Comment: Blair winning war to woo the City

"Flexibility Plus" sounds more like an advertisement for a credit card than Tony Blair's conversion to the cause of flexible labour markets but it was the latter Mr Blair was referring to in his speech to City and business leaders yesterday. We have come to expect lectures from Mr Blair on the merits of free market economics, but that shouldn't take away from the significance of his latest sayings on the subject, for he seems to have gone further than ever in accepting the underlying merit of everything that's happened over the past 18 years.

The free market reforms of the 1980s, you will be pleased to know, were not really anything to do the Tories as such; Mrs Thatcher was a mere tool in the onward march of history, Mr Blair implied - or nearly, anyway - and if Labour had been in power it might have done the same. To prove his point Mr Blair cites Jim Callaghan speaking to the Labour Party conference in 1976. "In all candour, the option of spending our way out of recession no longer exists," Mr Callaghan said.

Today Mr Blair asserts that "progressive economic thinking at that time, on both sides of the political divide, was beginning to assert that markets, not governments, had the main responsibility for creating full employment". That is, of course, nonsense, and if Mr Blair wasn't aware of his rewriting of history, his audience certainly was.

None of this matters to business and the the City, of course, if Labour really does now accept these basic principles. There was nothing in Mr Blair's speech to suggest that Labour's conversion is anything but total. And Mr Blair is certainly right in part of his analysis. The death of Keynesian economics and the belief that free markets and balanced budgets are the best way to full employment is very much a world-wide phenomenon. The power of the global economy is such that even if Mr Blair did want to embark on an isolationist, traditional socialist approach to management of the economy, and even if the electorate were prepared to back such a platform, the markets would stop him from doing it.

Mr Blair is right in other respects too. Business is actually in favour of many of the "enhancements" to the free market economics of the Tories that Mr Blair now proposes - in particular the greater emphasis on training and education and the urgent need to cosy up to Europe. Mr Blair may not yet have convinced everyone that business has nothing to fear from Labour, but the stock market's failure to react to the opinion polls is powerful evidence that the war is substantially won.