Depleting Resources for Rapid Development Makes Prosperity Less Likely

8:52:07 AM | 11/10/2021

Vietnam's economy in recent years has grown but has not been stable, with internal weaknesses: a long-term high fiscal deficit compared to GDP, rapid increase in public debt, inefficient public investment, and bad debts of banks. Therefore, the Document of the 13th Congress emphasized: "Continuing to accelerate the economic restructuring. Restructuring and improving investment efficiency, especially public investment. Restructuring and developing healthy markets of all kinds, especially the market for factors of production in order to effectively mobilize and use resources.”

However, now, the consequences of the COVID-19 pandemic have made the country's ability to restructure the economy even more difficult when financial, human and social resources are not available. Society is eroded and exhausted due to prolonged non-productive social distancing policies. ADB has revised down its GDP growth forecast for Vietnam in 2021 from the previous 6.7% forecast to 3.8%. In that context, determining the country's resource model to promote economic restructuring for sustainable development plays a particularly important role.

Identifying five major resources

The concept of resources, also known as capital, has an important meaning in the market economy. According to managers, it is necessary to distinguish five types of capital: financial capital, natural capital, production capital, human capital and social capital. All are resources capable of creating output product lines that meet economic needs. The use, maintenance and development of all five types of capital is essential to the sustainability and prosperity of each nation.

Financial capital facilitates economic production, even though it is not production in itself. Natural capital is made up of the resources and ecosystem services of the natural world. Production capital includes physical assets created by human productive activities into natural capital and capable of providing a flow of goods or services. Human capital is an individual's productive capacity, inherited and acquired through education and training. Social capital (the most controversial and most difficult to measure) includes trust, mutual understanding, shared values, and social knowledge such as culture and ethics.

Sustainable development in order to progress to a prosperous society requires maintaining or increasing all sources of capital, including natural capital, which are often depleted by economic production. Therefore, the traditional triad of essential economic activities - production, consumption and distribution - must be supplemented with a fourth function, which is to maintain resources and build social moral civilization. Therefore, the concept of a circular economy is becoming more and more popular.

The road ahead

From the point of view of economists, in a market economy capital is the key to the operation of any entity, whether it is a family, a small business, a large corporation or an entire economy. The five-capital model provides the basis for understanding the sustainability of the economic concept of wealth creation or “capital.” Any organization will use five types of capital to produce its products or services. A sustainable organization will maintain and, if possible, enhance these capital assets, rather than depleting or degrading them.

In essence, the five resources must be linked together in the implementation of economic development. Projects can achieve successful outcomes across all resources, often with only one optimal solution. Sustainable development can only happen if this production takes place in ways that maintain or increase all necessary capital resources. A sustainable socio-economic system generates the flow of desired goods and services using its renewable capital without depleting them. Over the course of economic history, the focus has shifted from material-intensive technology to information-intensive technology. These technologies can simultaneously save the three classical factors of production: land, labor and production capital.

The government should restructure the economy and scale up existing policies to further reduce the use of physical resources in economic growth. Measures that can be considered include wage policy, social security, land law amendments, promotion of life-cycle-oriented integrated approaches, application of resource usage fees, fees of environmental damage, socio-culturalism, or support longer product life, such as through increasing the statutory minimum warranty period.

The private sector can identify new business models related to improving the resource efficiency of production processes and realize that “less raw materials” can mean “more value”.

Consumers need to be more aware of the role each of us can play through better product choices and behavior.

The world today has experienced more than 250 years of unprecedented economic prosperity. More than a dozen generations of experienced predecessors have taught us more about the world in which we live, through the science we have developed, than any other time in history. And of course we now know that no resource is infinite. Indeed, the world is very finite; we realize that our impact on it must not erode the ability of resources to not only maintain the level of production in the economy, but also to sustain our very existence.

The five-source model represents this complex organic relationship well. It shows the development resources in a market economy: natural capital, human capital, social capital, productive capital and financial capital. Moreover, it will be an effective tool of the National Assembly agencies and civil organizations to develop standards to evaluate the effectiveness of the management of government agencies, the quality of business activities and the behavior of the Government agencies. Clearly identifying five economic resources and having an appropriate economic restructuring policy will be a better representation of the quality and quantity of input capital needed for production. And because of this, it allows us to better manage and maintain the necessary capital for the economic production of the country especially during the difficult times of the COVID-19 pandemic, and therefore, we can better analyze context of sustainable national development to build a prosperous society.

By Dr. Doan Duy Khuong, Chairman of ASEAN BAC Vietnam, Vice President of VCCI