Myth of withering government

The world is shrinking fast. It was only in the 1970s that the share of trade in world output again reached the levels of 1913 under Pax Britannica and the Gold Standard. But since then, the international flows of goods, technologies, money and information have accelerated at an extraordinary pace, whether in the form of derivatives or Internet messages, satellite television programmes or patents for new drugs. Almost no area is immune. Even care for the elderly is being traded with providers in Spain for the British and in Greece for the Japanese.

Few dispute these facts. And few are unaware of the extent to which such things as currencies are now far beyond the sway of national governments, and not only because of currency dealers. Just imagine the implications for the monetary police if all 400 million Visa users took out their full credit limit at the same time.

But the real issue is how to interpret the political implications of these changes - above all, whether they necessarily imply an irreversible erosion of national sovereignty, and of the power of governments. For an important and recently re-energised strand of thinking on the right, the answer is an unqualified yes. With the election of Newt Gingrich, there is an evangelistic, even revolutionary will to complete the assault on the state started by Ronald Reagan and prove that big national government is as obsolete as the divine right of kings.

In Britain, a significant number of Tories, despairing at the vacuum of ideas and lack of direction since Margaret Thatcher's departure, are singing a similar tune. Books such as Things to Come by John Patten, the former Cabinet minister, and Saturn's Children, by the Tory MP Alan Duncan, published today, offer clarion calls for a new offensive against big government, setting what could be a dominant tone in a Portilloite Tory party with their suggestion that Thatcherism in the 1980s was not too radical but too timid.

These views may seem extreme in the context of the present "Blajorite" consensus. But the belief that global forces are destroying the foundations of government is widely held, even on the left, where it has become almost axiomatic that government has virtually no room for manoeuvre.

Yet on almost every count these arguments are wrong. They confuse the obsolescence of particular tools of government with the obsolescence of government itself. They confuse disenchantment with the current forms of politics with a turn against politics in any form. And they blithely ignore the extent to which in many ways the world is a far more governed and regulated place today that it ever was in the past.

For what has happened in recent decades is not a whittling away of a once supreme state, and an intact virgin sovereignty, but rather a series of shifts in what governments can do.

Take defence, for example, the classic role of government. Far from giving up, or even privatising their armies, governments are much better at protecting their citizens against invasion than ever before. They achieve this not by the old means - big national armies, martial cultures, the protection of territory - but rather through pooling their power in bodies such as Nato, and through sophisticated structures that build trust; for example, the paraphernalia of mutual surveillance that allows erstwhile enemies to inspect each other's chemical weapons or nuclear sites, or observe troop movements. Clearly, as Bosnia and Chechnya prove all too well, war has not come to an end. But for much of Western Europe, North America and, hopefully, East Asia, the problems of external security have been effectively solved as governments have learnt how to extend, and share, their powers.

Or take policing. Government may be worse at guaranteeing internal security in gang-ridden south Los Angeles, or when confronted by the terrorists behind the Oklahoma explosion or the Tokyo underground attack. But in most respects modern governments have vastly more power than ever before to monitor their citizens, with the help of sophisticated computers, DNA testing, closed circuit TV in every shopping centre, and far more cross- national co-operation. As every criminal knows, PC Plod has been replaced by a system that observes who you phone and where you spend your money; hardly the symptoms of a state that is withering away.

Or take economics. It is true that governments can't control the economic weather (they never could). Nor can they overtax mobile assets. And they can't pursue fiscal policy in isolation. But by historical standards they're far better at achieving prosperity for their citizens than ever before, partly because they have developed new tools in technology policy, training, competition and consumer policy, and learnt how to pool their powers through bodies such as the IMF, the European Union and the World Trade Organisation.

Indeed, what is most striking about modern government is not its narrowness but its extent. Even supposedly deregulating governments seem to grow inexorably. In Britain, for example, recent years have seen a steady extension of the reach of government into fields such as childhood (through the Children Act and the Child Support Agency), the environment (through, for example, the National Rivers Agency) and even such minutiae as regulating the number of doors in nursing homes between the lavatories and the kitchen.

Some would argue that this is precisely why we need a truly energetic liberation from the state. No one likes an intrusive, bossy bureaucracy. But governments of all persuasions introduce so many regulations, and sign up to so many shared rules on everything from trade to extradition agreements, because the world is, for better or worse, more interdependent and interconnected than ever before.

We have a CSA because personal choices in family life affect public budgets, and we have rules on emissions because business choices in a Czech factory influence the quality of life in suburban Sweden. In other words, the great tendencies of our time make it harder, not easier, to retreat into the kind of world - pre-urban and pre-industrial, where individuals could really stand on their own - idealised by Thomas Jefferson and so many of the new right philosophers.

But what if people, nevertheless, want less government in the future? Advocates of a minimal state make a powerful case that global economic trends are rupturing the social solidarity on which the welfare state was founded. More open markets, we are told, are undermining the wage difference between British factory workers and their equivalents in China. At the same time, the importance of skills is driving up the relative pay of those with degrees and qualifications. The creation of a global market for top executives is one consequence; you will recall the arguments used to justify Cedric Brown's pay increase at British Gas.

For a time, national bargaining systems and generous welfare states could disguise these pressures. But the cracks are widening, above all because the middle classes now have far more incentives for opting out of subsidising their unskilled compatriots. The implication is that the demand for public goods will steadily wane, as people buy their own learning, health care or insurance on an open world market.

Many recent statistics seem to confirm this view. During the 1980s, pay differentials grew in 12 out of 17 OECD countries. It is no more possible to escape competitive pressures now than it was in the 18th century, when British textile workers lobbied for protection from Indian imports. Millions of unskilled men have become virtually unemployable, at the same time as private spending on health, pensions and education has rocketed.

But, contrary to the conventional wisdom, it is not only unskilled assembly- line workers, but also managers, designers, architects and accountants who are experiencing the chill wind of competition. Although it is generally assumed that information technology poses the greatest threat to unskilled workers, elementary economics shows that in the long run technology will tend to replace the scarcest resource, not the most abundant. In other words, there are far more incentives for replacing an accountant with an expert system than there are for automating the work of an unskilled garage attendant.

While rising poverty may encourage people to take more care of their own pensions or education, this is not the end of the story. Faced by insecurity and social fragmentation, the odds are that people will look to governments to make them feel safe, to strengthen their communities, to foster a sense of belonging and cohesion. This is not to say that governments will be able to guarantee security. They won't. But they will still have sufficient tax revenues, and sufficient tools, to meet a range of demands from eldercare to child care better than any of the available alternatives.

In a sense, we have been here before. In the 1980s, both Reagan and Thatcher promised to roll back the frontiers of the state. Instead, they left office with public spending as high as ever, having learnt that the only thing the public likes less than a tax rise is a cut in public spending. This is, of course, why the real debate has moved on, and why welfare systems, competition policy, broadcasting regulation, family policies and education are all being reinvented. In many fields, too, governments are learning new tools: above all, perhaps, that policy success depends on influencing how people behave, whether in relation to recycling and energy use, neighbourhood watch schemes, or parental responsibility.

In his Six Memos for the Millennium, Italo Calvino brilliantly described the qualities of the next century as lightness and quickness, exactitude and multiplicity. These qualities are the very opposite of those of 20th- century bureaucratic government, which is all too often heavy, slow, imprecise and standardising. But in the right circumstances, governments have always been able to innovate. Even in the past few decades, they have pioneered such mould-breakers as the space programme and the Internet. And during the 1980s, nimble reforming governments disproved the conventional wisdom that inflation was unbeatable and that fundamental tax reform was politically inconceivable. The crucial lesson seems to be that, like the best businesses, governments can, if they wish, become far leaner and more effective, lighter and quicker, than the monolithic bureaucracies of the past.

No one should underestimate the energy of globalisation. Only now are multinational firms such as Ford fully integrating their operations. Only in the 1990s has the ex-Communist world been integrated into the world market. Only now are services really going global (as firms like Blockbuster Video or Seven-Eleven testify.).

In such a world, governments can't easily insulate their economies, or regulate flows of information. But it would be disastrously wrong to conclude from this that government is disappearing. Worse, it would be a self-fulfilling prophesy. If politicians come to believe that they can do nothing, they probably will do nothing. If they conclude that there are no solutions, then problems will go unsolved.

The result of this would not be a new world order of free and open markets. Instead, if insecurities are left unattended, politics would acquire a harsher and more xenophobic character. And if politicians really do give up, and misread the world they are operating in, then the distopian visions of anarchic capitalism, rampant transnationals and withering governments that are convincingly painted by authors as different as Marge Piercy and William Gibson will indeed come true.

But there's nothing inevitable about the end of government, any more than there is about the end of history or the end of geography. The inexorable certainties of the new right are no more convincing than the inexorable certainties once propagated by Marxists. Globalisation is with us, probably for good. But it is a globalisation in which collective judgements and choices are more, not less, important than ever before.

Geoff Mulgan is Director of Demos.