Economic restructuring combined with shifting growth model towards sustainable development in Vietnam

Trần Minh Tuấn

Assoc. Prof., Dr., Vietnam Academy of Social Sciences

 Reforming the growth model and restructuring the economy is a key policy as stated in the documents of the 11th Congress of Communist Party of Vietnam, and continues to be developed in the draft documents submitted to the 12th Party Congress.

This issue is urgent and significant for development, particularly for the Vietnamese economy now and in the future.

Restructuring the economy and shifting the growth model: internal demand for development in today’s Vietnam

In the history of human economic development, there has been no everlasting growth model. A country’s growth model will become unsuitable over time and changes are needed given the imminent changes in the economy, along with other factors. As a result, the success or failure of a country is decided by its ability to change to surpass development levels. For Vietnam, economic restructuring, and even shifting and reforming the growth model, is an objective inevitability and not a “sensitive or sudden phenomena.”

The Vietnamese economy, after 30 years of implementing renewal policies, has experienced major achievements in socio-economic development. With an average growth rate of more than 7%, Vietnam has emerged from its less-developed status and has become a lower middle-income country.

The economic structure has shifted towards industrialization and modernization. External economic sectors such as exports, the attraction of foreign direct investment (FDI), labor exports and tourism have been paid due attention and have made important contributions to GDP growth. Vietnam is one of the countries that have effectively implemented economic development programs alongside the goals of hunger eradication and poverty reduction. Ahead of plan, Vietnam has achieved many of the Millennium Development Goals (MDGs) and is recognized by the international community as one of role models in the successful use of Official Development Assistance (ODA) for social development.

In addition to these achievements, Vietnam has faced major challenges during the development process. For a long period, economic growth has been mostly based on quantity output, while investment effectiveness and quality remained low. Despite the young and abundant workforce, labor quality remains low in terms of professional knowledge, work attitude and skills. While in pursuit of “fast growth”, economic, social, and environmental problems have arisen. From the urgent demand that the economy matches global trends, Vietnam has stated that restructuring the economy, combined with shifting the growth model towards sustainability, is one of its key socio-economic development targets.

Policy change and initial results

First, reforming the growth model is inevitably connected to restructuring and a process of constant economic reform. At the beginning of the renewal process, the 6th Party Congress (in 1986) defined that the current dominant issue was restructuring the economy in line with immediate goals, the reality of Vietnam’s situation, and international cooperation aims, as well as ensuring a sustainable, steady, and rapid economic development. During the years of renewal, the horizontal development model has brought important social and economic results for Vietnam. However, it is notable that the horizontal growth model (which has reached the development limit), plus uncoordinated and ineffective policies, are the fundamental reasons for macro-economic instabilities, and this vicious circle has become increasingly severe, particularly in the context of broader international integration. Therefore, the only solution is to reform the growth model and restructure the economy towards sustainable development. This demand for change stems from the imminent changes in the economy and society and is also necessary for success.

At the 11th Party Congress (January, 2016), the Communist Party of Vietnam approved the policy of reforming the growth model and restructuring the economy with the intention of “Shifting the growth model from mainly horizontal development to rationally horizontal and vertical development, simultaneously expanding the scales and improving quality, effectiveness, and sustainability.” This means restructuring the economy with a focus on restructuring production and services suitable to regions; strengthening the restructuring of enterprises and the adjustment of market strategies; boosting domestic value; value added, and the competitiveness of product, businesses, and the entire economy.(1) The 11th Congress marked new progress in reforming the thinking and mode of development, shifting the growth model from mainly horizontal to rationally horizontal and vertical development, simultaneously expanding the scales and improving the quality, effectiveness, and sustainability, while combing growth model reform with economic restructuring.

A shifting growth model entails various phases, with various intermediate goals accompanied by a variety of measures (tools). For today’s Vietnam, restructuring the economy is an important process in quickly shifting from horizontal growth to vertical growth, where it’s necessary to achieve the goal of effectively restructuring breakthrough areas which have a great impact on technological and distributive effects. So, the determination to restructure the economy has been expressed more strongly since the 3rd plenum of the 11th Party Central Committee, which emphasized fast and sustainable economic development combined with reforming the growth model and restructuring the economy with the aim of improving quality, effectiveness, and competitiveness. The 3rd plenum also defined 3 central issues over the next 5 years: 1. Restructuring investment with a focus on public investment aimed at mobilizing, distributing, and utilizing the resources of the State and society for development in the most effective manner and with the most rational order of priorities; 2. Restructuring the financial market with a focus on restructuring the commercial banking system and financial organizations with the aim of reforming and enhancing the efficiency of state management over the financial, securities, monetary, and the real estate market; 3. Restructuring state-owned enterprises with a focus on State-owned economic groups and corporations, aimed at ending unnecessary investment and developing key areas of the national economy, fine-tuning the institution for managing state-owned enterprises, and exercising the rights and responsibilities of state owners for the State’s capital and assets in  these enterprises.

On February 19, 2013, the government issued a master plan for restructuring the economy combined with shifting the economy towards improving the quality, effectiveness, and competitive edge in the 2013-2020 period. The views on restructuring the economy are clearly defined in the master plan as follows:

First, continue to reform thoughts, distinguish the role and functions of the State and the market; improve the capacity and efficiency of national management, uphold the State’s facilitating role through mechanisms, policies, and economic levers and minimize the use of administrative measures for intervention.

Second, harmonize the settlement of important and urgent issues with fundamental and long-term issues to achieve the goal of sustainable development; prioritize middle and long-term goals and the quality of growth; include inflation control and macro-economic stabilization.

Third, promote the competitive edge of sectors, areas, economic zones, and localities; pay attention to and utilize agricultural advantages, effectively develops the service and tourism economies; and continue to open doors and proactively integrate into the world.

To implement the above-mentioned guidelines, the government issued short and long-term policies to aid the restructuring of the economy. After more than 3 years of restructuring the economy, combined with reforming growth model towards sustainability, Vietnam has had good initial results: a stable macro-economy, curbed inflation, an improved economy with steady growth; economic restructuring on the right track (the ratio of industries and services to GDP on the rise and at 83% in 2015, the ratio of agricultural labor to total social labor on the decline to about 46.5%); an improvement in the quality and effectiveness of investment, the Incremental Capital-Output Ratio (ICOR) reduced from 6.96 during 2006-2010 to 6.5 during 2011-2015; and the ratio of social development investment capital to the average GDP during 2011-2013 was lower than the figure of the 2006-2010 period (31.5% compared with 42.7% GDP)…

However, the process of restructuring has shown weaknesses in the economy: the new growth model has not yet been properly established, the relationship between restructuring the 3 key areas and restructuring the whole economy remains unidentified, and competitiveness is improving slowly.

In addition, the policy is not conducive enough to attracting private and foreign investment into the public sector. Investment in hi-tech and other leading sectors has not yet met the requirements. Progress in business restructuring remains slow without breakthrough changes. The delegation of power and the implementation of the rights and obligations of owners and authorized state owners is overlapping, while the reform of business administration is slow. As state-owned enterprises hold great resources, no momentum or pressure has been applied to force state-owned enterprises to speed up the renovation of their technology, apply the latest science and technology, or enhance management, competitiveness, and sustainable development.

The above-mentioned weaknesses can be attributed to inadequate awareness about growth model reform, economic restructuring, and industrialization and modernization, while the institutionalization and implementation of policies is slow, unsystematic, and uncoordinated.  There has been no breakthrough institution for effectively mobilizing, allocating, and using resources for development in accordance with market mechanisms. Sectors and areas prioritized in periodic national policies have not yet been defined. The connotation of basic concepts such as “reforming the growth model” and “restructuring the economy” is unclear, incoherent, and inconsistent, causing recent efforts to have been wasted. The government has adopted a project to restructure the economy and spearhead areas, but the initial ideas haven’t been carried out aggressively enough (reform in modes of thinking and institutions), hampering restructuring measures and efforts to achieve the ultimate goal of reforming the growth model.

Economic restructuring combined with growth model reform towards sustainability

Identifying the reality of the economy and upholding the existing achievements, the process of economic structuring combined with a growth model shift towards sustainability, continues to be confirmed in the draft political report of the 11th Party Central Committee which was submitted to the 12th National Party Congress. It said the future growth model will combine horizontal and vertical growth, focus on vertical growth, and improve the quality of growth and competitiveness on the basis of enhancing labor productivity, speeding up the application of scientific and technological advances, and improving the quality of human resources. There should continue to  be restructuring of the economy and sectors associated with the growth model reform in a uniform and comprehensive manner, a focus on major areas such as restructuring investment with public investment at the core; restructuring the financial market with a focus on the commercial bank system and financial organizations, while gradually restructuring the state budget; restructure and settle bad debts and ensure that public debts are kept at safe levels; restructure state-owned enterprises with a focus on state groups and corporations; restructure agriculture towards enhancing added value, combining rural economic development with the building of new style rural areas; continue to implement the three strategic breakthroughs, particularly in regard to the socialist-oriented market economy, aimed at liberating production forces, and effectively mobilizing, distributing, and utilizing  resources.

Stemming from the reality, circumstances and demands for accelerated growth, there should be drastic changes of thinking in terms of ways of operating the economy, particularly the macro-economy. On the basis of the above-mentioned assessment and with the goal of restructuring the economy, combined with reform towards successful sustainability, Vietnam is paying attention to the following breakthrough measures:

First, to continue to harmonize perceptions about a socialist-oriented market economy, on the basis of which a modern market economic mechanism will be built. The modern market economic mechanism, in the context of globalization and greater international integration, requires the repositioning of the relationship between the State and the market. To do so, the State must shift from directly intervening in economic processes to facilitating development: ensure macro-economic stability, create favorable environment for investment and businesses; create a mechanism for the development and improvement of the quality of public services; enhance the capacity for forecasting and responding to policies to minimize adverse impacts on the economy. This will create conditions for resources to evolve in accordance with market signals, ensure the harmonious, balanced development of the economy, stimulate businesses to develop human resources, apply and create technology for production and management, create a non-static competitive edge to seek overwhelming profits rather than compete with other business actors, thus accelerating the relatively-constant transfer of investment and production structure and generating a creative economy offering new products and ensuring the effectiveness and competitiveness of the economy. This is also dialectical development.

Second, clearly define Vietnam’s socio-economic development model during the industrialization and international integration process; strictly implement the 3 identified strategic breakthroughs, in which growth model reform combined with economic restructuring is a constant part of the process of reform. Because restructuring the economy requires a growth- model shift and vice versa, the growth model shift is a precondition for increasing the efficient use of capital, and the effectiveness and competitiveness of the economy. As a result, Vietnam’s future growth model will see an effective combination between horizontal and vertical development, a focus on vertical development, an improvement in growth quality and competitiveness on the basis of enhancing labor productivity, applying scientific and technological advances, and improving the quality of human resources. In implementing the clearly-defined roles and functions of the State and the market, it’s necessary to identify sectors, areas, and the level of State intervention; enhance the capacity for national management, build a modern national management of the people, by the people, and for the people; uphold the State’s role in facilitating, supervising, and aiding development through mechanisms, policies, economic levers, and minimize administrative intervention measures.

Third, harmoniously link economic restructuring with growth model shift measures, in other words, forging a harmonious link between the direction of economic restructuring and measures with policies related to a growth model shift. At the same time, economic restructuring needs to be closely combined with implementing the 3 strategic breakthroughs for the 2011-2020 period, i.e. completing the socialist market economy with a focus on creating a level playing-field and administrative reform; developing human resources, particularly high-quality human resources, in parallel with the application of scientific and technological advances, and building an infrastructure connected to modern establishments, paying attention to the transport system and major urban areas.

Fourth, continue to boost the restructuring of state-owned enterprises through which state-owned enterprises focus on the key, essential fields; the important areas of defense, and security; fields which other enterprises in the economic sector do not want to or cannot manage. Distinguish between business production and political and public services. Separate the State function of owning assets and capital from state management functions and the business management of state enterprises. Strengthen management, oversight, checks and control to ensure openness and transparency in investment, finance, and other activities of state enterprises. Reform the organization and modes of operation of public agencies towards enhancing autonomy, under which an agency is responsible for its organizational apparatus, workforce, personnel, and finance; improve the State role of directing and facilitating development and the State management of the macro economy to create an equal and friendly business environment for all economic sectors.

The private economic sector is not only “one of the engines of growth” but also an “important momentum” towards achieving breakthroughs in economic development in line with the modern market economy trends amidst greater international integration. Reformed thinking on the role of the private economic sector’s momentum will help change strategic thinking about the way the government makes macro-economic policies in the interests of creating a favorable and equal business environment for enterprises in all economic sectors, so significantly contributing to restructuring the economy and shifting the growth model.

(1) Documents of the 11th National Party Congress, National Politics – Truth Publishing House, Hanoi, 2011, p. 191-192

 

Source:

Communist Party of Vietnam via Solidnet

 

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