Janan Ganesh says, rightly I suspect:
Lehman’s collapse did not whet people’s appetite for the left’s creed. Any loss of faith in the market was not matched by a revival of faith in the state.
There are plenty of bad reasons why this should be so - among them a fear of government debt and the belief that Labour got banking regulation wrong (hint: hindsight bias). But there's one justification I'd like to highlight. It's that the collapse of banks brought into question governmental structures as well as private sector ones.
By this I mean two things.
First, banks' losses show that large complex organizations cannot be run well by centralized hierarchies; to what extent this is because of principal-agent failures and to what extent because of bounded information and rationality needn't worry us in my context. But this is true of governments as well as mega corporations. The claim "CEOs can't know enough to manage banks well" is very similar to the claim "government ministers can't know enough to manage public spending well."
In this sense, banking failures should have reduced faith in top-down management - and this naturally undermines statist social democracy.
Secondly, the banking crisis was a failure of networks. There's one fact about the crisis thast isn't emphasized enough. It's that banks' losses were rather small in a macroeconomic context. The ten US banks that lost the most had combined losses of $127bn. But this is only a fraction of the $6.8 trillion investors lost when US shares fell during the bursting of the tech bubble. Why, then, should massive losses have led to only the mildest recession, when much smaller losses caused depression? One reason, arising from my first point, is that banks' were highly leveraged whereas most equity investors' weren't. Another reason - described (pdf) by Haldane and May - is that banks were so densely interconnected that losses in some led to widespread liquidity hoarding, so that the impact of individual losses were magnified in a way that didn't happen in the tech burst.
This represents another structural failure. Tight, interconnected networks are vulnerable to a common failure in a way that looser ones - what Haldane calls "dissociative structures" - are not.
Again, this represents a challenge to statist social democracy. Policy is traditionally formed and delivered by tight, closed networks - a handful of close colleagues (often from similar backgrounds) make policy, and a few agencies deliver it. The danger of groupthink and system-wide failure is thus high.
In this sense, the left has missed an opportunity - but then, the history of the left is one of missed opportunities. It could have used the crisis to develop ideas of non-hierarchical, decentralized, open networks - and in fairness, the Occupy movement was edging towards this. But statist social democrats missed this chance. They still seem to think that the problem with politics and business is simply that the wrong people are in charge, when in fact the problem is (also) that the wrong systems are in place.