'I was in no sense a hypocrite; both sides of me were in dead earnest... I thus drew steadily nearer to that truth... that man is not truly one, but truly two;... I saw that, of the two natures that contended in the field of my consciousness, even if I could rightly be said to be either, it was only because I was radically both.'
RL Stevenson: Dr Jekyll and Mr Hyde
At the heart of New Labour's domestic programme was what can be called 'Brown's wager': that traditional Labour ends could be achieved with neo-liberal economic means. His reasoning ran as follows. The Keynesian approach which earlier Labour governments had deployed to achieve full employment and economic growth, which could, in combination with progressive taxation, generate the resources to fund generous social programmes, was no longer feasible, even if it ever had been. In its stead Brown opted for an economic strategy - sometimes called 'endogenous growth theory' or (a misleading epithet) 'New Keynesianism - which incorporated large elements of neoliberal economic thinking'.
Stripped down to its barest essentials, the strategy can be summarised thus: to bolster economic growth Britain should concentrate on the sectors where it had a global competitive edge - above the financial services in which the City specialised. A rapidly swelling financial sector would attract inward flows of capital (so we wouldn't have to worry too much about the balance of payments deficit), sustain steady economic expansion, create jobs and, above all, supply the tax revenues which would enable the Government to finance its ambitious schemes for renovating the country's run-down public services. New Labour was rebranded as the 'party of business', the unabashed custodian of City interests. In a speech to the CBI in 2005, the then Chancellor spoke warmly about 'rewarding risk takers, valuing entrepreneurial talent and celebrating successful wealth creators as role models.'
Creating the conditions in which the spirit of enterprise could be unleashed, and the UK's competitive advantage in the financial sector sharpened, entailed relaxing the regulatory environment and ensuring that 'risk takers' would be appropriately rewarded through a lenient tax (and tax avoidance) regime and a benign response to ballooning payouts. It was hardly surprising then that under Labour's watch the riches of the wealthiest 1% soared into the stratosphere, whilst incomes at the lowest levels did little more than stagnate. For Brown, the admirer of the City - let us call him Hyde-Brown - this did not matter, indeed was to be celebrated, as long as the Treasury's coffers bulged with rising tax receipts from the City, and the economy grew.
There was always another Brown - we can call him Jekyll-Brown. In a speech to the Labour party conference in 2003 Jekyll-Brown had invoked the necessity of a public realm upholding the non-material values - reciprocity, care and concern - that are the soul of our society.' He spoke eloquently of the obligations we owed to each other that transcended the world of the marketplace, of 'calculation, contract and exchange.' Jekyll-Brown, as he wooed Labour party conferences, was a champion of traditional Labour values. But at the same time Hyde-Brown was assiduously communicating a quite different message to banking audiences, lauding himself - through his system of 'light-touch regulation' - for creating the conditions for what he called 'a new golden age for the City of London'. The relationship between Jekyll-Brown and Hyde-Brown was always a tense one. Sometimes it was difficult to tell who was in the ascendent. But as long as deregulated, free market capitalism appeared to deliver the goods to fund Labour's anti-poverty and welfare programmes they could get along.
The City-friendly policies avidly embraced by Hyde-Brown would provide the means by which Jekyll-Brown could pursue the traditional Labour values of tackling poverty, rebuilding the public services and widening opportunities. This was for two reasons. Firstly, economic growth powered by a vibrant financial sector would yield the money which could be ploughed into expansive social programmes. Secondly, it was only by placating the money markets - the 'masters of the universe' - that a Labour government could secure the market confidence and credibility which would protect it from the financial squalls which had blown previous Labour governments off course. In the short-term Brown appeared to have pulled off his wager.
By 2008 Brown could proudly claim that as both Chancellor and Prime Minister he had presided over the longest period of uninterrupted economic growth that the UK had witnessed. The City rivalled Wall Street as the global economy's leading financial centre, and with an economy far smaller than the US. In June 2007 in his final major speech as Hyde-Brown, he heaped praise on his assembled audience of bankers: 'Britain needs more of the vigour, ingenuity and aspiration that you already demonstrate that is the hallmark of your success.' But the casino capitalism he fostered - which gave Britain proportionately the largest financial sector amongst the bigger economies - was a source of weakness and not strength.
By the time the financial tornado broke in autumn 2008 London-based financial institutions found themselves swamped by toxic assets. It all ended in tears. With the financial collapse, the attempt to blend neo-liberal economics and social democratic social policy broke down. The partnership between Hyde-Brown and Jekyll-Brown turned really sour. To his credit, as the house of cards folded, Brown embraced the Keynesian policies he had long derided and, in so doing, prevented Britain sliding into a depression. But the fact remained that it was his - rather than Blair's - economic strategy that had been holed below the Plimsol line.
Asked by a US Congressional Committee "Do you feel that your ideology pushed you to make decisions that you wish you had not made?" Alan Greenspan replied: "Yes, I've found a flaw. I don't know how significant or permanent it is. But I've been very distressed by that fact." It was Hyde- Brown's flaw as well, though he has never confessed to it. In effect, Brown's wager had failed. The UK had benefited from a benign economic climate as the swelling tide of cheap Chinese goods had contained inflationary pressures. China 's economic surpluses had been recycled via City institutions to supply the credit to sustain bubbles in the housing and other asset markets and fuelled consumer demand. At the height of the boom household, banking and corporate debt had reached 300% of UK GDP. But, as is their want, the bubbles had burst, and Britain's tax revenues along with them, whilst huge sums of money had to be thrown at the banks to bail them out. The result is a huge debt mountain.
The Brown government has pledged itself - in the unlikely circumstance of retaining power - to major public spending cuts which will unwind much of the progress made over the last decade. Hyde-Brown will be running amok as he is forced to reassure the bond markets that the UK economy remains a safe bet. There are few signs that Jekyll- Brown has either the will or capacity to learn from his mistakes, get rid of Hyde-Brown and engage in a sustained reappraisal of the New Labour programme. In truth, the Anglo- Saxon model of capitalism which has set the mould of Britain 's economic arrangements, including a free-wheeling financial sector and a highly flexible deregulated labour market, renders radical change difficult. New Labourites will seek to patch up marketised social democracy, with more emphasis on state intervention and a less uncritical approach to market mechanisms.
There is some talk about reviving a Will Hutton-style model of stake-holding capitalism, but whether this will amount to much is unclear. Their dilemma is that the Brown wager has failed. Keynes has been proved right about the inherent volatility and instability of free market capitalism and poorly regulated financial markets. Brown's claims to have abolished the old cycle of boom and slump rings hollow. Neo-liberalism has intellectually been thoroughly discredited. But is there an alternative? There has been little sign of a powerful alliances coalescing around an alternative programme. The immediate effects of the great depression in the 1930s, in most of Europe , was to tilt the centre of political gravity decisively to the right as people scurried around for order and security in a threatening world.
The pattern might repeat itself. The medium and long-term effects may be quite different but it is difficult to anticipate what they may be. Whatever criticism can be made of the architects of New Labour, Blair and Brown, they did give the party an identity and sense of direction. Unfortunately, it led the party into an impasse - there is little future for New Labour-style marketised social democracy. Nor does it seem that Labour's existing leadership has the capacity, political or ideological, to renew itself. The old hard left is too weak and marginalised to have much impact and most of the original and innovative thinking has been taking place on Labour's centre-left, notably in Compass . Not the least of Compass's insights is that the party alone can no longer rejuvenate itself. The future must lie in new political and social combinations transcending old boundaries of party and class.