Hamish McRae: The Government talks a good game on globalisation. Will it get round to listening?

A government with Gordon Brown as Prime Minister would be just as business-friendly, maybe rather more so, than one with him as Chancellor. That at least was the message projected to some 70 business leaders, plus a handful of journalists, who attended a "Business Advisory Summit" on globalisation at the Treasury on Friday.

The idea of getting leading business people inside the Treasury tent must be a sensible one, for it gives them the opportunity to flag concerns, which can then be followed up in more detail at a later date. It was also a good day to have the seminar, as it coincided with the publication of the Varley Review on business taxation, the aim of which is to try to improve the relationship between large companies and the Revenue, and in particular to give more certainty on tax matters.

The review proposes an advisory board for large businesses, the general idea being to step back from the more combative relationship that has developed between the business community and the Revenue in recent years.

You could say that this is just window-dressing and that the present difficult relationship between businesses and the Revenue was created by the Chancellor himself. By making the tax system much more complex, which created more potential loopholes, and then by putting pressure on the tax gatherers to shut those loopholes, he damaged what had been a good working relationship. The suggestion a few weeks ago by our largest bank, HSBC, that it might consider moving its headquarters out of Britain, will certainly have concentrated the Treasury's collective mind.

But at least the Chancellor is admitting there is a problem and has come up with a framework to correct it, and that deserves some credit. The review was greeted on Friday as "a step in the right direction" by accountants Ernst & Young, which just about sums it up.

The background theme to the seminar was globalisation: how the whole movement needed to be defended and indeed explained - and how the UK might respond better to it.

There is certainly a problem of perception: one of the problems was that although both the "old" developed world and the new entrants to the global economy benefited, there were some losers. And as one participant said: "Even the winners feel they are losers."

It is not hard to see why. As a general rule, globalisation reduces inequalities between countries but increases inequalities within them. The developed countries gain because everyone is able to buy cheaper imports. However, the low-skilled suddenly find themselves competing against people from the other side of the world who will do the same work for lower wages.

How to maintain social cohesion under these pressures is crucial to maintaining support for an open world economy. One participant at the Treasury summit - held under the Chatham House rule, which provides anonymity in return for frankness - argued that government alone could not do it; there had to be help from private companies and not-for-profit institutions. I agree. It would be discourteous in a meeting inside the Treasury for anyone to say that government could not be trusted to "sell" globalisation, but I think everyone accepted the need for the rest of the community to play a role.

I am appalled at the way some charitable organisations make blanket attacks on globalisation, when it is the very force that is lifting hundreds of millions of people out of poverty. To advocate the alternative, which is protectionism, shows no knowledge of the reasons for the catastrophic breakdown of free trade in the 1930s. In the phrase wrongly attributed to Samuel Johnson, the road to hell is paved with good intentions.

If it is going to be hard to maintain an open world trading society, it will be hard for an open economy such as our own to maintain its competitiveness. What can we do that people on the other side of the world cannot do just as well - people who are just as clever and who are motivated to work harder?

This is not a problem just for Britain; it is one for the entire developed world. The G7 share of global GDP has been falling by one percentage point a year (see first graph), while the largest challenger to the G7, China, has been maintaining a growth rate of just under 10 per cent for 30 years (middle graph).

Mind you, it is important to remember that foreign companies, mostly US ones, have been the principal drivers of Chinese export growth (third graph), and a question for Britain is whether we are playing a sufficiently large role in investing in China - and indeed in India.

What did emerge from the summit was an awareness that taxation and regulation are important tools in international competitiveness. The point was well made that we had to do something about the piles of regulation that were inhibiting some areas of business. But I am not sure the Government really gets it. Talking privately to one British company leader afterwards made me more aware of the level of anger in the business community about the burdens this Government has placed on it.

A concern about education at every level also emerged. One criticism was that our education system produces too many students taking what seem to be the softer degree courses, such as leisure studies, instead of the harder science ones. But education responds to demand and you could argue that over the next 30 years we will need more people who can run health clubs rather than keep production lines going.

The truth surely is that we do not know what the jobs of tomorrow will be. But we do known that the only way to respond to the pressures of globalisation - and to benefit from its opportunities - will be to drive upmarket. And that means not only a more skilled workforce but a more adaptable one.

Productivity is closely related to the skills of the workforce and we do clearly have a problem here. But flexibility will matter more and more: people have to learn new skills, as well as developing any latent talents for starting new businesses.

This happens to be entre- preneurship week, and while I can't make my mind up whether a government initiative can really increase the supply of people who want to set up a company, there's no harm trying.

Anyway, it is a novel idea for this Government to want to listen. Maybe it doesn't really. One business leader told me quietly that this is a government that cannot make any decisions until its own leadership is settled. Doing nothing is worse than moving forward or back. Everything is on hold. He found it hugely frustrating.

So does someone else. Roll on next May - or whenever.

The man who made the markets king

The death of the Nobel Prize winner Milton Friedman last week sparked the inevitable assessments of his work. He was arguably the most influential economist of the second half of the last century, for he gave the intellectual basis for the now completely accepted view that the market is a better basis for economic management than government planning.

He also developed the idea of using monetary targets to curb inflation - a policy adopted by most central banks, including the Bank of England, during the 1970s and 1980s. Monetary targets were the big guns that shot down the soaraway inflation of those decades. They were pretty crude but they provided the discipline that had been lost when the post-war Bretton Woods fixed exchange rate system collapsed in the early 1970s and the world moved to floating rates.

Much is made of Mr Friedman's influence on Ronald Reagan and Margaret Thatcher, and his "Chicago School" did indeed give a theoretical grounding for the rediscovery of the importance of the role of markets in economic policy that took place in both the US and UK.

It is quite hard to remember that we used to think it normal for governments to set a particular growth rate and plan how to achieve it, or to try to fine-tune economic demand by raising or cutting taxes. It is also quite hard to remember that no one was supposed to have a pay increase of more than £6 a week and we were allowed to take only £50 a year out of the country to spend on holiday. Multiply by 10 to convert to today's money.

But I think we will eventually see the influence of Mr Friedman as going far beyond the US and UK. The late 1970s saw the start of the greatest economic revolution of all, the one taking place in China, where he gave a series of lectures in 1980. A similar revolution was to take place in India, which also adopted market-driven economic policies.

No single person has been responsible for what we now call globalisation, but Milton Friedman may come to be seen as the most important mind in shaping our present global economy. That is influence indeed.

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