The policy implementation paradox: governance failure and elite capture in Southeast Asia’s green transition

1 Introduction

The Circular Economy (CE), frequently implemented via frameworks such as the Bio-Circular-Green (BCG) model, is advocated to harmonize economic expansion with resource efficiency in developing markets (Ahmad et al., 2023; Jaroenkietkajorn et al., 2024; Kirchherr et al., 2023; Murray et al., 2017). These initiatives are designed to promote the Sustainable Development Goals (SDGs) by minimizing waste, promoting biomass energy, and enhancing socio-economic inclusion (Galvão et al., 2022; Islam et al., 2024; Rosário et al., 2024; Schroeder et al., 2019). Nonetheless, empirical evidence from developing countries demonstrates a consistent disparity between this normative vision and actual outcomes (Ul-Durar et al., 2023; Van Assche et al., 2026). Rather than promoting widespread inclusion, the implementation of CE/BCG often perpetuates institutional hierarchies and underscores significant trade-offs, ultimately centralizing financial and environmental advantages within a limited corporate core (Faikhamta et al., 2025; Phurksaphanrat and Panjavongroj, 2023; Van Assche et al., 2026).

This research defines this contradiction as a policy implementation paradox. Although official policy narratives highlight inclusive, grassroots sustainability, the transition framework in Southeast Asia is structured around capital-intensive mechanisms—namely, Green Finance (SP4) and Advanced Technology (SP3) (Kumar and Choudhury, 2025; Mbamalu and Mohammed, 2025; Vajda et al., 2025). This structural decision inherently advantages established, well-capitalized firms. This design, when implemented in institutionally weak settings, engages with systemic governance deficiencies and regulatory voids to enable elite capture (Popoola et al., 2023). As a result, politically linked corporations exploit policy-managed capital, while micro, small, and medium-sized enterprises (MSMEs) face significant financial and regulatory obstacles to participation (Simbisai and Masunda, 2026).

Macro-governance deficiencies, evidenced by low ratings on the Corruption Perceptions Index (CPI) and Worldwide Governance Indicators (WGI), are not only contextual factors; they serve as fundamental enabling mechanisms. Inadequate regulatory standards and pervasive corruption enable SP3 and SP4 policy instruments to be directed toward elite interests, thus converting a purportedly green transition into a mechanism for resource accumulation (Grafström and Aasma, 2021). This paper offers a structural examination of the policy implementation paradox in Southeast Asia. This analysis investigates the interaction between technocratic green policy frameworks and macro-governance failings, which systematically marginalize micro, small, and medium-sized firms (MSMEs) from sustainable value chains, despite the prevailing discourse on inclusive development. This paper elucidates the institutional mechanisms enabling elite interests to appropriate public resources amid environmental transition.

This paper provides a crucial theoretical correction to the literature on sustainable transitions by analyzing the dynamics inside Southeast Asia’s Bio-Circular-Green (BCG) and Circular Economy (CE) frameworks. The researcher specifically contest traditional state capture models by demonstrating that economic exclusion is propelled by downstream compliance rather than upstream subversion. We contend that advanced, internationally recognized environmental standards may unintentionally serve as legal instruments for capital concentration, as domestic elite networks exploit their enhanced structural capabilities to comply with rigorous requirements that inherently exclude resource-limited MSMEs.

This study employs a restricted empirical strategy, despite the “policy implementation paradox” framework being intended for a comprehensive analysis of structural barriers in emerging markets. The book clearly positions its research as a conceptual regional argument, utilizing Thailand’s Bio-Circular-Green (BCG) framework as its main empirical foundation. Thailand serves as an exemplary baseline case; its assertive, state-driven implementation of the BCG model provides an optimal framework for analyzing the functionality of advanced, globally aligned sustainability metrics within the broader context of Southeast Asia’s clientelist networks and diverse institutional governance systems.

To comprehend the manifestation of these exclusionary processes, one must transcend superficial technical assessments and examine the systemic political-economy factors that support regional policy failures. Section 2 provides a theoretical foundation by examining current research on the transition to a circular economy, green finance, and elite capture. This section identifies significant gaps in the current literature and develops a macro-to-micro conceptual framework that delineates the causal pathway of the policy implementation paradox, establishing the analytical groundwork for the subsequent empirical investigation.

2 Literature review and conceptual foundation

This section situates the study within modern public administration and political-economy research by rigorously analyzing the convergence of environmental governance, public capital management, and systemic market exclusion. This literature review examines the systemic power imbalances inherent in green policy frameworks, rather than viewing ecological transitions solely as technocratic resource-efficiency initiatives. Subsections 2.1 to 2.4 delineate the conceptual progression of this disintegration: assessing the functionality of circular economy frameworks amidst developmental constraints, scrutinizing the non-neutrality of green finance capital allocation mechanisms, and elucidating how macro-level governance deficiencies explicitly materialize as micro-level structural impediments for small-scale enterprises, and reconceptualizing capture, focusing on the policy implementation paradox and classical models.

2.1 Circular economy implementation in developing contexts

The literature on the circular economy (CE) indicates that its adoption in poor nations is hindered by interconnected regulatory, economic, and technological obstacles (Galvão et al., 2022; Geissdoerfer et al., 2023; Govindan and Hasanagic, 2018; Halog and Anieke, 2021). These encompass disjointed regulations, insufficient robust indicators, restricted access to technology, and persistent deficits in cheap credit—circumstances that severely impact micro, small, and medium-sized enterprises (MSMEs) (Kuik et al., 2023; Mishra et al., 2024, 2025; Virmani et al., 2022). In industrialized economies, circular economy practices are predominantly concentrated in high-value corporate sectors, resulting in a partial, socially inequitable, and structurally fragmented system-wide transformation (Ahmad et al., 2023; Dormeier et al., 2024; Scheel and Aguiñaga, 2025; Zavos et al., 2024).

In developing contexts, these obstacles are compounded by structural vulnerabilities; however, policy frameworks often disproportionately emphasize end-of-pipe recycling, overlooking upstream design and lacking transparent economic incentives, cohesive conceptual frameworks, or effective monitoring systems (Banaitė and Tamošiūnienė, 2016; Kirchherr et al., 2023; Panchal et al., 2021; Suárez-Eiroa et al., 2019). The outcome is a disjointed policy framework that is predominantly detached from issues of social fairness, distributional results, and the dynamics of state power (Murray et al., 2017).

Conventional policy reports characterize these finance deficits and regulatory inconsistencies as isolated operational challenges, whereas rising economic governance literature posits that they are manifestations of more profound political-economic deficiencies (Maponya, 2021). The Bio-Circular-Green (BCG) transformation in Southeast Asia entails significant governmental reallocation of capital toward new infrastructure, fostering conditions for structural distortions, project failures, and biased private finance methods (Clark et al., 2018). An analysis through a political-economy framework is essential to understand how the trajectory of these capital flows is influenced by power dynamics and elite interests rather than by technical efficiency (Mishra et al., 2021). In the absence of opposing democratic and regulatory institutions, policy-managed resources serve as a conduit for capital centralization (Marx, 1990), facilitating elite capture and marginalizing decentralized, context-specific MSME practices, while imposing significant strategic obstacles to the adoption of sustainable enterprises (Yang and Zhang, 2025).

2.2 The political economy of green finance and capital allocation

Green Finance (SP4) is formally established as a public instrument to mitigate risks associated with sustainable investments and promote inclusive green growth. Political-economy research indicates that in environments marked by a fragile rule of law and insufficient administrative transparency, substantial reserves of policy-managed capital are particularly susceptible to elite appropriation and state rent-seeking (Weber, 1978; Grafström and Aasma, 2021). Significant initial capital requirements and inadequate economic internalizations pose considerable market obstacles for smaller enterprises (Govindan and Hasanagic, 2018). The national BCG policies in Southeast Asia exemplify this susceptibility (Jaroenkietkajorn et al., 2024). Financing designs prioritize advanced instruments—such as green bonds, public-private partnerships (PPPs), and extensive blended-finance packages—that necessitate significant collateral, institutional credit ratings, and intricate project-preparation skills. Although public management research indicates that basic administrative portfolio tools can enhance transparent resource allocation in developing bureaucracies (Afshar and Shah, 2025), existing funding structures prioritize centralized, large-scale projects. These configurations are more readily negotiable in opaque political environments, yet they are inherently inaccessible to MSMEs, thereby perpetuating systemic inequalities in capital allocation and establishing formidable barriers to sustainable transformation (Galvão et al., 2022; Lalita et al., 2025; Sharma et al., 2021).

2.3 Governance failure, corruption, and MSME exclusion

Research in public administration establishes significant links among inadequate institutional quality, corruption, and negative developmental consequences. In the circular economy sector, macro-governance deficiencies, such as fragmented administrative duties and inadequate regulatory enforcement, are identified as primary obstacles to policy implementation (Banaitė and Tamošiūnienė, 2016; Dagilienė et al., 2021). The exact mechanisms by which these deficits influence the distributional outcomes for MSMEs are inadequately theorized, especially concerning how state infrastructure constrains the equitable allocation of green capital to small-scale operators in developing areas (Simbisai and Masunda, 2026).

The engagement of MSMEs is essential for a socially integrated circular economy transition due to their prevalence in employment and local value chains within emerging economies (Mbamalu and Mohammed, 2025). However, empirical research frequently confines MSME constraints to deficiencies in firm-level capability (Ghosh et al., 2024), rarely linking these micro-level issues to macro-governance shortcomings. This study fills the gap by utilizing the Corruption Perceptions Index (CPI) and Worldwide Governance Indicators (WGI) as structural proxies for institutional risk. This study maps governance metrics to patterns of MSME resource exclusion, identifying the causal pathway by which local governments inadequately mobilize reflexive regulation, macro-level policy determinants (Ascenço and Santos, 2025), and collaborative negotiation capacities (Nielsen et al., 2024), thereby incorporating systemic corruption and transition management deficiencies into the rationale for policy failure (Tu et al., 2025).

The literature suggests that when state-managed green programs face weakened institutional frameworks, policy implementation transitions from maximizing public benefit to consolidating rent-seeking interests. Despite widespread recognition of these distinct vulnerabilities across various administrative and environmental fields, they remain disjointed. There is a significant deficiency of empirical research directly linking market access. To properly comprehend how these macro-governance deficiencies facilitate the exclusion of small firms, it is essential to transcend conventional explanations of state dysfunction. This requires a rigorous redefinition of elite capture that juxtaposes the downstream dynamics of modern green policy implementation with traditional public choice theories.

2.4 Reconceptualizing capture: the policy implementation paradox vs. classical models

To comprehend the theoretical innovation of the “policy implementation paradox,” it must be distinctly compared with traditional paradigms of public choice and state capture. Traditional political economy and public choice literature—anchored in foundational upstream frameworks and implemented via institutional rent-seeking models (Hellman et al., 2003)—primarily interprets state capture as a clear, frequently transactional interference with original policy design. In these traditional scenarios, entrenched corporate interests or bureaucratic agents utilize corrupt practices—such as illicit lobbying, bribery, or clientelist rent seeking—to deliberately distort legislative drafting, undermine statutory provisions, or dismantle regulatory frameworks prior to their enactment. Capture, in the conventional context, is perceived as a manifest subversion of institutional objectives, leading to intentionally compromised legal frameworks that benefit specific industrial incumbents.

The policy implementation conundrum highlights a fundamentally different, current structural difficulty that diverges from these upstream assumptions, resonating with modern political economics critiques of global institutional frameworks (Mehrotra and Hassan, 2025). This paradox indicates that the principal mechanisms of economic marginalization do not depend on overt corruption or apparent subversion of the original policy content. Conversely, the macro-structural design of environmental transition frameworks, exemplified by the Bio-Circular-Green (BCG) paradigm, is often marked by complex, technically robust, and globally harmonized policy terminology. These frameworks are expressly aligned with global objectives, strictly conforming to the technocratic criteria of the United Nations Sustainable Development Goals (SDGs), the Paris Agreement, and multinational green finance taxonomy (Wittmer et al., 2021). Their declared statutory objectives ostensibly include equitable economic distribution, grassroots environmental sustainability, and the systemic market integration of micro, small, and medium-sized firms (MSMEs).

The paradox arises specifically because this immaculate, globally recognized policy framework is implemented in domestic contexts marked by established, low-governance institutional conditions and existing clientelist structures (Dewi et al., 2026). Instead of interrupting the policy planning phase, domestic elite networks effortlessly adjust to the complex demands. By using the fundamental structural mechanisms of the policy—namely, stringent Green Finance access criteria and capital-heavy Advanced Technology mandates—elite entities attain systemic control during operational implementation. This dynamic illustrates wider global shifts wherein net-zero climate objectives may exacerbate unequal resource exploitation and wealth concentration if mediated by fragile local frameworks (Addison and Roe, 2024).

Thus, the “policy implementation paradox” reframes elite capture not merely as a blatant, unlawful interference with legislative purpose, but as a strategic optimum executed through formal adherence. Advanced green standards are converted into structural “capital gates” that inherently correspond with the established capabilities of politically connected corporations, while rendering resource-limited MSMEs non-compliant. This framework illustrates how exemplary, internationally recognized environmental policies consistently lead to structural exclusion when assessed through localized institutional shortcomings, thereby enhancing the manuscript’s relevance to current political economy discussions regarding the structural inequalities of the global green transition.

This reconceptualization shifts the emphasis from explicit, upstream political meddling to downstream compliance-driven procedures, revealing a significant gap in literature’s assessment of sustainable development frameworks. This theoretical evolution reveals a specific research need concerning the interaction between ostensibly neutral environmental measurements and localized governance flaws, which systematically marginalize small-scale market participants.

2.5 Research gap, objectives, and research questions

Notwithstanding progress in recognizing overarching circular economy obstacles (Govindan and Hasanagic, 2018), considerable structural deficiency remains in public policy evaluation. Initially, researchers infrequently analyze governance issues, which results in micro-level exclusion from green initiatives. The literature usually does not examine how Green Finance and technology mandates (SP4 and SP3) interact with institutional deficiencies to hinder small-firm involvement. Third, researchers predominantly examine national green policies through the lens of technical resource efficiency, overlooking their distributive and political ramifications (Murray et al., 2017).

Thus, no empirical research has thoroughly examined the policy implementation paradox as an intrinsic structural consequence of CE policy design in the context of poor governance. The study aims to achieve two objectives: (1) to validate the role of high-cap green finance and technology in facilitating elite capture; and (2) to establish the structural connection between inadequate governance (CPI/WGI) and the exclusion of MSMEs. Three consecutive inquiries guide the research: In what manner does the structural configuration of CE/BCG policies, especially the emphasis on green finance and sophisticated technology, produce a policy implementation paradox? How can governance flaws and deficiencies in regulatory quality facilitate elite capture? How does this capture create financial and technological barriers that perpetuate the marginalization of grassroots MSMEs?

By formulating these three successive research questions, the study transcends individual firm-level assessments to assess the comprehensive systemic failure at the policy-governance interface. To properly delineate this trajectory, it is essential to include these theoretical deficiencies and empirical inquiries into a cohesive, sequential causal model. Section 2.5 operationalizes this integration by delineating the study’s conceptual framework, visually and structurally illustrating the macro-to-micro pathway through which a pro-capital policy design, instigated by a low-governance environment, disproportionately risks generating the policy implementation paradox.

2.6 Conceptual framework

The essential structural framework transitions from macro-level governance assessments to micro-level exclusionary results across three successive phases, as illustrated in Figure 1.

By systematically delineating the macro-to-micro trajectory of the policy implementation paradox, the institutional dynamics. This paper necessitates a research technique that may empirically establish the causal sequence by cross-examining formal policy texts with quantitative governance indicators. Section 3 outlines the operationalization of the methodology, presenting a detailed framework that includes the essential structural analysis design, data triangulation methods, extraction instruments, and verification criteria used to examine the study topics systematically.

3 Methods of study

This section outlines a systematic, multi-dimensional approach to experimentally investigate the causal mechanisms of the Policy Implementation Paradox as described in the conceptual framework. Assessing systemic policy distortions with insufficient institutional quality requires moving beyond isolated qualitative or quantitative evaluations. Subsections 3.1 to 3.5 systematically implement this inquiry by defining the fundamental structural research design, identifying the open-source secondary data sources, specifying the qualitative and quantitative analytical instruments, establishing the causal tracing methodology, and outlining the exact verification criteria utilized to ensure methodological validity and reliability.

3.1 Research design

This study utilizes a critical structural analysis research design to formulate a political-economic criticism through secondary quantitative indicator analysis and rigorous document scrutiny. To prevent over generalization in diverse regions, the geographic boundaries are carefully delineated: the study is structured as a conceptual regional argument, with Thailand’s BCG framework as its primary empirical reference. Thailand is selected for its formal transition framework, which represents the most meticulously codified, state endorsed execution of circular economy strategy in the region, offering unambiguous insight into the relationship between public capital allocation and structural corporate advantages. This major empirical focus is situated within the broader Southeast Asian context, utilizing cross-national data from the Corruption Perceptions Index (CPI) and Worldwide Governance Indicators (WGI) to examine country-level variability.

3.2 Data collection and sources

The research relies solely on open-source, secondary data systematically triangulated from three principal sources to ensure a thorough macro-level analysis. Quantitative governance indicators, including national scores, rankings, and percentiles from the Corruption Perceptions Index [Transparency International (TI), 2025] and the World Bank’s Worldwide Governance Indicators (World Bank, 2025), specifically Regulatory Quality and Control of Corruption, are utilized to evaluate systemic institutional risk in Southeast Asia. Secondly, these indicators are juxtaposed with policy and regulatory documents, encompassing official national Bio-Circular-Green (BCG) roadmaps, green finance taxonomies, procurement guidelines, and multilateral evaluation reports from the ASEAN Secretariat, UNDP, and the Asian Development Bank, to assess regional transition frameworks. This empirical evidence is contextualized through a comprehensive assessment of academic literature, employing theoretical and empirical texts on elite capture, green rent-seeking, and operational hurdles encountered by small enterprises, systematically sourced from Scopus and Web of Science.

3.3 Analytical instruments and protocols

Data extraction and analysis are performed using three integrated procedural instruments that systematically apply the study’s quantitative and qualitative variables. Initially, indicator extraction sheets are utilized to aggregate cross-national CPI and WGI scores, thereby establishing baseline empirical profiles of regional institutional risk and governance contexts. Secondly, a policy coding matrix provides a systematic qualitative framework for analyzing national roadmaps concerning certain “capital gates,” while monitoring exclusionary traits such as high minimum capital requirements, complex credit rating criteria, or restrictive technology licensing limits. A standardized thematic review protocol serves as an analytical framework to classify identified MSME challenges into structural and macroeconomic themes, distinctly separating state-subsidized credit exclusion in the financial sector from regulatory compliance costs in the technological sector.

3.4 Data analysis strategy

The analytical framework integrates these procedural instruments through two sequential branches to clarify the structural mechanics of the transition failure. Quantitative profiling initially uses descriptive statistics and cross-national comparison mapping to the CPI and WGI datasets to establish baseline institutional risk profiles (RQ2). The governance metrics are subsequently juxtaposed with documented green finance distribution metrics sourced from UNDP and SEI reports to examine the spatial correlation between regions exhibiting high corruption risk and low regulatory quality, alongside the empirical patterns of capital concentration among politically connected conglomerates. Secondly, causal tracing and thematic synthesis are employed to qualitatively outline the structural evolution from biased policy texts (RQ1), through institutional rent-seeking contexts (RQ2), to the concrete establishment of financial and technological barriers that marginalize small enterprises (RQ3). A detailed theme synthesis integrates the quantitative mapping and qualitative tracing data to validate the structural rationale behind the policy implementation conundrum.

3.5 Methodological trustworthiness and validity

To adhere to public administration standards for secondary desk studies, methodological rigor and dependability are guaranteed by four unique, interrelated criteria. Credibility via triangulation is achieved by cross-verifying institutional data and correlating macro-indices (WGI/CPI) with comprehensive policy documents and third-party multilateral impact assessments. Secondly, construct validity via conceptual coherence is attained by ensuring that the principal indicators for “elite capture” and “capital gates” are solely sourced from established, peer reviewed public choice and political-economy frameworks. Third, reliability via source traceability is guaranteed by providing a comprehensive audit trail, wherein all utilized quantitative indices and national policy frameworks are publicly available and fully verified through permanent digital identifiers (DOIs) or official archival sites. Transferability through contextual specificity is maintained by placing the governance-to-exclusion pathway within the unique structural parameters of Southeast Asia, thus facilitating the systematic adaptation and application of this analytical model to other developing regions undergoing comparable green transitions.

4 Results and discussion

This section outlines the empirical findings obtained from the triangulation of quantitative governance indicators, national policy texts, and secondary academic data. The inquiry rigorously analyzes the operational dynamics of circular economy transitions in Southeast Asia, emphasizing the transition from macro-level institutional frameworks to micro-level market results for small enterprises. Subsections 4.1 to 4.4 are methodically structured to clarify this progression: first, recognizing the deliberate incorporation of pro-capital criteria within national roadmaps; second, demonstrating how regional governance inadequacies manipulate these frameworks for elite appropriation; and third, delineating the significant structural barriers that subsequently marginalize grassroots enterprises.

4.1 Structural design and the policy implementation paradox

The structural design of Circular Economy (CE) and Bio-Circular-Green (BCG) policies in Southeast Asia engenders a contradiction in policy implementation by embedding an inherent pro-capital bias within the transition framework. This architectural edifice contradicts stated commitments to inclusive, grassroots sustainability Examination of macro-level programs reveals that exclusion is intrinsically integrated from the outset, as frameworks prioritize large scale projects and predominant players above local populations (National Science and Technology Development Agency [NSTDA], 2021). This problem arises from two distinct policy design streams: Green Finance and Advanced Technology, which embody the foundational strategic objectives of regional sustainability agendas (APEC, 2022; OECD, 2025).

4.1.1 Green finance (SP4) prioritization

Analysis of national roadmaps reveals that regional policy frameworks emphasize large, complex financial instruments—such as green bonds, private equity pipelines, and major public-private partnerships (PPPs)—which require established corporate solvency and considerable transaction capabilities (World Bank, 2024a,b). The eligibility criteria provide heightened minimum capital requirements and rigorous financial metrics, including significant collateral and global credit rating norms (OECD, 2025). The implementation of these validation standards systematically excludes smaller entities from entry. Moreover, institutional funding announcements and green loans products are primarily directed through official channels and prestigious business associations, rather than through networks available to micro-scale firms (World Bank, 2024a,b).

4.1.2 Advanced technology (SP3) mandates

Regional policy documents disproportionately emphasize “advanced, complex technology” and “sophisticated scientific knowledge” (National Science and Technology Development Agency [NSTDA], 2021, 2022). These rules focus on costly, patented, or foreign-sourced systems that small firms cannot pay or maintain, establishing a formidable structural barrier to entry. This technocratic approach frequently marginalizes decentralized, economical, and contextually appropriate solutions (OECD, 2025). National demonstration projects primarily rely on imported methodologies that do not correspond with the socioeconomic conditions of localized workshops and informal recyclers (National Science and Technology Development Agency [NSTDA], 2022). Consequently, official policy frameworks rarely acknowledge fundamental low-cost repair, reuse, and informal recycling operations as legitimate circular economy activities.

4.1.3 The structural outcome: the capital gate

Regional policy documents disproportionately prioritize “advanced, complex technology” and “sophisticated scientific knowledge” (National Science and Technology Development Agency [NSTDA], 2021, 2022). These regulations emphasize expensive, patented, or foreign-sourced technology that small enterprises cannot afford or sustain, creating an insurmountable barrier to entry. This technocratic methodology consistently neglects decentralized, cost-effective, and contextually suitable alternatives (OECD, 2025). National demonstration programs predominantly depend on imported approaches that are incongruent with the socioeconomic contexts of localized workshops and informal recyclers (National Science and Technology Development Agency [NSTDA], 2022). As a result, official policy frameworks seldom recognize essential low-cost repair, reuse, and informal recycling practices as valid circular economy activities.

4.2 Governance failure and the mechanism of elite capture

Analysis reveals that the underlying pro-capital policy bias is activated and exacerbated by regional governance shortcomings, namely diminished perceived control of corruption [Transparency International (TI), 2025] and insufficient regulatory quality (World Bank, 2024a,b). In institutionally weak environments, significant environmental financing is allocated according to traditional patronage networks that govern the transfer of public resources (Khan, 2010). This dynamic converts public frameworks into exclusive channels for capital accumulation, guaranteeing that green resources largely flow within a closed network of politically connected conglomerates (Jahanger et al., 2022).

4.2.1 Green finance under weak regulatory control

In environments characterized by considerable corruption risk, complex financial arrangements are conducted through opaque, exclusive procurement processes (Transparency International (TI), 2025). The distribution of subsidized green credit lines is frequently governed by stringent bureaucratic processes, resulting in minimal chances for grassroots candidates to access public funding. This transforms public green credit efforts into structural, exclusionary instruments that are rigorously controlled by central corporate-state coalitions (Gopalakrishnan and Miller, 2024).

4.2.2 Technology mandates within opaque procurement

In settings marked by inadequate regulatory quality, technology acquisition and standards are highly centralized (World Bank, 2024a,b). A restricted number of significant conglomerates and their international affiliates effectively establish the technical criteria for CE/BCG compliance. Upon receiving formal national authorization, a certain engineering technology necessitates that sub-national and provincial projects adhere to that technical standard, regardless of potentially more cost-effective local alternatives. This method enables elites to set value-chain eligibility criteria—such as real-time digital monitoring or certified high-quality materials—according to their corporate competences, so deeming the informal yet environmentally beneficial activities of small enterprises non-compliant (Wu et al., 2025).

4.2.3 Fragmented oversight and discretionary implementation

Local governments in underdeveloped countries encounter difficulties in mobilizing reflexive regulation and collaborative negotiating networks for circular solutions. Conflicting ministries with unclear mandates distribute CE/BCG obligations across fragmented administrative sectors (OECD, 2023). This institutional friction creates significant administrative discretion, allowing regulatory authorities to deliberately accelerate or delay project approvals. This provision enables green licenses and state subsidies to serve as instruments of political patronage instead of impartial environmental governance (Khan, 2010).

Thus, the combination of inadequate regulatory oversight and fragmented municipal policies transforms public environmental funding into a specialized area of “circular economy via contract. Rather than distributing sustainable resources across the wider sector, these governance-enabled capital gates channel public monies solely to politically connected enterprises (Jahanger et al., 2022).

4.2.4 Empirical validation of governance deficits and MSME exclusion

Empirical tracking data from regional multilateral assessments demonstrate direct causal relationships between structural institutional deficiencies and the marginalization of MSMEs, thereby connecting macro-governance environments to the exclusion of small enterprises (Asian Development Bank et al., 2021a,b; Bößner et al., 2025; Economic Research Institute for ASEAN and East Asia, 2023). Poor regulatory quality and heightened corruption risks appear operationally through three distinct empirical patterns, rather than functioning solely as abstract governance measurements. Preliminary multilateral tracking reveals a markedly disproportionate distribution of green state subsidies, with over 80% of state-disbursed transition capital and tax incentives being monopolized by powerful, politically connected conglomerates, leaving minimal resources for MSMEs, which represent the majority of domestic enterprises (Asian Development Bank et al., 2021a,b; Asian Development Bank, 2024). This institutional bias is intensified by high compliance costs, as stringent, centralized reporting mandates impose administrative burdens that significantly diminish the limited liquidity of smaller businesses, ultimately precluding their formal participation (Bößner et al., 2025; Economic Research Institute for ASEAN and East Asia, 2023). Exclusionary procurement registries regularly favor large organizations by imposing capital-intensive eligibility standards and complex bureaucratic evaluation processes that smaller businesses cannot meet (Asian Development Bank et al., 2021a,b; OECD, 2023). The empirical data vectors demonstrate that deficiencies in macro-governance directly lead to challenges in policy implementation, transforming sustainability measures into mechanisms of market exclusion that bolster the competitive advantages of elite corporate entities.

4.3 Structural barriers and persistent MSME exclusion

The elite capture mechanism establishes two formidable structural obstacles that make the operational integration of small firms unfeasible, illustrating that marginalization arises from systemic policy design rather than deficiencies in firm-level capacity (Economic Research Institute for ASEAN and East Asia, 2023; Ministry of National Development Planning/National Development Planning Agency (Bappenas), 2024.

4.3.1 Structural financial barriers

The diversion of policy-backed Green Finance to vested interests leads to a considerable credit deficit for small businesses (Asian Development Bank, 2024). Internal banking risk assessments for green products presume audited financial accounts, fixed assets, and export records as essential baselines. Elite capture diverts subsidized, low-interest public capital from the competitive market, forcing small companies seeking to use circular processes to rely on high-interest commercial loans or informal financing (Asian Development Bank, 2024; Htut, 2025). The ensuing cost of capital renders circular investments economically unfeasible and financially inaccessible for MSMEs, restricting them to traditional linear models.

4.3.2 Structural technological barriers

Policy mandates for expensive, complex advanced technology lead to systemic technological exclusion (Economic Research Institute for ASEAN and East Asia, 2021). The lack of MSME representation in standard-setting procedures permits the formulation of formal compliance requirements exclusively based on the technical capacities of capital-intensive organizations (Economic Research Institute for ASEAN and East Asia, 2023). Smaller firms are excluded from official supplier registries for green-certified product lines due to their inability to meet the rigorous traceability standards and certification costs (Htut, 2025; Istiqomah et al., 2026). Significant procurement regimes inherently advantage producers possessing worldwide certifications and real-time digital oversight [Ministry of National Development Planning (Bappenas), 2025]. Grassroots participants are thus relegated to low-margin, informal sectors, engaging in vital cyclical activities without official regulatory recognition or governmental assistance (Istiqomah et al., 2026).

4.4 Discussion

This study’s empirical findings confirm the presence of the Policy Implementation Paradox in Southeast Asia’s Circular Economy (CE) and Bio-Circular-Green (BCG) transition. Although regional policy instruments are publicly articulated through narratives of inclusive development and grassroots environmental sustainability, their internal mechanical design inherently perpetuates the systematic exclusion of micro, small, and medium-sized companies (MSMEs). This section contextualizes macro-governance quality and institutional risk as explicit causal processes within the broader economic and public administration literature.

4.4.1 Reconceptualizing “operational” barriers as structural causality

A significant corpus of classical CE literature delineates the multifaceted obstacles encountered by small enterprises—such as persistent deficits in accessible capital, technological capability deficiencies, and knowledge asymmetries—as distinct, isolated “operational” challenges. Conventional barrier models, as delineated by Govindan and Hasanagic (2018) and Galvão et al. (2022), classify these constraints as organizational deficiencies that can be surmounted via focused capacity-building initiatives, technical training, or gradual market modifications. Likewise, policy diagnostic frameworks from multilateral organizations generally concentrate on mitigating regional skills deficiencies or rectifying localized regulatory uncertainties.

The results of this investigation directly challenge this customized perspective. Instead of viewing MSME restrictions as isolated internal capacity deficiencies, our empirical data indicate that these “operational” challenges are, in fact, manifestations of structural exclusion embedded within regulatory frameworks. The prioritization of Green Finance (SP4) and Advanced Technology mandates (SP3) establishes institutional entry criteria, including elevated minimum capital requirements, stringent collateral standards, and intricate international credit expectations, which are commensurate solely with the magnitude of significant corporate entities. Consequently, this study transitions the analytical framework from a focus on individual firm shortcomings to an emphasis on structural impediments. This reinforces the political-economic critiques of Grafström and Aasma (2021), who contend that institutional and market frameworks sometimes inhibit smaller firms from seizing green prospects.

4.4.2 Integrating macro-governance deficits into the logic of policy failure

In the domains of public administration and environmental policy, governance difficulties are often articulated broadly, emphasizing general legislative fragmentation, the absence of defined transition indicators, or inadequate regulatory enforcement. Scholars such as Banaitė and Tamošiūnienė (2016) and Dagilienė et al. (2021) note that local administrative structures encounter difficulties in facilitating learning and networked negotiation for sustainable practices; however, these shortcomings are often regarded as contextual factors rather than as active agents of policy distortion. This study addresses this gap by explicitly correlating macro-governance indices—namely the Corruption Perceptions Index (CPI) and the Worldwide Governance Indicators (WGI)—with micro-level distributive results. Empirical research indicates that environments marked by low regulatory quality and high perceived corruption facilitate macro-governance failures, which serve as enabling factors for elite capture. When substantial amounts of state-subsidized capital are directed through intricate project frameworks, obscure procurement processes, discretionary execution methods, and informal patronage systems, they enable financially robust, politically affiliated corporations to seize green assets. This dynamic transforms public resources into exclusive avenues for corporate consolidation. By elucidating these dynamics, the study repositions corruption from an external contextual element to an intrinsic aspect of CE policy failure.

4.4.3 Contrasting technocratic metrics with distributive realities

A third comparative aspect pertains to the evaluation of national green transition programs. Modern CE literature frequently employs resource-efficiency frameworks, evaluating transition performance using technical circularity indicators, waste-diversion quantities, and macroeconomic environmental statistics. Conceptual models, including the operational principles articulated by Suárez-Eiroa et al. (2019), prioritize the closure of material loops, the extension of resource lifespans, and the reduction of system scale as technological imperatives. Our findings suggest that evaluating a green transition only through these technical characteristics conceals substantial political and societal disparities. A centralized, high-value project may achieve macro-level environmental objectives and be recognized as a national success, while its internal dynamics can concentrate capital and drive local MSMEs into informal, low-margin sectors. This reality corroborates the critical viewpoints of Murray et al. (2017), who contend that conventional circular frameworks frequently neglect issues of social justice and power dynamics. This coincides with classical economic theories on capital centralization, demonstrating that in the absence of democratic protections or robust regulatory frameworks, green policy reallocations may perpetuate existing market hierarchies.

4.4.4 Theoretical innovation: downstream compliance vs. upstream subversion

The empirical validation of the policy implementation paradox significantly enhances current discussions in political economy and public administration by presenting a crucial conceptual shift from traditional state capture and public choice frameworks. Conventional frameworks, exemplified by classical rent-seeking and institutional capture models (e.g., Hellman et al., 2003), primarily conceptualize state capture as an upstream, transactional distortion of the legislative process. In these traditional frameworks, predatory elite networks or dominant industrial incumbents utilize overt illicit tactics—such as bribery, corrupt lobbying, or clientelist manipulation—to deliberately undermine statutes, create explicit regulatory loopholes, or compromise policy formulation before implementation. Conversely, our empirical findings indicate that in contemporary green transitions, economic marginalization and resource diversion do not necessitate explicit alteration of law language or the undermining of environmental objectives. The structural mechanics evident in Southeast Asia’s Bio-Circular-Green (BCG) and Circular Economy (CE) frameworks indicate that the policy documents are technically sound, highly sophisticated, and strongly aligned with global standards such as the UN Sustainable Development Goals (SDGs) and international green finance taxonomies. The uniqueness of the policy implementation conundrum resides in revealing how this immaculate, universally endorsed framework enables elite capture not via its infringement, but through formal downstream adherence. Domestic elite networks do not interfere with upstream policy formulation; rather, they leverage their established structural capabilities to effectively accommodate the rigorous technical requirements of Advanced Technology mandates (SP3) and high-collateral Green Finance standards (SP4). Thus, capture is attained through a purposeful optimization of complete compliance. Through flawless institutional compliance, politically affiliated businesses convert objective, impartial environmental measurements into structural “capital gates.” These gates systematically exclude resource-constrained MSMEs, thus criminalizing or delegitimizing informal, decentralized circular operations as “non-compliant,” while legally securing public subsidies for corporate monopolies. This paper offers a vital theoretical correction to the literature on sustainable transition management by redirecting the analytical emphasis from upstream illegal subversion to downstream compliance driven exclusion. It illustrates that in low-governance contexts, globally recognized, high-caliber environmental policies serve as effective legal instruments for capital concentration and socio-economic marginalization.

5 Conclusion

This section consolidates the study’s fundamental empirical and theoretical findings to deliver a conclusive administrative assessment of Southeast Asia’s transition to a circular economy. The conclusion integrates the systemic mechanics of the Policy Implementation Paradox into a practical paradigm for public policy reform, transcending single data sets. Subsections 6.1 to 6.3 conduct a conclusive synthesis: first, delineating the macro-political economy dynamics of the “green overlay” within clientelist networks; second, converting these institutional assessments into specific, multi-stakeholder policy and practical recommendations; and third, clearly articulating the empirical constraints of this study to establish a focused agenda for future public administration research.

5.1 The political economy of the green overlay

This analysis demonstrates that the systematic design of Southeast Asia’s CE/BCG transition makes grassroots inclusion exceedingly unlikely, despite clear policy statements suggesting otherwise. The convergence of pro-capital policy formulation with subpar institutional frameworks produces a transition model capable of yielding prominent flagship projects and macro-level carbon indicators, albeit at the expense of distributive justice and the involvement of small firms in the market. Ultimately, the current transition to a circular economy in the region serves more as a superficial enhancement to existing clientelist patronage networks than as a genuine avenue for socio-ecological development. These insights demonstrate that elite capture functions not only through explicit corruption but also through the seemingly impartial design and execution criteria of public green tools.

Due to the continuous incorporation of elite capture in these routine regulatory thresholds, correcting the regressive trend of the transition necessitates more than surface modifications. The study aims to demolish concealed capital barriers and repurpose public green resources for equitable development by translating its structural analyses into specific actions, outlined as a series of legislative and practical recommendations in section 5.2.

5.2 Policy and practical recommendations

The report delineates a comprehensive reform road to shift the CE/BCG transition from regressive models to egalitarian, sustainable growth, integrating public policy restructuring with localized practical applications. This necessitates a cohesive, three-faceted public policy approach at the state level aimed at methodically alleviating transition obstacles and institutional weaknesses. Initially, the reconfiguration of Green Finance (SP4) necessitates the creation of dedicated, small-scale MSME credit facilities that employ streamlined application procedures, minimal collateral prerequisites, and transparent, publicly accessible disclosure of capital allocation data. Secondly, recalibrating technology mandates (SP3) involves establishing tiered technical compliance standards that officially validate, certify, and promote low-tech, decentralized circular practices, while also enhancing public administration protections necessitates the integration of effective anti-corruption measures, such as transparent contracting procedures and obligatory e-procurement systems, while clearly delineating institutional authorities among overlapping ministries to eradicate opportunities for rent-seeking (Dagilienė et al., 2021).

Beyond these state-level modifications, implementing these changes necessitates a coordinated, multi-stakeholder strategy involving non-state actors and international institutions. International development donors can deliberately condition their multilateral and bilateral green finance packages on objective, verifiable enhancements in domestic regulatory quality, anti-corruption monitoring, and validated indicators of MSME market integration. Civil society organizations and intermediaries, such as small business associations, environmental NGOs, and technical universities, must redirect their operational emphasis from isolated firm-level capacity training to collective policy advocacy, while concurrently collaborating to co-design low-cost, open-source circular technologies that are structurally and economically optimized for small-scale operations.

Ultimately, although these multi-stakeholder policy routes provide a practical foundation for inclusive structural development, their immediate applicability must be assessed in relation to the unique boundary parameters of this study. The report finishes in section 6.3 by delineating its primary methodological shortcomings and suggesting essential avenues for future research to ensure empirical transparency and facilitate further academic development.

5.3 Limitations and future research

The structural analysis presented is predicated on secondary macro-governance indicators (CPI, WGI) and selected regional policy frameworks. Consequently, it fails to thoroughly encapsulate nuanced sectoral disparities or quantitatively assess exclusion rates of small enterprises across different industrial regions [United Nations Development Programme (UNDP), 2021; SEED Policy Lab, 2020]. Furthermore, the fundamental structural viewpoint emphasizes dominant patterns of elite appropriation, overlooking the analysis of beneficial bureaucratic aberrations or reform successes. Future research should employ comprehensive mixed-method firm surveys, comparative cross-regional national analyses, and longitudinal impact assessments of localized institutional changes to examine, improve, and expand the application of the Policy Implementation Paradox framework.

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Footnotes

Edited by: Carlo Drago, University Niccolò Cusano, Italy

Reviewed by: Anh Tuan Tran, Budapest Business School, Hungary

Giuli Keshelashvili, Tbilisi State University, Georgia