In substance, I abide by the traditional formulation of the role of the state, which is to provide peace, order and good government. Governments should do what they do best - in Paul Ormerod's words, "Governments should do much less...detailed short-term intervention...and [spend more time] thinking about the overall framework." They should shun ideology and focus on making the environment right for us to go about our business, while being mindful of the consequences of allowing too much freedom.

Strangely enough, to allow citizens and business the freedom they crave, good government must contain an element of regulation, it must, in some cases, in some ways, restrict freedom. This is because regulation is an essential ingredient of governance and, in turn, governance is fundamental to the success of the modern state and of modern economies. Maslow developed a "hierarchy of needs" for individuals. The higher needs in this hierarchy become relevant as a motivator of behaviour only when the lower needs are satisfied. Once an individual has moved upwards to the next level, needs in the lower level will no longer be a priority. I think this model is applicable at the societal level as well. I think a similar pyramid or hierarchy of needs can be constructed for society as a whole.

At the bottom of the pyramid, we can see that society needs to be protected from external and internal threats, like foreign enemies or terrorists. Society also needs an adequate supply of food, clean water and clean air, to meet the physiological needs of its constituent elements. When those needs are satisfied, then psychological needs - or, more appropriately, wants - become motivators. This is the role of the economy. At the next layer up, we find good governance, and then we rise up to the level of civil society, with the spiritual layer next and last  - where the pursuit of happiness promised by the US founding fathers finds a home.

These are all the ingredients the state needs to ensure and, as in Maslow's theory about individuals, we will find that once a satisfactory level of prosperity is achieved through a functioning economy, society will tend to focus on higher layers as priorities for criticism, for dissatisfaction, driven by a desire to remedy real and perceived flaws. Classic economic theory, based as it is on an inadequate theory of human motivation, could be revolutionised by accepting the reality of higher human needs, including the impulse to self actualisation and the love for the highest values.

Security is self-explanatory; it is about protecting the borders from enemies and maintaining order internally. Governance is about making the right decisions, the right way. Effective governance requires a functioning political system, an effective civil service, a strong civil society, including independent media, an independent judiciary, and rules appropriate to the prevailing social, economic and cultural conditions. The rules, the body of regulation, is the capstone, if you like, that keeps this complex structure steady, creating the level of predictability and stability that both society and the economy require as a condition precedent to prosperity and development. Governance creates trust between the governors and the governed, giving the state the legitimacy it needs to use state power to achieve public ends.

Without good governance there is no trust and when there is no trust, good governance becomes impossible and the state becomes unviable, as witnessed by events in failed states like Zimbabwe or the Solomon Islands. You may notice that I have not mentioned democracy in this discussion. That is because democracy, at least as we understand in the West, is not an essential element of a successful state, though it may be a very desirable one. It is possible to have good governance without what we in the West understand democracy to mean.

An independent judiciary, a strong civil society and an effective bureaucracy are far more important to social stability and economic development than the application of Jeffersonian, Hamiltonian or Westminster principles. The examples of Singapore and my native homeland, Italy, come to mind. Singapore is not a democracy, as the USA or Australia, for example, understand the term. Yet, it is a stable, secure, prosperous state, with no indication of incipient revolt among its citizens against its institutions or its values. Interestingly, this was not so in the 1950s and 1960s, when the needs at the lower end of the pyramid were not being met. Italy, on the other hand, is a prosperous, stable state despite the continuing failure of its democratic institutions in the six decades since the Second World War. Singapore has effective governance despite its lack of democratic zeal, while Italy has effective governance despite its attachment to democratic values.

Of course, governance is not sufficient in and by itself to support a modern state. A modern state requires many things, such as human and financial capital, a secure environment, internally and externally, access to dependable and sustainable resources, such as food, water, clean air, and raw materials, and quality health and education infrastructure. It also needs connectivity, physical and virtual, in the form of road, rail and air transport networks, and ubiquitous high speed broadband. Last, but certainly not least, it must have an effective and efficient financial system, capable of supporting economic, social and cultural life at a standard sufficient to satisfy at least the majority of the population.

Unfortunately, it is in the global financial system that the fundamental failings of existing models of regulation are becoming most evident and it is timely and appropriate, I think, that the forthcoming Congress on regulatory issues should be held now, when there is a need for new thinking.

Patrick Callioni is Division Manager and First Assistant Secretary of the Australian Government Information Management Office, Department of Finance and Deregulation.