Labour, by common consent, is winning the battle of ideas. Even as shadow chancellor John McDonnell’s plans for reshaping British capitalism were being dismissed as a regression to statism and trade union power, his critics were bemoaning that the Tories’ response was either a pale imitation of the same or a reheated and tired Thatcherism. Worse for his critics, McDonnell was winning a hearing because he spoke to widely held concerns about the economy.

Suddenly, the economic debate has broken out of the ascendancy of variants of Thatcherism. As an advocate of stakeholder capitalism for more than 20 years, I was both taken aback and pleased to find McDonnell praising the ideas on the Today programme – and just as taken aback that some Tories want to develop their own version.

But stakeholder capitalism is not a series of half-remembered magic solutions to breathe new life into traditional socialism or relegitimise free-market conservatism. It is a self-standing, distinct set of interlinked propositions about how capitalism can be made to work for all, requiring a radical change of mindset from the traditional left and libertarian right alike.

The starting point is that the capitalist firm is of necessity a social organisation. Entrepreneurialism is not about a succession of individualistic sole traders having lightbulb moments that can only turn into successful businesses if there is little regulation and minimal tax. Rather, wealth-creation, innovation and productivity growth reside in the complicated business of marshalling people and resources. This requires lots of compromises and trade-offs, in substantive institutions that work better the stronger the social glue and shared sense of purpose.

Leftwing trade union leaders Hugh Scanlon and Rodney Bickerstaffe were bitterly opposed to workers on boards

That means being animated by more than simply making profits, crucial though that is to the life of the enterprise. Purpose – to create “the happiness of its members” (John Lewis), say, or to make “a better everyday life for the many” (Ikea) – brings the unity of vision around which the firm can manage all the competing claims upon it. Moreover, that purpose is the key to building any sustainable business and means it cannot be a vehicle solely to enrich those at the top.

Seen through this prism, workers are not locked in a do-or-die struggle with capital to which the resolution is the socialisation of production. Rather, they are in a complicated relationship of interdependence, resolving conflicts in a joint project of creating great goods and services. In the 1970s, leftwing trade union leaders Hugh Scanlon and Rodney Bickerstaffe were bitterly opposed to workers on boards as proposed by the Bullock commission under James Callaghan: it was a betrayal of socialism’s existential struggle with capitalism. Today, John McDonnell has crossed a line: by wanting workers as shareholders and represented on boards, he signals that capitalism can be made to work for the common good. His comrades from the 1970s would turn in their graves.

Scorn has been hurled at his proposed inclusive ownership funds, demanding that every company with more than 250 people progressively allocate 10% of its shares to be held on the employees’ behalf – but with dividends going to the state after the workers have each received £500. It is confiscatory and a backdoor tax increase. But if you recast it as a compulsory employee stock ownership plan, then it is trying to achieve what George Osborne’s 2013 Enterprise Act attempted but failed miserably to do; not one firm has launched an Osbornian employee ownership scheme.

This is only the beginning of a very long march. If McDonnell wants to reshape capitalism rather than abolish it, then he needs to further change his mindset and think more systemically. For example, he would have been wiser to plump for another model of employee ownership – the voluntary employee-owned trust– than his controlling, top-down variant. For what stakeholder capitalism aims to achieve is a private sector that improves worker and customer welfare within its own terms. The state sets the framework: it pump-primes; it strategises; it may even create a sovereign wealth fund, but all designed to achieve stakeholder vibrancy.

On this, McDonnell said nothing. Worker directors, which he advocates, risk suffering acute conflicts of interest in today’s unreformed firms, as the old left feared (and many board fear too). It is stakeholder companies, unified around a common purpose, which dissolve structural conflicts. This world is already being tentatively embraced, as would be clear to him and critics if they had read the latest Financial Reporting Council’s corporate governance code. It even calls for boards to experiment with a worker-director to guarantee the firm’s purpose. McDonnell could build on these. He could propose a new Companies Act to make a commitment to purpose a condition of forming a company. Companies need more long-term, engaged, substantive shareholders on whom they can depend.

He could turn his attention to Britain’s asset management industry and direct it to take its obligations to steward companies much more seriously. He could explain how he wants to reshape the financial system to lower the cost of capital. He could wean himself off an instinctive reflex to nationalise by embracing different corporate forms through which social benefit can be delivered. He could declare that his aim is to create a new generation of great British companies whose strength will be built on the new communities of interest between repurposed trade unions, customers and long-term shareholders. He could build a great political coalition of the left and the centre.

This, of course, would be better done within the EU. Stakeholder capitalism, a revived social contract and stopping Brexit are parts of the same vision – a very different one from the Brexiter notion of a turbo-boosted Thatcherism. Labour is inching nearer to a position that would win a public vote and be the basis for national renewal thereafter. There is no other viable political force or set of propositions to save the country.

• Will Hutton is an Observer columnist