Ever thought about what is the #1 problem all countries face? I searched and multiple sources said that an economy's number one problem is scarcity. There is an unlimited demand from humans but there are only limited resources. It becomes now a problem when the government has to answer these questions:
1. What to produce?
2. How to produce?
3. Whom to distribute the product?
With limited resources, the government has to decide on the most profitable product to make. They have to find a way where they minimize the costs but maximize the profit. But then they have to ask themselves who should benefit from the end product? Some government decide based on wealth. If you are rich, you get the best products or services. Some governments distribute it equally or based on needs but this usually happens in totalitarian authorities. Some governments mix it up and give some to those in need but also to those who pay taxes the highest.
There is a lot of reasons why this problem can't be solved for good. One is that there will always be needs from people. The population keeps growing and growing. The resources keeps on dwindling down. Not to mention corruption. Will there be a time where we would all have to literally fight for resources?
Three basic questions are often asked in microeconomic theory. But when discussing the economy and the state, failure to answer these three questions is clearly a symptom, not the primary problem, nor the root cause.
These three questions become relevant if institutions are sound. If the law is weak, corruption is high, and the market is full of cartels, then decisions about what, how, and who will benefit the elite, not the welfare of the people. So the initial problem is institutions and governance, not simply production choices.
Decisions about "what, how, and who" are often constrained by historical economic structures. Former colonies are trapped in a reliance on selling raw products because their infrastructure, human resources, and connectivity only support that. Therefore, the choice of what to produce is not free, but locked.
How to produce may be ideal in calculation, but if access to energy, technology, or skills is scarce, the country lacks that option. The initial problem is production capacity.
Distribution (whom), meanwhile, depends on political power. Even with sufficient production, distribution can be unequal if the tax and transfer system is weak. So the initial problem can be an imbalance of power.
The root of the problem lies in institutions, the rule of law, political stability, human resource quality, and technological capacity. This then leads to the next symptom: the inability to accurately answer the "what/how/whom" questions. This results in slow growth, unequal distribution, and social dissatisfaction.