The Government is arguably the most important institution in Vietnam and should be reformed first to pave the way for institutional changes capable of satiating the country’s development needs
Government Reforms: A Perspective
By Pham Chi Lan
Local workers at the entrace of an industrial park: the Government has made great efforts to cut red tape The Government is arguably the most important institution in Vietnam and should be reformed first to pave the way for institutional changes capable of satiating the country’s development needs
Over the past 10 years, local and foreign enterprises have often brought up concerns about Vietnam’s economic institutions and suggested that fundamental reforms be initiated to improve the domestic business environment. Among Vietnam’s three oft-cited bottlenecks — institutions, labor and infrastructure — institutional hurdles are the most problematic and have impeded efforts to improve education and infrastructure quality.
The Government is arguably the most important institution in Vietnam and should undergo reform first to pave the way for institutional changes capable of satiating the country’s development needs.
After 25 years of renovation, Vietnam has experienced profound changes, with its market economy gradually taking shape and developing. Unfortunately, the country’s business environment has been plagued with both market and government failure, which has not been promptly handled. Confronted with the onslaught of global competition, lackluster institutional shifts and a deeply centralized economy that abounds in administrative orders, enterprises have found it hard to thrive.
There is thus a need for the Government to speed up reforms to make optimal use of market forces and deeper integration. Such reforms have to take into account Vietnam’s socio-economic attributes and pave the way for a democratic, fair and civilized society that hinges on the rule of law, market forces and civil groups (a citizen society).
Clearly aware of the above problems, the Government has exerted tremendous efforts to streamline its bloated administrative arm and revamp economic institutions, but the efficacy of these programs leaves much to be desired. The solutions adopted often fail to address the root cause of a problem, are not implemented consistently and tend to be perpetually trapped in dated theoretical frameworks. Consequently, despite a decade of administrative overhaul, Vietnam continues to fare dismally on business environment rankings, especially in terms of administrative procedure, law quality and government competence. Meanwhile, the World Bank’s government ranking has high regards for Vietnam’s political stability only, with the country’s scores on the remaining indices hovering around appallingly low levels (especially with regard to the people’s voice, accountability and anti-graft efforts).
Vietnam, an economy in transition, differs markedly from many countries where market forces have reigned for a long time. The disparity is most significant when it comes to the causes of government failure. The Vietnamese Government’s fundamental failings have persisted and defied remedies for years owing to a raft of reasons.
• The State lacks a thorough grasp of the role, functions and relationships that characterize the Government, market forces and society. The influence of central planning remains pronounced, putting the Government’s interest above that of enterprises and the populace.
• Collective decision-making has choked accountability and transparency in the system. As power and privilege are scattered throughout government agencies, administrative overlapping is rife and makes it hard to pinpoint responsibilities.
• Administrative orders and blanket bans continue to prevail when it comes to dealing with complex challenges. Sub-licenses had been on the wane in the first two years of implementing the Enterprise Law 1999, but the trend has been reversed subsequently.
• Important resources and assets are still owned by the Government. Meanwhile, State-owned enterprises are deemed as the cornerstone of the economy. Together with the first two obstacles, this approach to asset management is prone to power abuse, inequality, unfairness and distorted distribution of resources. In the end, the public sector tends to extract gains at the expense of the private sector, the populace, as well as the economy’s efficiency and competitiveness.
The rule of law and a modern government
Government reforms should focus first and foremost on establishing the rule of law and modern approaches to governance, as fleshed out in strategies for 2001-2010 and 2011-2020. The State should transform itself from rulers into servants, from an entity tasked with managing the market economy and society into a player that interacts with these two institutions, lays the foundations for socio-economic development and manages growth risks. These goals will allow the Government to position itself in the trinity of the State, the market economy and society, and the main pillars of power (judicial, legislative and executive branches). Thanks to such transformation, supervision mechanisms can be established, too, in accordance with transparency and accountability standards.
Moreover, there should be clear principles governing the allocation of tasks among government agencies: (1) The State should only perform roles that society and the market cannot execute with efficacy, (2) a government agency should only perform roles that its counterparts down the administrative ladder cannot undertake effectively, (3) government agencies and officials must comply with prevailing regulations and (4) the Government has to protect the liberty of the populace and the business community, allowing them to do what the law does not ban. This is in line with the move toward a small government and a big society, freeing the State from a host of business and investment concerns, and allowing it to focus on its basic tasks.
Emphasis should also be placed on reforming policy formulation and implementation. A bottom-up approach to policymaking will probably prove more scientific, realistic, comprehensive and democratic, especially when the need to determine policy priorities and tools arises. Meanwhile, it is necessary to adopt a top-down approach to implementing policies, enhance discipline across government agencies and embrace policy instruments that suit the modern economy and society. Supervision from such stakeholders as market players and society will count a great deal, too.
Needless to say, government reforms entail political will and a thorough shift in the State’s governance paradigms. More importantly, it should be noted that such reforms must be in tandem with an overhaul of State-owned enterprises, which have been a severe impediment to market forces, as well as economic and administrative restructuring, and have inflicted damage on the interest of the populace and the business community.