Drastic reforms required to avert economic inertia

At the crossroads

Bui Tat Thang, director of the Ministry of Planning and Investment’s Development Strategy Institute, said following the low-income landscape  in the 1980s, Vietnam has passed its horizontal development phase and achieved remarkable growth in recent years. Still, such remarkable progress has come as a result of a market economy in its initial stages, and is basically only one step out of poverty.

With reference to an economic growth model by Professor Tran Van Tho of Japan’s Wasada University, Thang noted, “After three decades of reforms, the country’s economy is sprouting up. However it is currently at a crossroads. If we don’t want to turn on to the so-called “horizon” road, we ought to implement thorough reforms to pave the way for a chapter of sustainable development.”

Thorough reform, according to Tho, is a high-quality mechanism that derives from methods, policies, and strategies, which are differentiated in terms of class and value, compared to previous reforms in earlier stages.

In its research on institutional reforms, the Central Institute for Economic Management (CIEM) envisaged Vietnam by 2035 as having a full market economy that will be more complete, modern, and integrated.

The key to superior reform lies in the quality of the country’s decisions made at this juncture, given the current local economic context, which, according to Thang, is still developing, changing, and integrating. “None of these processes are actually completed. They are all a work in progress,” he said.

No time to wait

Many experts are reluctant to come up with a new viable growth model for Vietnam, or a system of institutional reforms for the next five-year period. Simply put, they possibly do not have any sound solutions in mind.

The reaction of these experts is understandable when taking Vietnam’s position within the region into consideration. It has had a very late start compared to its regional peers. In terms of income per capita, Vietnam is 30-35 years behind the Republic of Korea (RoK), 25 years behind Malaysia, 20 years behind Thailand, and five and seven years behind Indonesia and the Philippines, respectively.

Meanwhile, taking into account the current growth rate of average labour productivity, it will take Vietnam another 23 years to catch up with the Philippines and 54 years to match Thailand.

Additionally, Vietnam’s global competitiveness index (GCI), despite years of struggling, is currently below the ASEAN-6 standard.

CIEM director Nguyen Dinh Cung observed that there was no turning back from the present situation, and if Vietnam really wanted to grow further, it must shorten the gap with other developing countries in the region.

“The only way to grow robustly and sustainably is to enhance the effectiveness of investment, natural resource utilisation, and labour capacity, through institutional reforms that will, in turn, stimulate healthy competition,” said Cung, adding that the route to 2035 would be a version 2.0 of Vietnam’s economic reform.

Version 1.0 of the local economic reform facilitated the change from a centralised economy to a market-based one. While Vietnam has not quite attained a full market economy as yet, these reforms have fuelled significant growth. However, 30 years after version 1.0, these reform methods may be ineffective, and if the country does not effect new changes, it could lose its economic momentum.

The benefits of being a follower

Tran Dinh Thien, director of Vietnam Institute of Economics, noted that Vietnam’s economy was very much lagging behind in certain areas.

“This isn’t a distant threat anymore. Given Vietnam’s ever-deepening international integration, it would need imperative and robust changes,” said Thien, adding that the country needed leverage in the next five years, or else it could not pull off a total change in the subsequent years.

The benefit of being a follower, according to Thien, is the ability to speed up the process by learning lessons from forerunners, while avoiding the trial-and-error process necessary to find the best methods in terms of technologies and trends.  

The Newly Industrialised Economies, including the RoK, Taiwan (China), Hong Kong (China), and Singapore, have successfully developed their economies in the past 30 years on the back of technological development.

“While the RoK applies high technologies in their industries and conglomerates, Taiwan uses them in agriculture and information technology. Vietnam may follow their lead, but we will not copy them,” Thien said, regarding a pathway for Vietnam to 2035.

The pathway, in reality, will not be without its hiccups, given that the world stage is defined by many unexpected bumps along the way. Having said that, the rise of developing countries, such as China and India, can help Vietnam develop quicker.

“In the global playing field, Vietnam has committed itself to following best practices as seen in the most successful countries. Using these models as objectives could allow Vietnam to move forward. However, the country must adopt new institutions to enable progress. This should be done in the next five years, and the mechanism must pertain more to responsibility,” suggested Thien. 

Institutional reforms will chiefly require changing the orientation and state management capacity, identifying the subject of development, improving human resources, and incorporating an infrastructure system that can integrate with the world economy.

These elements, according to Thien, must be done differently from 30 years ago, and put in the context of the world’s existing playing field.

Accountability matter

CIEM’s Cung posed the question: If Vietnam kept slowing down reform, and the economy fell behind as a result, whose responsibility would it be?

Indeed, over the next 20 years, Vietnam must find a way to resolve three issues, namely improving its position as an undeveloped country, completing its reform, and successfully integrating. Until such issues are resolved, Vietnam may have to plan its route from the current crossroads very carefully if it does not want to hit a dead end.