Governance of Economic Systems

Good governance of economic systems entails solving the three main problems of the political economy, namely full utilisation of human capital, adaptive and efficient allocation of scare economic resources and using the benefits of economic activities to build capabilities equitably to enhance quality of life and welfare of citizens. The most successful has been the free market economic system of governance which is also resilient in the face of uncontrollable external economic shocks. The hybrid economic system where free market also includes state-owned enterprises (SOEs) competing with private business firms can also be successful. Many developing nations prefer to emulate the rapid industrialisation of Northeast Asian Developmental State (DS) economic system where the state and its institutions support the development of export-oriented global champions to foster economic development. This DS has also adopted free market system that has enabled them to solve the three problems of their political economy. Pure socialist economies and captured economies are susceptible to becoming failed economies in the event of prolonged external shocks. Transition economies arising from path dependence take a longer time to rebuild institutions to transition into free market economies.