When right-wing economists tell me there is no such thing as neoliberalism – that it is a figment of the left’s imagination, a meaningless insult or a catch-all phrase – from now I’m just going say the word Carillion. In fact, if it would fit, I would get the word tattooed across my knuckles.

The construction, services and facilities management firm went bust today, leaving tens of thousands of workers uncertain about their jobs – and certain that their pensions will be cut.

Carillion’s entire history encapsulates the rise and fall of neoliberalism. It was a machine for turning taxes collected by the state into profits for shareholders, bonuses for managers and, in the process, eviscerating democratic control.

The brand name Carillion was invented in 1999 when Tarmac discovered that the PFI and privatisation contracts being issued by Tony Blair’s Labour government had become more lucrative than actually laying tarmac.

At the time I worked in the construction press. I remember old-timers being mystified about PFI and the related new industry of facilities management. It will never take off, they said, because to make it work the state would actually have to underwrite the profits of the private sector, and assume its risks, for no tangible reward other than a pile of debts that would one day become unserviceable.

They had misunderstood the basic deal behind free-market capitalism in its modern form. In the 19th century, the state stood back to let market forces rip and allow businesses to stand or fall. Under neoliberalism, the role of the state is to continuously create opportunities for profit in the private sector by extending market forces into areas where they did not previously exist. In this sense, Carillion was not the product of entrepreneurship but of government policy.

The state – under both Labour and Tory governments – privatised numerous public services. In its last annual report Carillion reported half of all its £5bn revenues coming from ‘support services’ – privatised management of everything from schools, prisons and broadband internet to military bases in the UK and Canada, which was generating an unspectacular 6% per year profit.

The original rationale for handing giant chunks of the state to companies that were good at laying tarmac was this: they would do it more efficiently.

There is, of course, no evidence that privatisation has systematically raised the efficiency of public services more than, for example, the application of a target-driven results regime would have, while keeping the services publicly owned.

However, we know for certain they did it more cruelly. Carillion became infamous as an anti-union employer, using an illegal blacklist to stop union activists working on its sites, and issuing an “unreserved apology” for doing so to the High Court in 2015.

We know, too, that the arrangement destroys accountability. Services once provided by the state, and technically susceptible to control by parliaments and councils, disappeared behind a veil of corporate opacity – to be run by managers accountable only to shareholders, not officials accountable to us.

Once a steady stream of profit was guaranteed it could be borrowed against and speculated upon several times over by the financial sector, generating profits for the banks and hedge funds.

In its last annual report Carillion was generating £57m a year in interest payments and other expenses to the banks that lent it money – and of course large sums for the accountants, lawyers and other consultants needed to maintain the complex system of contracts that privatisation requires.

On top of that, from late 2015 onwards, it became the subject of a financial bet by hedge funds that it would collapse. Around a quarter of all its shares have been lent to speculators since that time, the FT’s Alphaville column points out, raising an obvious question:

If everybody in the market knew Carillion was in trouble, why did the government go on handing the firm lucrative contracts?

Cabinet office minister David Lidington tried to answer that this morning by saying there are certain “rules on the type of information that you can take into account” when considering bids for private contracts. This is code for: we created rules that allowed us to award contracts to the lowest bidder even if that bidder would go bust as a result.

There are serious questions to be asked of individuals: why did Chris Grayling hand Carillion a share of HS2 when it was clear it was going under; why did the board – including chairman Philip Green who laughably advised both David Cameron and Theresa May on corporate responsibility – carry on assuring investors a solution could be found?

But beyond the issue of individual culpability there is a systemic fault exposed here: from its birth the privatisation industry has been based on an implicit state guarantee. The chickens we worried about in the 1990s are coming home to roost.

Though the government could not bring itself to bail out Carillion this weekend, that state guarantee is still real: right now the taxpayer is paying the wages of the workforce and pumping cash into Carillion’s operations, even if for now they are run by the liquidator PwC.

In his book The Limits of Neoliberalism, Will Davies defined neoliberalism as “the elevation of market-based principles and techniques of evaluation to the level of state-endorsed norms.”

Large companies become completely dependent on the state, while public services are forced to mimic competition mechanisms – which are an excuse for reducing wages, reducing service obligations to a minimum and generally dehumanising society.

In the process, capitalism becomes less of an economic system, and more a performance ritual: firms ‘bid’ for work; government ‘awards’ contracts; accountants sign-off the books of companies that all-too quickly fail; banks collude in the shunting of debts off balance sheets at the crucial moment of the year and everybody pretends this is how an efficient market works.

The whole performance is a money-transfer operation from the taxpayer to the elite: as ritual as kabuki theatre only played by bald men in grey suits.

In the short term, the labour movement has to fight for the rights of pensioners and workers – and it’s uplifting to hear how quickly the unions have been on the air to do this, in contrast to the management who seem to have legged it.

But calls to ‘nationalise’ Carillion miss the point: it was already effectively a state-subsidised money making enterprise.

Some of its service contracts should be permanently taken in-house. But in the long term, if Labour comes to power, it has to offer the whole public-private sector a new deal: if you do strategic work for the government you either absorb the whole risk (and absorb huge borrowing costs) or you adopt a new company structure, in which the state takes shares and part control.

At the same time, projects like HS2 and fast broadband would have to be financed and managed under the auspices of a state investment bank – which could stand between individual firms and big investors to minimise the risk of catastrophes like this.

In a market-dominated economy there is no need for Labour to prioritise the creation of a massive public works department to build roads and railways. There is every reason to rationalise the incentives given to the private sector, sharing the rewards according to the risks and altering the corporate structure of big service companies to reflect their social obligations.

One of the most urgent pieces of policy formation Labour’s front bench needs to focus on is a new Companies Act to facilitate the creation of businesses where the state’s involvement is transparent, where social justice and environmental sustainability become mandatory across their operations, and whose shares are immune from manipulation by financial speculators.