The state we've been in for fifty years and how a book could change it

WILL HUTTON's best-seller, The State We're In, is out in a revised Vintage paperback edition. A new preface rebuts Hutton's critics; a new afterword updates his analysis of what's wrong with Britain.

Reading it, I admit to a certain Nunc Dimittis feeling. "Now lettest thou thy servant depart in peace ... for mine eyes have seen thy salvation." Not that I have the slightest desire to depart; the wish to stay and see what happens is far too strong. But at last somebody has pulled together and made a devastating weapon out of ideas which some of us have been preaching for many years.

Those who comment on Hutton concentrate too much on his chapter about "stakeholding", and make him sound like Tony Blair's house guru. There is a lot more to the book than that.

Its importance is that it brings together two streams of complaint about the Britain we're in. The first is the perception that the economy has an inherent weakness of structure, which has produced increasingly dire consequences during the 17 years of unregulated free market under the Tories. The second is the argument that British institutions - social and political - are archaic and a menace to liberty. Hutton is not the first critic to realise that there is an intimate connection between these two dysfunctions. But he is the first to prove it to a mass readership.

Back in the 1970s, I remember David Steel writing somewhere that the conventional view of "the British sickness" was inside-out. He declared that the economy was sick because Britain's revered institutions, supposed "fundamentally sound", were out of date.

I asked Sir David, as he now is, where he got this thought from. He does not remember, but guesses that he learned it from the late Lord Grimond. At all events, nobody took much notice. Labour and the Tories dismissed it as the usual cranky stuff to be expected from the Liberals, with their thing about PR.

But this idea should have been glaringly obvious. If a nation has a restrictive, senile political system, then it is not going to be very good at producing wealth. Arthur Young knew that when he travelled through France on the eve of the 1789 Revolution. Why did we forget it for the last two generations?

In 1945, it seemed that Britain's political system - though scarred and battered like Westminster itself - had stood the test: free institutions had proved stronger than tyranny. Labour, victorious, saw that the economy was sick, but Keynes and the Welfare State would put all that right. This patriotic consensus about the political system, shared by the Tories, reigned almost unchallenged for more than 30 years.

Labour, especially, tended to see government exclusively as economic management. Constitutional reform seemed irrelevant - even dangerous. For decades after the defeat in 1951, the Labour left dreamed of another "overwhelming Labour majority in Parliament to force through irreversible socialist transformation". Not many socialists reflected that this programme required the preservation of two grossly archaic features of the British system: first-past-the-post elections, and the absolute sovereignty of Parliament. No wonder that the David Steel thought was unthinkable.

But others were already thinking it, by the 1970s. The true ancestor of Will Hutton's book is a succession of New Left Review articles, by Perry Anderson and later by Anderson and Tom Nairn, which began in 1964. These articles put forward a new and fascinating theory of British history.

Everyone knew that Britain's economy had paid a penalty for being first with the Industrial Revolution. We were stuck with the consequences of our early mistakes; other countries, coming later to industrialisation, avoided them. But Anderson now suggested that the same was true about politics. England had made the first European political revolution, between the 1640s and 1688, and was stuck with the consequences of its incompleteness. Later revolutions - American or French - had produced truly modern republics fit for the new middle class to flourish in. But Britain still had a system designed for landowners, arbitrary and exclusive, discouraging manufacturers. As Nairn put it, "Priority Disables Modernity".

Gradually, the same idea began to flow from other springs. The Liberals attracted wide sympathy in the 1970s when they attacked "stop-go" economic management - and attributed that short-termism to a political system which gave unlimited power to governments elected by a minority of voters. On the left, the translation of Antonio Gramsci's works helped Marxists to imagine that the political superstructure might influence the economic base, rather than the other way round. Scottish and Welsh nationalism forced politicians to question the unwritten "constitution", and provoked Nairn's 1978 book The Break-Up of Britain in which he warned that by "harnessing the working class to the socially conservative British constitution", Labour was condemning its followers to "backwardness, economic stagnation, social decay and cultural despair".

The connection had been made. Groups trying to get past Thatcherite ideology in the 1980s took it up, like the Marxism Today circle with their radical vision of "New Times". Then, a few years later, came Charter 88 with its full-blown programme for a British "rights culture" and for citizenship through constitutional reform. It was no coincidence that Anthony Barnett, its leading figure, had been an editor of New Left Review along with Anderson and Nairn. Charter 88's guns aim primarily at political targets - the absurd electoral system, the lack of entrenched rights, over-centralisation - but in the background is faith that a modern constitution brings a modern way of organising an economy.

And somewhere here Will Hutton entered. As an economic journalist who had also worked as a stockbroker, he had come to the conclusion that the roots of Britain's bad performance lay in the City: in "short-termism", in the vandalism of industry by the City, in the merciless pressure for high dividends which drove so many companies to the wall. Even a market economy, he thought, did not have to behave like this. Then another shaft of light hit him.

Hutton had been part of the New Times group in the 1980s. They helped him towards his second revelation: that the disease of the economy was part of the bigger disease of the whole British polity. Wasn't the average British company a microcosm of the British state - with its fat-cat directors, its chairman with absolute authority to do what he pleased, its shareholders annually rubber-stamping the report, its impenetrable secrecy against questioners? And the more Hutton looked around, the more clearly he realised that "the semi-modern nature of the British state is a fundamental cause of Britain's social and economic problems".

In the state as in the City, nothing was properly regulated; nothing was under effective democratic control; no institution was accountable to anyone except itself; everything was done not by written rules but by "unwritten conventions" continuously abused and flouted by the caste which claimed to embody them. Was this not a picture of contemporary government by cabinet or quango? And wasn't this supposedly "free" market economy being used as a way of guaranteeing and protecting the class whom Hutton calls "gentleman capitalists" as they plundered the remains of active industry and commerce? The two critiques of constitution and economy merged in Will Hutton's head, and a book was born.