State management reform requirements for the current socialist-oriented market economy in Vietnam
Communist Review - The guidelines and solutions on developing a socialist-oriented market economy is a creation by the Communist Party of Vietnam, which is an application of Marxism-Leninism to Vietnam’s new context. With the advancement of science and technology, the impact of the Fourth Industrial Revolution, globalization and international integration, the socialist-oriented market economy in Vietnam faces many opportunities and challenges at the same time. To overcome the challenges and take advantage of the opportunities, state management needs to be innovative, adaptive, and transformative.
Delegates visiting IoT Innovation Hub in Hoa Lac Hi-Tech Park, April 2019 _Photo: VNA
State management on socialist-oriented market economy in the period of 2011 - 2019
State management on a socialist-oriented market economy is particularly important because the State is the subject of orientation, regulation and promotion of the socialist-oriented market economy. Specifically, the State manages the socialist-oriented market economy by institutionalizing, formulating plans and strategies for overall economic development, building infrastructure and ensuring social security; providing mechanisms and policies on resource allocation, distribution and redistribution with respect to economic growth in association with social progress and justice as well as environmental protection.
Vietnam's labor productivity has improved significantly, steadily over the years and it is a country with a high rate of labor productivity growth in ASEAN. Labor productivity of the whole economy at current prices in 2018 reached 102 million VND/labor (equivalent to 4.512 USD), an increase of 346 USD compared to that of 2017. Capital investment efficiency, reflected in the ICOR (incremental capital output ratio), is gradually improving, from 6.42 in 2016 falling to 6.11 in 2017 and 5.97 in 2018.
By the end of 2018, Vietnam has about 3.000 innovation start-up businesses, nearly doubled in comparision with those in 2015. By 2020, Vietnam is expected to have 1 million businesses, including 5,000 innovation start-up businesses. The report of 2018 Global Innovation Index shows that Vietnam continues to improve its position, ranking 45/126 listed economies, up 2 places compared to 2017 report, increased by 14 places compared to that of 2016.
However, state management on socialist-oriented market economy still has suffered from shortcomings and limitations. The Resolution of the 5th Plenum of the 12th Party Central Committee clearly stated: “State management has not yet met the requirements to develop market economy and international integration; its validity and effectiveness are not high; discipline is not strict”. That manifests itself as follows:
Firstly, state management institution in socialist-oriented market economy still needs perfecting. Many new problems arise beyond the State’s anticipation; necessary legal corridor has yet to be built. Limitations of the institutional framework in Vietnam can be found in the following aspects: Specificity and predictability in regulatory policies are inadequate; the capacity of law-making agencies has not yet met the requirements for the development of social life, the society’s increasing demand to adjust with laws, as well as the need to build the economy of socialist-oriented market and international integration; the feasibility and effectiveness of the law are low, issued inapplicable documents still exist. The quality of legal documents is poor; many legal documents have been newly issued and come into force, some of them even have not enforced such as the Law on Social Insurance 2014 (Article 60) or the Penal Code 2015 which were amended or delayed their enforcement dates. This has reduced public’s trust in the strictness and legality of the law. Guidance documents were released behindhand, which slowed down the implementation of new regulations and policies. Problems arising in managing foreign direct investment (FDI) enterprises, weaknesses of state-owned economic groups, etc. also revealed that the institutional framework of the market economy has not really satisfied practical requirements.
Secondly, Vietnam's economic growth is relatively high but not really commensurate with the existing potentials and strengths. State management has not created an institution appealing enough to attract different investment resources. State budget revenues still depend heavily on foreign-invested areas, natural resources, specific revenues and revenues arising from objective factors, which resulted in several years of underestimation. The revenue policy does not cover all revenues, such as revenue from e-commerce activities (online sales), management of natural resources, environment, assets, etc. The resource mobilization of land, natural resources and public assets have not been highly effective and have not yet met demand of socio-economic development; state budget revenue still remains unaccounted for because of fraud and transfer pricing; tax debt is still large, affecting the proportion of state budget revenue mobilization.
Thirdly, the issue of budget allocation for development still faces difficulties. In the period of 2011 – 2018, resources for state sector investment are short-term and passive. Although state resources for investment and development have the tendency to increase in recent years, but in the period of 2011 – 2018, the proportion of development investment on average was only about 20%, a fall compared to the period of 2006 – 2010 (28%). The efficiency of public investment is not high and the proportion of public investment in social sectors such as education, health or agriculture, forestry and fishery is still quite low and decreasing.
Next, Vietnam’s economic growth is still largely broad based, which is mainly on the basis of inputs, namely increasing investment capital and employing a large amount of labor, while technological innovation, production improvement, management, and workers’ qualification improvement (refer collectively to Total Factor Productivity - TFP) are still very limited, despite having been boosted over the years. In Vietnam, TFP’s contribution is only about 40% to the percentage point of growth while that of capital is approximately 50%, which leads to the growth model is still characterized as capital intensive. Meanwhile, many countries in the region have TFP’s contribution to economic growth of around 50%, such as South Korea 51.5%, China 52%, Thailand 53%, Indonesia and Malaysia are both at 49%.
Moreover, the inner structure of the economy still has many “bottlenecks” in the process of equitising and divesting state capital in state enterprises; slow implementation of key national construction projects; thinly capitalized enterprises, the raging of “black credit”; improving the business environment has not kept pace with the reality of economic life and remains risky in facing external challenges.
Finally, many issues of socialist-oriented market economy have not yet been clearly interpreted and effectively managed. Measures to handle the transfer pricing activities of FDI enterprises, exploiting legal loopholes related to the origin of goods that made in Vietnam (Made in Vietnam), etc, are damaging people’s confidence in domestic goods and affecting the state budget revenue.
Regarding the causes of the current situation, The Fifth Plenum of the Party Central Committee, 12th Tenure, pointed out: “The awareness of the socialist-oriented market economy is still limited. Subsidized thinking is still heavily influenced. The capacity of building and enforcing institutions is still inadequate, not keeping up with the development of the market economy. Thoroughly grasping, organizing, and implementing the Party’s undertakings, State’s policies and laws at all levels and branches, especially the head of these institutions, are lack of drastic and seriousness, low efficiency. The roles, functions and modes of operation of agencies in the political system are slowly innovating in accordance with the requirements of developing a market economy in the context of international integration. The degradation in political ideology, morality, lifestyle, bureaucracy and corruption in a significant part of cadres and party members has resulted in lowering the effectiveness and efficiency in implementing the Party’s guidelines, and State’s policies and laws”(1).
The requirements are designated in state management of the Vietnam’s socialist-oriented market economy in the current context
The Fourth Industrial Revolution has a strong impact on the socio-economic life of every country that the field of state management is also counted in. The change in management’s objective, subjective, and scope requires state management to be adapted, even one step ahead. State management institutions need to be renovated to create a legal corridor to promote innovation, develop digital products, artificial intelligence, manage transactions on the digital environment, intelligent management and electronic management.
The Fourth Industrial Revolution requires state management must base on lean principle, with the ability to make timely decisions on powerful and shared data platform. State management personnel also face capacity challenges. State management cannot be a creative management process if officials, public servants and management subjects are not creative, dynamic, visionary people who can recognize opportunities and anticipate challenges in order to effectively participate in the governance process.
The Fourth Industrial Revolution not only raises new problems, but also changes the nature of many of existing problems; thus, requiring state management needed to be improved its administrative functions. During the implementation of the Fourth Industrial Revolution, the rich – poor gap is associated with the differences in knowledge and creativity. People with lower knowledge and skills tend to lag further, while those with knowledge and creativity might achieve increasingly crucial breakthoughs. Governance must foresee this trend to offer solutions, so that those who do not have enough knowledge and skills are not marginalized in the development process, as well as being able to adapt to the new jobs when the old ones will soon disappear.
A series of requirements for state management of socialist-oriented market economy in the context of the Fourth Industrial Revolution has been put forward, including the following basic requirements:
Firstly, state agencies should actively indentify the “bottlenecks” in the development process by paying close attention to opinions from society, the business community, from discussion forums, from policy consultancies and policy recommendations, etc. Institutions should ensure the effectiveness of mobilizing and managing resources for development, especially natural resources, financial investment, and state budget, etc. It is required to allocate investment for the effective projects, reduce scattered investments, avoid the investments that the basis for determining the efficiency is not really clear. The allocation of resources for development should be based on market signals. It is also necessary to boost the access to finance of small and medium-sized enterprises, access to capital of farmers, and minority groups in the society.
Secondly, the State needs a roadmap to proactively and positively address the specific goals. Institutionally, the State needs to improve the business environment, diversify the channels of direct interaction between the people and the government, build a mechanism where social actors can participate effectively and directly into the policy and law making process, so that the planning process is linked to reality, getting consensus from the planning process to the implementation process.
Thirdly, the State needs to establish institutions that enhance the creativity, namely improving business environment, creating favorable conditions to promote entrepreneurial spirit, creativity, and nurturing creativity in all areas of socio-economic life. Focusing on promoting the national innovative and creative start-up ecosystem must be in the direction of building specific and appropriate mechanisms and policies to strongly develop innovative start-ups, such as having financial mechanisms to encourage the enterprises’ scientific research and technological development that are aligned with the enterprise-centered principle; renovating the investment mechanisms, as well as the scientific research and technological development funding; adopting policies to strongly develop creative start-ups; connecting science and technology community of overseas Vietnamese and domestic scientists. Developing tax and fiscal mechanisms and policies to encourage enterprises to invest in technological innovation activities, research and development as well as investment in information technology and other advanced technologies.
Fourthly, the State needs to resolve the inconsistencies in the process of developing a socialist-oriented market economy. They are the inconsistencies between rapid and sustainable development; between globalization, international integration and protectionism trends; between cutting tariff barriers and increasing non-tariff barriers; between bilateral trade agreements and a country’s trade agreements with organizations, regions, etc.
Fifthly, the State needs to ensure the synchronous development of markets, strengthen capital and monetary markets with a clear and transparent legal corridor; accelerate the process of evaluation of state-owned enterprises. Building a legal corridor for the models of digital economy, sharing economy, new forms of payment, peer-to-peer lending, and restricting the growth of “black credit”. Paying more attention to controlling budget deficit, national foreign debts; reforming the budget revenue and expenditure mechanism, including the decentralization of budget revenues and expenditures of localities, to create conditions for further development.
Sixthly, effectively solving “bottlenecks” in terms of infrastructure and quality of human resources. The demand for infrastructure investment in our country increases every year. Investment in infrastructure contributes to medium and long-term growth, so the State needs to plan and prioritize investment in the backbone infrastructure projects of the country. In addition, the State needs to develop an effective legal environment to attract the participation of the private sector. These activities include establishing a comprehensive legal framework for public-private partnerships and promoting the development of the domestic financial sector, while ensuring the effective operation of state-owned enterprises is considered as one of key points in the infrastructure program. Infrastructure development in the form of public-private partnerships needs to be approached as activities to attract resources to invest in social development. Particularly, it is necessary to select partners with sufficient financial and technical capacity since the lack of financial capacity might affect the progress of implementation, the quality of construction and the stability of the financial market; but most importantly, the partners that launched projects based on modern technologies, intensively and extensively harness the information technology, biotechnology based on digital technology, artificial intelligence.
Seventhly, the State needs to improve the capacity to forecast changes in socio-economic life at regional and global scales, to be able to offer suggestions and orientations to reduce “shock” from adverse fluctuations in regional and international markets. The State also needs to be the subject to provide timely information about the market and market signals in order to guide enterprises’ activities to catch up with the actual development. State management needs to have regional and global thinking, find out the value of Vietnam in the production chains, and value chains to catch up with the common development of all mankind.
Eighthly, developing a digital and intelligent government with the ability to share state management data that need to be set and implemented effectively, creating interdisciplinary and interregional cooperation, harnessing the comparative advantages of each region, each locality, each branch and field, fostering a connection for development. Each ministry, branch and locality should proactively cut current administrative procedures, which may become barriers for socio-economic activities, so that administrative procedures will not only guarantee the required coherence, but also create the favorable conditions for production and business activities, ensuring the enterprises’ flexibility and adaptability to the changes and transformation in modern technologies. State management modes need to be renewed, compatible with the application of the new achievements of the Fourth Industrial Revolution in all aspects of economic, social, security, defense and international integration, in the age of digital technology and artificial intelligence./.
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(1) Documents of the Fifth Plenum of the Party Central Committee, 12th Tenure, Office of the Party Central Committee, Hanoi, 2017, p. 26 - 27