In Britain, as across the world — notably continental Europe — the left has struggled to offer a coherent response to the banking crisis which blew like a whirlwind across the globe from 2007-8.

Despite the cataclysmic failure of neoliberalism which the global banking crisis represented, it hardly incited a resurgence of democratic socialism.

Instead, parliamentary parties of the left slipstreamed the right’s incessant demand for savage cuts. But that just meant heading down the same austerity road at a slower pace, when (as Keynes showed in the 1930s) getting the economy back on the path to growth was always a surer way to sort out the public finances.

Even before the global banking crisis, governments of the parliamentary left were equally hesitant in responding to, and surviving in, the new world order that followed the end of the cold war and the development of a global economy.

In Britain, new Labour took office in 1997 on a landslide vote of hope — and we delivered record rises in public spending, especially on the NHS, and recruited 800,000 extra public service workers. However we lost in 2010 on a humiliating vote of distrust, and without ever really changing the basis of the system we inherited.

That may be because of a lack of self-confidence by those preaching the socialist message. Some tacked to the neoliberal wind. Others were stuck mouthing old slogans as society moved on, around and past them.

Yet governments across the world gradually allowed the international financial system to get out of control, over a 30-year period from the Thatcher-Reagan era onwards.

It became a law unto itself, the real culprit of an obsession with keeping government at bay, making non-interventionism its watchword.

Takeovers and mergers led to banks so big that government couldn’t allow them to fail.

Bankers bent rules to lend ever-more riskily without anything like enough capital cover, until it all unravelled to catastrophic effect.

Facing this new, integrated, almost impenetrably complex structure of global finance, in truth governments were too small and too passive — not too big and too active as the Tories, echoed in the British media, now repetitively insist.

Dealing with the credit crunch required a rapid change of stance. New Labour spent over £100 billion bailing out bust banks to save the British financial system from collapse and took strong fiscal and monetary steps to fight recession and get the economy growing again.

But although these measures worked, they meant big increases in government borrowing and national debt, providing the pretext for leading supporters of neoliberal economics who share an ideology of small government to implement severe public-spending cuts and shrink the size of the state.

The Tories, at least since Thatcher, had always wanted to do that, but were precluded by the post-World War II consensus favouring the welfare state built by Labour.

My new book Back to the Future of Socialism offers an alternative to neoliberalism. Although it is the ideology that caused the banking crisis, it has clung on nevertheless — as if somehow it were not the very root of the problem all along.

Tory bullishness remains breathtaking. Having backed Labour’s spending plans in 2007 and pledged to maintain them until beyond the 2010 election, David Cameron suddenly switched tactic after the banking crisis to denounce Labour’s spending as the root of all economic evil.

Before the last election David Cameron luridly trumpeted that Labour’s commitment to halve the budget deficit would take Britain over “the brink into bankruptcy.” It was necessary to eliminate the whole deficit, he insisted, pledging to cut government borrowing by 2014-15 to exactly half what Labour had planned — £37bn instead of £74bn.

Yet official forecasts expect government borrowing to exceed £91bn — nearly £20bn more than Labour’s allegedly “disastrously high” target and over £50bn more than the Tory one. Never mind. They’ve just moved the goalposts, insisting that their “plan” is working after all.

And yet, according to the independent Office for Budget Responsibility, the Tories’ plan if they win in May is to cut the share of national income devoted to public spending back to levels not seen since the 1930s. Back then there was no NHS or decent state school system, let alone the monumental cost of elderly care that an ageing modern Britain requires.

But the fundamental choice facing Britain today is not actually the budget deficit. It is between the right’s insistence on minimalist government and the left’s belief in active government. It’s between the right’s insistence on a free market free-for-all, and the left’s belief in harnessing markets for the common good.

The kind of capitalism we face today is a more integrated, more unstable and more unfair system than ever before — productive but prone to paralysis, dynamic but discriminatory. It is one whose self-destructive tendencies require far more radical responses than the neoliberal economic orthodoxy that followed the banking crisis could ever provide.

It requires responses that pose acute challenges to a Labour Party intent on getting the economy growing again, and keeping it on the growth path, while putting the public finances back in order.

Back to the Future of Socialism develops a fresh perspective on the purpose and role of government and explores how Labour must change in an era of austerity — both by adopting a new policy programme and by becoming a different type of political party.

The book offers a vision of a pro-European party committed to progressive internationalism that tackles all the big challenges to humankind — above all climate change.

It confronts the neoliberalism of recent decades and argues that the priority for socialism today is faster, fairer, greener growth. Growth, because only an expanding economy can provide the resources needed to tackle Britain’s deep-seated economic and social problems — from a decaying social infrastructure, chronic housing shortage, sky-high student debt and poor vocational skills to a growing crisis in provision for the elderly.

Faster growth because that holds the key to bringing the deficit down and public finances back into balance, and to generating secure, well-paid jobs.

Fairer growth because unequal societies are unhealthy societies in which everyone loses out as all forms of social ills rise and economic growth rates slow.

Greener growth because we must meet the threat posed by climate change, both by backing a low-carbon economy and actively promoting renewable energy.

And, contrary to the stifling grip of neoliberal orthodoxy on the “Westminster bubble,” faster, fairer, greener growth is eminently feasible.

The scope for fiscal action to boost public investment in housing, in the social infrastructure, in training and skills and in green growth is substantial.

It would mean the government borrowing more today in order to borrow less tomorrow, by raising Britain’s economic growth rate above the pedestrian pace official forecasts expect.

Peter Hain is Labour MP for Neath and a former Cabinet minister. His new book Back to the Future of Socialism, is published by Policy Press.