indeed when we do so.

This is a shortened version of an essay that appears in the new Pragmatic Radicalism publication.

Jonathan Todd is Labour Uncut’s economic columnist.

It’s only when politicians have bored themselves through repetition that their message begins to hit home with their audience. I’ve heard this dictum attributed to both Gordon Brown and Peter Mandelson. Its genesis is of less practical consequence than the reality that Labour’s message of too deep, too fast is now hitting home.

The debates around the causes and management of the deficit are complex. The simplicity of Labour’s message overcomes this. The arguments to which today’s publication of the interim report from the independent commission on banking will contribute are also highly technical. Labour requires a straightforward, powerful line that resonates amid this detail.

This should be that we are for the whole country, not just the city. We’re not banker bashers. We’re with Kitty Ussher on the short-sightedness of that. But the financial sector isn’t presently delivering to the extent that it could for the rest of the country. It’s one of the few sectors in which the UK can claim true global leadership. Labour recognises and celebrates this success.

However, unlike George Osborne, we do not interpret this prowess as a carte blanche for the sector. What is in the best interests of the city of London is not always in the best interests of the UK economy. The flawed assumption that these interests are aligned has driven policy since Margaret Thatcher and Osborne cannot see beyond this.

President Eisenhower asked the president of General Motors, “Engine Charlie” Wilson, to become secretary of defence in 1953. At his senate confirmation hearing he was asked whether he could make a decision in the interest of the US that was adverse to the interest of GM. Wilson reassured that no such conflict could arise.

“I cannot conceive of one because for years I thought what was good for our country was good for General Motors, and vice versa”.

Osborne is a later day Wilson. Blind to competing interests between one sector and the country as a whole. Of course, for the most part, but not always, what was good for GM was good for the US. Profits for GM meant jobs and wages for Americans. At the same time, finance does many things that are in the interests of the UK. Dorset, for example, is very grateful for J P Morgan, its largest private sector employer.

Labour doesn’t deny these benefits. Likewise we don’t deny the need for public sector cuts. But there is a world of difference between prudent fiscal management and an ideological assault on the state. Similarly, acknowledging the benefits of finance is quite different from not asking the questions that Osborne doesn’t want to ask: have our banks both ceased to be too big to fail and been reformed such that they will not again need state bailouts? Are large bonuses indicative of excellence or a lack of competition? Is competition adequate to ensure the best service to households and businesses? Are we maximising the extent to which the banking sector complements the rest of the economy?

It is this final question that allows us to pivot from today’s report to the growth debate. Both the banker-bashers and Osborne offer different kinds of either/or approach. Either we bash the banks to pieces or they will eat us, in the first case. Either we leave the banks alone or we’ll kill the goose that laid the golden egg, in the latter.

Both these extremes are false choices. The golden egg, for one thing, isn’t so golden when the goose can only be sustained by enormous subsidy. For another, the goose will stop laying any eggs if it is bashed to smithereens. The eggs on which we are keenest are those in the form of industries able to be new sources of comparative advantage in our Asian century. Little will be more important to our long-term growth prospects than our development of firms able to trade with and tap into the rapidly increasing wealth of Asia.

We need to stop thinking of Asia as somewhere that we outsource to and start seeing it as somewhere that we sell to. UK PLC needs a major reorientation. The financial sector should be greasing the wheels of this transition to the fullest extent possible. For government, out of deference to the city, to fail to apply whatever policies best encourages this would be for government to succumb to producer capture. Exactly the same vice as bedevils Andrew Lansley’s NHS reforms.

We want to put the patient, not the doctors, first in the NHS. Equally, the interests of the bank’s customers should always be a higher policy priority than those of the banks themselves. Only then will government be acting for the whole country and not just a sectional interest.

Truth is finally beginning to be told to the Murdoch empire. To which Jeremy Hunt will doubtless remain tone deaf. Another set of vested interests and concentrated power may have also reduced Osborne. But today we demonstrate that we are neither producer-captured nor bank bashers, but in touch with the real needs of households and business.

There is a piece of land registered on Landshare in every postcode in the UK. If you stacked every film shipped weekly by Netflix in a single pile, it would be taller than Mount Everest. The value of goods traded annually on ebay is more than the GDP of 125 countries. Bike sharing is the fastest-growing form of transportation in the world.

Something is going on here. And Rachel Botsman and Roo Rogers think they know what it is: collaborative consumption. Defenders of the big society have latched on to the decentralised, networked mega-trend that Botsman and Rogers describe in their book, “what’s mine is yours – how collaborative consumption is changing the way we live.”

After Botsman gave a version of her stump speech at the RSA last month, I asked whether this trend contains any lessons for Labour. She was, understandably, reticent to politicise her baby. The big society shouldn’t be owned by any political party, nor should collaborative consumption, she told me.

Of course, she’s right. The civic institutions that are supposed to make up the big society were around long before David Cameron tried to destroy them. And collaborative consumption is too nebulous a concept for any politician to convincingly declare it their passion. I’m not even sure that it adds up to a unified idea. There are, however, elements of Botsman and Rogers’ argument that hit upon some truths that Labour should absorb.

They claim that people are sharing again and creating three distinct kinds of consumption: product service systems (PSS), redistribution markets and collaborative lifestyles. Both what we consume and how we consume are changed by these systems. But do not worry. We are not all turning into hippies. Self-interest remains the prime driver, with improved social outcomes a mere by by-product.

Netflix is a popular PSS model because people want to watch films, not collect DVD boxes. Access is the privilege; ownership is the burden. As Robin Chase, founder of Zipcar, another PSS variant, says: “It’s the car your mother said you could never have. When you are not using it, it is someone else’s problem, and who cares”. As well as being more fun, access tends to reduce carbon emissions. Think of the carbon saved from all the DVD boxes not manufactured for Netflixites and cars un-owned by Zipsters.

Ebay, freecycle and craigslist are well-known illustrations of redistribution markets. It is the desire to buy, sell and swap used goods which creates these markets. But, as this occurs, carbon is saved that would otherwise be emitted in manufacturing new goods. These markets also build trust amongst strangers, because market participants know that their behaviour today will affect their ability to trade tomorrow. Ebay buyers, for example, want to buy from sellers with positive feedback ratings, so negative ratings limit the ability of sellers to trade.

TimeBanks USA, an enabler of collaborative lifestyles, has been described by its founder as “a time machine taking us back to an age when we knew each other and trusted one another”. Time banks exist all over the world and all apply the same principle. For every hour you spend doing something valued by someone in your community (cleaning their gutters)  you earn a credit to be banked at an online portal and spent on things you value (Spanish lessons). Participants are incentivised by accessing something they want. But 72% of time bankers report that participation gives them a stronger sense of community.

Irrespective of the collaborative consumption model, people are sharing because it serves their self-interest. Our bread should never depend on the benevolence of bakers. Enhanced sustainability, trust and community spirit can, however, be achieved, as people follow their self-interests through consuming collaboratively. This isn’t to say that people are completely uninterested in these social outcomes, as the MyBO activity tracker illustrates.

This tracker was designed by Chris Hughes, a co-founder of Facebook. He only works on projects that will have “far-reaching social and life-changing impact but that are also fun, modern and smart”. Those who opened trackers shared a belief in a particular outcome: the election of Obama as US President. But they also wanted the fun of the interactive game that was enabled by the tracker. The more fun they had the more campaigning they did. If we want to change the world, we may not succeed unless we make the journey fun, modern and smart (does this sound like your latest Labour party meeting)? Total abstinence and a good filing system were never the right signposts.

Labour is increasingly winning the argument that the big society cannot fill the gaps left by the government’s cuts. We are right to stress that it isn’t an either-or choice between state and society, but a question of what state and society can achieve together. However, to fully win this argument we need to paint a more vivid picture of the kind of reformed state we favour.

Such a state would harness the tools of collaborative consumption and direct them towards our Labour goals. Libraries could incorporate hubs for time banks. Transport authority websites might put driving commuters in touch with others making the same commute and interested in car sharing. Sure starts could host markets for exchanging used children’s clothes and toys. Local authorities might open up public land to community groups through Landshare.

Many small changes of this sort will be required to make the state fun, modern and smart.