Market Economy Development and Institutional Improvement

10:01:27 AM | 3/23/2021

Vietnam stepped into 2021 - the first year of the socio-economic development plan from 2021 to 2025 - with a fairly robust economic picture: Stabilized macro-economic performance, well-controlled inflation, stable growth and enhanced economic potential, scale and competitiveness. However, besides inspirational achievements, institutional improvement, growth pattern change, economic restructuring, industrialization and modernization slowed down and failed to make fundamental changes. Economic productivity, quality, performance and competitiveness was not high. The income level stayed in the lower middle range.

In its vision to the year 2045 - the centennial founding anniversary of the Democratic Republic of Vietnam, the present-day Socialist Republic of Vietnam - the country set an enormous challenge for itself: To become a developed, high-income country. So, is this our impossible task when we have to lift the earth? If possible, is it like what Archimedes - the greatest mathematician of ancient times and one of the greatest mathematicians of all time - famously said, "Give me a lever and a place to stand on, and I will move the earth"?

The market economy is the most important invention of humanity in the history of socio-economic development. Its immortal mechanism is based on the constant development dynamism of human beings - "infinite greed" (what man wants is limitless) or as the Western World uses the concept of "non-satiation". That also explains why some countries use the market economy for higher development as well as make ambitious plans to discover the second earth.

Vietnam's economic reforms, initiated in the late 1980s, saw the first formation of market economy policy and its power in agricultural reform - the most important aspect of Vietnamese economy - through contract farming. Inspired by the “contract farming” philosophy devised by Mr. Kim Ngoc, Secretary of the Provincial Party Committee of Vinh Phuc province, and grounded by the contract farming resolution adopted by Mr. Doan Duy Thanh, Hai Phong Secretary of the Party Committee, Directive 100 (January 1981) of the Secretariat of the Party and Resolution 10 on Contract Farming April 1988) of the Politburo (6th tenure) were created. The productive capacity, released at that time, turned an economy with over 700% inflation, poverty and food shortage into a country that supplied enough food for itself and had some for export. This miracle was described by historians as “...a dream in the daytime".

Inheriting and being deeply aware of reform experiences and achievements, the Document of the 13th National Party Congress affirmed the breakthrough policy and the fulcrum for the 2045 Vision: “Completing the consistent development institutions, with the first of all being development institutions for the market economy.” In the market mechanism, price acts as a resource-relocating signal. The law of supply and demand based on the “limitless greed” dynamics of buyers and sellers in the marketplace ensures the efficient allocation of resources because each economic entity is itself a common information processor for fair cooperation and competition. In a centrally planned economy, by contrast, planners (various government agencies) subjectively allocated and subsidized resources. As a result, the misallocation of resources and elimination of drivers at a macro level led to imbalances among sectors and localities. Therefore, highly developed countries have developed market economies. Even for China, to become the second largest economy in the world, it had to reform its economic mechanism from central planning to market.

However, the market economy itself is not a magic wand for optimal socio-economic development if there is only natural and loose interaction among economic actors - namely the Government, business entities and consumers. “Limitless greed” motivation of officials, businesses and people, without appropriate regulation, will lead to unfair competition, trade fraud, redundancy crisis, default, mafia-like group interests, income disparity and environmental destruction. That resulted in market distortion, loss of motivation, and the loss of synergized motivations that leverage the market.

According to economists, in the context of Vietnam's economic integration and development, an institution needs to be built in a market economy for all three economic actors to work rhythmically, synchronously and effectively:

1. The Government must thoroughly understand that the market economy is the most important mechanism to arouse and promote the core driving force of people and the whole society in a positive manner for socio-economic development. Therefore, it is necessary to work closely with the other two actors to build and complete the institution to make sure that the market works effectively to provide suitably hard and soft infrastructure, promote equity and growth, employment, macroeconomic stability policy and national security. In particular, in addition to ensuring their life, it is necessary to uphold the discipline and morality of civil servants, according to President Ho Chi Minh's theory of official work: Officials must be "public servants" of the people. Only by doing so, can the greed for civil servants become an ambition and aspiration for the country.

2. Vietnamese enterprises must actively improve working skills of domestic and foreign market economies when the Government has adopted stimulus measures through commitments to multilateral FTA enforcement, particularly to partners in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the EU - Vietnam Free Trade Agreement (EVFTA), the ASEAN Agreement on Trade in Goods (ATG), and Regional Comprehensive Economic Partnership (RCEP) which are highly developed market economies.

3. Agencies representative of the people and consumers such as the National Assembly, the People's Council, the Mass Association and consumers should uphold the responsibility of representation in the legislature and policymaking to protect consumers as well as democratic equality for the other two actors. Promotion agencies, industry associations, the Vietnam Chamber of Commerce and Industry (VCCI) and exporters need to boldly give up their old thinking of working well within their well-established realm, as well as their excessive reliance on foreign organizations and FDI enterprises to actively expand and establish research and development agencies in important partner markets with which Vietnam signed bilateral and multilateral economic cooperations, so as to develop a sustainable overseas economy in the global value chain.

4. Developing a democratic, equal and harmonious mechanism for dialogue and cooperation (determining the balance of interests) for all three economic actors to actively participate in very important markets for industrial production, trade, investment and finance, labor and land to ensure the core capacity of the Vietnamese economy in building and protecting the country in the Industry 4.0 competition and regional geopolitical challenges

Realizing the 2045 Vision is an opportunity and a great challenge as well for the nation. In the course of economic development and integration, this task is only feasible when we develop a high level of the market economy together with institutional improvement for three economic actors to advance active, positive and equal engagement. With three pillars in such a solid institution, we believe that the market economy will create an unrivaled lever to drive the dynamic synergy of economic actors to develop very important markets and lead the country to where we want it to be when we celebrate its first centennial anniversary.

By Thai Cong, Vietnam Business Forum