Reflecting on Grimond's legacy, Richard V Reeves says the Liberal Democrats should give up the goal of a political realignment with Labour and instead concentrate on promoting the cause of liberalism.

Why Jo Grimond? Who cares about a politician who peaked half a century ago, never held office, and led a party with a puny parliamentary presence? And yet we do care, proving that an apparently marginal political figure can leave a lasting mark, if his character and thoughts are large enough.

Grimond himself would be surprised to find you reading about him. With typical humility, he prefaced his own memoirs by stating that he 'had never been at the centre of events', and described his view as 'if not a worm's eye view then a bird's eye view from the lower branches'.

Grimond demands our attention not for his political achievements but for his political philosophy. In a long series of books and pamphlets, he articulated a generous, pragmatic, civic liberalism that is at odds with Labour's post-war economic statism and with Thatcher's market fundamentalism - but feels fresh in 2012. Grimond's internationalism and early acceptance of the growing need to pool national sovereignty feels radical even now, although that almost certainly says more about our lack of progress on this front than his prescience.

Grimond was leader of the Liberal party from 1956 to 1967, and then again briefly as caretaker after Jeremy Thorpe's fall from grace in 1976. His political successes were to keep his party on the road, to lay the intellectual foundations for a longer-term revival, and to prepare the ground for the eventual alliance with the Social Democrat party which produced the Liberal Democrat party of today. There was the occasional exciting moment, such as the Orpington by-election win in 1962. But it was mostly hard toil in the political margins.

He inherited a shattered, fractured party with strong sympathisers to both Labour and the Conservatives. Megan Lloyd George eventually defected to Labour, while Lady Violet Bonham Carter urged an antisocialist alliance with the Conservatives. In 1950, within his first three months as an MP, Grimond saw the nine Liberal MPs vote in unison in just four out of 12 divisions.

Asquith wrote that 'there is only one way in which liberalism can be killed and that is by suicide'. In the 1950s, self-destruction looked quite possible. But Grimond breathed some new life into liberal ranks. The party's very existence - and its presence now in government - owes a good deal to him.

The other reason for the party's survival was the decision of many local Conservative associations not to oppose Liberal candidates. So it is ironic that for many on the 'soft' left, Grimond stands as a symbol of centre-left 'realignment'. He sporadically hoped for either some kind of accommodation between moderate Labour types and Liberals. In his more utopian moments (and all Liberal leaders have them) he even envisaged a reversal of Labour's historic overtaking of the Liberals.

In 1965, after making an ill-fated attempt to reach out to Harold Wilson, he lamented: 'British politics have been bedeviled all my lifetime by the love-hate relationship of the Liberal and Labour parties.'

Grimond, like all of his successors, hoped that the bifurcation of post-war politics into left and right would shortly be replaced by a more rational ideological map. In 1962, he complained that 'the divisions in politics fall in all the wrong places'. In 2009, Nick Clegg wrote: 'The red/blue pendulum of British politics has lost its momentum. As the sun sets on Labour's claim to progressive leadership, [I] call on progressives everywhere to seize the liberal moment.'

Liberals waiting for realignment resemble Jews awaiting the second coming. It might happen - but it is best not to plan on it happening anytime soon.

Grimond's Lib-Lab political tactics did not sit easily with his political ideas. If anything, he spent more time attacking socialism in general, and the Labour party in particular, than he did conservatism or the Tories. And one of his most frequent criticisms of the Conservatives was that they were conserving socialism: in 1958 he warned of 'a socialist way of life embalmed under a Tory government'.

Grimond's Lib-Lab flirtations hold few lessons for us today. It does look as if the class-based grip of the other parties is weakening, but this is a tectonically slow process. What's more, the result of this dilution of bloc voting along class lines has not been to usher in a new era for political liberalism, but simply to make it harder for Labour and the Conservatives to win an outright majority and to increase thereby the chances of a hung parliament.

British politics is likely to get messier and less predictable over the coming decades. Hung parliaments are likely to become more rule than exception. Under these circumstances, rather than continuing the Grimond-Ashdown realignment dream, the political strategy of the Liberal Democrats should be three-fold.

First, take a cue from Baden-Powell and be prepared: for government. Ensure that policies are made to be delivered in legislation, not just on leaflets. Grimond had both the pain and the luxury of knowing he would not be taking a red box home. That is not true today.

Second, focus on the big issues that matter to the majority - tax, jobs, schools - rather than taking refuge in the margins. It is easy to see how by picking special interest issue X wins you a seat or two there, and special interest Y gets you a couple more there. (Indeed, that was the thinking behind the disastrous tuition fees pledge.) It might be fine as a strategy for perpetual opposition, for using parliament as a managed workspace for various lobby groups, but it is hopeless as a long-term foundation for political relevance and growth.

Third, define yourself on your own terms, rather than with half an eye on one of the other parties. Nick Clegg got it right in May 2011 when he said that 'realignment is a polite euphemism used by one party that wants to gang up on the other gang - with us as a temporary recruit'. Liberals need to stop making eyes at the other frontbenches and tend instead to their own philosophy and future. Let the newsrooms and House of Commons tearoom simmer with 'will-they-won't-they' coalition gossip. Stick to liberal principles and let the electorate decide. As Grimond himself said: 'There is no point keeping a liberal party alive unless it promotes liberalism.'

And it is Grimond's liberalism, not his political tactics, that ought to draw us back to him today - as IPPR director Nick Pearce suggested earlier this year. From one point of view, Grimond was clearly a 'small state' liberal. And he was always a hawk on public spending: he criticised Thatcher for not being more aggressive in terms of cutting state expenditures. He savaged what he called the 'conservative state socialist wing' of British politics. For him, the economic role of the state was to control spending and inflation, and to wage continuous war against the monopolistic tendencies of business activity. He was pro-market, not pro-business. He strongly believed that market-led growth contributed more to human welfare than welfare states, once declaring that venerable department store Marks & Spencer did more to help the poor than most social workers. (This was a while ago.)

But the best way to define Grimond's liberalism is in terms of opposition not to the state but to all forms of concentrated power. His liberalism was anti-corporatist. He fiercely opposed the power of closed-shop trade unions, which he likened to 'medieval barons, ganging up against the common people'. He demanded a shrinking of the state, including a shift towards greater means-testing of benefits; he called for significant devolution of power to Scotland and Wales. But was also sceptical of big business and worried about the power of commerce in a consumer society.

Grimond's hatred of nationalisation was matched by his enthusiasm for worker-owned firms. He wanted employees, not the state, to increase their share of ownership. Grimond wanted to protect workers 'against the tyranny of employers, trade unions or other associations' (the italics are his). And the best protection was ownership.

So he helped to found Job Ownership Limited (precursor of today's Employee Ownership Association), and described Mondragon-style shared ownership models as 'socialism without the state': in other words, the kinds of socialism liberals have argued for since John Stuart Mill. For Grimond, companies were part of society because workplaces are part of people's lives. So the firm could be one of the most important bulwarks of a more civic liberal society.

In terms of social policy, he combined support for more tolerant society (he was an active member of the Minority Rights Group) with a desire to focus welfare spending on the neediest and in a manner that promoted responsibility rather than dependency. 'We hear a good deal about Opportunity,' he wrote, 'but not so much about Responsibility, which is the other side of the coin.' He was a small-c conservative on the need to 'restore family life', although he said little more about this restoration was be achieved.

For Grimond, the great mistake of mid-century liberals had been to 'forget that man is a social animal' and to veer off towards a stark individualism that was out of step with the founders of British liberalism. But unlike his Labour colleagues, he did not believe that the state 'knows what is right and will pursue it and the individual will not ... If we must have high-sounding phrases I prefer liberty and fraternity to equality.'

Grimond did not look to the state to generate the conditions for a liberal society: 'Responsibility rests with the people - government is residual.' But nor did he think that individuals, acting entirely alone on selfish impulses, were likely to lead good lives. He was adamant that it was up to each of us to determine what to make of our lives. Alan Ryan's description of Mill applies equally to Grimond: 'He wanted volunteers for virtue, not conscripts.'

Grimond's liberalism was neither state liberalism nor laissez-faire liberalism. His was a civic liberalism, certain that individuals had to 'fix the ends of human existence', but attentive to the social and economic institutions - 'fraternity' - through which, in the thick of everyday life, each of us will make our way. He wrestled with an ancient liberal dilemma: how to support social and community institutions while protecting the right of individuals to determine their own ends. Institutions can oppress - as Isaiah Berlin never tired of reminding us. But they can also liberate.

Vitally, however, he did not think the state could step into the civic liberalism space. 'Good society' is one made up of good, free citizens - and the generation of goodness lies almost entirely beyond the reach of the state. The welfare state should be small and sharply targeted. Taxes should be low. Markets should be free. Even when he was tempted by state intervention - for example, to curb excessive advertising, for which he had patrician disdain - he recognised the need to resist. 'It would be an extremely delicate operation to cut out the bad and leave the good,' he wrote. 'I pin my faith on education and public example.' A Grimond liberal shares with a social democrat the temptation to order society into a better shape; the difference is that the liberal knows to resist it.

Civic liberalism is a political philosophy with a quieter voice than the shrill ideologies of left and right, and drowned out for much of the post-war period. But in a post-crash, politically fractured Britain, with politicians of all stripes looking for new approaches, Grimond's liberalism is worth resuscitating - not least by contemporary liberals. He lamented in 1959 that 'we were ahead of our time'. Of course, Liberals have been saying that for decades. Perhaps this time he was right.

This article first appeared in issue 19.3 of Juncture, IPPR's journal for rethinking the centre-left. It was previously published on the Juncture website in an edited form as 'Stop looking left'.