The financial crisis was unprecedented and complex. But the left’s interpretation of it tended to be straight-forward. Banks and bankers were bad. Government and politicians were good. Government saved the banks from themselves and would stimulate economies. This enlarged role for government made a “progressive moment” inevitable. Yet government is now being scaled back and the left is out of power across Europe.

The left must move beyond its misconceptions to recover. While Labour’s plans to close the deficit concede limits to government’s size, George Osborne was much quicker than Gordon Brown to acknowledge such limits. The lesson of the debate on the deficit during and after the general election is that the left cannot be abashed by fiscal reality. It must confront it squarely. This is a lesson that Barack Obama might now reflect upon as debate in the US on the size of government moves to a similar place to that in the UK in the six months or so prior to the general election.

Reluctance to acknowledge limits on government’s size indicate how little the third way shifted the left’s gut instincts. The girth of government is still too readily taken as a virility symbol of leftism. This is in spite of government sometimes being a shackle upon the people the left exists to empower. Of course, government isn’t always so. Often it is a saviour and liberator. But to only see these aspects of government is not to see the full picture.

Jim Larkin, a pioneer of the Irish trade union movement, said: “The great only appear great because we are on our knees. Let us rise”. Government keeps people on their knees when it pays people to do nothing while others work ever harder, penalises people for its mistakes in miscalculating tax credits and loses personal data on a grand scale. From the rural payments agency, characterised by late payments, to the learning and skills council, with its abrupt termination of 144 college building contracts, the catalogue of failing public institutions is considerable. It hasn’t gone unnoticed. Almost half the voters in the south believe that public spending under Labour was largely wasted and did not improve services.

They may not be wholly justified in this view, but it forms an important part of the present context. Within which, the notion, taken as given by much of the left, that the public would welcome an expansion of government in a “progressive moment”, was always flawed. The failings of the public sector under the last government, whether perceived or genuine, rolled the pitch for the aggressive bowling with which Osborne has dismissed the “progressive moment”.

The MPs expenses scandal, by encouraging cynicism about public service, also assisted this pitch rolling. No appeal to a revitalised Keynesianism or other reasoned argument could hope to override the emotional resistance to an argument from politicians in the aftermath of this scandal, and the long-term decline in trust that the scandal compounded, that said “let us have more of your money and control of your lives”. Which is what the argument for a bigger role for government within the “progressive moment” amounted to.

This isn’t to say that the public didn’t feel, and do feel, disgusted by bankers and let down by banks. It is to say that the left needs to acknowledge that people feel similarly about politicians and government. And understand why people feel so and act upon this understanding.

These feelings about banks and government seem consistent with the argument of a Labour party discussion booklet, Small Man, Big World, written by Michael Young in 1949. This was, as his later collaborator Peter Willmott summarised, that the large institutions of modern society tended to ignore the interests of ordinary people, who suffered collectively as a result. Ordinary people see banks and government, for the most part, as such large institutions. Fred the shed and an MP’s subsidised moat are closer in the public mind than the political class might like to admit.

The left’s recovery in the UK depends upon Labour’s ability to disassociate ourselves with these large institutions and to become realigned with ordinary people. This emphasis should be central to our attitude to banking reform. It should also be so fundamental to our approach to government that Labour comes to be synonymous not with more government, as in the flawed “progressive moment” thesis, but with a wholly different kind of government. This requires, as Patrick Diamond argues, moving beyond the Westminster model to change the state and citizenship.

Young wrote his pamphlet four years after drafting the most celebrated manifesto in Labour’s history. However, the enactment of this manifesto made him concerned about the implications of a centralising bureaucratic state. The left’s failure to grasp this insight, even after 60 years, explains the faulty expectation of a “progressive moment”. Our ability to now run with this insight will determine the strength and speed of our recovery.

Let’s begin with the challenge posed to America’s elites by E. J. Dionne Jr in the Washington Post:

“A funny thing happened to the American ruling class: It stopped being concerned with the health of society as a whole and became almost entirely obsessed with money … The ruling class now devotes itself in large part to utterly self-involved lobbying. Its main passion has been to slash taxation on the wealthy, particularly on the financial class that has gained the most over the past 20 years. By winning much lower tax rates on capital gains and dividends, it’s done a heck of a job … And you wonder where the deficit came from. If the ruling class were as worried about the deficit as it claims to be, it would accept that the wealthiest people in society have a duty to pony up more for the very government whose police power and military protect them, their property and their wealth … Where are those who will now take up this banner?”

The answer, it would seem, is resident in the White House but on the road. The Post also reports:

“President Obama will hit the road this week and forcibly deliver his message that a combination of spending cuts and tax hikes on the rich is necessary to rein in the nation’s rocketing debt — a high-stakes effort to rally public support ahead of a series of contentious budget battles in Congress. From Northern Virginia Community College in Annandale to Facebook’s headquarters in Silicon Valley, Obama will make a series of campaign-style stops in an effort to block a Republican plan that would reduce the deficit by dramatically changing Medicare and reducing spending on education and other social programs.”

I don’t think this strategy is really such a big risk for two reasons.

First, the Republican plan from Paul Ryan is absurd. The more it is debated the less credible it will appear. As Robert J. Samuelson notes:

“He achieves big savings by assuming deep cuts to most of the federal government beyond Social Security, Medicare and Medicaid. Ultimately, it would shrink to almost nothing. That’s defense, food stamps, highways, federal courts, basic research . . . and much more.”

Second, the polling evidence suggests that the principles behind Obama’s approach to deficit closure are popular. The Post reports:

“Polls show that Obama has work to do on the deficit but that many Americans agree with his broad approach. In a Washington Post-ABC News poll in mid-March, 55 percent of respondents disapproved of his handling on the issue, with 39 percent approving. But, playing to Obama’s advantage, only about a third of Americans prefer a “cut only” approach to the deficit; nearly two in three say spending cuts and tax increases should be included.”

So in taking up the challenge set by Dionne Jr Obama is providing the tax element that two thirds of Americans want to see. However, Samuelson is right to point out that this element on its own is not enough:

“We won’t make much progress until (a) Democrats concede that spending control requires genuine cuts in Social Security and Medicare, which now total $1.3 trillion annually and represent 35 percent of federal outlays; and (b) Republicans acknowledge that, even after significant spending cuts, tax increases will be needed to balance the budget. Last week, there was little sign of either. President Obama rebuffed Social Security and Medicare cuts. Most Republicans held fast on taxes.”

The evident impracticality of the Ryan plan means that Obama can convincingly win this key debate. But to do so he has to be prepared to do what Gordon Brown was so unwilling to do six months or so out from the general election: talk about cuts.

Brown’s unwillingness to do this meant that the economic debate in the general election reduced to a debate about whether or not to begin deficit reduction in 2010 (Labour said “no”; the Tories said “yes”; and the Lib Dems said “no” in the campaign and “yes” in government). A wider debate about the deficit would have better suited Labour. It was apparent by the end of 2009 that significant cuts over the next parliament would be necessary. Gordon Brown could have presented himself as a sensitive surgeon to the public services Labour had cultivated, in contrast to the brutal destroyer that David Cameron would amount to (and is now proving to be).

The Post reports:

“The Treasury Department has concluded that the $14.3 trillion debt ceiling will be breached next month and will have to be raised by early July. Republicans want legislation to reduce government spending to be part of the vote to raise the debt limit; the Obama administration has said that further deficit reduction is needed but that the issues should not be joined.”

I wonder whether there is a case for Obama calling the bluff of Republicans on this and going where Brown feared to tread. By being prepared to introduce such legislation Obama would close off the Republican attack that he has no plan for closing the deficit. Once this attack is closed then scrutiny will increasingly fall upon the inadequate Ryan plan and support for the mix of tax increases and spending cuts proposed by Obama will translate into support for the President. Taking the bull by the horns in this way is the stuff of the radical centre and bold leadership. This translates into the colour purple on both sides of the Atlantic.

The current Spectator cover story claims that Conservatives are as struck by panic as they were in the autumn of 2007 when Gordon Brown seemed set to crush them by calling an election. George Osborne saved their bacon then and they look to him to revive them now. Everyone else is looking at Libya. Hence, the impact of the budget will be dimmed. But Osborne will try to pull a big enough rabbit out of his hat to wrest attention away from the middle east.

Osborne doesn’t begrudge Libya coverage, obviously; particularly not if it leads to his boss being seen as a competent and brave war leader. If – and clearly this is a massive if – a stable post-Gaddafi Libya emerges, then the earlier shambles will be largely forgotten and David Cameron will gain kudos, which will make him harder to dislodge from Downing Street. The resignation of Lord Carrington did little to dent the boost that the Falklands war gave Margaret Thatcher at the 1983 general election.

Osborne’s rabbit isn’t intended to divert eyes from Libya or the spotlight from Cameron. It will seek to disorientate Labour and have our leaders confuse tactics with strategy. Fiscal constraints limit the cards in play, but the cards available are all held by Osborne. He knows that he can use them to establish dividing lines that will set the terms of debate. He was as keen a student of Gordon Brown as either Ed Balls or Ed Miliband.

Both of whom will know that the biggest sting is likely to come in the tail of Osborne’s delivery. That’s how Brown used to do it. This way the respondent has least time to calibrate his rebuttal. Osborne pulled this trick last October when his concluding remarks on the spending review contained these words:

“The average saving in departmental budgets will be lower than the previous Government implied in its March budget. Instead of cuts of 20 per cent there will be cuts of 19 per cent over four years”.

This is an eye-catching claim. David Cameron subsequently went on a similar manoeuvre at PMQs. Both were too clever by half.

First, it undermines the strongest Tory attack line: Labour created the deficit and has no plan for addressing it. Labour must have a plan if Osborne is cutting departmental budgets by less than our plan. Shadow ministers should jump at the chance to forcefully make this point whenever ministers afford them the opportunity.

Second, like many eye-catching claims, it is too good to be true. “Gord bless him” was the response immediately after the 2007 budget. But the more the details were picked through, especially the abolition of the 10p tax rate, the less this was the case. The lesson: play it straight. Don’t let your rhetoric outpace the reality. Be open about the trade-offs and the reasoning driving how they have been approached. All of this is especially true in our post-expenses, hyper-cynical times. And it is as important for oppositions as it is for governments.

Cameron has already stupidly supersized his rhetoric: “the most pro-growth budget in a generation”. Such bluster from a prime minister is as much use to a chancellor as Ricky Hatton’s mum shouting “hit him, Ricky” at the ringside. “I never thought of that, Mum”, Ricky later reflected. Osborne may now think similar of Cameron and ruefully so, given that his ability to impact growth is closer to that shown by Hatton when knocked out by Manny Pacquiao than in securing a famous victory against Kostya Tszyu.

Balls might have out-boxed the Hatton beaten by Pacquiao, but we shouldn’t mistake Osborne for such a reduced opponent. Osborne is a smarter operator than Michael Gove, whom Balls so pummelled as shadow education secretary. There will be no missteps. Only precision targeted hits. Irrespective of the current Spectator cover story, the next edition, along with much of the rest of the press, will eulogise him. The rabbit will entice.

The trick for Labour will be to not let it distract. Chasing the rabbit is mere tactics. We should be all strategy. Both Douglas Alexander and Jim Murphy define our strategic objectives as a draw on the deficit and a win on growth. I would go further: securing a draw on the deficit is a precondition of avoiding defeat on growth.

Osborne thinks he has won the deficit debate, wants to close it and shift the focus to growth. He declares his actions last year a “rescue mission”, which necessitate no further cuts or tax rises this year. Yet the cuts largely haven’t hit. And it will be more redundancy than rescue when they do.

We can’t let Osborne have a win on the deficit. He pretends that the only choice is his approach to tackling the deficit or not tackling the deficit at all. We only defeat this by having a credible alternative. This demands unflinching straight-forwardness from us that, while they can be better managed than they are being by Osborne, cuts are unavoidable.

Effectively neutralising the deficit debate requires that we don’t go into the growth debate pushing more government as the answer. We need something more nuanced. This might mean a national investment bank or other carefully argued reforms. But it has to be about good Labour reform versus bad Tory reform, not unaffordable Labour spending versus Tory reform.

The longer Gordon Brown was prime minister, the harder it became, sadly, to picture him in post at the 2012 Olympics. His purchase on the future evaporated. Ed Miliband has to recover this to return to government. He has to convince that he has the answers to the challenges of 2015 and beyond. And personify these answers.

While his speech to the resolution foundation looked towards this, the past is always knocking incessant, trying to break through into the present. As Jim Murphy told the progress political school, in politics, the past is always the context, the future the contest. The spectre of Iraq hangs over Libya. The fiscal management of the last government colours arguments about the approach of this. In many areas – NHS, schools, welfare and, increasingly, foreign affairs – David Cameron presents himself as more heir to Blair than a return to the 1980s. Labour begs to differ. The public is uncertain.

What is not in doubt, however, is that the past has to be overcome to own the future. The 1997 victory couldn’t happen until Labour had outrun the shadow of its discontented winter. Tory detoxification hadn’t removed the stench of Thatcherism before 2010. That foul odour now emanates from Number Ten, in spite of Cameron needing Nick Clegg’s help to limp over the finishing line of the general election.

Cameron has hired a head of strategy, Andrew Cooper, who was convinced of the need to detoxify the Tories before he was. Cooper is determined to now complete this long march. Only when this journey has ended, liberal Tories like Cooper think, will a Tory majority come. Mainstream Tories, such as Tim Montgomerie, less abashed by association with Thatcher, disagree.

Clegg now blocks the route that Cooper wants to pursue. It will be difficult to avoid the narrative that anything progressive done by the government is a consequence of the Lib Dems. These actions would serve only to prop up Clegg, not detoxify the Tories.

So long as Margaret Thatcher is held in such low regard in the northern seats that the Tories need to form a majority, mainstream Toryism cannot own the future. Equally, liberal Toryism is compromised by the Lib Dems claiming any of their victories as their own. Mainstream Tories and liberal Tories may battle for the soul of Cameron and their party, but these factors mean that neither is capable of owning the future.

It doesn’t have to be this way for Ed Miliband. But, first, we have to move beyond our past. Voters felt, as Fiona MacTaggart conceded at conference last year, that we were “taking their money and giving it to people who are taking the piss”. This is no prospectus upon which to form a government.

Labour canvassers rarely field complaints that we let the state get too big. This isn’t how people tend to conceptualise things. The Tory charge of profligate Labour spending still stings, though, because too many people feel Labour took too much of their squeezed wages in taxation, with too little improvement in public services to show for it, while being too generous with those unprepared to graft as they do (namely, some welfare recipients and, less fairly, immigrants).

James Purnell argues that Miliband can neuter the Conservatives’ attack that Labour is spendaholic by committing that no new Labour policy will involve additional spending. He claims that this would redefine the political battleground. Rather than being reform versus spending, it would be good reform versus bad reform. The story of the Cumbrian NHS exemplifies the virtues of Labour reform over Tory reform. Such arguments have to be taken on and won.

Labour reform enables more to be done for less, which is integral to being fluent on the deficit, as is a compelling plan for economic growth. However, the economic argument isn’t simply about fiscal management and growing GDP, but raising wages unchanged in real terms since 2005. The biggest long-term challenges that the country faces – earning our way in an Asian century, decarbonisation, ageing, banks both too big to fail and save – are all bound up with this most bread and butter of issues.

More immediate changes can help: tax incentives to encourage wider payment of the living wage and use of smart meters; more advocacy of the kind that saw consumer focus earn households a £70m rebate in the week before it was callously axed. However, the squeeze is intimately connected with the advance of globalisation and the failure of public policy to keep pace.

To be social democratic is to be condemned to optimism about capacity for improvement. Yet, as a country, we are far from having found the policies to grasp all the opportunities and meet all the challenges of an ever more Asian-powered globalisation.

Ed Miliband needs such policy, and ways to present it that are doorstep-ready. The big society wasn’t so ready and has become synonymous with small-state Thatcherism. It is now a rhetorical cul-de-sac for Cameron. Miliband cannot, however, own the future by default.

Only when his blank pages are filled with policy that escapes big government perceptions and paints a believable picture of a Britain at ease in the global age of today and tomorrow will he be able to own the future. This will take time and be no easy task. So long as we are privately advancing in these regards, the right public posture is enough for now.

“Facing a new world with new challenges, we need to think again about how we can best serve the people we seek to represent”.

So argues an email which Ed Miliband sent to Labour party members last night. As Ed acknowledged in his conference speech yesterday, one of this new world’s realities, even if we were to now have a Labour government, is the necessity of cuts; and one of the challenges, therefore, is to deliver more for less.

Deficit reduction, however, has simply brought into sharper focus an inescapable trend. An ageing society makes ever less viable established means of financing and delivering pensions, health and social care. Innovation will remain a precondition of improved public services beyond the correction of the structural deficit, which all major parties are committed to achieving over this parliament. Successful adaptation to our cold fiscal climate isn’t simply about muddling through coming years but of making sustainable for the long-term, given profound demographic shifts, vital public services.

Ed accepting that there would have been cuts under Labour was hardly the stuff of Nikita Khrushchev’s secret speech. Gordon Brown isn’t, pace the right-wing media, Joseph Stalin and Alistair Darling’s deficit reduction plan was passed into law by the Labour government.

Labour controlled councils have been preparing for the inevitability of straitened times for some 18 months. Yet, the Tories want to claim that Labour lacks a plan for controlling the deficit and remains capable of committing only to spending increases. They point to the spending commitments made by Labour leadership candidates during their campaigns and the lack of firm proposals for cuts needed to flesh out the Darling plan.

It would be helpful, therefore, if Labour were able to advocate itemised cuts by the time of the comprehensive spending review. Sadly, our polling on competence and unity has nosedived in recent years. The latter won’t be helped if David Miliband does decide to leave the frontbench. The former requires that Labour exude an ability to adapt to fiscal reality.

A truly credible platform, whether at national, city or local level, requires not just resistance to the depth and speed of George Osborne’s cuts, but a demonstrable ability to achieve better public service outcomes on more limited resources. The lack of this ability will be taken by many to mean that Labour can only offer diminished public service standards and potentially rising taxes.

People will expect standards to decline under Labour if we appear unable to adapt to severely constrained budgets; and they will expect tax to rise if our only prescription for better services is more money. A hard-pressed public would begrudge additional taxation and be disappointed, if not downright angry, should we be unable to find new ways of maintaining public service quality.

We can avoid this outcome, however, as we are capable of finding these new ways. And while we should argue for a fairer tax system, we can do so while avoiding adding to the overall tax burden beyond those additions which are necessary to fulfil our deficit reduction plan. Nonetheless, such services are likely to require a changed relationship between the citizen and the state. To avoid leaving the public disenchanted by poor public services in future, we should now be starting an engagement about how this relationship can and should evolve.

These issues were under-discussed in the leadership election. Perhaps they will be raised during Ed’s Q+A on the conference floor this afternoon. He won’t, though, be in a position to put his ideas into practice unless he gets into Downing Street. In contrast, Labour leaders in local government already have the power to reform the way they deliver services. Hopefully, the ranks of these leaders will soon be swelled by a raft of new city mayors.

Steve Reed of Lambeth, as the pioneer of the co-operative council model, is one of the most dynamic of these leaders. The co-operative council embraces all of the best elements of reform: bottom-up; co-production; empowered citizens; pro-social behaviour; culture change; and much more rich gravy besides. This may sound like a wonk’s recipe list but they are the stuff of improved services and community transformation.

Nonetheless, like some of the best meals, the full flavour of the ingredients takes time to interact and be revealed. The wheels of bureaucracy invariably turn painfully slowly and the wheels of enduring cultural change within communities – the genius genie in the bottle of innovations like co-operative councils – more slowly still. So, let us use the power that we have in local government – a majority of London local authorities, for example – to release this genie as quickly as possible.

If we do this now, we are more likely to have a strong record of delivering more for less to point to the next time these councils are up for election. More importantly, we’ll have made these communities as resistant as we possibly can to the inequities that Osborne will inflict upon them.

Ed should celebrate and encourage this local innovation, while holding a strong enough line on deficit reduction to prevent fiscal credibility being a bar to him and his chancellor. Whomever that may turn out to be.

Ostensibly, Manchester hasn’t greatly changed since Labour conference was last here. The buildings are all in the same place. The distinctive cool and charm remains. The corned beef hash at Sam’s Chop House still does the job.

Yet the British economy suffered a recession which shrank it by 6 percent in the intervening period. This is officially more than half way to a depression and a very big deal. Labour at the general election lost the trust of the people to steer the recovery from this. We won’t return to government unless we again become recognised as the party of economic competence.

The leadership election hasn’t flushed out a fully formed economic offer. Perhaps it was unrealistic to imagine that it could. However, some consensuses emerged. We want tax to play a bigger role in deficit reduction than does the government. But this risks the perception that we are a party of high tax, which is electorally arid terrain. And, while Danny Alexander may have suggested that this won’t happen, it would create a marked contrast between ourselves and the government if they do offer tax cuts in the second half of this parliament, upon which the Tories seem likely to insist.

Another consensus to develop during the leadership contest is that we want deficit reduction to begin later, proceed less aggressively and be more sensitive to GDP growth than does the government. But this risks the view that the party which built up the deficit in government lacks a serious plan for correcting it. That we are, in other words, reckless economic vandals. This is slightly hyperbolic, but isn’t so far removed from how many voters, whose support we need to form a government, see us. Consider, as an illustration of this, that 47 percent of voters in the south of England, according to new research by You Gov and Policy Network, thought that the last government’s spending had been “largely wasted”.

The attractions of the economic consensuses which were produced by the leadership election are clear. Nonetheless, to be blind to the risks which attach to these consensuses is to ignore the traps which George Osborne has laid for us. History suggests that we’ll struggle to get a full hearing for our (yet to be worked out) economic offering. We don’t want to gain an audience only to lose it immediately by blundering into Osborne’s traps.

This observation from Norman Tebbit in 2005 shows why we’ll have to fight to have our economic offer heard:  “For some 30 years prior to Black Wednesday, Gallup’s monthly tracking polls had asked respondents which party they saw as the more competent to manage the economy. Only once in all those years was the answer Labour. In the 12 years since Black Wednesday, only once has the answer been the Conservatives.”

What should this teach us? First, leadership on economic competence swept Labour into office and our loss of this lead swept us out of it. It is the economy, stupid. Second, once a party gains a lead on economic competence it doesn’t relinquish it lightly. The last time the Tories had such a lead over us it took us 30 years to overcome it. And, third, it took a catastrophe of Black Wednesday proportions for us to do so. But what made the political consequences of Black Wednesday different from, say, Black Monday, the stock market crash of 1987? Perhaps that we had Gordon Brown as shadow chancellor in 1992 and we didn’t in 1987.

As soon as he was appointed to this position, in the face of a media and political climate just as inclement as that which will greet our next shadow chancellor, Brown was utterly relentless and forensic in crafting an economic platform that would appeal to the whole country and overcome any southern discomfort. He courted prudence long before Sarah and the political impact of winning prudence’s hand was just as happy as his marriage to Sarah.

Black Wednesday, of course, helped us gain a lead on economic competence. But this lead may well not have materialised – even after the debacle of the exit from what Tebbit calls the Early Recession Mechanism – had we not had someone like Brown as shadow chancellor. Osborne’s economic stewardship undoubtedly threatens disaster. But warning of this won’t be enough for us to regain leadership on economic competence. After all, that’s what we tried to do at the general election.

Nor should we assume that the actuality of calamities induced by Osborne’s cuts will necessarily result in voters placing their economic trust in us. We will only reap a political benefit from such disasters if we can offer a credible and robust alternative approach.

Fully formulating this approach is the key task facing Ed Miliband and his shadow chancellor. Yvette Cooper, Liam Byrne and Pat McFadden are expected to address this afternoon’s plenary session on prosperity and work. While Ed Balls and David Miliband may be the front runners, this is a chance for them to make a pitch for the shadow chancellorship. Whoever comes to hold this post will be under tremendous pressure and will have only 13 days to prepare a response to the comprehensive spending review.

It would be best if they do so while making a concerted effort to avoid the traps that Osborne has carefully, but rather obviously, set. Once we accept that we won’t recover a lead on economic competence if we are seen as a party of high taxation, profligate spending and deficit denial, the way ahead on economic policy, though difficult, should be clearer. We should be party of tax justice, not high tax; effective public spending, not spending for its own sake; and a party of pragmatic and fair deficit reduction, not blanket opposition to all cuts.

“Remember, Brown and Balls got it right when the financial crisis hit; this puts Balls in the best position of all the candidates to point out that the Tories got it wrong. And it is economics that government will be all about for the foreseeable future, for the solution to the deficit problem will determine the scope of the welfare state.”

Certainly, this economic credibility makes Balls an asset to our party and tomorrow morning he will turn his economic fire on David Cameron and George Osborne. While his speech tomorrow will rightly stress the importance of having a strategy for growth, this can’t be at the expense of Labour credibility on the deficit. Part of this credibility is itself about having a growth strategy, as the deficit will be far more manageable in a growing economy. It is also, however, about tough choices on taxes and spending, which, as Pat McFadden has sensibly argued, crafts a Labour response to the deficit that is about neither Thatcherism nor denial.

At the Open Left event, Balls lamented the failure of Gordon Brown to more straight-forwardly make the case for the socially just Britain that they both believe in. “In a 24-7 media age”, Balls said, “you can only win by being straight, open and authentic”. This is as true about the tough choices that we now face on economic policy as it was about Brown’s political philosophy and motivations.

Oddly enough, this reminded me of some advice that Bruno offered to Brown at the London premiere of Sasha Baron Cohen film. “Admit who you really are”.

Globalisation brings opportunities and threats. While this observation has become cliché, it remains true. But the nature of these opportunities and threats is rapidly changing. Failing to keep pace with these changes threatens the health not just of European business but also European society. Mrs Duffy confronted Gordon Brown with some of the insecurities generated by globalisation. These insecurities may become more visceral if the next stage of globalisation is not properly responded to.

Asia’s role in this next stage is, to use a vogue word, unavoidable. Indeed, Asia’s continued rise is far more so than George Osborne’s budget; much of which was ideological choice, not unavoidable necessity. As we fret about whether these choices will reduce us to a double-dip recession, China grew at a rate of 11.9 per cent in the first three months of 2010 and India is expected to grow at 8 per cent this year and next. European growth rates may crawl from the wreckage of the credit crunch, but China and India, along with much of the rest of Asia, have rapidly returned to a gallop.

A key plank of the last government’s response to the credit crunch – the promotion of new industries and new jobs -  was a variant on a well-trodden European reaction to globalisation: stressing high skills, R&D and the fruits to be reaped by British industry on the innovation frontier. But what if Asia is reaching this frontier before Europe? While low value production may have shifted from places like Mrs Duffy’s Rochdale to Asia, Europeans have tended to seek reassurance in the view that cutting edge skills and technologies would save their bacon (even if ever less of it is consumed in places like Rochdale).

This view now seems, at best, a simplification. “Globalisation and the integration of the world economy isn’t turning out the way many people expected”, claims Joe Ballantyne of the Futures Company. Take some of the supposedly new industries proclaimed during Peter Mandelson’s tenure at the Department of Business: electric cars, nanotechnology, wind technology. No doubt these industries will continue to be eulogised by the coalition. But the HSBC report flags up examples of new technologies in each of these fields being pioneered in Asia.

These developments expose as outdated a view of globalisation that sees the West as the innovators and Asia as the producers. The outsourcing of production jobs caused the CBI to declare six years ago that by 2014 there would be no jobs for unskilled workers in this country. Asia’s growing innovative capacity places the skilled workers of Europe under the kinds of competitive pressures that the unskilled have known for a generation or more. 75,000 people graduate from Chinese universities each year with higher degrees in engineering or computer sciences; 60,000 in India. Given the ascent of a highly-skilled, entrepreneurial and innovative Asian middle-class, the extension of the CBI’s logic may be that in ten years time no jobs for unskilled or skilled people will exist in this country. But this zero-sum thinking wasn’t right six years ago and certainly isn’t right now.

Instead of fearing Asia, British firms should seize its opportunities. These exist both in terms of demand and supply. Sluggish growth in Europe and America means that if the low value of the pound is to fire an export-led recovery it will be via satiation of Asian demand. The HSBC report notes that half of Unilever’s sales come from developing markets and the company’s Indian branch – Hindustan Unilever – is one of India’s biggest consumer-goods companies and its biggest advertiser. Mumbai wants its champagne chilled. And rightly so.

But what else does it want? British firms, whether established global players like Unilever or much smaller concerns, should be asking this question. Markets have always been conversations. Our firms must now listen to and engage with new consumers. “Successful businesses will need”, according to Ballantyne, “to understand how the dynamics of cultural change play out across different markets”.

As well as servicing Asian markets, British firms should consider what impact Asia’s rise will have on their supply chains. It will be no surprise if demand for raw materials continues to rise. It may be more of a surprise to observe, as the HSBC report does, that Microsoft’s biggest R&D facility outside America is in Beijing. This facility continues an infusion of Asian and American knowledge heralded by an influx of Asian science and technology graduates to Silicon Valley. British firms that fail to structure themselves in ways that leave them open to the best new Asian thinking risk falling behind. “Innovation will need to become more global in focus”, says Ballantyne. This means seeking new kinds of partnership with Asian businesses and universities, as well as, pace Theresa May’s immigration policy, always being able to recruit the best Asian talent.

The HSBC report is not the only sign recently that globalisation is changing shape. Strikes have swept China. The low wages and poor conditions that gave Chinese production facilities an edge over facilities in places like Rochdale seem increasingly unacceptable to Chinese workers. This may limit future outsourcing to China. Equally, the HSBC report leaves a sense of China, like the rest of Asia, increasingly being less a repository for outsourcing and more a generator of new ideas, techniques and products.

This doesn’t mean that British business can no longer generate such things. But to do so they shall increasingly need to be abreast of Asian developments. The role of government is to support and incentivise firms to do so. For example, the competitiveness guru Michael Porter has recently argued that a carbon tax would drive innovation in the green economy. This drive is likely to build upon ideas pioneered in Asia. Smart government – not big government or small government – should unlock this potential. If David Cameron doesn’t deliver this, he’ll discover his own Mrs Duffy soon enough.