Labour Gives John Smith a New Lease of Life

It was a rather bleak day, many years ago, when John Smith agreed to an interview about economic policy – I had asked for 15 minutes of the then-Leader of the Opposition's time. In the event, I was treated to a delightful, wide-ranging, two-hour ramble over economic policy as viewed by a man who never would have thought that "Labour" needed the adjective "New" in order to be just what Britain needed to succeed in bringing prosperity and distributive justice to its citizens.

Two points stand out most clearly, if recollection serves. The first was his reverence for education, his admiration of the teacher's calling. The second was his belief in industrial policy – the government's ability to shape the economy, to allocate resources in a way that would produce results far superior to what "the market" could accomplish.

Good point, as we will probably find out in the next general election. But not before Labour reverts to the industrial policy in which Smith had such confidence. Although the Labour Party, under the guidance of Peter Mandelson, as he then was, buried Smith's interventionism when it chose Tony Blair rather than Gordon Brown to lead it into the new, post-Thatcher era, Brown kept Smith's memory alive by becoming the de facto patron of The Smith Institute. Despite accusations of political bias, I always found this think tank willing to debate policy issues fairly and openly, even allowing me to criticise then-chancellor Brown's tax policies at seminars held in Number 11.

Now Smith has been reincarnated in the person of none other than the again-arisen Lord Mandelson, who has decided that what Britain needs is, er, an industrial policy. The car industry is to be shored up by taxpayer subsidies for anyone turning in an old banger for a new vehicle, and the Government is selecting "green winners".

Never mind that making cars might not exactly be an industry in which Britain will have a comparative advantage over, among many others, China – a point one has to assume that Baroness Vadera, a former investment banker, made in the privacy of Brown's inner sanctum. An election is brewing, and if a whiff of industrial policy of the sort Mandelson once rejected is necessary to advance the electoral prospects of, and his personal standing within, a Labour Party that has come, if not to love him as Tony Blair wished, at least to understand the usefulness of his shrewd, tactical intelligence, so be it. Concerns about long-term competitiveness can wait until after the election. Politics, after all, is the art of the practical.

This is the man who brought you the massive expansion of John Major's rather modest Millennium Dome project, at a cost of still-uncounted millions, and a man who has never run any enterprise that was required to turn a profit. In fact, Lord Mandelson no longer meets even John Smith's test of accountability – he can't be turfed out by the voters, and left shivering for lack of his ermine.

But it is unfair to single out His Lordship. Old Labour has learned a valuable lesson. In this age of finance capitalism, which is very different from the industrial capitalism in which Labour forged its beliefs, control of the commanding heights of the economy does not require the public ownership of the means of production and distribution.

It doesn't even require outright ownership of the financial institutions that provide the credit that greases the wheels of commerce. It merely requires the power to tell the banks to whom to make credit available, and on what terms, which the Government is now in a position to do – except in the case of Barclays, which has avoided taking Brown's shilling.

As things stand, the Government can and does direct banks to use their resources to make life easier for troubled homeowners, small businesses and others it deems worthy. Instead of trooping to the City, PowerPoint presentations at the ready, credit supplicants troop to No 11, or their MPs, or to the public relations firms that can put their case to politicians.

This politicisation of credit allocation, the financial version of industrial policy, will not end when the voters apply John Smith's accountability test and vote in a new lot. For one thing, the Government has so run up the nation's indebtedness that the Tories will have to devote the bulk of available resources for years to come to its repayment.

For another, George Osborne has refused to pledge to reverse Labour's swingeing increases in taxes on high earners, a move that would liberate the energies of Britain's aspirational classes that are one key to the restoration of growth.

Pity.