Between the Invisible Hand and Government Intervention: Governing in the Age of Technology

From Adam Smith, the pioneer of the classical school, and his concept of the invisible hand that regulates markets, to Milton Friedman, the theorist of the neo-capitalist school, the state’s role has traditionally been limited to that of an economic regulator.

Governments’ job was to set the rules of the game: To regulate markets, maintain stability and otherwise stay largely out of the way.

The model was not perfect and faced many pitfalls, sometimes failing and sometimes succeeding. However, its basic principles remained the key reference point for governments in advanced economies and were recommended by major international institutions.

Preference for a shock-free environment

In an environment free of shocks, the capitalist model achieved remarkable success. Allowing the forces of supply and demand to operate freely led economies to create balance in commodity and labor markets, controlling inflation and increasing employment through project expansion.

It also helped unlock extraordinary innovation and prosperity, shaping the industrial and technological revolutions that defined the modern world.

The limits of the model

However, history also shows the limits of this model. Moments of crisis — from the Great Depression to the 2008 financial collapse — reminded us that markets alone cannot solve systemic shocks.

Keynesian intervention pulled economies back from the brink in the 1930s, and government action was again critical in 2008 to restore confidence and stability. These moments confirmed that, at times, the state must move from regulator to rescuer.

A new era of state intervention

Today, however, we are entering a new era of state intervention, one defined not by ideology, but by necessity.

Geopolitical tensions, fragile supply chains and technological competition are redrawing the map of global economics. Governments are investing in critical technologies, securing energy supply chains and even taking equity stakes in industries like semiconductors and rare earths to protect national interests.

The economic slowdown in many developed countries has also pushed them to expand government spending: On infrastructure, digital connectivity, skills and innovation.

No longer just about stimulating demand

But this new wave of intervention is no longer just about stimulating demand. It is about shaping the future, ensuring that economies remain competitive, inclusive and resilient in the age of AI.

This shift carries risks. Governments that have long been regulators must now become innovators. The challenge lies in ensuring that intervention translates into impact — that public money drives transformation, not inefficiency.

The opportunity for innovation-oriented governments is vast: To use technology and data to deliver better services, anticipate crises and build states capable of acting with the speed and precision of the digital age.

Smart technology as a capacity booster in times of tight budgets

The COVID-19 crisis underscored this reality. Government budgets, already strained, cannot sustain permanent, large-scale intervention.

Technology now offers governments new ways to achieve more with less: Smarter systems, faster delivery and policies guided by real-time insight rather than retrospective data.

Charting one’s own model of modernization

Each nation will chart its own model of modernization, reflecting its context and capacity, but all face the same imperative: To reimagine government for a new technological reality.

Priorities must govern the process. The needs of an economy in recession differ from those of one under strategic pressure. The goal should not simply be to spend more, but to govern better, to deploy innovation, data and AI as tools of effective leadership.

Conclusion

For decades, capitalist ideas based on empowering the private sector and free markets have driven global development. But as the pace of change accelerates, the question is no longer markets or the state. It is how governments can partner with technology and private enterprise to deliver more for their people.

Today’s leaders must move beyond old binaries. They must build governments that are agile, digitally capable and focused on outcomes, where intervention is not about control, but about enabling progress.

The real task of governing in the 21st century is no longer about choosing between the invisible hand and the heavy hand of the state — but learning to use the digital one. It is to steer, to empower and to deliver.

Editor’s note: This feature first appeared in Arabic in Al Eqtisadiah, the Saudi business newspaper.