Early steps on the path to a real alternative

HERE is a true story. There was once a British city whose mayor was corrupt. He ran a demolition business and during his term in office bright yellow bulldozers criss-crossed the city centre, smashing down rotten old streets, ripping out shops and flattening empty churches. When he was led away to the slammer, the people joked that it didn't matter who the next mayor was - so long as he was a builder.

That could have provided a parable for Gordon Brown's speech yesterday. The Tories had smashed restrictive union practices, cleared away the debris of earlier decades and swept away inefficient industries. But the city wouldn't then magically rebuild itself. Or, in his words, 'I do not accept the Conservative dogma that . . . Britain's economy has an inherent capacity for high sustainable growth that merely happens to have been thwarted by inflation, exchange rate movements or government interference.'

This was a speech that broke with the past. For some time now, Mr Brown has been promising something called the 'new economics'. The general view in the Westminster bars was that he was talking nonsense. But yesterday he delivered, if not a full-blown new economic strategy, then at least a fresh start. He was not in favour of a bigger state. He was in favour of cutting taxes when it was prudent to do so. Above all, the economy would not grow without more investment - the active builder. The great dividing line, he argued, was between the free marketeers who argued that the best government was the least government; and those who thought government's historic, long-term job was to reskill the British, one of the developed world's least well-trained workforces.

Certainly, it has become urgent for Labour to find something that divides its macroeconomic policy from that of the Tories. In the global economy, a certain amount of policy convergence becomes inevitable. Will the switch from a socialist to a right-wing government in France change attitudes to interest rates there? You must be joking. Would a Labour government have made mistakes similar to those made by John Major's government before Black Wednesday; and pursued a similar policy afterwards? I think it would. These perceptions, which have become general, are a real embarrassment to a party fighting for its identity.

Hence the importance for Labour of trying to throw the debate to the longer term, a perspective that has its own merits, too. As Mr Brown put it: 'We can, for example, argue about whether Britain should have devalued or realigned sooner than Black Wednesday, but the real question is why Britain's economy was so weak that it had to devalue at all.'

In terms of dirty politics, this analysis also has other merits. It high-mindedly sweeps away the embarrassing Eighties history of privatisation, union reform, direct tax reductions and deregulation as irrelevant and old-fashioned. It concentrates on the low investment in training, which is a national disgrace, and something the Conservatives can hardly, after 14 years, disclaim responsibility for. It reassures Labour loyalists that there is a strategic role for the state, which cannot be performed by the tacticians of the marketplace. It even revalidates Labour's name; 'our emphasis on enhancing labour makes us even more relevant'.

But there were faults in the speech. A wordiness that will prevent Mr Brown's message striking home outside the small circle of the politically obsessed was one. There were occasional passages that appeared to have been dictated by the tooth fairy, or were worryingly vague: a paragraph on macroeconomics seemed to balance the need for low inflation with boosting demand as if there was no possible contradiction between them. Now that Britain is out of the exchange rate mechanism, it is more important than ever that politicians are explicit about inflation.

Almost as important, the shadow Chancellor gave no clear indication that he was willing to contemplate the spending cuts needed for a serious shift of resources to training and education. He spoke of controversy and 'hugely difficult political choices'. Understandably, perhaps, he declined to explain what they might be.

But it would be wrong to carp. There was a level of coherence and a degree of thoughtfulness in this speech that took Labour's political recovery forward. Nor was this an isolated event.

After a grim and inward-looking phase, the Labour leadership is starting to turn back towards the rest of the world, opening itself to new ideas, thinking aloud in an interesting way. It is significant that John Smith has asked to give a speech to the constitutional reform group Charter 88, always regarded with deep suspicion by the former Labour home affairs spokesman Roy Hattersley. Mr Brown has been mulling over the possibility of speaking publicly about the importance to Scotland of Home Rule. Tony Blair has started to address the crime crisis with the straightforward language of right and wrong, speaking about the moral condition of the country in a way that chimes with ordinary people's perceptions.

Labour's position remains grim. Its factional fights continue. We are a long way from a popular and comprehensible substitute for socialism. Most of the radical thinking in the country is still being done by the Tory right. But for the first time since Mr Smith took over, there are unmistakeable signs that the party leadership is pulling itself together.