New Labour came to power to save the state. Over the past 11 years it has invested and reformed heavily, but a chasm remains between expectations and results. Schools are failing, doctors are at war with the health department, and patients have not reaped any reward from choice and competition in the NHS, say the government’s commissions.

Investment has changed the fabric of much of the public services, but something fundamental is wrong. Everyone agrees that the old bureaucratic state has reached its sell-by date. It was right for the era of mass production and mass politics, but is wrong for less deferential, more complex times. However, the rejection of the centralising state unfortunately led to the embrace of the market state.

Competition and choice were supposed to empower users and sharpen up producer interest to perform more effectively. But this too has hit the rocks. Users are bewildered by meaningless choices over which provider gives them the same service. Professionals and staff are demoralised by the lack of trust placed in them.

New Labour was right to shake things up, but used the wrong tools. Ironically, its problem with public service reform was that it wasn’t new enough or Labour enough. Meanwhile, David Cameron says there is such a thing as society, but it’s not the same thing as the state. He has a point, but charities such as the Women’s Institute, as precious as they are, are not going to stem the tide of an increasingly unequal society. Only a modernised state can do that.

There are essentially four ways to run public services. Centralisation lets us set targets and dictate standards but too much of it has unintended consequences. After all, the Soviet Union failed for a reason. Professionalism encourages ethos and expertise but needs to be held to account. Diversity allows for localism and experimentation, but too much of it, especially if delivered by the private sector, leads to unacceptable levels of inequality. Last but not least, voice gives users and staff a way of improving services for and by themselves. This is the most promising and underutilised method of reform.

We need to find the right balance between all four. But to do so we must grasp a deep paradox. We want diversity because we believe in innovation and experimentation, but we want as much equity as possible too. Rightly, we don’t like the postcode lottery. The centre can push equality but will crush creativity. Diversity lets a thousand flowers bloom, but some grow much taller than others. A paradox like this cannot be solved, only managed. The way to do it is by our participation in reform. People at every level of the state and public services need to understand the paradox of our demand for diversity and our desire for equality.

So instead of the centralised state or the market state we need a shift to the democratic state. What does this mean in practice? Let’s take education. Too much emphasis has been placed on diversity, so that the fierce competition for places in the best schools means the pushiest and richest parents get first place. In the process, education has become something we value only if we get a better service than everyone else. This causes social division. We all pay the price.

Like all of us, teachers and heads need to be motivated and held to account. Personalisation is important. I want my children to get a personalised education because their needs are different from the rest of their class. But I want it to take place in a good community school where they mix with children from all backgrounds.

Now underperformance is dealt with by taking my kids out of the place they know in the hope that a new school is better.

It leaves behind a school that will probably sink further. But what if we are given a collective ability to motivate the staff to perform better? Then we can improve the big things about public services, such as an underperforming school, for the whole community and not just be confused consumers struggling on our own. School governors, if properly trained and paid, could perform a much deeper role. And what if the headmaster or mistress was elected by the local community? That would serve as a huge incentive towards improvement. The same approach works for the local GP surgery.

In health and education the next revolution in reform should be engagement and democratisation. There is no reason why primary care trusts couldn’t be merged into local government, where they can focus more on prevention and be held democratically accountable. We could elect local education boards too.

Engagement can also unlock the untapped potential of users and staff. Their insights and experience harbour huge creativity. If people are allowed to modernise services themselves, then this gets built into the fabric and could be hugely productive.

We need to turn ourselves from weak spectators and passive recipients of the state into active participants who shape its future and therefore ours. It is, after all, our state. The benefits are both practical and principled.

It would drive up performance and innovation, and crucially bind the electorate into support for public services. Demoralised public services would be remoralised. Producers would be motivated and held to account, but not by profit or competition. Then we can have a public service ethos that gives us the comfort of being treated on the basis of need, not ability to pay or make the right individual choices, without having to accept inferior services. Being consumers or passive citizens hasn’t worked. We have to get involved.

Neal Lawson is the chairman of Compass, the centre-left pressure group whose membership includes about 40 Labour MPs; www.compassonline. org.uk

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