The end of the Cold War has destroyed old ideological and military alignments and it is no longer so clear who our friends and enemies are; yet adjustment to this new, more uncertain environment has scarcely begun. The centre of gravity of the world economy is shifting to the Asia Pacific region,which is still in the periphery of British political vision.
Global interpretation of markets and the mobility of capital have recast the meaning of the national state and international competition. The communications revolution has made language and culture central to trade and influence; yet the British, unlike the Americans or the French, seem only dimly aware of what is at stake.
These issues crystallise around the question of what our 240,000 servicemen and women, our substantial intelligence capability and our 215 British overseas missions, are actually for.
At a major conference this week the Prime Minister and Foreign Secretary have adopted the commendable if risky strategy of throwing this question open to public debate. Perhaps they genuinely don't know the answer; at the very least they are offering an opportunity to challenge some sacred cows.
In the field of security and defence the central problem is the precariousness of the Atlantic Alliance.
It was inevitable that, after the Cold War, the Americans would reduce their ground troops in Europe and rebalance their commitments. Less predictable was the insularity of the Clinton administration and US opinion, and the inability of West Europeans to respond rapidly and competently to the crises thrown at them - notably in Yugoslavia. Within a few years the Atlantic Alliance could become decorative.
The British have tried to insulate themselves from this reality by taking refuge in the belief that they have a special relationship with the US. The hollowness of this belief has been brutally exposed over the past few weeks.
One serious casualty in the longer term could be the Trident-based independent nuclear deterrent. It was conceived in a different context, of a superpower which no longer exists. The Americans will not now let British sensitivities get in the way of a comprehensive nuclear disarmament deal with the Russians. The British might simply have to be dumped.
There are other options. A British "last resort" deterrent might be built into the embryonic European defence "pillar" which, of course, involves Germany. At present such radical ideas are not being discussed, but they soon may have to be.
Another sacred cow is Britain's remaining claim to big power status; its permanent seat on the Security Council. Britain's status has not, so far, been seriously contested. But there are now other countries which have greater economic importance (Japan, Germany) or increasingly see themselves as major powers (India; Brazil).
A forward-looking policy would anticipate any future embarrassment by floating alternatives such as an alternating French-British seat. But merely raising such an idea points to the central weakness in Britain's position - an ability to reconcile a British and European identity.
Underlying both these specific issues is the more fundamental one of how much the British are willing to spend on military security. Traditionally Britain has spent more of its GDP on defence than most other European countries - the fourth highest in Nato. The commitment has been sustained by the sense of national self-esteem created by the armed forces which have a remarkable record in war, largely uninterrupted from the Napoleonic Wars to the Falklands and the Gulf. Very few British adults under pensionable age have been anywhere near a battlefield, except on holiday, but this doesn't stop us all enjoying a vicarious sense that war is something the British have always been good at.
But to the extent that anything is clear in the post Cold War world, the prospects are not reassuring. Military demands may be more, not less, costly than before. Because of diminishing American protection for Europe, and potential threats from a widening range of countries with weapons of mass destruction, we may need to have more varied and expensive defence commitments.
Moreover, the political pay-off will be small since the main demand may be for multilateral peace-keeping operations.There are already 3,900 British troops in Cyprus, Kuwait and Yugoslavia. But such work is unglamorous and potentially costly in lives and money and beset by confused command structures. British public opinion is not being well prepared for the change.
Nor is it well prepared for the second big challenge: the radical change in economic geography. A generation of effort has gone into developing commercial links with Europe with such a degree of success that well over half of British exports now go there, a proportion close to those of France and Germany. This silver lining is, however, part of a cloud; the fact that Western Europe is now one of the slowest, not the fastest- growing, parts of the world. Economic dynamism has migrated to the Asian Pacific. Asia no longer consists of far away countries with lots of very poor people. Not only Japan but also Singapore and Hong Kong have overtaken Britain in terms of living standards. Britain's most rapidly growing export markets include Malaysia and China and arguably the big future trade and investment opportunities lie with them and with India, Indonesia and Korea.
This new configuration presents two particular difficulties for Britain. One is diplomatic. There must be a redirection of effort. But such is the crippling effect on the European political debate that such arguments are interpreted as "anti European". Such is the suspicion of Britain in Europe that a sensible British emphasis on wider global multinational approaches to trade and investment is now treated as an attack on the European ideal.
The other problem is psychological: lack of humility. We continue to approach countries outside the rich world armed with a belief in the universal applicability of Westminster models of democracy and human rights (or what the Government calls "good governance"). This belief has jarred badly, especially in Asia, where the correlation between economic performance and liberal politics is weak.
If Britain is to be taken seriously there and more widely it has to be seen as a serious, successful economic player. Indeed, the most fundamental constraint on what we can do in external policy is what we can afford. Economic performance rather than high diplomacy is what now drives foreign policy and creates influence. The dominant economic trend has long been relative decline after the hegemonic imperial capitalism of the 19th century. The popular imagery of a country "punching above its weight" reflects the fact that Britain has been falling through the weight divisions.
There is, however, a sense in which fatalistic acceptance of relative decline is a thing of the past. The globalisation process - characterised above all by highly mobile international capital - is creating a new set of ground rules for competitive performance in which Britain is in many respects ahead of the game. Britain has scored highly in inward direct investment and overseas investment by British companies. Britain has been attracting 40 per cent of manufactured exports, 17 per cent of manufacturing jobs and 33 per cent of UK capital expenditure
Japanese management and capital in particular have transformed industries such as cars, computers and consumer electronics that were approaching extinction a decade ago.
At the same time, native business has adapted relatively well to the new reality of intense international competition where capital and technology have no fixed abode. There are world-class companies in manufacturing - chemicals, especially pharmaceuticals, oil, food-processing and aerospace - and more in services; not just in the Square Mile but in advertising, retail telecommunications, aviation and music publishing.
The policy revolution of the Eighties was largely about coming to terms with this globalisation process and it has been partly successful in stemming relative decline (in relation to manufacturing productivity growth, for example). But any sense of complacency is not in order.
Comparative reports stress with monotonous regularity that British physical infrastructure is in relatively poor shape; there are relatively low training and education levels among poor people, and investor confidence is brittle, with particular uncertainty over Britain's role in Europe. Unless these attract serious attention quickly, the pervasive sense of gloom and failure which characterised the Seventies will return with a vengeance.
The process of globalisation which is so intensifying competition is also creating opportunities. Rapid and easy global communications create a need for a common language, which is ours. Perhaps some 20 per cent of the world's population now speak English, which is the official or semi-official language in 70 countries. No doubt this owes much to the influence of the US but it has created an important niche for Britain.
English language training has become big business. One of our more successful nationalised industries, the BBC, has by far the widest reach of any international broadcasting network, with 130 million listeners. There is also a large, interlocking network of creative activity in the arts, popular entertainment, publishing and media worlds. British pop singers' royalties alone now earn in exports more than the steel industry: £1.4bn per annum. British creativity, culture and language is a major and growing source of international comparative advantage, though it is rarely recognised as such. And official support is fitful at best.
However, it belittles "culture" to treat it as a line item in the balance of payments. It is at the heart of what we mean by national identity and citizenship. The role of Britain in the world ultimately comes back to how British people see themselves. There are competing visions. One is cosmopolitan and outward-looking. It values the variety of British society and the overlapping European, transatlantic and Commonwealth networks. The other is mean spirited, resentful of external influences and internal diversity, and inward-looking. Whichever of these tendencies prevails will shape, much more than the mechanics of government policy, Britain's international role.
The tensions between these two views are most apparent in the argument over Europe. It is not being conducted in private. Like a blazing row in a small flat with thin walls, the British debate, including its slighting references to other Europeans, is being heard by the neighbours who are, understandably, not amused by what they hear.
While this issue remains unresolved, how we respond to the new security environment, the changing international balance of economic power and the consequences for Britain of global investment competition and communications systems remain largely unaddressed: at potentially great cost.
Vincent Cable has written the background paper for the Britain in the World conference in London on Wednesday, organised by the Royal Institute of International Affairs and the Government.Reuse content