Podium: How to respond to globalisation

From a speech by the Shadow Chancellor, delivered last night at the Adam Smith Institute in London

SOME COMMENTATORS love globalisation rather as football pundits love the FA Cup Final. What is globalisation? There are several strands to it. The most obvious is the exponential growth of the financial markets in recent years. Every day, about $690 billion is traded in the London foreign exchange market, the largest of its type. Globally, around $1.5 trillion is traded each day.

The creation of worldwide markets for media, and the development of technology to transmit images across the world has tended to lead, some argue, to a standardisation of our cultural experience through media with a world- wide reach. This is the world of international brand-names and universal products - of Coca-Cola, the BBC and CNN.

But the glory of globalisation is that it enables others to share in what is distinctive in different cultures. After all, we don't need to go to Bangkok to eat Thai food today. You don't need to go to Beijing to hear Chinese opera. But whether you judge the particular effects to be good or not, they are part of a process which is both unstoppable and, overall, benign.

The gradual entrenchment of English as the global language of business means Britain is optimally placed to gain from the expansion of the Internet and other communications. Recent British film and music successes reveal an international appetite for English-language productions.

Culturally, there are several historic characteristics which allow Britain to embrace globalisation with confidence. The early rejection of the medieval suspicion of innovation in favour of an enlightened culture which valued scientific discovery and commerce; the growth of English individualism, which placed great emphasis on the ownership of property; the pioneering of a free-trade philosophy in Scotland following American independence; the industrial revolution. Making the most of progress has been a great British strength.

In political terms, the Internet has made it harder to suppress information and scrutiny. Investors are also more aware of where to get the best return for their money - a factor which has favoured governments which run competitive tax regimes. Countries with low or falling tax rates, such as New Zealand, have continued to enjoy increasing growth - while high-tax, high-spending European economies falter.

Facts like this have made it difficult to sustain the view that high taxation is practical any more. Tax capital and it runs away. Tax labour and property and the return on capital investments drops, forcing investors to look elsewhere. It should mean the end of the road for high-taxing governments. Globalisation hasn't changed the laws of economics - it has brought them into sharper relief.

To put it far more succinctly than most of its proponents do, the Third Way is the idea that one can maintain economic dynamism - which depends upon low tax and sensible regulation - at the same time as comprehensive state-provided social protection - which requires high tax and high regulation. If you chase the end of the rainbow long enough, they think you really will find a pot of gold.

The Third Way seems to be based on mere assertions: the economy is more international, therefore government and legislation should be more international. It assumes blithely that multinational corporations must be constrained by multinational government. These are essentially statist assumptions, seeking to cap globalisation with bigger government.

Globalisation has put into sharp relief limitations to government. Socrates' doctrine that the basis of wisdom is knowing the extent of one's ignorance is a good one for governments. Good government knows its limits.

Globalisation does not need over-arching, one-size-fits-all solutions. A global economy requires co-operation, but co-operation between accountable national governments, if it is to retain the confidence of voters. It does not require the national governments to be subsumed.

Our response to the global economy should build on accountability and flexibility. It should set local conditions which encourage global forces to see Britain as a benign environment. It's a far cry from global governance, which has no cultural or democratic resonance. It reveals a fundamental concern about the prospect of European political union - the absence of a meaningful connection between the decision-makers and the voters. It's a crucial link. It should be the basis of the national response to globalisation.