AS the US gears up to celebrate 250 years of independence this coming July, another anniversary is quietly being celebrated in economic circles around the world. This year marks 250 years since the publication of Adam Smith’s monumental The Wealth of Nations. Like Newton and Darwin, this book truly established Smith’s ideas as foundational for the coming generations.

Smith is considered the father of modern economics. ‘The invisible hand’ is one of Smith’s most famous ideas; when individuals pursue their own self-interest in a free market, they unintentionally benefit society as a whole. Smith’s invisible hand is often employed during protracted debates on the efficacy of market capitalism. Some people believe that this idea establishes the indubitable superiority of free or unregulated markets over government planning and state regulation — the notion that unregulated markets always provide superior economic outcomes.

Libertarian scholars have interpreted Smith’s work to reject any regulatory or redistributive (taxes) role for the state, arguing that endless gains accrued through unregulated markets are vastly superior, while the state is nothing more than a source of inefficiency. Like Victorian-era children, libertarians argue, the state may be seen, but not heard. According to libertarians, Adam Smith’s message may be best summarised by the catchphrase ‘greed is good’.

Such interpretations of the invisible hand, however, are largely misconceptions. Smith’s ideas need to be understood in the context of immense social upheaval in Britain, beginning in the 17th century with the Civil War. Social turmoil continued into the 18th century and by the end of the century, Britain faced full-scale rebellion and secession in its North American colonies leading to the US Declaration of Independence on July 4, 1776.

Given such turbulent times, social contract scholars turned their attention to the question of how social order and peace could be achieved and maintained. Thomas Hobbes argued for a powerful state to guarantee peace, while John Locke proposed a limited government and minimal state to preserve the people’s ‘natural rights’ to life, liberty and property.

Pakistan’s policymakers need to channel the invisible hand to bring about social order and economic opportunities.

Smith came of age at a time when social contract thinking was resonant. For this reason, Smith’s core ideas were actually an extension of social contract thinking, that is, how to achieve social order, peace and harmony. Smith was not a one-dimensional promoter of unregulated markets. Rather, the invisible hand was Smith’s attempt to proffer a means for achieving and maintaining social order during turbulent times.

Interestingly, Smith was not anti-government or anti-state as he enshrined the invisible hand firmly within the political institutions of the state, that is within a governance and enforcement framework. The invisible hand or unregulated markets only come into action once a functioning government precedes them. Moreover, Smith believed that the government also had to provide certain essential services that would not be otherwise provided by unregulated markets. These public goods included rule of law and defence against foreign aggression, among others.

In reality, when Smith made a case for the invisible hand, he was actually making a case for the freedom of individuals not from state regulation, but for freedom from the elite, like the wealthy merchants of his time. In the passage of The Wealth of Nations where he used the invisible hand idea, he was not talking about state intervention, in general. He was specifically referring to intervention pushed by the elite, who were advancing their own interest at the public’s expense. Thus, the invisible hand was originally invoked not to draw attention to the problem of state regulation, but of state capture.

Though a long time has passed, Smith’s attempts at addressing the problem of social order are still relevant. The issue of social order is especially important for Pakistan as it, too, has had its fair share of turmoil in the last few years. In particular, the economic situation is not optimal for Pakistan’s exploding young population that requires three million jobs per year over the next decade, as stated by Ajay Banga, the World Bank’s president, on a recent visit to the country.

Pakistan’s policymakers need to take a leaf out of Smith’s The Wealth of Nations and channel the invisible hand in order to bring about social order, and economic opportunities. Pakistan’s state-owned enterprises are generally not efficient due to rent-seeking by elites and workers and due to protection from competition. Just as Smith argued for freeing markets from the distorting influence of the elites, Pakistan must free its SOEs from state capture.

To be sure, where the successful privatisation of the national airlines is a great beginning, a tough balancing act is required in the future. Where economic policymakers must keep liberating SOEs from state capture, the state would need to keep playing the role of an effective regulator, ensuring that SOEs’ privatisation does not fall victim to elite capture; something that happened in Russia in the 1990s.

Pakistan’s attempts at using the invisible hand for achieving social order and economic opportunities would remain incomplete if its young people are spending hours navigating the labyrinthine world of paperwork; attested photo-copies, thumb impressions, affidavits and NOCs. There is an urgent need to do away with these needless requirements to unfurl the economic potential of Pakistan’s young people.

Digitalisation definitely offers a ray of hope in cutting down the endless paperwork, but policymakers better prepare for fierce resistance by those who want to keep Pakistan mired in endless turbulence.

Two hundred and fifty years later, Smith’s wisdom endures. True economic freedom requires both vibrant markets and a competent state. Pakistan’s path to social order lies in privatising inefficient SOEs, while building capacity to regulate and prevent new forms of elite capture.

The writer completed his doctorate in economics on a Fulbright scholarship.

aqdas.afzal@gmail.com

X: @AqdasAfzal

Published in Dawn, February 28th, 2026