New path towards a socialist-oriented market economy

The core economic philosophy expressed in the documents adopted by the 11th National Congress of the Communist Party of Viet Nam is that the economy must be restructured and the model of growth shifted in order to ensure rapid but sustainable development.

Three strategic breakthroughs are a precondition to implementing this philosophy, with the accomplishment of institutions necessary for a socialist-oriented market economy the key breakthrough that directly affects the process of shifting the model of growth. Doing so does not necessarily require an enormous investment of financial resources and therefore could be accomplished in a rather short time with determination and the proper understanding.

After more than 20 years of pursuing the policy of doi moi (renewal), our country has recorded important achievements in building the institutions of a socialist-oriented market economy. Thanks to these achievements, we have been able to mobilise various resources for development, ensuring high growth, creating jobs and improving people's quality of life.

However, our market institutions remain uncompatible with elements of the market economy yet being fully formed. Many difficulties are still found in the property market. The unbalanced development of the financial market, the prematurity of the bond market, and the stock market's lack of depth and inability to become an important channel for raising capital are putting a burden on the credit market, making it all the more vulnerable. The market in science and technology has been slow to develop. The labour market is fairly complete, but the low quality of human resources combined with irrational wage structures among economic sectors are major barriers to the movement of labour to essential areas and the supply of public services. The prices of some goods and services are also not yet able to compensate for their costs as required under a market system.

A market economy includes various institutions operating in an integrated manner. Just one that does not operate completely will prevent the functioning of others and block the entire system. Against that backdrop, it would not be difficult to foresee the need for certain administrative interventions in the economic process. Such interventions might be useful to help overcome immediate difficulties but costs would surpass the opportunities created, and interfere with the course of development. And, at the end of the day, the fundamental issues would remain. This is a paradox that regulators must understand in order to formulate correct and consistent responses.

In light of this, it is necessary for us to focus our strength on further accomplishing the institutions of a market economy in 2012 as defined by the 11th National Party Congress.

In the context of globalisation and tough competition, our country can only accelerate growth and narrow the gap with other countries in the region if we develop a modern set of institutions for a market economy that facilitate the movement of resources across sectors and regions of the country according to signals from the market, along an average profit axis in order to ensure the harmonious and balanced development of the economy. This would in turn encourage enterprises to develop their human resources, as well as apply innovative management and production technologies, thereby creating a dynamic competitive advantage against other business entities in pursuit of superior profits. The process would encourage a continual refinement in investment structures, forging an economy that offers a high degree of innovation and ensuring the efficiency and competitiveness of the economy itself. These are the dialectics of development.

It is necessary to take the features of modern market institutions as the standards for our own institutions.

First, we need to have integrated development of all elements of the market economy so that they are fully formed and functioning in harmony, one supporting the other in a perfect whole. This is the very condition for the economy to function smoothly, allowing all resources to move freely and be allocated rationally and effectively.

In 2012 and the years beyond, it will be necessary to further amend the Land Law, establishing conditions to promote healthy development of the property market. We also need to develop the bond market, expand the insurance market and advance the science and technology market. It is also important to give a boost to human resources development, especially high-quality manpower, and continue to pursue wage reform to facilitate the smooth functioning of the labour market. We should also persevere in applying market prices to products which are still under State price control.

Second, a modern market economy requires the establishment of an equal competitive environment for all players on the market. Competition is a feature of a market economy and a criterion to measure the market nature of an economy. A highly competitive market will also help control prices much better than a State price control regime. The important thing is competition forces businesses to cut costs and improve productivity to ensure efficiency.

The Government will review and evaluate the competitiveness of each sector to eliminate the discrimination experienced among enterprises of different economic sectors. It will also improve legislation on competition, monitor natural monopolies, and build the capacity to protect intellectual property as well as that of regulators to handle cases of unhealthy competition or abuse of market position.

Third, it is necessary to highlight transparency and accountability in the implementation of management policies and development projects as well as in the operation of businesses. The impact of opening and integrating our markets are closely linked to the formation of multiple ownership structures that lead to the emergence of certain 'interest groups.' Objectively speaking, these interest groups might affect the policymaking process. Transparency not only helps create equal opportunities for access to information, but, more importantly, the transparency and accountability also allow public oversight of decisions made by regulators. They provide the fundamental measure to prevent corruption and the possible impacts that interest groups might have on the policymaking process, ensuring that decisions made are in line with common values and in the interest of the nation. Transparency also helps limit speculation, reduce costs and enhance market efficiency.

In the past, thanks to the Law on the Promulgation of Laws and Regulations, as well as question hours during National Assembly sessions and meetings of People's Councils, our State administrative agencies have made great progress in terms of transparency and accountability. However, what we have achieved still falls short of ideal.

Most goods on sale at the Pham Hung Satra Supermarket in Binh Chanh District, Ho Chi Minh City are made in Viet Nam. Plans to further promote domestic goods in the Vietnamese market aim to help stimulate the economy.

The guiding political position of our Party and State is to ensure the people's right to access to information and to voice social criticism, and the Government will therefore study ways to improve its regulations on publication of information and the freedom of access to information while simultaneously increasing the dialogue among administrative agencies, independent experts and the public on policies and development projects, not only at the current "post-decision" phase but in the more important "pre-decision" phase. Furthering the cause of renewal and improving the quality of question hours with a focus on responding to issues related to development policies and their impacts on different strata of the population.

Fourth, creating modern market institutions in an era of globalisation and all-out international integration requires us to redefine the relationship between the State and the market. Accordingly, the State should shift from direct intervention into economic processes to performing an innovative function to ensure economic stability and a favourable climate for business and investment, thereby forming a setting for the development and improvement of public services.

A challenge to State administration in the time of globalisation are global impacts on the domestic market. This requires the State to boost its capacity to forecast and formulate policy responses to mitigate negative impacts on the economy. Globalisation also places a segment of the population in a more vulnerable position with regards to the increasing gap between the rich and the poor. The State therefore needs to have proper policies and apply regulatory tools to address these negative aspects of the market economy and of globalisation, thus ensuring economic growth goes hand-in-hand with progress and social justice.

It is necessary to reiterate that the market operates according to its own rules - first and foremost the rules on competition and profit. Its development along a socialist orientation is the State's aim. The State needs to bring into full play the market's "self-regulating power" while it also has to "dispel" the negative impacts of the market.

From that perspective, we can see that the role of the State is not weakened but strengthened with new powers and new ways of influencing the markets.

We should base ourselves on the basic concepts of building a socialist state ruled by law, set by the 11th National Party Congress to further improve the State apparatus at all levels with regard to functions, organisational structures, decentralisation and the proper relationship between the State and the market.

Fifth, a modern market economic institution must focus on consumers. It is necessary to continuously improve regimes to protect consumer rights and, develop consumer protection centres. The Government will focus on the development and improvement of technical and food safety standards and increase inspections of imported goods as well as of goods distributed on the domestic market. It will review and improve regulations under the Law on Consumer Protection to effectively enforce it, thus creating a legal foundation to encourage the development of non-governmental organisations dedicated to the protection of consumer rights.

The modern institutions of a market economy would, all told, create conditions for our country to better grasp opportunities and overcome challenges it faces in fiercer competition in a rapidly globalising economy.

A new growth model

When talking of the strategic breakthroughs that are the preconditions for economic restructuring, we should understand that it is not necessary to have these done before shifting our growth model. The preconditions are being formulated and will be perfected throughout the course of development.

Restructuring must take place on an ongoing basis under the influence of the scientific and technological revolutions and the shift in competitive advantages among enterprises and across borders. It is from this standpoint and according to the vision set forth in the Strategy for Socio-economic Development for 2011-20 adopted by the Third Meeting of the Party Central Committee of the 11th National Party Congress that sets forth the requirements for economic restructuring and for a change in the growth model as part of the five-year plan for 2011-15.

The goal is to enhance productivity, product quality, efficiency and competency on both domestic and international markets so that we can participate in high value-added stages of regional and global production supply chains. Accordingly, the course of economic restructuring would be comprehensively pursued along the following lines:

First, restructuring of industries and services. This would mean a shift from assembly industries with low scientific and technological content and added value to the development of manufacturing and processing industries having a high level of added value, with a focus on support industries and some high-tech products for which our country has advantages and capacity.

To improve the quality of services, particularly with regard to the "arteries" of the economy such as financial services, it is necessary to improve management capacity to prevent and avoid risks and ensure system safety.

We need to develop services offering high added value, services supporting business and reform our system for encouraging the development and improvement of service quality.

In the agricultural sector, we need to develop an agriculture based on production of major cash crops with high yield, quality and efficiency. This would be attached to the development of a new rural life and the improvement of farmers' lives. Agricultural industries and all stages of agricultural production from farming to processing and distribution must be restructed. It is also necessary to link the stages of the production process along the value chain to ensure a harmonious distribution of profit across the stages of that value chain. This is fundamental to the development of sustainable agriculture.

Second, it is necessary to restructure enterprises. The course of economic restructuring starts from macro-economic policies but must also be conducted in each and every enterprise. Enterprise restructuring provides the foundation for the creation of a new face for the economy. To restructure enterprises, it is necessary to apply the latest scientific and technological advance in the fields of management and production, reforming corporate governance and organisation in line with the advance of production technology and the development of the market in order to improve business competitiveness.

Third, it is necessary to adjust market strategy. Globalisation and international integration open up a vast market for enterprises, enabling them to make full use of the advantages arising out of their investment projects. However, globalisation also increases the interdependency of economies, especially those with a high level of exposure like ours. This might also lead to certain uncertainties beyond our forecasts. It is therefore necessary to diversify our products and export markets, limiting dependency on a handful of markets while at the same time promoting the domestic market, especially in rural areas. To the export markets, the important thing is not an increase in exports into one country or territory but penetration into the value chain in the context of increasing development of global production and value chains. Such a situation requires the formation of a supply chain here in the domestic market. This is the way towards sustainable trade development.

Investment in infrastructure must also be restructed according to a roadmap and under a decentralised system closely monitored according to long-term vision and with an inter-regional perspective. It is necessary to eliminate scattered and unfocused investments and channel funds to essential projects to facilitate the movement of production elements to regions with strong potential for development, thus reducing transportation costs and improving competitiveness. It is also necessary to decrease public spending overall and boost incentives to attract investment from the private sector and foreign enterprises, designing new forms of investment, particularly the public-private partnership (PPP).

Economic restructuring must begin with the most urgent areas, such as restructuring of the financial market with a focus on the commercial banking system, and the restructuring of State-owned enterprises with a focus on State corporations and economic groups. This is necessary since these areas are those in which efficiency remains low and incommensurate with the resources dedicated to them. They also present risks that could lead to economic instability and negatively affect sustainable development of the entire economy.

The Government is carefully planning the restructuring of each sector, establishing tight procedures at each step in order for each sector to meet specific targets in a manner that can be evaluated in accordance with clearly defined criteria. It is a must to ensure the integrity of the restructuring process since so many sectors are interrelated. It is also important to enhance oversight of the process by ministries, local governments and enterprises to maintain stability and avoid major disruptions to the economy - or, in other words, to "pull the string" without "disturbing the woods".

Economic restructuring also demands a shift in the model for growth. The shift in the model is a key component in restructuring, providing the conditions to enhance capital efficiency, improving the effectiveness and competitiveness of enterprises, and strongly affecting the structure of investments and financial markets, contributing to the mitigation of restructuring costs. It is necessary to shift strongly from extensive capital investment, the exploitation and exhaustion of natural resources, and low-quality manpower to a growth model based on the application of scientific and technological advances and high-quality human resources. We should increase the contribution of the elements in total factor productivity (TFP) to economic growth. It is necessary to develop manufacturing and processing industries, but especially the high-tech ones that offer high added value, while decreasing the ratio of assembly industries in total industrial production value.

The process of changing the model for growth is both urgent and long-term, linked closely to human resources development and the reform of production technology and governance. To accelerate the shift, this year the Government will introduce incentives for the renewal of technology by enterprises and define technological standards in the Law on Public Investment and the Law on Tendering, in addition to encouraging development of the science and technology market, which would give strong incentives to projects applying new technologies or facilitating the establishment of research and development centres. We will enhance public-private cooperation in the establishment of venture capital funds and draft legislation to facilitate development of support industries.

This year, along with economic restructuring and shifting the model for growth, we must develop a fuller understanding of the guiding viewpoints in Politburo Conclusion 2 and Government Resolution 11 to strengthen economic stability, control inflation, maintain a reasonable growth rate, and ensure social security. These are difficult tasks, particularly against the backdrop of the complex developments in the global economy, which continues to face the possibility of another recession. Therefore, all must make their greatest efforts. The State will have an important role to play in determining the path, developing the policies and guiding the implementation. However, what is to be achieved will depend on each sector and business entity. Enterprises are key players with a decisive role.

We enjoy a fundamental advantage in having achieved high consensus within the political system as well as the firm determination of the business community and State adminstrative agencies from central to local levels. Now it is the time to turn such advantages into resolute actions to overcome inertia and begin a new phase to put our country into a new trajectory of sustainable development.

Source: VNS