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Given Thatcher's own ideological bent, the second consequence of German reunification and the collapse of communism was deeply ironic. Both she and Ronald Reagan had spent the 1980s attempting to re-invigorate western capitalism by liberalising markets and making life more difficult for organised labour. Even so, there were limits. One was physical: there were large chunks of the world where capitalism's writ did not run and as a result the direct pressure on wages in the west from low-cost competition in the rest of the world was far less pronounced. A second was political: the existence of the Berlin Wall was a constant reminder that there was an alternative to the west - however economically inefficient and politically odious it might be - and it was therefore important for liberal economic policies to recognise this as a constraint. This meant there were certain no-go areas for policymakers concerned that people in the west would become more sympathetic to left-wing ideas if they were pushed too hard. Thatcher, for example, might have considered the NHS to be a lumbering relic of 1940s collectivism but she was cautious in her attempts to tamper with such a totemic symbol of the post-war social democratic consensus.

Both these constraints have now been removed. The past 15 years have seen the market arrive in the countries of the former Eastern bloc, a massive acceleration of liberal economic reforms in China, and India move away from a command economy. Nor is there any longer a need to keep the workers in the west sweet. Capitalism is now the only game in town, and the attitude is that those who don't like it can lump it. When there was a risk, however small, that people in the west might be seduced by communism, social democracy was an insurance policy. Now it is seen as an impediment to the more efficient application of the market. Politics in the west has adjusted to this new reality, with parties of the left far more aggressive in their embrace of the market than Thatcher and Reagan were prepared to go in the 1980s.

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Yet the ability of politicians in the west to push through reforms is limited by the need to remain in power. There have been plenty of straws in the wind recently that suggest a backlash against globalisation: the result of the German election; the no vote in the French referendum; the retreat of George Bush on social security reform; the Schumer-Graham bill that proposes tariffs on Chinese imports into the US. Attempts are being made in London today to keep global trade liberalisation talks alive with a meeting involving the US, the EU, Brazil and India; the reason progress is proving so slow is that grassroots protectionist sentiment is growing in the west.

Stephen King, global head of research at HSBC, has an explanation. "Globalisation," he argues, "isn't just a story about a rising number of export markets for western producers. Rather, it's a story about massive waves of income distribution, from rich labour to poor labour, from labour as a whole to capital, and from energy users to energy producers. This is a story about winners and losers, not a fable about economic growth." Redistribution of income from workers in the west to workers in low-income countries has come about both through capital leaving high-cost sites in north America and western Europe for low-cost greenfield sites in Asia or eastern Europe, and through labour coming in the other direction. The rise in immigration has helped to keep downward pressure on wages in the west. Within western economies, labour's weak bargaining position has meant capital has been able to increase its share of the cake.

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