The usual argument put forward for the assumed impact of "globalisation" is that:

1) "Globalisation", defined specifically here as greater competition from the NICs and the LDCs, has contributed to the widening in the income distribution through the impact on unemployment and wage inequality.

2) "Globalisation" imposes constraints on public policy, specifically in relation to levels of taxation, public spending and labour market protection. So Governments are constrained from using these public policy levers to offset the increase in inequality.

In practice if there is any impact from "globalisation", it is a marginal one. (1)

1) Since 1979 income inequality has increased significantly in the UK (2). In part this mirrors changes in the labour market, that is growing wage inequality and unemployment and inactivity. A progressive tax and benefits system would have acted to offset these changes in the primary distribution of income. In fact in the UK reductions in average tax rates for high income households combined with the failure to uprate all benefits in line with earnings has meant that growing inequalities in the primary distribution of income have been magnified so that the secondary distribution of household income has grown even more unequally. Indeed, changes to the tax and benefits system may have been more important that changes in the labour market in explaining growing income inequality across all households (3)

"Globalisation" enters via its possible impact on wage inequality and unemployment and therefore on the primary distribution of income. Competition from the LDCs may have contributed to a decline in the demand for Òless skilledÓ labour. However, unemployment is not more concentrated now on the less well qualified that previously. Employment has declined as fast for skilled manual workers as unskilled manual workers. The main parameters of the increase in wage inequality, which remains a relatively ill-understood problem, involve increases in within group inequality. For example the returns to higher qualifications have hardly altered, rather there is a great inequality within each education group.

Most fundamentally trade with the LDCs accounts for no higher a proportion of GDP now that 20 years ago. There will have been some impact of trade with the NICs/LDCs on certain industries such as textiles, clothing and footwear, but the decline of such sectors has been ongoing for decades - there is nothing new about this. That "globalisation" may have had this marginal impact represents, I think, the most common view amongst international and labour economists, though there are dissenters, notably Adrian Wood.

2) "Globalisation" presents almost no constraints on public policy in the areas mentioned.

a) Taxation
There are some trivial issues here, eg. the IFS thinks it unwise to push up taxes on spirits in case it encourages more cross-border shopping. More fundamentally it is hard to see how corporation tax levied on company profits can be expected to raise significantly more revenue.

In practice the actual incidence of employment taxes, such as employer NI contributions, falls on labour in the form of lower wages. If this is the case the overall level of employment taxes is not very relevant. Rather, a given wage bill - determined by productivity - can either be divided up into the private consumption which wages buy or the social benefits which taxes and social protection might buy. This choice is inherently a political one.

The level at which taxes are set depends on what politicians think they can get away with. Avoiding very high direct marginal tax rates is a good idea because of the possible impact on incentives and tax avoidance. However, there are plenty of ways to raise average tax rates through eliminating tax expenditures and of course it is average tax rates which determine the redistributive impact of the tax system. Andrew Dilmot has told New Labour of ways in which it could raise £20 billion in revenue, mainly through elimination of tax expenditures. These reforms would improve the efficiency of the tax system and not diminish it. New Labour will not countenance these reforms because it would mean upsetting significant parts of the electorate. This is fair enough as a political judgement, but they must not hide behind the fig leaf that "globalisation" makes these choices impossible.

b) Social protection
The actual incidence of most forms of social protection such as employment rights are also probably borne by labour in the form of lower wages. So again there is a political choice about how to divide up the gains in productivity between private consumption, public consumption and social protection.

In relation to the role of the EU, it should be emphasised that the specific measures which have been or will be brought forward under the Social Chapter of the Maastricht Treaty are likely to have very little effect on the UK labour market even if the UK signed up to its provisions. The most significant aspects of "deregulation" in the UK since 1979 have occurred in the fields of collective industrial relations and pay determination. In practice the European Commission has put forward no Directives which would materially affect these areas or require the UK to roll back any of the legislative changes made since 1979. Most EU Directives have had effects in the field of individual employment rights, have had nothing to do with the Maastricht Treaty, and have generally reinforced the tendency to codify these rights in the UK anyway in an area which has not seen any net deregulation. The British labour market was already less regulated in 1979. If inward investment is attracted to Britain because of a relatively less regulated labour market, these attractions were already there in 1979. What might have been off-putting then was the state of collective industrial relations, a problem now largely resolved. It is also worth noting that the European Commission has presented evidence that the UK has one of the best records in terms of introducing measures to implement EU Directives in the employment field.

One troubling aspect of this debate is that New Labour has signalled its intention to sign up to the Social Chapter even though it is largely of symbolic and not practical importance. When it comes to the changes in employment protection legislation which have occurred since 1979 Labour is now shying away from doing anything to reverse those changes even though it is an area where Brussels has no competence and the UK Government can do what it likes. Given there is no evidence that the pre-1979 system of employment protection had any adverse impact on employment it is not clear why Labour is not prepared to consider reforms. ÒGlobalisationÓ is largely irrelevant to this debate.

3/4) Clearly there is an issue of establishing the legitimate competence of the EU in these areas of social protection, social security, taxation and so on. Rhetoric aside it is clear that Brussels has accepted that it has a limited role. In the field of social protection if Germany wishes to take advantage of its higher productivity to offer greater social protection that is their business.

References
1 - The discussion draws in part on a report written by the author on the UK labour market written for the European Commission and due to be published by the Commission when they get their act together.

2 - As comprehensively documented by Hills, 1995.

3 - Johnson and Webb, 1993.