Labour's industrial revolution.

New Labour appear to be following Obama's lead in seeing the recent collapse in the financial markets as a way to question the rigidity of the market based philosophy of the past thirty years.

In an interview with The Independent, Lord Mandelson said the drive could create hundreds of thousands of jobs in hi-tech and low-carbon industries over the next 10 years, to compensate for the smaller financial services sector that will emerge from the current recession.

The new strategy marks a reversal of the Government's free-market approach since Labour won power in 1997, as ministers follow the bailout of Britain's ailing banks by intervening in other key areas of industry.

The Business Secretary said: "If markets fail or don't work efficiently, government has a role to play – as we saw in the financial markets." He insisted: "The Government's job is not to substitute for markets or displace the private sector. We are not into bailing out the past, but removing the barriers to investing in the future."

His "strategic plan" will be a central part of a "going for growth" Budget to be announced by Alistair Darling on Wednesday.

It could lead to hundreds of millions of pounds of taxpayers' money being used to fund the expansion of "green" industry. Projects funded could include wind, wave and nuclear power, and electric and hybrid cars. Digital communications, pharmaceuticals, life sciences, aerospace, business services and electronics may also be in line for such "green" funding.

The problem with a market based approach is that the market is obsessed with one thing and one thing alone: profit. The market does not consider the public good, it does not question whether the areas in which it makes profit are good for the environment or not, it simply asks if there is money to be made in that area.

It is for the government to make sure that a "green" industry can take off in this country, just as Obama is proposing in the United States. It matters not at the moment whether or not such ventures are profitable, that will all come later, what matters for the moment is that this avenue is explored for the greater common good.

And the recession, and the need for government intervention, gives New Labour the perfect excuse for such intervention.

Claiming the interventionist approach would help Britain emerge more quickly from the downturn, he said: "We have to grow our way out of this recession, not simply sit back on our hands, do nothing about it and let events take their course." The shift is designed to answer criticism from business that other governments, notably France, are doing more to help their domestic industries than Britain is. "We cannot be the odd one out," Lord Mandelson said. He insisted the change would not mean "economic nationalism", because the Government still supported open markets and free trade.

The Business Secretary added: "To justify government action, there will have to be a real opportunity to make a difference, and any government initiative must make a genuine long-term impact to give value for money to the taxpayer."

Other proposals include: ensuring that high-growth, high-innovation firms get the financing they need; more government support for exporters; more aid to turn bright ideas into "world-beating" products; and exploiting opportunities created by university researchers.

The document insists the Government will not "pick winners", opt for state ownership of industry, "override market forces or ignore market signals". Its new activism "does not imply a fundamental change in our view of the relationship between the market and the state.... However, the way the Government sees its own role in the market needs to change in order to deliver a more coherent and effective approach." This means "a readiness to intervene where necessary" by "supplementing" rather than "substituting itself for the market" and "correcting significant market failures."

The idea that the market would always self correct was one of Reagan and Thatcher's barmiest ones, and it certainly ignored the fact that a market which pursued only profit could not be expected to acknowledge other global realities such as global warming.

If heating the planet up to boiling point created a profit then that was what the market was always going to do.

It says the credit crunch showed that markets cannot be relied upon to serve the public interest. "In future there should be no barriers of mind-set that hold back sensible and prudent intervention," it adds. "This is not activism for its own sake." While not denying Britain "the huge benefits of free enterprise," the Government recognises that the private sector "has important limits."

It's taken nearly thirty years for someone to say that. The market does not serve the public interest, it serves the needs of shareholders. The two things are not synonymous.

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Tags: Mandelson, New Labour, financial crisis, downturn, free market capitalism, government intervention