Blair is right.

I've heard Blair's analysis of Labour before (and I agree with it) - Labour can exist in three forms:

1. A left wing party directed by trade unions and socialist activists, looking to re-establish trade union control, nationalisation of industries, large scale state intervention in the economy.

2. A centre left party based more around appealing to voters than activists and trade union control, pro-markets, pro-public sector reform, but progressive on social issues.

3. A left-leaning party sandwiched in between the first two, where the unions and activists still hold a lot of sway but they have shedded some of the influence of the extreme left: accepting but sceptical of markets, favouring higher taxes at the top end.

When they are in mode 1 they will just be a party of opposition, the Tories will govern the country.

When they are in mode 2, they are capable of winning power and holding power in multiple elections.

When they are in mode 3, they are capable of winning a one off election, as a protest against an unpopular Tory government, but will struggle in power and get turned over again at the next election.

Under Ed Miliband, Labour are mode 3. They aren't mode 1 - that was Michael Foot's time, they are more like Labour under Wilson, Callaghan and Brown. To be able to win and keep winning they need to be mode 2.

Under David Miliband, Alastair Darling or Andy Burnham, they would be mode 2. Balls or Yvette Cooper would be mode 3.

Mode 1 would be stupid at present - socialists opposing a nationalised banking system!

I would have thought the kind of nationalisation they wanted was one where government owned it and made the decisions.

The nationalised banking system at the moment is one where the taxpayer owns it but the management and decision making is still in private hands hence the government having to beg them to lend enough.

That's the UK's form of capitalism in a nutshell: privatise any profit and socialise the debts

Given that Labour have lost the last 5 elections that they have fought with other leaders and won 3/3 with him as leader, I would say that he is perfectly entitled to offer his advice and Ed Miliband would be wise to listen to it.

This has been the way since the days of the blessed Margaret though. It's not a new concept.

I think it must be an inherent part of neo-liberalism.

This is where the double standards come in.

A lot of people on the right that describe themselves as being in favour of free market economics are not really in favour of free and competitive markets at all, they are in favour of a market where they have market power.

Perfectly competitive markets mean zero supernormal profits, ie the owners of capital get nothing, other than covering their own costs, they break even. Nobody loses out, because the owners of capital have their costs covered, workers get paid a fair wage equal to the value of the product of their labour (ie the owners of capital cannot extract surplus value out of the workers, as Marx described), consumers pay a price equal to the cost of production and no more, and resources are used efficiently in society.

If you are really in favour of free markets then you have to tackle market failures like:

externalities (eg pollution) - costs that are not factored in to the market, so you have to create a market for them by forcing polluters to face the costs of their actions

market power - the ability to charge a price over cost of production

incomplete information - firms not fully disclosing information on their products to consumers

Of course to make the free market work these market failures need addressing by governments. But this is the point where a lot of the "free market" supporters will cry "tyranny of big government" because they want to preserve a position where they have a market skewed in their favour.

I'm not sure "a lot" of free market supporters would be against government involvement in any of the three areas you've raised - in fact the European model of free markets is fully compatible with such intervention. You could also argue that for long periods the US has shown far more determination to smash monopoly power than Europe in a number of industries - banking, oil and gas, airlines and telecomms to name but four.

Where the ultra free-marketeers fall down continuously IMO is in not addressing the widespread failure of agency theory in free markets - i.e. that managers, acting as agents of shareholders should earn rewards consistent with those obtained by shareholders but commensurate with the level of risk they are taking as managers - which is far less than investors. IMO you'd fix some of the other issues you mention if agency theory was better implemented anyway.

OTOH coming out with extreme examples of market 'failure' is like shooting fish in a barrel. There is no real-world working example of a major economy which comes anywhere close to matching the overall returns to society that free markets have been shown to bring.

The sensible debate should be about the style of free markets that work best for the largest number of people (including levels and forms of government intervention), and how to get there. Jumping to extremes may work well in a point-scoring competition, but to be honest is pretty much useless if you want to come up with a range of workable solutions for an economy anywhere near the size of the UK.