Even governments will have to compete in the global economy

The effective government response to globalism will be to become, in a limited way, more global itself

IT WON'T last, will it? It is fascinating seeing how a talented and popular politician prepares for unpopularity. Tony Blair's speech to the Labour Party conference gives us all a glimpse of the way in which politics will increasingly have to respond to economic pressures in the next few years.

The thrust of the Prime Minister's argument was that government has to cope with profound economic change. Government's role is to live within that change, improving its own performance as a service provider and nudging the rest of us towards greater efficiency and greater social inclusion.

The usual way of encapsulating this argument is to talk about the limits of government in the face of great swirling global forces. There was a bit of that in Blair's speech - for example, the fact that 40 of the top 100 economies are companies, not countries, and that 90 per cent of new products were off the shelf in two years.

It so happens that this has been the week where the limits of national government have been particularly apparent. Thus the main global economic event of the week was the cut in interest rates by the US Federal Reserve, not a decision by the US administration. The main economic event here in the UK was the series of job cut announcements - but by multinationals rather than British firms, making that decision thousands of miles away.

But I think there is another and more interesting way of seeing this change in government than just as a still-powerful but declining institution trying to cope with forces beyond its control. It is to see government going from being a domestic organisation, operating solely within a country's national boundaries, to becoming an international one, seeking to operate around the world.

Odd idea? Try this analogy. A generation ago most companies operated mainly in their own countries. A handful of industries had become global - the oil companies, part of the motor trade - but most had not. Now the position is reversed. Most industries are, to a large extent, global and it is rather unusual to find one that is entirely domestic.

Government, on the other hand, has remained principally a domestic industry. Only the US really deploys much power beyond its boundaries. The decisions by our own government only directly affect the 58 million people here. If we don't like a British-made car we can always chose to buy a German one. But we cannot buy German social security, or American gun laws (assuming we wanted to). If we want a different government we have to move.

This will change. I don't mean that government will behave like a multinational, with subsidiary "factories" around the world, producing and selling its services. Rather, I mean that successful governments will be those which become successful traders in ideas, exporting good ideas about governance, importing good ideas from abroad, and building strategic alliances with like-minded governments overseas.

The UK became an important exporter of ideas in the 1980s with privatisation, and has become the main conduit bringing US ideas of flexible markets into the EU. The present government was an importer of US political ideas when it fought the last election, buying both techniques and policies from the Democrats. It may also become an important exporter with the "Third Way", a great piece of brand identity, assuming it can figure out what it is.

It has been fascinating to see the way in which politics in Germany and Japan are being transformed by Tony Blair. If you want to win an election, pick the guy whose style is closest to our Prime Minister. The German SPD did so with Gerhard Schroder, while the principal opposition party in Japan is lead by the young and attractive Naoto Kan, rather than the septuagenarians who run the LDP government.

So though there is no international trade in actual politics, in the sense that people in one country can vote for politicians in another, there is international trade in political style and political policies. Governments are perfectly free to put up intellectual walls - that is Old Labour - but the more effective governments will be those which buy and sell on the international market. Wise buying enables them to provide better services at less cost, or nudge the economy successfully to greater efficiency. Effective selling increases their influence in the world. The government response to globalism is to become, in a limited way, more global itself.

It is particularly important that governments should see their role as influencing the world beyond their own boundaries. The world economy has had an extremely successful half-century, built on the growth of international trade. For the first 30 years, that growth was mainly within the developed world, but over the last 20 years (and particularly over the last 10) the focus of growth has shifted to embrace the main developing countries, China and the former Soviet Union.

We now have - happening this moment - the first serious world economic downturn since that shift of emphasis occurred. As Blair said, 25 per cent of the world is in recession. He might have added that the bit that is in recession has very little experience of this sort of economic reverse. We know things go down as well as up, but countries like Malaysia didn't realise this could happen.

We are going to have a period - I guess three to four years - of continued economic tension until the next cyclical upswing takes hold. During this time some countries and some people within them will inevitably feel angry, miserable, destructive, and want to cut off from the rest of the world. If this is what globalism means, let's stay in bed. You hear it already.

Managing the world through this period is going to need governments which are both realistic and persuasive. There are probably some technical reforms that will need to be made to the world money system. Gordon Brown was touting one yesterday in Toronto - a standing committee on market stability. The French want reform of the IMF. Gerhard Schroder has suggested setting target zones for the world's main currencies. The Japanese want new rules allowing emerging market economies to impose temporary capital controls. And so on. If you are not already thoroughly bored by this talk of international monetary reform, you soon will be.

More immediate than these technical changes, whatever they are, will be the practical job of holding together the world economy so that countries do not slither into an unnecessarily deep world recession, cut themselves off from foreign trade, and lose confidence in the system which has made most people in the world richer and more healthy than ever before in the history of our species.

The world needs talented politicians who can explain what government can and cannot do, and it needs governments which are decent, honest and competent. Mr Blair is as good as, in fact better than, anyone else in the world at the communications job; and I suppose this government is in the top quartile on the decent, honest and competent league table. How he - and it - manage will have an importance beyond our shores.