Sunday Herald, The: The foolish things that remind me of socialism; Iain MacWhirter; can

WHEN Tony Blair got up last week in Poland and started arguing for a greatly enhanced state pension, I swear I could hear a rusty cackle. It was from the ghost of Barbara Castle, the late Labour minister, who fought the Labour establishment for years to get the state pension raised and linked to earnings. She was accused of being an old Labour relic who wanted to take us back to the days of state socialism.

Well, come back socialism, all is forgiven. I'm not sure that the political classes realise how significant last week's Pensions Commission report was for the debate about welfare. Suddenly, everyone accepts that it was wrong to have expected the private sector to provide security in retirement. It was like the "Apology" spoof in Private Eye.

Adair Turner, chairman of the government-appointed Pensions Commission, wishes it to be known that HM government had been living in a "fool's paradise". Well, it takes one to know one. I don't recall Turner, a former head of the Confederation of British Industry, warning in the 1980s of the consequences of phasing out the state pension.

Pensions remain the biggest single item of welfare spending outside health - 6% of gross domestic product. There is a (pounds) 57 billion shortfall and 12 million people are not saving enough for their retirement. But the pensions crisis isn't just about feckless young people living for today. People are behaving entirely rationally in refusing to hand their precious savings to the financial services industry. To paraphrase John Kerry, I would rather take financial advice from Tony Soprano than from some of those commission-driven "independent" advisers who sold us endowment mortgages, with(out)-profit pensions, worthless ISAs, PEPs and all the other savings "vehicles" which crashed. Most people would have been better gambling - which possibly explains why the government wants to set up casinos in every high street. Is blackjack the new welfare?

The only institution capable of providing ordinary people's financial security in the long term is the state. Much of the private sector is, quite naturally, interested in short-term profits, not long-term security. Small savers should never have been betting their futures on the stock market in the first place. That is for risk- takers who know what they are doing. And don't take on trust Tony Blair's assertion that higher pensions can be paid by axing disability benefits. They tried that once before and it led to wheelchair demonstrators hurling red paint at the gates of Number 10.

This could be the beginning of a reappraisal of the anti-state, pro-market ideas which have dominated welfare reform for two decades. It's been a hard lesson, but one which may have to be re-learned elsewhere - like housing. In a few years another commission chairman will no doubt be announcing that we had been living in a fool's paradise thinking that the private sector could provide mass housing for people on low incomes. At the moment, the government is desperately trying to get the private sector to build cheap and affordable homes - but one look at the property pages shows the problem. Private developers don't build cheap affordable homes; they build only "luxury apartments". Edinburgh is awash with two-bedroom flats for (pounds) 175,000-(pounds) 200,000. A lot of use that is to public sector workers on (pounds) 15,000 a year.

The government has tried to use the housing association movement to create a kind of surrogate social provision by arranging a marriage with dodgy private finance initiative projects. But the policy is nowhere near meeting the scale of the problem, even in Glasgow where the government wrote off the council's (pounds) 1bn housing debt. As the housing crisis deepens, there will be increasingly bitter recriminations over the policy of selling-off council houses which has, over the past 20 years, stripped councils of their best and most valuable properties, leaving the state holding only the dross: high-maintenance high-rises and sink estates. Another fool's paradise.

The housing shortage, reinforced by the loss of confidence in financial services, has led to a bubble in house prices, which makes the dotcom boom of the 1990s look rational. If trends continue, a modest semi will soon cost around (pounds) 1m in London and (pounds) 500,000 in Scotland. Great news for developers, but not for the rest of us.

And there are still some on the right who argue for the private sector to take over health and education. Yet, the reality is that, as with houses and pensions, the market is unable to deliver for ordinary people on modest incomes. The private sector is great at running places like Eton and well-heeled selective schools in Edinburgh, but only a handful of people can pay the fees. As for health, if the government handed hospitals over to the private sector, the first thing the new managers would do is close half of them. The recent hospital cuts campaigns show how difficult that would be; people love their local NHS hospitals, even when they are obsolete and a risk to health.

So, all the talk about the end of social democracy seems to have been premature. Here we are in the new millennium revisiting a lot of the old arguments about the role of the state, and finding that social provision is winning them. One of the reasons the Tories are so marginalised politically is because they have been on the wrong side of this argument. People aren't stupid. They know that it was the Tories who originally cut the pensions link with earnings in the 1980s, which led to Britain having the lowest state pension in the industrialised world. The Tories also wanted an insurance-based health service. But look at America, where 45 million people are without health care because they cannot afford the premiums. The US system costs twice as much to run as the NHS and leaves a quarter of the population on the streets.

And after pensions and housing, I wonder what will be the next market shibboleth to be challenged? Well, my bet is transport. For all the talk of a new Virgin-ised deal, the rail system is getting worse. Decades of under-investment and privatisation have left us with a system which is dangerous, unreliable and a brake on the economy. European countries, like Spain, have bullet trains, publicly funded, which whisk people from the regions to the centre in a few hours. It should take no more than three hours to get from Glasgow to London - try doing it in less than five. The last time I travelled between Glasgow and Edinburgh it took nearly an hour and cost me nearly (pounds) 9. Nine pounds for what should be a 30-minute commute!

No doubt another commission will advise us soon that it was a fool's paradise to think that a private rail monopoly would be any more efficient than a state one. When BR was privatised by the Conservatives, the first thing managers did was enrich themselves, the second was to start siphoning state subsidies to their new private shareholders to keep the share price up - and their own share options.

Railtrack is already part-privatised since the Department of Transport took over two years ago. But we are going to have to go beyond crisis management and plan a sensible and stable state sector. Too often the state steps in after someone else has escaped with the cash. There needs to be coherent and strategic thinking; a new role for the state. We needn't call it socialism - call it the "entrepreneurial state", if you like - and we're not talking of nationalising supermarkets. But in key sectors, the private sector has had its chance and it has failed. And old Barbara is killing herself laughing.