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Will Technology and Global Capital Markets Change the Scope of Government?
By Martin Wolf
Introduction
Many libertarians—or, as people from the other side of the Atlantic would call them, "classical liberals"—hope that the combination of the globalization of finance with the onset of new technologies will transform modern government back into a night-watchman state. What to liberals is a hope, to others is a source of great anxiety. But both the hope and the fear are exaggerated. The changes now under way will have an impact on government. Of that there can be no doubt. But the belief that a drastic reduction in the scope of government is preordained is almost certainly wrong.
One reason for this conclusion is that globalization is chosen, not imposed, like some deus ex machina. After World War II, the world witnessed what amounted to a competition over economic freedom. By the 1980s, it had become obvious that the market economies had outperformed the controlled economies. That realization led to a worldwide move toward market liberalism, the most dramatic example being the collapse of the Soviet empire. A particularly important component of this worldwide transformation was liberalization of exchange controls. Development of integrated global capital markets was then the result. While technology played a part in that development, it could not have happened without policy choices. Thus, globalization is best understood as a consequence of decisions to limit government intervention.
Some people have a different, quasi-Marxist, view. They believe that the new technological basis of the economy will compel a radical transformation in the state superstructure, because the state is ineluctably losing its capacity to tax and regulate. People who hold this view think that the ability of governments to control resources is collapsing, either because those resources are much more mobile than hitherto, or because they are more invisible to the authorities, or for both of these reasons together.
The proposition that the lessons of experience have persuaded most countries to move in the direction of liberalization and that globalization is the result is incontrovertible. That technology preordains a radical diminution of the power of states is quite another matter. To explore the constraints imposed upon—or chosen by— governments, attention will be paid below to three aspects of government activity: taxation, income redistribution, and macroeconomic management.
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