The Interplay of Governance and Prosperity: A Global Perspective

Kathmandu. The story of prosperity is not new. For more than two thousand years, stories and sub-stories of prosperity have been circulating in various civilizations. Whether in the Greek cities on the Mediterranean coast, in Egypt along the Nile River, in Chinese society along the Yellow River, or in the Gangetic plains of South Asia, discussions of personal and collective prosperity can be heard in one form or another. The provisions for property matters mentioned in Hammurabi's law or the concept of a mixed economic system put forward by Kautilya's Arthashastra, all contain discussions of prosperity, directly or indirectly. However, the story of the debate on prosperity in the form seen in global economic-political discussions today is not thousands of years old. Looking at the global poverty standard line updated by the World Bank in June 2025, which is $3 per day, people worldwide were living in extreme poverty on average in 1820. Two centuries later, extreme poverty worldwide has fallen to 8.5 percent. According to the World Bank, 700 million people worldwide are absolutely poor. That is, they earn $1.90 or less per day. Compared to 1820, average life expectancy has almost doubled. Billions of people are receiving education, clean water, and healthcare that their ancestors could not even imagine. Prosperity is not just income. It has many definitions. While the World Bank defines poverty multidimensionally, including health, education, and living standards, not just monetarily, the IMF considers Gross Domestic Product and broad economic stability as indicators of prosperity. But this story of progress is very complex. Because on its other side, inequality is rampant. Last year, Norway's GDP per capita was over $100,000, while South Sudan's GDP per capita was only about $500. According to a report by Transparency International, Denmark is among the least corrupt nations in the world, while South Sudan is at the very bottom. Comparing it with the Industrial Revolution as a turning point in 1820, we do not see a dazzling picture of production, growth, development, and prosperity. The picture of uneven development and misgovernance is equally clear. The question of why some countries lag behind while others prosper has been troubling economists, political scientists, scientists, historians, and policymakers for a long time. So far, no common, consensus, or simple answer has been found. Some consider geography as a factor, while others consider natural resources, the history of colonial slavery, culture, and even fate as factors. From Douglas North, who received the Nobel Prize in Economics in 1993 for his study on the role and form of institutions in the economy, to Daron Acemoglu and Robinson, who received the same award in 2024, a common idea can be found in their answers. That is – good governance or good governance. Their 2012 book 'Why Nations Fail' concludes that the political institutions, legal system, public administration, and anti-corruption framework of a country determine its long-term path to prosperity. In fact, there is no single or universally accepted definition of good governance. However, many international bodies have defined it in their own ways. The United Nations defines good governance as the exercise of political, economic, and administrative authority to manage a country's internal or related affairs. It is said to have 8 characteristics: participation, rule of law, transparency, accountability, consensus, equity and inclusion, effectiveness, and efficiency. The World Bank's definition links governance to the character of traditions and institutions. This includes the process of selecting, monitoring, and replacing governments, the capacity to formulate and implement effective policies, and the respect of citizens and the state for governing institutions, including social and economic interactions. There is no universally accepted model of good governance and prosperity. Distinct models such as the participatory model practiced in Nordic countries, Singapore's efficiency-based model, and Estonia's digital transformation exist. Each country seems to have chosen its own unique path. The Organization for Economic Cooperation and Development (OECD) focuses on the principles of transparency, integrity, accountability, and stakeholder participation in good governance. The International Monetary Fund (IMF), another international organization working on good governance, links it to revenue transparency, the rule of law, and the quality of the regulatory environment. The IMF's charter also assesses good governance as a factor of broad economic risk. In the early decades of the 20th century, German writer Max Weber's research and studies on bureaucracy identified 'legal rational authority' operating on the basis of rule-based and impersonal administration as the organizational foundation of the modern state. According to his concept, a meritocratic bureaucracy is necessary in the state. His concept is still considered the standard for public administration reform. By the third decade of the 20th century, economic theories were primarily focused on free markets and the private sector. After the devastating economic crisis of 1929 and the subsequent crisis, British economist John Maynard Keynes put forward a new concept that included the need for the state. Gradually, the nature of economic thinking changed. By the 1950s, much had changed regarding economic growth and development economics. Amidst the reconstruction of countries devastated by World War II, the aspirations for prosperity of newly liberated countries, and the race to align countries with their support during the Cold War, slogans of prosperity and development swept the entire world. However, the development theories used for most of the 20th century primarily emphasized capital accumulation and industrialization rather than institutions. The 'Washington Consensus' that emerged in the early 1990s further emphasized broad economic stabilization, privatization, and trade liberalization. Even then, the role of good governance was secondary. Despite the suggestions and assistance of many organizations like the International Monetary Fund and the World Bank, and the initiatives of many international missions, Latin American countries in the 1980s and sub-Saharan African countries in the 1990s fell into economic crises. Despite numerous aids, suggestions, and cooperation, the economic failures seen in those countries exposed the limitations of the capital and industry-centric concept of development. Subsequently, studies on the state of institutions in countries began. Douglas North put forward a new concept with the idea that 'institutions are the main determinants of good economic activity in the long run.' Thereafter, the World Bank's 1989 Africa report brought the term 'governance crisis' into discussion. Thus, the World Bank established good governance as an important concept in the dictionary of modern global political economy. By the end of the 1990s, all major international organizations, including the World Bank, UNDP, and OECD, had made good governance the focus of their development agenda. Various methods for measuring good governance have been established. Among them, the World Bank's Worldwide Governance Indicators (WGI), considered the most important, measures 215 economies annually across six dimensions. These include accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption. Similarly, Transparency International, an organization working for transparency and against corruption, publishes the 'Corruption Perception Index' (CPI). This method, which publishes a report studying 180 countries, measures not actual corruption but the perception and understanding of corruption. The World Justice Project also publishes the Rule of Law Index. It measures the extent to which government power is constrained, the absence of corruption, civil and criminal justice, etc., in 142 countries, and emphasizes the experiences and perceptions of ordinary people through household-level surveys. French economist Thomas Piketty and others believe that reforms for good governance and prosperity cannot be achieved solely through domestic efforts. Global tax rules, trade agreements, and financial systems also need to be reformed. The Human Development Index (HDI) published by the United Nations Development Programme (UNDP) measures national income per capita, education, and health. Although good governance is not directly included, its effects are measured. This is about good governance. Now let's move on to prosperity. Prosperity is not just income. It also has many definitions. The World Bank defines poverty multidimensionally, including health, education, and living standards, not just monetarily. The IMF primarily considers Gross Domestic Product (GDP) and broad economic stability as indicators of prosperity. The 1990 Human Development Report published by UNDP is considered a document that brought about a fundamental change in the definition of prosperity. Mahbub ul Haq, a leading Pakistani economist and one of its authors, argued that the real wealth of nations is their citizens. Thereafter, the focus of prosperity analysis shifted from income to human capabilities. However, even today, GDP is still widely used as an indicator of prosperity in many places. Its use is considered simple because it is easy to compare internationally and is regularly updated. But despite its statistical simplicity, GDP has many limitations. It does not include inequality within a country, unpaid domestic work, environmental damage or degradation, or personal welfare. The Human Development Index (HDI) includes health and education along with income. It also measures income inequality. The Multidimensional Poverty Index (MPI), jointly developed by the University of Oxford and UNDP, also measures deprivation in health, education, and living standards. The Genuine Progress Indicator and the Inclusive Wealth Index are also in practice. They link GDP to income inequality, the value of domestic and volunteer work, and environmental degradation. Research by Kenneth Arrow and others in 2012 found that despite an increase in global GDP, inclusive wealth per capita decreased in countries like Saudi Arabia and Nigeria. That is, their prosperity was not sustainable as it appeared. Since 2012, the World Happiness Report has also been published annually. It ranks countries based on self-reported life satisfaction from Gallup's global survey. Finland has consistently ranked first in such lists for many years. Recently, the debate on good governance and prosperity is intense not only in Nepal but in many countries around the world. These two concepts are linked in many ways. Various studies show that a good system of property rights and contract enforcement reduces rent-seeking and transaction costs. It encourages investment and makes complex economic activities easier and smoother. Economist Douglas North's famous 1973 study identified this as the main factor in the prosperity of Western Europe since the 17th century. Reducing uncertainty in political and regulatory bodies is believed to reduce the risk of long-term investments required in infrastructure, education, technology, and other sectors. Effective governments are also believed to invest efficiently in public goods that the market under-supplies. Thus, in a state of good governance, development, investment, and production growth are said to be greatly facilitated. However, in the presence of corruption, the cost of doing business increases, and resources are diverted from productive activities to rent-seeking. This reduces both domestic and foreign investment. Consequently, it hinders development, production, and growth. Thus, theoretically, good governance and prosperity are linked. Many studies since the 1990s have shown a strong and positive relationship between good governance and prosperity. The Nordic countries, considered successful in good governance globally, are examples of prosperity with excellent institutional capacity. Denmark, Finland, Sweden, and Norway in that region are consistently at the top of the World Governance Indicators list. Denmark has been ranked first or second in the 'Corruption Perception Index' for over a decade. Researchers attribute the success of the Nordic countries to factors such as a long tradition of trust in their public systems, citizen policies, state-building background, and institutional choices. A 2008 study identified the 'impartial' system practiced in the Nordic model as its main characteristic. Because every official working in the public sector treats all citizens equally, general social trust is built, and corruption is reduced. There are also some exceptions to the suggestions of international organizations and most research on good governance and prosperity. Singapore is a prime example. Singapore ranks at the top in many good governance indicators, including government effectiveness, rule of law, and control of corruption. However, political opposition and press freedom are strictly controlled there. Since gaining independence in 1965, the ruling People's Action Party has established a merit-based civil service with salaries competitive with the private sector. Anti-corruption laws are strictly enforced through the Corrupt Practices Investigation Bureau (CPIB). Singapore's GDP per capita, which was around $500 in 1965, has now exceeded $65,000. The Singapore model demonstrates that good governance and democracy may not always go hand in hand. Despite this, the Chinese are heard to say that the good governance standards set by Western institutions are incomplete and biased. There are also some notable examples of good governance practices that tell stories of transformation. Estonia, as a new country after the collapse of the Soviet Union, rebuilt the nation through innovation in the digital sector. By 2005, internet voting was introduced. Today, about 99 percent of government services are available online. Government records are secured through state-of-the-art blockchain-based systems. By connecting public and private databases through various reliable software systems, employee delays and duplication in service delivery have been eliminated. Estonia's 'e-governance model' is being emulated by many other countries. The governance journey in Rwanda, following the tragic genocide of 1994, is considered one of the most remarkable events in modern development history. Under President Kagame's leadership, Rwanda implemented a system called 'Imyihigo,' which linked all government offices and their responsible officials to measurable service delivery targets. On that foundation, the long-term development strategy 'Vision 2050' is being implemented with relative success. During this period, Rwanda's per capita income has increased more than fourfold. Moreover, Rwanda is now among the top 10 globally in the World Economic Forum's Gender Gap Index. Dramatic progress has been made in reducing maternal mortality and increasing school enrollment. Here too, significant questions have been raised regarding democracy and freedom. Similarly, South Korea's 'Miracle on the Han River' is also considered a successful example of effective governance. During the two decades of authoritarian rule from the 1960s, state-directed industrial policies were implemented in Korea. By the time of the transition to democracy two decades later, Korea had already become a prosperous country. Today, South Korea ranks high in many indicators, including democracy. The African country of Botswana is also cited as an example of a country that achieved rapid economic growth within 30 years after independence through effective governance and the proper use of mineral resources. Botswana, a diamond-mining country, is seen as a country that has escaped the 'resource curse' through good governance. There are also many ideas that challenge the current debate on good governance and prosperity from a different angle. In the conventional sense, good governance implies the rule of law, property rights, and proper enforcement of transactions. However, Marxists argue that this would institutionalize and promote inequality and exploitation existing in society. In his famous work 'Capital,' the renowned thinker Karl Marx states that exploitation works as the engine of capitalist growth by appropriating surplus value from labor. The current concept of good governance is also accused of facilitating the continuation of that exploitation. Latin American scholar Andre Gunder Frank and others, in their 'Dependency Theory' presented in the 1950s-60s, argue that the underdevelopment of developing countries is not due to a lack of good institutions but a consequence of their integration into the global capitalist system. They argue that countries in the 'periphery' become poor because they export surplus value to countries in the 'center.' The 'world-systems theory' put forward by another renowned thinker, Immanuel Wallerstein, suggests the existence of a hierarchical global structure of center, semi-periphery, and periphery. He argues that exploitation within this structure makes some countries rich and others poor. These critical perspectives raise important questions about the prevailing narrative. Are reforms in good governance working in the interest of foreign investors and domestic elites? Do established indicators of good governance measure what is important for ordinary people or only what is important for international capital? Taking these questions seriously, some thinkers have also proposed alternatives. These include economic democracy through worker participation in cooperatives, an entrepreneurial state with public ownership and industrial strategy (proposed by Mariana Mazzucato), and concepts like universal basic services and the 'Green New Deal.' Despite numerous criticisms and dissenting opinions, good governance and prosperity are among the main issues of debate today. The most extensive studies, research, and policy experiments have been conducted on this topic over the last five decades. We can briefly mention some conclusions from this long series of studies and experiments in modern history in a few points. Prosperity can only be sustainable if institutions are strong. The effectiveness of institutions also depends on good governance. However, there is no universally accepted model of good governance and prosperity. Distinct models exist, such as the participatory model practiced in Nordic countries, Singapore's efficiency-based model, and Estonia's digital transformation. Each country seems to have chosen its own unique path. Although theories are universal, the methods of solution based on them appear to be based on local originality. Similarly, good governance and prosperity appear to be interconnected. Good governance brings development, and development further improves governance. Therefore, this entire cycle appears to be the main basis for success. When discussing good governance and prosperity, inequality cannot be overlooked. As the wealthy gain control over important institutions, the poor's trust erodes. Therefore, inclusive governance appears to be a prerequisite for sustainable development. French economist Thomas Piketty and others believe that reforms for good governance and prosperity cannot be achieved solely through domestic efforts. Global tax rules, trade agreements, and financial systems also need to be reformed. Otherwise, there is a risk of capital flight from countries with strict regulations. Many researchers agree that good governance opens the way to prosperity. However, a responsible, participatory, and inclusive economic system is necessary for this. Global experience shows that this process is slow and difficult, requiring patience and collective wisdom for implementation.