Transcript of Part 2
The following is an original script - the version as broadcast may vary.
Rupert Murdoch's the man who really runs Britain, everyone knows that. Along with George Bush, a few nasty multinationals, interfering Brussels bureaucrats and greedy Porsche driving city traders.
Or at least that's been the fashionable story for some time, a story about how national governments have become impotent as the real power has slipped away - upwards to global markets, outwards to the private sector, downwards to empowered consumers. In the world of ipods and google, so we're told, governments have simply been left behind, less able to tax and less able to get things done.
In this series about reality and perception in politics and government I began last week by talking about trust, what we can believe. Today I turn to the question of who really has power, who rules Britain and how.
That power to make things happen has always been elusive - Aneurin Bevan used to describe his career as a frustrated search for power, from the town hall, to parliament and then to the cabinet. But the claim being made today is different: it's a claim that there's been a shift in power from one group of people - politicians and officials - to another, mainly in business and the media.
I worked for the Blair government, as an adviser and then a civil servant in Number 10, and can confirm that it accepted much of this claim. Markets were to be respected, even feared. Great efforts were made to befriend the financiers of the City.
And Tony Blair himself has often described governments role as being to help people cope with changes in technology, trade or jobs that are mainly being driven from outside the UK, rather than trying to shape society according to a plan or ideology.
So how true is the perception that governments powers have collapsed inwards?
There's no doubt that global markets and global treaties do impose limits on economic policy: a British PM can't whack subsidies onto potatoes or ban imports of Korean cars. High taxes can deter investors. The world economy is far more integrated than it used to be.
But the claim that governments have become powerless doesn't stand up to much examination. Take the argument that governments are losing the capacity to tax because global markets and the internet allow any business or entrepreneur simply to move from a high tax country to a low tax one.
For better or for worse, across the OECD governments' share in GDP has risen not fallen over the past few decades and even the tax take on profits has risen. Its true that governments have cut their top marginal rates - like the 93% rate that once applied in Britain - but in the arms race between taxers and taxed the taxers have retained an upper hand.
Or take the argument that big government is bound to damage the economy, a conventional wisdom in the Thatcherite 80s. If you look at the most widely used rankings of international competitiveness you find a very different picture. Many of the top 10 are high spenders, generally with 50% or more of GDP - countries like Finland (1), Sweden (3), Denmark (5), Norway (6), while others like Taiwan at 4 and Singapore (7) have very active governments. Despite the best efforts of economists to 'prove' that high public spending harms economic growth the facts have been stubbornly resistant.
What is true is that Governments have largely given up trying to run the economy, and wound down the big ministries that used to run nationalised industries or regulate prices and incomes policies.
But this has more than been made up for by governments greater role in health and old age, childhood and security. Even under Mrs Thatcher this side of the public sector carried on growing, and it's surged ahead under Tony Blair with hundreds of thousands of new jobs.
One of the best counters to the argument that government's have little power to make a difference was provided by a brilliant Canadian academic John Helliwell a couple of years ago. Analysing a huge range of data from 50 countries he tried to make sense of why some countries were happier than others. Rather to his surprise 'the effects of the quality of government on well being were above and beyond the effects flowing through better education, higher incomes and better health all of which were themselves dependent on the quality of government.'
So despite all of the changes of recent years - from blogs to webs and Googles, hedge funds to offshore banks - reports of the death or irrelevance of national governments have been a little premature.
However the landscape of power around them has changed.
British Prime Ministers don't stay awake at night as they once did worrying about what the general secretary of the NUM or the T&G will do, or what the Archbishop of Canterbury will say. Nor are they much frightened of the civil service - an obsession of past Labour governments. Its only a century since Sir George Murray, the head of the British Treasury wrote on Treasury headed notepaper to a leading opposition politician encouraging him to oppose his own Chancellor's budget. Today ministers may grumble about civil service procedures and culture - but they don't see it as the enemy within.
Nor do many of the other possible constraints matter much. Unlike the US or Germany Britain has no written constitution; no provinces or states with their own guaranteed powers. Local government has been so squeezed, knocked and drained of power that's its impotence has become far more of a problem than its power to impede the will of Whitehall.
No the people with the greatest power to obstruct and undermine government are different from the past, and this is where globalization has had an impact. Ministers are certainly polite to the CBI or small business delegations. But it's the big multinationals who really have clout. When Bill Gates asks for a meeting he gets it; when Intel threatens to move a plant ministers jump to attention, and with good reason.
Its not just the Americans and the Japanese who matter. Who would have believed a generation ago that the biggest private sector employer in Northern Ireland would be an Indian call centre, or that the potential saviour of the British car industry earlier this year would be a state owned enterprise from China?
Of course there's one group even more powerful than big business - and that's big business in the media. Their power can be exaggerated - the supposed influence of the Daily Mail has been a brilliantly propagated myth as became clear whenever ministers ignored its advice and the sky didn't fall in.
But no government can afford to ignore someone like Rupert Murdoch who has daily access to so many millions of newspaper readers and TV viewers, and is not afraid to use his media empire to propagate his personal views. It may not be true that he has a veto on Britain's European policies. But there is no doubt that this American once Australian citizen effectively has more votes than any British citizen when it comes to choices like joining the Euro.
So in the light of these constraints has Labour in government used its powers well? Its important to remember that Tony Blair promised continuity as much as change. Many of Margaret Thatcher's reforms were to be left untouched. Macroeconomic policy was adjusted rather than overhauled. Even the Conservatives spending plans were adopted for the first couple of years.
Some radical changes were implemented in the first term - including devolution and the New Deal - but many of the more radical parts of the agenda had to wait for the new government to build up its confidence: the big investments in public services, the moves to cut poverty, didn't get underway for several years, and some of the trickier issues like pensions reform, or sorting out the mess in transport, were repeatedly postponed.
My guess is that the historians will say of the Blair administration that although it was one of the most competent administrations of recent history it underestimated its power and overrated the power of others. It's a view even Tony Blair sometimes seems to subscribe to when he says that his main regret is that he wasn't more radical earlier.
Part of the reason may have been that Labour's mandate exceeded what it asked for - the deliberately modest promises of the 97 manifesto simply didn't answer the public mood. In retrospect Labour's humiliating defeats in the 80s had made its leaders too respectful of Thatcherism and its legacy. Even the disastrous rail privatization was left untouched for some time. And perhaps just as important Labour didn't expect to be in power for long. After all no previous Labour governments had won a full second term, and it seemed like tempting fate to plan for two or more administrations.
That turned out to be a problem because it made the government unnecessarily short-termist. I remember hearing one of Britain's most effective business leaders saying that in his experience nothing useful could be done in less than two years. Much of the art of good leadership involves keeping focused on what matters, and not being distracted by events.
In my experience Tony Blair has generally been very focused - far more than his predecessors as any reader of diaries from the Wilson or Major eras soon learns.
But within his government there has been a constant struggle between the necessarily slow steady slog of practical change and the pressure for announcements, initiatives - anything to fill the gaping spaces of 24/7 media. I remember, for example, some of the top spin doctors asserting within a few months of the election that 1998 should be the year of delivery - to the consternation of everyone with any experience in government who knew any real achievements would take far longer.
Being serious about change takes a great deal of discipline - as well as favourable conditions. In the mid 1990s I taught on courses for senior civil servants and out of curiosity started asking them about the typical timescales of the work they were involved in. A very clear picture soon emerged. The closer you came to the centre of government the shorter the time horizon. No 10 which was then struggling against the rebel 'bastards' - John Majors words not mine - thought in terms of days and weeks not decades, and the treasury was little better, scarred by its failure to understand, let alone manage, the roller-coaster cycles of the 1980s and early 1990s. By contrast some other departments were engaged in often very long ventures - changing school curriculums, commissioning aircraft that would take 20 years to build, funding far-reaching scientific work.
All governments have to cope with short-term pressures - avian flu or energy protests. But the ones that have done best in recent years - like Finland or Singapore - have all kept an eye on the bigger game and worked hard at being more strategic.
One of my jobs was to help Whitehall to learn from them. So most departments have set out longer 5 or 10 year plans describing which goals really matter, what they need in terms of money, legislation, structures and the most successful have treated their jobs as marathons rather than sprints, helped by ministers who knew how to keep a steady hand on the tiller while feeding the media machine in ways that didn't clog the system up with petty initiatives.
The best now also make full use of the far greater availability of information from around the world on what does and doesn't work.
Keynes once said there's nothing a government dislikes more than being well-informed because it makes the business of decision-making more difficult. But it does help to make the decisions better, and evidence and knowledge matter because they can throw up counterintuitive results: for example that spending more on education is unlikely to raise results; that the best way to cut crime in the long-run may be more investment in the under-3s; or that crackdowns on drug dealers may actually strengthen organized crime by driving the price of drugs up, and so on.
Louise Casey, now in charge of the government's respect agenda, recently hit the headlines for a well-lubricated after-dinner speech in which she attacked the people from No 10 demanding evidence based policy. Well I was one of those people.
Experts can be wrong, and evidence can be misleading, but the more I saw of government in action the clearer it became that successes generally built on well-established evidence about what works - for example macroeconomic policy or welfare to work or literacy - and failure generally resulted when ministers only followed hunches or intuitions.
Perhaps too its no coincidence that some of its hardest problems have arisen from secret intelligence that's not exposed to scrutiny and argument - and where unverified claims were favoured over the evidence of UN inspectors.
LC is a very able woman and if she manages to solve the problems of respect without drawing on evidence about what works good luck to her - but the risk is that this will be another field where lots of activity ends up amounting to rather little.
The general message is a simple one. Governments are most effective when they know what they want to achieve; when they are pragmatic about how to do it; and when they are steady and consistent. That usually means doing less but better, in the spirit of the great Chinese mystic Lao Tsu who once said: governing a great country is like cooking a small fish: don't overdo it.
When those simple rules are followed, and when ministers learn to distinguish short term bustle and long term importance, a lot can be achieved.
Their problem is less one of power and more one of perception. Governments seem almost condemned to overestimate their influence and impact in the short-term - but underestimate just how much they can achieve in the long term. In other words - perhaps like most of us in our own lives - they find it hard to distinguish what's important from what is merely urgent.