Blair is still peddling social elitism

There is a lie at the heart of New Labour's plans to modernise the economy that could undermine its policies and cause the same kind of rot from within that turned Thatcherism into a hollow stalk of itself. The lie is that the Government is moving to make to the most of the nation's human capital.

In contrast to the Tories, New Labour at least understands and endorses the concept of human capital, that employees as well as bosses and bank accounts create wealth. Human capital is bound up with the Government's plans to nudge us toward being a "knowledge-based economy". We will get on in the world, so the idea goes, not by being bigger than the US, or better at manufacturing than Germany, but by playing to our strengths - using our wits.

Belief in human capital has become almost doctrinal, particularly among the deep thinkers at the Treasury. Human capital as doctrine is intertwined with the Third Way doctrine - accept the premise that stateless capital is the most powerful force in the world, inject social justice into the equation, spread opportunities through education and reap the economic rewards of a more meritocratic society.

Scratch the surface of New Labour's approach to human capital, however, and you can easily get to the depressing cliche about nothing ever really changing in this country. What's the centrepiece of New Labour's plan to promote human capital? The New Deal.

DRESSED up, improved, updated, and revised, the New Deal remains a job- creation scheme. Nothing wrong with that: the nation and business can both benefit from people getting out from under, in from out, on to a more fulfilling, more productive trajectory in their lives.

Some of the social service apparatchiks running the New Deal may be cynical wasters, parasites on the private sector, according to the Thatcherite ideas that live on internalised in our political psyche. The one woman working directly on the New Deal that I know personally, however, is an unrepentant idealist - a foot soldier in the fight to make the Third Way real.

What's depressing about the New Deal is not that much of its pounds 5bn budget will be piddled away. This was inevitable. The depressing thing is that it reveals New Labour's poor conception of human nature. This is an absurdly sweeping statement, but there's a point: how can a government develop human capital if it does not understand human nature?

Two years into power, what we see in Tony Blair and Gordon Brown is neither black nor white, but exactly what they say they are - modernisers of the Labour Party. But Old Labour held a deeply romantic and mechanistic view of human nature. Working men and women were good. The rich were bad. Meantime, Old Labourites mimicked their betters. They created their own version of the aristocracy's snobberies. They embraced the idea of a social pecking order. They simply inverted it. Old Labour operated according to its own principals of exclusion.

New Labour is the same. In his heart, Gordon Brown believes the working man is good and the rich are bad. He simply takes a more realistic view of the balance of power between rich and poor. He wants to work more effectively to change this balance.

In his heart, Tony Blair admires the aristocracy. In New Labour's perfect world, control freakery would not be necessary. Instead, we enjoy a new compact: Islingtonites at the top of the social order, the working man as little brother, the socially conscious rich just below and the unacceptable faces of capitalism at the bottom. All those not fitting into this pecking order would be nowhere - invisible and voiceless.

New Labour like Old Labour, in other words, is illiberal. It has trouble seeing people as individuals. The New Labourite, like the Old Labourite remains a descendant of Dickens's Mrs Jellyby - doing good for the masses, doing harm at home. Updated, this caricature plays out as New Labour having little sympathy for, or grasp of, the modest, domestic interests and goals that drive the middle class.

This sounds like nonsense given Blair's popularity in Middle England, and it is true that the makeover of Labour into New Labour has much to do with its conversion into a party of the middle class.

OVER the past few months, however, I have spent time with executives at British subsidiaries of American hi-tech companies - companies like Microsoft, Intel, Hewlett-Packard and Cisco. Virtually all these executives are British. Virtually all come from some part of the middle class.

All talk regularly to civil servants executing the policies designed to modernise the economy. But none are part of the New Labour scene.

Indeed, at the moments that I have had something approaching personal conversations with these executives, they say they feel the same kind of alienation from New Labour as they do from other elites.

These executives shrug at their exclusion. They have better things to do than fight it. They earn big salaries. Their share options mean they are laying the foundations for real wealth. They enjoy a new kind of social mobility - catapulting themselves outside New Labour's emergent pecking order by mixing in the world of international business.

In the 1960s, working class children attending redbrick universities graduated and fled. New Zealand, India, New York, San Francisco - everywhere else was less stifling. In the 1970s, the teachers joined the flight big time, as money for research dried up. At the same time, the best local managers went to work for Ford or IBM and ended up in Mexico City or Paris.

This, of course, was the brain drain. What's going on now is a new kind of brain drain. To opt out today, you do not need to move to Silicon Valley the way you used to have to move to Detroit or Houston. You simply commute to a different business park in Reading or Swindon - home of the UK operations of the American hi-tech giants.

Economists can argue that the UK subsidiaries of US companies contribute to the British economy. On the human capital front, the employment of Britain's invisible best and brightest by US hi-tech giants generates cross-fertilisation of skills.

Then there's Wimbledonisation. We provide the arena for Silicon Valley's move into Europe just as we are the European capital of finance. Even if none of our own players make the finals, or even the semis, we still reap the rewards from the tournament being played here.

I don't know, though. We are in uncharted waters economically. We appear in the midst of a giant, global shift in capital out of banks into stock markets. Simultaneously, we are in the midst of something called the internet revolution. New Labour has worked hard to position us advantageously for both these giant economic evolutions.

I fear, however, that when the excitement dies down we will have a dessicated New Labour social order - and that we will still be in thrall to America's corporate juggernaut.