If the third way is about a new project, and not just a new advertising slogan, then it must explore and create a role for the state in the 21st century. I want to suggest the task is urgent because the state cannot assume legitimacy - it must be earned. We know that despite the popularity of the Blair government that public trust in state institutions is draining away. Charter 88 polling evidence shows increasing concern about the transparency and accountability of the state - and public assumptions that politicians don't listen, and don't tell the truth. The election has not changed that. The Henley centre has some interesting evidence that since the early 80's trust and respect for public institutions has collapsed. Respect for the armed forces holds up - but the police, the law, politicians - have lost ground alarmingly. Their research shows that family and community structures, even perceived neutral private businesses - Virgin airways, Sainsbury's - are seen as more benign than public institutions. The legitimacy of 'experts' - doctors, social workers, teachers - is also being challenged.

Other institutions are undergoing a revolution - and the state is lagging desperately behind. Private sector organisations that can't keep up die. Voluntary sector organisations are swept away. But what happens to obsolete government organisations ? They stagger on. Donald Schon once said that social problems are created by the public institutions built fifty years ago to solve the social problems they had then.

I want to suggest three things:

1. First, that the role of the state is evolving, and must continue to evolve - in ways that will be hugely uncomfortable for both government and parliamentarians.

2. That we need to redescribe who and where the state is

3. That the conventional 'levers of change' available to the state are hopelessly obsolete - we need to find and use new ways to make social change happen - and recognise that these will be available both to the state and to civil society.

The evolving role of the state

The role of the state is changing because of the globalisation of the economy, internationalisation of foreign policy and international policing, and because of monetary, economic and political integration in Europe. It is changing because of the impact of changing lifestyles and growing affluence among the majority of the population - means a capacity to choose and buy privately things that were once for all but the rich public goods: pensions, health care, education, leisure. At the same time there are consequences of a collapsing commitment to redistribution, to a common standard of provision. The growing gap between rich and poor means that some sections of the community are excluded from citizenship in any meaningful sense - and we must either tackle this - or police it.

The role of the state is changing because of a perceived inability of the state to meet expanding demand for social provision - and the need to move away from a 'cradle to grave' provision towards one that is targeted or rationed. The Nexus debate has been about the role of the state in no longer offering universal provision - but acting as a benign insurance broker - moderating 'brute risk' creating a level playing field - mitigating accidental disaster but allowing us to stew in our own juices if we contributed to our personal disasters. There is a debate about this I won't go into now. The important issue is that a retrenching state - a more limited state - good or bad - is less important to individual citizens. If it doesn't do everything, then what it does do matters less. It is a less interfering state, but It also becomes a less powerful state - if power is defined by capacity to make things happen.

The creation of new levels of government - the Northern Ireland Assembly, the governments in Scotland, in Wales, the mayor's office and government in London, new mayors in major cities, regional assemblies - all these will create min-experiments in different sorts of government, with a myriad of different electoral systems, rules, powers, ways of doing things. They will develop more modern legislatures - with sessions that don't go on all night. They will probably create sensible modern rules, with checks and balances. All this challenges the status quo of the most centralised government in Europe - and Westminster and Whitehall will have to either break apart - or chill out. The diversity will fragment and fracture the state - we will be working in a context of parallel powers and the need to negotiate out responsibilities and accountabilities - much like any other European country.

New technologies, new levels of public awareness and information, new ways of thinking about social action are leading groups within civil society to do things that previously were left to government. There are new ways of linking up communities and negotiating and brokering between and within communities - there is a growing new not for profit and social business sector, and the emergence of community development trusts, joint ventures, new networks. There is an evolution of processes that Anthony Giddens refers to as reflexive self-identity active processes of understanding identity and difference, and of negotiating diversity and complexity in civil society - in which we are all engaged as individuals.

As well as the formal institutions, the systems of government are changing. We have an absurd linear model of how change happens. In this model, government proposes legislation, parliament passes it, civil servants design implementation systems - rules, guidance, circulars, procedure manuals - to tell functionaries on the ground how to implement it, and then monitor and police progress. Few private organisations still try to work this way, it is hugely cumbersome and time consuming requires hundreds of thousands of bureaucrats and reduces to a minimum the number of people empowered to take action. Our government structures cannot cope with the demands placed on them. Under the pressure of urgent new government initiatives and outcome targets - we are watching a pressure cooker with the temperature rising fast. The system is breaking at the seams.

Who do we think the state is ?

When we think of the state we think, of course of the Prime Minister and the Cabinet and No 10 and advisors and Westminster and MPs and the executive and the armed forces and the police and ambassadors - do we also think of civil servants and local government officers, lecturers and dentists, and teachers and nurses ? Status declines fast so that bureaucrats in and public servants on the front line often lack both status and legitimacy, easy to punish when things go wrong, never necessary to reward.

But the real encounters between civil society and the state take place at the reception desks of hospitals and police stations, at benefits agency offices and housing departments, at school admission offices and jobcentres. We encounter the top of the state through television - and the state on a day to day basis through access or denial of access to things we need. If we want the state to change, we need to change these encounters.

Building a new relationship with change

The centre left has traditionally seen the state as the most important agent of change. It has talked about a strong state to act effectively on our behalf against powerful vested interests.

There are questions about how willing, or able the state is to tackle these vested interests.

But communities of interest also begin to group and plan within civil society to make change happen - often organising on the internet. Local communities can use inter-active decision making techniques to plan their futures. Partnerships begin to bridge the public-private divide - creating new grey areas of social business. Some of the most pressing social problems are caused by us, the people, who use cars too much, or work too hard. I believe the way the state acts has to change. Because much of what the state does is on paper. Change does not happen on paper.

Legislation can be avoided, initiatives used to 'rebadge' current practice, systems can be applied mechanically, guidance ignored. People don't learn - or change - unless they decide to. Change happens in real time - by combinations of forces capable of offering enough critical mass to make a real shift in behaviours and actions. The resources we have to make social change are not simply those of the government - they belong to the private sector, the voluntary sector, to individuals. The old state tried to solve social problems by employing professionals to do things to people. It doesn't work. We now know that the effort, knowledge, energy and commitment of the people whose lives are affected by social problems - are the most vital resources we have. But government cannot 'order' their deployment. If we want to factor these resources in, we have to win them, earn them. State resources have to be deployed in ways that make sense to local people and to potential partners, in ways they want to see them deployed, through dialogue and negotiation. That would mean building partnerships within civil society in which the state keeps its' side of the bargain, listening, leaning, sticking with change over time, sustaining initiatives, removing obstacles, getting things right, keeping promises. Government will not find any of these things easy - because of the temptation to respond to short term pressures, to 'badge' quickfix initiatives, to earn swift brownie points, to make urgent savings, and because of the weight of bureaucratic structures and over elaborate systems.

We can learn from the private and voluntary sectors not simply about efficiency, but about releasing creative energy, innovation, entrepreneurship. Private sector entrepreneurs increase efficiency, they rethink from first principles, begin again, use resources in new ways to add value. We need a state capable of thinking - at all levels - about new ways to combine resources to add social value.

Charlie Leadbeater and I recently wrote a pamphlet for Demos and the Public Management Foundation on Civic Entrepreneurship. And it was interesting to identify the way that the best local organisations, police authorities, schools, health authorities, local councils - evolved to become entrepreneurial. They found they could not simply drive new policy through old departmental structures. They had to tear the structures apart - create new more holistic ways of working, releasing senior managers from tight professional chimneys. They then had to allow staff at all levels to work across boundaries - to share their knowledge and their ways of seeing things - reframe the problems and questions. They needed strong leadership, and a powerful set of outcome goals with a clear picture of what they were trying to do, one that could be and was explained to everyone within the organisation. Indeed the leaders spent most of their time explaining what the vision was, talking, listening and creating a framework to make things happen. They were opened up to users and communities, drawing on their ideas in a sustained dialogue, learning from - problem solving with - reporting to local people. They learnt to manage risk, not taking risks stupidly, but building the legitimacy among local people and stakeholders to try new things - gaining agreement for new initiatives - signing them off with others. The organisation looked outwards, not inwards and upwards. They invested constantly in building the capacity of the organisation - upgrading the knowledge, skill and understanding of all staff by creating learning opportunities at all levels.

There is much that central government can do to promote civic entrepreneurship at local level and Charlie and I made several recommendations about how that might be done. But local entrepreneurship will not be enough. We need to create it at national level.

There are around 468,180 people employed by the civil service. If we assume a relatively modest average salary of £20,000 - that would be about 10 billion. Perhaps 15. What do they all do ?

I know, I am willing to imagine, that many of them do vital jobs. But some just check and monitor the systems and paper work of the staff at other levels of government who spend valuable time producing the paperwork so that it can be checked. My insurance company deals with claims over the phone now. Maybe we could release valuable resources by doing things smarter - and releasing resources - not for the treasury to claw back and use to cut taxes - but to engender and support real social change.

Some things for starters:

We need clarity about the social outcomes government is attempting to achieve. Not simply sound bite targets. We understand their symbolic value, but we are not daft. We know that class sizes don't equal well educated children and reduced waiting lists do not mean improved public health. Outcomes are complex, since social problems intertwine, and outcomes often conflict. But Government plays a vital role in debating and agreeing the balance of outcomes.

We need strong leadership within the civil service, with the power to make tough managerial decisions - clearing out dull departments, radically restructuring the use of resources - capable of breaching the walls between departments and setting up real cross-boundary working. Do we need the current separation between huge departments, and the sturdy demarcations within them ? Perhaps civil service leaders should become more public figures, household names so that we can judge their leadership alongside politicians.

We need new sorts of people with new skills, capable of building relationships and brokering between levels of government, between government and private sector, between government and local communities, able to listen and learn, innovate and make things happen. Sometimes, in the government offices of the regions, you can glimpse these people.

We probably need far fewer civil servants at the centre. If we radically changed our systems - we could release resources to support hard pressed practical services on the ground. If the front line services had clear enough targets and could monitor themselves - if they were in charge of their own resources and held to account directly - there would be no need for so much checking and form filling and applying for grants, and monitoring. The behaviours of central government would become different. Instead of policing 'systems compliance' they could be more collaborative, strategic, working across boundaries, sharing information, licensing new approaches, helping to negotiate between different agencies and levels of government, building a balance between outcomes, working with complexity in a holistic way.

A new role for the state