The New Policy Compass

Public Policy and Administration

Public policy and administration today face three interconnected challenges.

First, state capacity and implementation gaps remain a critical issue: many governments design ambitious reforms but struggle to deliver them effectively. For example, infrastructure programmes in parts of Brazil and India have faced delays due to coordination failures across agencies and levels of government, while even advanced administrations like the United Kingdom have encountered implementation bottlenecks in areas such as welfare reform and immigration policy.

Second, the politicisation of public administration is intensifying. In countries such as the United States, frequent leadership turnover and polarisation have weakened administrative continuity, while in Hungary and Turkey, executive centralisation has reshaped the autonomy of civil services.

Third, digitalisation and AI in government are transforming public administration but raising governance risks. Estonia’s digital government is often cited as a success, yet cases of algorithmic bias in public service delivery in the Netherlands and Australia show how technological solutions can generate new accountability and legitimacy challenges if poorly designed.

Regulation and Governance

Regulation and governance systems are currently under pressure from three major trends.

First, regulating under uncertainty and rapid technological change has become a central challenge. Governments worldwide are struggling to keep pace with innovations such as artificial intelligence, fintech, and biotechnology. The European Union’s AI Act illustrates an attempt to regulate proactively, while countries like the United States rely more on fragmented, sector-based oversight, creating uneven regulatory outcomes.

Second, regulatory capacity and independence are increasingly contested. In sectors such as energy and telecommunications, political interference has weakened regulatory autonomy in countries including Mexico and South Africa, undermining investor confidence and policy credibility.

Third, globalisation versus regulatory sovereignty is generating tension. International supply chains and cross-border platforms often escape national regulatory control, as seen in disputes over digital taxation involving France, Ireland, and major technology firms, or environmental standards affecting trade between the EU and emerging economies. Together, these issues highlight the difficulty of designing governance systems that are adaptive, credible, and legitimate in an increasingly interconnected and contested global environment.

Fintech and Financial Laws

Fintech and financial law are evolving rapidly, driven by three pressing regulatory challenges.

First, balancing innovation and consumer protection remains a core issue. Countries such as the United Kingdom and Singapore have promoted innovation through regulatory sandboxes, enabling fintech firms to test products under supervisory oversight, while cases of fraud and platform failures in China’s peer-to-peer lending sector show the risks of under-regulation.

Second, regulating crypto-assets and digital currencies has become a global priority. The European Union’s Markets in Crypto-Assets (MiCA) framework contrasts with the more fragmented approach in the United States, while El Salvador’s adoption of Bitcoin as legal tender illustrates the political and financial risks of premature legal endorsement.

Third, cross-border financial regulation and regulatory arbitrage pose growing challenges. Fintech firms often operate across jurisdictions, exploiting regulatory gaps, as seen in payment services and neobanking across Africa and Southeast Asia. These dynamics force regulators to rethink traditional financial laws to ensure stability, fairness, and trust in increasingly digital financial systems.

International Trade and Sanctions

International trade and sanctions policy are increasingly shaped by geopolitics and strategic competition.

First, the weaponisation of trade and economic sanctions has intensified. Sanctions imposed on Russia following the invasion of Ukraine, and export controls targeting advanced semiconductors in China, show how trade policy is now used as a tool of foreign and security policy, often with significant spillover effects on global supply chains.

Second, supply chain resilience and strategic autonomy have become central policy concerns. The European Union, Japan, and the United States are rethinking trade dependence in critical sectors such as energy, pharmaceuticals, and rare earths, while countries like Vietnam and Mexico have benefited from supply chain diversification strategies such as “friend-shoring.”

Third, tensions between multilateral trade rules and unilateral measures are growing. The weakening of the World Trade Organization’s dispute settlement system and the rise of unilateral tariffs and sanctions undermine predictability and trust in the global trading system. Together, these trends are reshaping how states balance openness, security, and economic resilience.

Strategic Autonomy and Strategic Hedging

Strategic autonomy and strategic hedging have become central concepts in a world marked by geopolitical uncertainty and great-power competition.

First, reducing critical dependencies is a major policy challenge. The European Union has pursued strategic autonomy in areas such as energy, defence, and semiconductors after disruptions caused by the COVID-19 pandemic and the war in Ukraine, while India has promoted self-reliance through its “Atmanirbhar Bharat” strategy.

Second, balancing alignment and flexibility drives strategic hedging behaviour, particularly among middle powers. Countries such as Vietnam, Indonesia, and Saudi Arabia maintain economic ties with China while strengthening security and technological cooperation with the United States and Europe, seeking to avoid over-dependence on any single power.

Third, institutional and coordination challenges complicate these strategies. Achieving autonomy or effective hedging requires coordination across trade, industrial, security, and regulatory policies, as illustrated by debates within the EU over defence procurement and industrial subsidies. These tensions reveal how strategic autonomy is less about isolation and more about managing interdependence under conditions of uncertainty.

Digital Government Transformation

Digital government transformation is reshaping how states design and deliver public services, but it also exposes new policy dilemmas.

First, integrating legacy systems and organisational silos remains a persistent challenge. Many governments, including those in Italy and India, have invested heavily in digital platforms but struggle to align databases, processes, and responsibilities across ministries and agencies.

Second, data governance, privacy, and trust are increasingly contested. While countries such as Estonia demonstrate the potential of secure digital identities and interoperable systems, controversies around data use in public services in the United Kingdom and the Netherlands highlight how weak safeguards can undermine public trust.

Third, the rise of AI and algorithmic decision-making in government raises accountability and equity concerns. Automated welfare systems in Australia and risk-scoring tools used by local governments in the United States have generated legal challenges due to errors and bias. Together, these issues show that digital transformation is as much an institutional and governance challenge as a technological one.

Public Finance Reform

Public finance reform is facing renewed pressure as governments confront fiscal constraints, rising demands for public spending, and economic uncertainty.

First, fiscal sustainability and debt management have become critical challenges. Many advanced economies, including Italy and Japan, struggle with high public debt levels, while emerging economies such as Ghana and Sri Lanka have faced acute fiscal crises, highlighting the limits of borrowing-led development.

Second, tax system modernisation and fairness are increasingly contested. Governments are seeking to broaden tax bases and reduce avoidance, as seen in the OECD-led global minimum corporate tax agreement and digital services taxes adopted by countries such as France and India, while facing resistance from multinational firms and low-tax jurisdictions.

Third, performance and accountability in public spending remain uneven. Despite widespread adoption of performance budgeting tools, countries like South Africa and Brazil continue to face challenges in linking expenditure to outcomes. These issues underscore the need for reforms that combine fiscal discipline, equity, and effective public financial management.

Public-Private Partnerships

Public-private partnerships (PPPs) are increasingly used to deliver infrastructure and public services, yet they raise persistent governance challenges.

First, risk allocation and value for money remain contentious. In several transport and healthcare PPPs in the United Kingdom and Portugal, risks were formally transferred to private partners but ultimately borne by the public sector when projects underperformed or required renegotiation.

Second, institutional capacity to design and manage PPPs varies widely across countries. Emerging economies such as Kenya and Indonesia have expanded PPP programmes but often face difficulties in contract management, regulatory oversight, and financial appraisal, leading to delays and cost overruns.

Third, transparency and political accountability are growing concerns. Long-term contracts can obscure fiscal commitments and limit democratic scrutiny, as seen in infrastructure concessions in parts of Latin America. These challenges show that PPPs are not merely financing tools but complex governance arrangements that require strong public capabilities, clear accountability, and robust regulatory frameworks to deliver public value.

National Security

National security policy is increasingly shaped by non-traditional threats and complex interdependencies.

First, the expansion of security beyond military defence has transformed national security agendas. Cybersecurity threats targeting critical infrastructure in countries such as Ukraine and the United States, and foreign interference in elections across Europe, demonstrate how economic, digital, and informational domains are now central to security planning.

Second, civil–military and inter-agency coordination challenges have intensified. Managing crises such as pandemics, climate-related disasters, or hybrid warfare requires coordination across defence, health, energy, and interior ministries, a task that proved difficult in countries like France and Italy during recent emergencies.

Third, balancing security and democratic accountability remains a core tension. Expanded surveillance powers and emergency legislation, introduced in India, the United Kingdom, and Israel, have raised concerns over civil liberties and oversight. These dynamics highlight how modern national security policy must reconcile resilience, coordination, and legitimacy in an increasingly uncertain global environment.

Navigating the Challenge of Today's Global Landscape