A couple of months ago, the IMF’s monthly "Finance and Development" published an interesting article on Adam Smith’s "invisible hand". It states the concept is only used once in Smith’s famous book on The Wealth of Nations and only later began an "inexorable march upward" to become a dogma of capitalism and economic freedom.

What Smith wrote was that by supporting domestic instead of foreign industry, the entrepreneur only intends his own security, and that by seeking the greatest value, he intends only his own gain, "led by an invisible hand". Hence, no magical force, but the determination to direct industry toward the greatest value. This soon became: ‘capitalism is nothing more than economic freedom’. No state intervention, just leave capitalists do what they do best. If left untended, capitalism works.

One of the authors who pushed this thinking to its outer limits was Friedrich von Hayek. According to Hayek, markets led to a spontaneous order, and all ideas that intended to disrupt this order were inevitably a road to servitude. Hence, social justice measures, such as a minimum wage, for instance, were to be excluded in all cases.

Of course, everyone knew that the idea of an undisturbed "free" market was a total illusion, but one acted "as if" so as not to upset the interests of a growing and profitable economic class.

With the emergence of development economics, however, economists had to admit the "invisible hand" did not work in circumstances other than those of their own rich countries. After de-colonisation, a special "development economics" was indeed proposed so as to take into account the interests of so-called "under-developed" countries. Economists knew that the rules of the economy in rich countries could never give the same results in poor countries.

And strangely, this viewpoint disappeared with the emergence of neoliberalism in the 1980s and 1990s. The IMF itself played an important role in this. All of a sudden, there was but one single economic policy available. There was but one single market, a global market, and all had to follow the same rules.

What precisely the IMF and the World Bank have been doing these past decades was to hide the invisible hand and steer market forces to where they thought they were most useful. Neoliberalism promoted "free" global markets and reformed state institutions. It gave public authorities a different task: no longer to promote the common good or ‘mutual interests’, but the protection of markets and market players, the protection of property rights and of competitiveness. Even poverty reduction and now "social protection" are at the service of markets.

The end of globalisation

What the IMF is proposing today fits perfectly well with the policies of the new US President. With the tariffs announced on April 2nd, Trump officially makes an end to globalisation. Domestic interests prevail, and other countries will have their goods taxed if they want to enter the United States.

The reason for this is simple. Globalisation started when the US and other Western countries had power and were able to dominate global markets. With the emergence of Southern countries, from Japan, Taiwan, and South Korea to China, India, and Brazil, this domination is now threatened. When market players are offered a huge global and very unequal market, they know where to produce and create "the greatest value". So-called "free trade agreements" were made precisely to make this possible. That is where the US trade deficit comes from. Globalisation has always been based on inequality. There is no reason to produce in Mexico or China if wages are not at least ten times lower than in rich countries and goods cannot be imported free of tariffs.

So yes, Trump is right if he wants to try and correct this diabolic mechanism. But he is very wrong when he thinks he can solve this with tariffs and protectionism.

Two things seem to be forgotten in this whole exercise. One, the task of public authorities is to take care of common interests, sometimes called "the common good", that is, the interests of the whole population. Hence, the protection it offers to its corporations and the social justice measures it takes for workers and for the poor. In this context, it should never be forgotten that international trade, which has always existed, can indeed be mutually beneficial. Free trade negotiations should be concerned with precisely this: seeking where the exchange of goods and services is beneficial to all partners concerned.

Not taking into account these two basic requirements, the common good and the mutual benefits, can only lead to conflicts.

Lessons for all

Trump’s tariff policies are very dangerous. First of all, they can work as a boomerang if countries develop their economies and their international trade away from the US. At any rate, imported goods within the US will become a lot more expensive. Inflation will not disappear, and poverty can rise. Capitalists will undoubtedly find ways to escape. It is striking to note that capital markets have not (yet?) been touched.

It is perfectly possible to maintain a healthy global market if its limits are clearly defined.

First, it seems obvious, and it has been stated all along the past decades, that public services such as education, health care, and housing should be protected from rude competitiveness. Food markets as well should be protected from globalisation. This is about taking care of the population, of the people that make markets work and cannot do so if their own decent survival is not guaranteed.

This is also where Trump’s policies risk failure. He does put limits to global markets but not to national markets. The education department is threatened, all government services are in danger, and collective agreements are said to be condemned.

In such a context, the improvement of the trade balance will not benefit the population; quite the contrary. The current recipe is one for impoverishment, inside and outside the US.

Secondly, it is perfectly possible to make global markets mutually beneficial. This requires hard negotiations, not only between countries but also within. Is it acceptable to export more cars if this requires the import of more beef, hurting agriculture? This is precisely the question around the current Mercosur Agreement with Europe. The same goes for T-MEC or UMSCA, the free trade Agreement for North America. US farmers may be very happy with the result, while thousands of farmers in Mexico had to leave the country, whereas industrial workers in Mexico fared well in the new factories, hurting US automotive workers. Answers are not simple, but they can be found in the interest of all concerned.

In fact, if global markets today are so unbalanced, it is because inequality has become too important. It has become far too cheap to produce in some Southern countries. US or European workers will never be able to compete with Bangladesh or Vietnam unless they accept their own impoverishment.

Questions for progressive forces

The global shock provoked by Trump’s tariffs has another painful consequence.

Many left-wing and progressive forces have fought free trade arrangements in the past. The alter-globalist movement started with the "Battle of Seattle" against the WTO. Many groups in Western Europe were or are still active against TTIP (it was abandoned by the US), CETA (Europe-Canada) or Mercosur. They certainly have very good arguments to condemn these agreements and institutions. The question is if we will be better off without them. In Mexico, one now sees these same groups defend their T-MEC because, indeed, it helped the industrialisation and development of the country!

What it means is what was explained in the above section. Many of these agreements need to be strongly criticised because they are not mutually beneficial, but the agreement itself could have been made so. As for the WTO, its replacement by a whole spaghetti bowl of bilateral agreements certainly was not beneficial for people.

The same goes for the ecological movement and those who have been preaching de-growth. There's a real risk that this global stop to global trade will lead to a recession. Will de-growth groups be happy? I do not think so, again, because their de-growth means a lot more than negative growth. But it will hopefully lead to some deep reflection on what name to give to what they really want. The word de-growth means what it says: no or less growth. If this happens, leading to more poverty and more inequality, and movements continue to claim de-growth, their credibility will take a serious blow.

In sum, it should be "alter-globalisation" indeed, not anti-globalisation. The IMF now seems to follow Trump and risks, once again, to lead the world population towards more poverty and misery.