Stephen King: As New Europe and Asia grow, Britain is losing its influence

As Gordon Brown takes his leave of the Treasury and wanders up the road to Downing Street, he'll need to think more about the world, and less about the minutiae of UK public finances. The prime minster-in-waiting has always liked to play his role on the international stage but, as Prime Minister, he'll have to devote a lot more of his time to international matters. Top of his agenda will, no doubt, be Iraq, but there are plenty of other issues he'll be thinking about.

There is, for example, Britain's place in Europe. Membership of the euro is firmly ruled out, but what about Britain's influence in the continent's affairs? For an approximate answer, you have my daughter, Helena, to thank; or, more precisely, her geography teacher, a Mr Harris. He was the one who suggested Helena and her classmates conduct an analysis of voting patterns in last week's Eurovision Song Contest. Mr Harris clearly believed the voting would be biased, reflecting the jingoistic tendencies in individual countries.

Mr Harris appears to have been entirely correct about what might best be described as "love thy neighbour". The Serbs won, with heavy support from the other countries that once made up Yugoslavia (even though neighbourly love has sometimes been in short supply down their way). The Serbs were also helped out by other countries whose populations appear to have fond and long-lasting memories of the Austro-Hungarian and Ottoman Empires.

The Eurovision Song Contest is, of course, the apotheosis of high-camp triviality, so I wouldn't like to draw too many grand conclusions from last week's broadcast. And of those countries which gave the full 12 points to Serbia, not all are currently members of the European Union.

Nevertheless, the voting patterns show how Europe's political map has been redrawn since the fall of the Berlin Wall. This has all sorts of implications but, from Britain's point of view, the most obvious is a gradual loss of influence elsewhere in the world.

You can see this in a number of different ways. Attempts to change the European Union Constitution may have been opposed by the French and Dutch, but they might just as well have been opposed by the British. The EU now includes 25 countries and, for the six founding countries and Johnny-Come-Latelys like us, there's an inevitable conflict between our own sovereignty and the success or otherwise of the whole EU.

A desire to reform the International Monetary Fund to provide a bigger voice for countries like China is admirable, but reform will inevitably reduce the voting rights of others, the UK included.

A belief in the sanctity of free cross-border capital flows is difficult to criticise - it does, after all, create the conditions for a more efficient allocation of economic resources - but it's a conviction more easily upheld if all nations support appropriate standards for corporate governance, shareholder rights and legal due process. Those countries increasingly with the financial muscle to acquire foreign assets - China, Russia, Iran, Venezuela and others - don't exactly have a blemish-free record when it comes to the defence of property rights.

Gordon Brown has strong convictions in favour of free trade, but he knows that not all countries share his views. I've just come back from Washington where the mood is clearly shifting towards a more aggressive stance against China, which has replaced Japan as Capitol Hill's economic bête noire.

We may like to persuade ourselves that Britain is still Great - Tony Blair's Sedgefield resignation speech suggests the outgoing Prime Minister is convinced of this view - but, in reality, we are nowadays a modest nation. We may still like to preen on the international stage, but it's increasingly unlikely that other countries will treat us with the respect we sometimes think we deserve.

Of course, we're not the only country in relative decline. Speak to the Germans, French, Italians and Spanish and you'll probably hear the same lament. Speak even to the Americans, and you'll hear much the same thing. So why is there this sense of decay, this recognition that things aren't quite as good as they used to be? Why is there this feeling of disquiet when, in the words of Harold Macmillan in 1957: "You've never had it so good"?

Part of the answer comes from an extended version of Macmillan's comments. His famous remarks included a couple of questions. "What is worrying some of us is, 'Is it too good to be true?' or perhaps I should say, 'Is it too good to last?'"

A more precise answer, though, lies with the economic emancipation of billions of people who, previously, were under the yoke of Communism or some form of totalitarian regime. The Britain of the 20th century may have been a Britain facing economic decline, but it was a Britain which democratically demanded its rights, whether in the workplace or in hospitals or for those in retirement or ... the list goes on.

While we weren't in the business - at least for the most part - of denying rights to others, the barriers associated with Communism, totalitarianism and a lack of cheaply available information (no cheap international phone calls, no mobile phones, no internet, no e-mail, no CNN) left billions in the economic wilderness. It left the UK, therefore, with less in the way of foreign competition.

That's no longer the case. China, India, Vietnam and the many countries that make up central and eastern Europe are now making extraordinary economic progress. Freed from the shackles of state control, they're making their own contribution to the global economic order. This should be a matter for rejoicing. Many people in the west, though, are rather more circumspect. For some, the success of these emerging markets is less about economic emancipation and much more a threat to their own individual livelihoods.

This is, potentially, an unstable situation. As Niall Ferguson points out in The War of the World, economic volatility (in his words, "the frequency and amplitude of changes in the rate of economic growth, prices, interest rates and employment with all the associated stresses and strains") was a major contributor to the shocking upheavals of the 20th century.

I would add to his list the fear of growing income inequality which, in turn, creates a sense of alienation within individual nations. As Gordon Brown ponders his new job, he'll doubtless be thinking a fair bit about both the haves and have-nots. Globalisation brings many benefits - including a narrowing of income differentials across nations - but, as I've argued before in this column, globalisation also seems to create widening income and wealth discrepancies within nations.

What should democratically-elected politicians make of this dilemma? The biggest danger of all is that the whole edifice of globalisation crumbles, as developed countries attempt to protect their voters' (ie, workers') interests, and emerging markets compete for access to raw materials.

There are no straightforward answers. Nevertheless, there is undoubtedly a shift in the balance of global power affecting not just the UK but also the rest of Europe and, importantly, the US. The world is changing. Eurovision is just one sign of things to come.

Stephen King is managing director of economics at HSBC

stephen.king@hsbcib.com