As the 1942 Beveridge report said: in a crisis, be revolutionary

Instead the past four years have been a classic case of 'patching' ? we need better

It has been a grim summer. Unemployment is up, the eurozone is flirting with disaster, rumours are swirling around the banks and the crisis that began four years ago rumbles on. Finance ministers and central bank governors gather in Washington this week for the annual meeting of the International Monetary Fund amid distinct echoes of their meeting three years ago when the global banking system stood on the edge of the precipice. Last week's decision to provide copious amounts of cash to banks was the equivalent of stocking the larder with baked beans and bottled water during the hurricane season. A stormy winter is in prospect.

In the UK, the coalition government is beset with economic difficulties. Inflation is rising, activity is flatlining, youth unemployment is approaching the one-million mark, and rebalancing is as far away as ever. But if you think that's a challenging outlook, imagine what life was like for the last coalition government in the summer of 1941. Britain was stumbling from one military catastrophe to another, America's entry into the war was still six months away and the Blitz was at its most ferocious. It was then, though, less than two weeks before the German invasion of the Soviet Union that the cabinet decided to start planning for postwar reconstruction. It appointed the economist Sir William Beveridge to come up with ways of improving Britain's social safety net following the widespread deprivation evident in the interwar years.

When Beveridge reported in late 1942 he identified five giants that blocked the road to progress. He named them Want, Ignorance, Squalor, Disease and Idleness. The Beveridge report became an instant bestseller because it challenged politicians of all parties to think not just about how to defeat Hitler but to set out plans for education, pensions, health, social security and jobs.

Manifestly, this was not a report that was kicked into the long grass. All parties backed Beveridge, with Conservative and Liberal MPs being somewhat quicker to do so than their Labour counterparts. The report strongly influenced the domestic agenda of the Attlee government: the creation of the National Health Service, the provision of cradle to grave social security and the pledge to build more homes. But it was also embraced by Conservatives in the years before and after Attlee's premiership. The Employment White Paper and RAB Butler's Education Act were both from 1944, while Harold Macmillan could boast that he was responsible as housing minister for building more homes in Churchill's 1951 government than Nye Bevan had in Attlee's.

Command economy

Clearly, this is a different world to 1941, when Britain was as close to a command economy as it has ever been. The appetite for interventionism has waned as globalisation has made it much more difficult for governments to insulate themselves from the instant judgments of the financial markets. The global market place is not just a lot bigger than it was in the 1940s, it is a lot more open as well. The capital controls and tariff barriers that existed then have been dismantled.

Britain is also a more complex nation. The old class delineations have been blurred by the relative decline of manufacturing and the expansion of services.

Domestic policy objectives were simple: increase the size of the national economic cake to create full employment and the tax revenues for schools, hospitals and more generous welfare benefits. The notion that environmental sustainability could put limits on growth was not an issue despite the green belt legislation and the creation of the national parks in the late 1940s.

Many on the right believe that Beveridge created more problems than it solved, ushering in an era of mushy consensus that resulted in taxes being too high, unions being too strong and the state being too powerful. Margaret Thatcher came to power in 1979 determined to kiss goodbye to Beveridge. The Labour party did likewise when Tony Blair became its leader in 1994. The new consensus was that state intervention should be limited to (the rare) occasions when markets failed, that the prime object of economic policy was control of inflation rather than full employment, and that universal benefits should be means tested.

That said, there are still lessons to be learned from Beveridge. Its guiding principle, that a "revolutionary moment in the world's history is a time for revolutions, not for patching" is as true now as it was seven decades ago. The response to the financial and economic crisis of the past four years has ? with the brief exception of the collective action of the G20 in the winter of 2008-09 ? been a classic case of "patching" in the hope that there can be a return to business as usual.

Parties of the left have been even more bereft of ideas than parties of the right, which despite their suspicion of "big bang" solutions have been able to fall back on the age-old certainties of balanced budgets and deregulation. David Cameron's Big Society programme and his localism agenda have been greeted with scepticism on the left, but at least represent an attempt to think about what Britain might look like in the years to come.

Labour, hobbled by its intense love affair with the free market between 1994 and 2007, has been at a loss to come up with a coherent vision of the future after the all-too-predictable collapse of the financial bubble in the summer of 2007. It gives the impression of being a party that believes simultaneously in growth and deficit reduction, a greater role for the state and more competitive markets and is in favour of both localism and centralism. The public, understandably, seems deeply unconvinced.

It would be a mistake for any political party to announce that it was setting up a Beveridge Mark 2. There is far too much historical baggage for that. But Beveridge's approach was right and his idea of cradle to grave security still resonates with the public. Ignorance, Idleness, Disease, Squalor and Want remain giants that need slaying.

Voters want a decent education for their children, a job that pays a living wage, medical treatment when they fall ill, a roof over their head and dignity in old age. All parties agree that these are the things that they should be delivering; they disagree about the means not the ends.

Conservatives think the road to prosperity is about cutting red tape, a state that lives within its means, lower taxes and greater individual responsibility. Progressives would say that the crisis has illustrated the need for tougher controls on capital to allow a more interventionist approach. The left's updated version of Beveridge would perhaps include a safe place to put our money, an environment that we hand on to our children in a better state than we find it and a rewarding job.

Our political masters should look at the current benighted state of Britain and conclude that it is time to start planning for a post-crisis world. They need to accept that the model of the past quarter-century was unfit for purpose. That's what Beveridge concluded in 1942. He would come to the same conclusion today.

larry.elliott@guardian.co.uk

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