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Wherever you look, the recession is here. It's on the high street: Woolworths in the hands of administrators and dire retail figures expected this week. It's in the City, with Credit Suisse and HSBC joining the huge lay-offs in the banking sector. It's in manufacturing, with the Cowley Mini plant shutting down over Christmas and the car-parts group Wagon teetering on the brink of collapse. It's even in the public sector, as banks sell on once-trendy PFI deals.
Last week, about 11,000 jobs were lost in British companies. The true figure will be much higher, because we only tend to hear about bigger firms. Anyone who has been asking around knows of plenty of smaller, but still poignant, failures: of family companies that have been trading for decades; of bold start-ups that last year seemed strong. In my relatively prosperous part of west London, bleakly shuttered shops, closed restaurants and hurriedly white-washed windows are everywhere.
The economic crisis is moving to a new phase. What started with financial services is spreading fearfully fast, gnawing its way down the supply chain into the world of builders as well as estate agents, small component manufacturers as well as high-profile car firms. There are serious predictions, not least from the chambers of commerce, of more than 3 million unemployed as the recession goes on.
So this will produce a new phase in politics too. The last time we had an unemployment crisis like this, the industrial north and Midlands were being devastated and the nation's politics were brutally divided between free-market Thatcherites and socialists. In the white-hot heat of that economic cauldron, the parties emerged very different. The Tories came out as far more rightwing; old Labour buckled, the hard left collapsed, and New Labour was born. It was all a long time ago. What now?
So far, there's little sign of a leftwing revival. Or at least in rhetoric. The unions don't have the fire-breathing leadership they once had, and there isn't a single identifiable leftwinger in any position in the government.
Yet perhaps something more interesting is happening - the re-conversion of New Labour to more centre-left ideas. Gordon Brown and Alistair Darling's decision to let borrowing rip, and pay for the stimulus by raising taxes - particularly income tax for the rich - in a couple of years, was the most obvious example of the U-turn. When the crisis arrived, so did their old instincts.
But what about Lord Mandelson? Isn't the arch-Blairite and uber-moderniser a still more interesting case? He may say that as business secretary he is not in the old game of picking winners. He may insist, as in his Hugo Young lecture last week, that the government would not retreat from the "commitment to open economies and free markets", or return to "big government".
But look at his call for "industrial activism" and his list of companies that may, after all, be eligible for state aid. Mandelson said yesterday they include businesses so big that their collapse would have a dramatic effect on unemployment and confidence; and businesses with "such potential and technological capability that we would want that company to survive in order to make a strong future contribution".
So there will only be help for big, important companies or clever companies. Winners, in other words. He's not considering bail-outs in the old simple way, and he wants banks to take a much bigger role. But the determination not to let Britain plc collapse is clear. If the idea is to save firms with the expertise to allow us to revive with greener, higher-tech expertise, most of the key manufacturers are potentially involved. Even car companies: who else will build the electric cars of the future?
In his way, Mandelson is opening up a really big question that has been buried for years - what kind of economy does Britain need? I don't mean what proportion nationalised or privatised, but rather: is it really safe or sensible for the economy to be narrowly specialised in finance and insurance, with a vast retail and service fringe to gorge on the gravy? Doesn't a manufacturing sector help spread the risk, and give jobs to millions with different skills? And though our manufacturing sector is shrunken, and low in confidence, it is good to hear ministers talk in a way only "dinosaur" unionists were known for recently.
In welfare, equally, it seems clear enough that for all his image as a Blairite boot boy, James Purnell recognises that the current climate means he cannot clobber people on benefits, or force them into inappropriate jobs. He is tightening up the system, and rightly offering more training, but has stayed well clear of the time-limited benefits urged on him by the rightwing press. He has big questions to answer this week, and I don't like all I hear about young mothers, or people with disabilities; but this is hardly neo-Thatcherism.
The left, then, may be quietly re-emerging, not in new parties or through new politicians, but inside the mutating personalities of today's ministers. A bigger-spending, bigger-taxing, more interventionist government is emerging out of New Labour.
The obvious radical Tory response to Brown and Mandelson would be to swing right: to call for slash-and-burn cuts to the public sector, financing private-sector tax cuts, while letting tottering businesses go to the wall. That's what Thatcher did. But David Cameron and George Osborne have spent so long trying to persuade the country that they are kinder, gentler Conservatives, they cannot bear to throw it all away. Lacking a clear response or plan will become steadily more embarrassing and difficult for them as the recession spreads.
What matters more is the emerging possibility, albeit dim, of a different British future. Even as jobs are lost, investors panic and firms go to the wall, could we at last see a future where the British economy is not limited to financial derivatives and pizza delivery, but actually makes and designs the new power stations, electric cars and lower-emission technologies? The new climate does offer an opportunity to develop new skills and technologies. This is what some in government have grasped - that making things, as opposed to just being a service economy, will equip us for the future. It would be a huge turnaround: but if Labour is looking for a new economic narrative, it's hard to imagine a better one.
jackie.ashley@guardian.co.uk
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