George Osborne can scarcely believe his luck. The economy's turned up unexpectedly - all recessions end eventually - and he's magnifying his "success" for all he's worth.

Labour has switched the focus to the fall in average incomes which has certainly been dire, with wages plummeting by 9 per cent in real terms since 2007 amid the longest cutback in pay since the 1870s.

But the issue goes much wider. What should really be on trial is the extremely harmful way that the economy has been handled over the last 30 years, the unnecessary and catastrophic damage imposed by prolonged austerity and the failure to promote an alternative economic policy which can generate a genuinely sustainable upturn in jobs and growth.

The real culprit is that market fundamentalism has run the British economy into the ground over the last three decades.

Our share of world trade was 25 per cent in 1950 and it is now 2.3 per cent.

Last year our deficit on traded goods was a staggering £106 billion, equal to 7 per cent of our GDP.

For three decades we have run up mountains of household borrowing and mortgage debt and then used the proceeds to amass imports we can't afford.

We're not able to pay for them because our manufacturing industry, the lifeblood of our economy, has been allowed to decline drastically.

In the decade to 2010 both our factories and the number of workers employed in them shrivelled by a third.

So how were the excessive imports paid for? By selling off a huge part of our national assets.

We sold off into foreign ownership most of our power generating companies, many of our rail franchises, our chemical, engineering and electronic companies, our water companies, our airports and ports, our merchant banks, our wind farms and a huge amount else.

Altogether British assets sold off in the decade 2000-10 amounted to £615bn, a sum equal to nearly half of Britain's entire GDP.

What we should have spent it on was not consumption beyond our means but rather on consolidating our industrial base, direct investment in plant and machinery and a massive upskilling of our workforce.

No other country in the world would make a mistake of this magnitude, so why did we?

It happened because Thatcher deliberately threw away all instruments of state management of the economy and trusted instead in blind belief in the market.

New labour then made it worse. It abolished the Monopolies and Mergers Commission in 1999 which had been required to assess whether takeovers were really in the wider public interest and replaced it by the Competition Commission which had no such constraint.

All the takeovers were waved through, plus, of course, the City made a mint out of fees and commissions on all the mergers and acquisitions - £40bn from the sale of Britain's assets during the 2000s.

So did this obsession with neoliberal capitalism and deregulated markets pay off?

Actually, income growth halved. In the 1960s-'70s, when the country was supposedly afflicted by the "British disease," the average growth in income per head of the population was 2.4 per cent a year.

After Thatcher's scorched-earth policy had allegedly rooted out the disease, it fell in the next three decades to just 1.7 per cent a year.

In addition, stability - avoiding roller-coaster cycles of boom and bust - competitiveness, inequality, economic balance and social and environmental standards all got worse.

What are all the lessons of this free-market disaster?

We need to regain control of our economy which we have sacrificed to foreign ownership abroad and to bankers at home.

The key strategic sectors of our economy should be in British hands, otherwise management skills, investment, research and development and profits will steadily leach abroad.

We need to restore the crucial supply chains which were broken up in the 1980s-'90s by privatisation and sell-offs and which have made Britain in large parts a marginal subsidiary economy.

And from the bankers we need to regain control of the money supply.

Since the competition and control measures in 1971, the money supply has in effect been franchised to the "big four" private banks - HSBC, Barclays, RBS and Lloyds - and thus through the lending they make, which reached £7 trillion in 2007, they largely determine the direction of Britain's economic development.

Have they used that power in Britain's national interest?

Quite the opposite. They have concentrated on their own profiteering through tax avoidance, overseas speculation and toxic financial derivatives.

We need a fundamental change in economic policy, not a mere tweaking in the impact of austerity.

That requires a public sector-driven expansion of the economy - since the private sector behemoths sitting on a cash stockpile of £670bn aren't doing it - funded if necessary without any increase in public borrowing by taxation of the ultra-rich with investment directed primarily into housebuilding, infrastructure and the digital and green economy.

It means restoring job creation and full employment as a fundamental objective of economic policy rather than, as it has been for three decades, a mere residual variable.

And it means redrawing the boundaries between markets and the state, not only in respect of the banks but also in health and education, housing and pensions and energy and transport, with new public services both in adult social care and legal rights.

Michael Meacher is Labour MP for Oldham West and Royton. He has just published his new book The State We Need: Keys To The Renaissance of Britain (Biteback Publishing, £18.99). For more details visit www.michaelmeacher.info/weblog