So, what kind of world will we be living in?

It will be global, flexible and big on services. But predicting the outline of our economic future is a tough business
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The Independent Online
It is always deeply shocking when a friend dies suddenly and young; and so it was with the death of Nico Colchester, the economic journalist, last month. The sense of loss came back yesterday when I read an article of Nico's, written only a few days before his death, in the magazine Prospect. It was about the global economy. Nico had identified five of the great forces for change in our world - just the sort of big idea I would have loved to discuss with him walking up the hillside in Scotland. Now I can't.

But I can give his views a wider audience. They engage in the argument set out on these pages three weeks ago by Ian Angell about the effects of globalisation: that it will result in mass unemployment for the unskilled and the slow death of the nation state.

Number one of Nico's five themes, five "realities" as he put it, was indeed globalisation. But it was not the "free market monster" that had "national governments in its grip". Governments still had options; it was just that they were judged on their performance. Globalisation would continue. But it no longer particularly took the form of international trade, for more and more goods were made locally by foreign subsidiaries. Protectionism is much harder to impose if the goods are being made in your own country by a foreign subsidiary.

Reality two was a result of the shift from manufacturing to services. The service sector no longer serviced the manufacturing economy; it was the economy. But this created a new set of issues; many services - health care, education, social security - are still in the public sector. The issue here is where the frontier should be between state and market, and between paid-for services and entitlements funded by taxpayers. To prevent a Soviet-style implosion, governments had to "find ways of combining social justice with the placing of more of these services in the economy of market choice, rather than the non-economy of entitlement".

Skills were number three. Not so much need for individual skills, but rather the need for clusters of competence: highly-skilled people working together as they do in Silicon Valley, the City, or in northern Italian towns. These groups benefited; old corporate hierarchies waned.

The impact of numbers one to three led to reality four: a rich nation's employment, though not its average wealth, depended on how flexibly its labour market adapted to these changes. The US was wonderful at creating new jobs, 26 per cent more since 1980. The EU had only created 8 per cent more jobs.

But if flexibility created jobs, it did not necessarily make a population wealthier, Nico's fifth reality. How does one explain that while GDP per head has risen sharply in the US, over the last 15 years, living standards for the majority have risen very little? Nico's explanation looks to the "collective productivity" of the whole society. This accounts for the fact that someone in a non-traded job like a bank clerk gets paid $78,000 a year in Switzerland, $28,000 in New York, and $8,000 in Rio.

Accept those five themes and what follows? Nico argues two things are needed. One, there has to be some greater element of supra-national authority, combined with the dreadful word "subsidiarity". Two, there has to be a combination of Anglo-American flexibility and Franco-German-Swiss collective productivity.

It is an interesting thesis, a much more sophisticated and ultimately optimistic one than "globalism is a threat to democracy". But he would have expected me to engage in the argument, to declare how far I would travel with him.

The short answer, Nico, is rather further. It seems inevitable that the advance of the global market economy will continue for at least one more generation, and that power will shift away from national governments. They will have to compete internationally in their quality of stewardship, just as company managers now do. This as a profound benefit: governments will have to lift their performance. Go to a car factory now, and compare it with one of the 1950s. It is vastly more efficient. Hear a debate in Parliament and there has been hardly any advance.

The shift to services? Yes, though I am uneasy about the idea that the area of entitlements constitutes a "non-economy". If people wish to pay more in tax and have more in public services, they can. The question is whether the public sector can learn to be sufficiently responsive to individual needs and desires.

Competence? Yes, absolutely. You would be encouraged by some figures I have just dug up from the IMF on trade in royalties and licence fees, the best measure of trade in intellectual property. In 1994 the US has the largest surplus, of $16.8bn. Number two was Britain, at $1.3bn. The largest deficits were Japan at $3.1bn and Germany $2.3bn.

Flexibility and "collective productivity", numbers four and five? Yes to both, but I don't see this as a serious conflict. We just have to learn from each other. The core conflict is between order and chaos. You need an orderly society to increase "collective productivity", for crime, excessive litigation, family breakdown (which is a freedom too) do make countries poorer. But you also need chaos to create ideas, to invent new entertainments, even to make people happy. As far as the figures show anything, the rich, orderly Japanese are less happy than the poor, disorganised Latin Americans.

But the most important point you make is that globalisation will continue. I could not agree more. The sort of political or military disaster that would check its progress hardly bears thinking about. It is dark, isn't it, trying to peer into the future? Thank you for your torch.

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