Towards modern market economy institutions: Avoiding the middle-income trap

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Experts participate in the discussion at VRDF 2019. Photo: Le Tien

"Changing a half-look"

At the Vietnam Reform and Development Forum (VRDF) 2019, with the theme "Vietnam: Aspiration for Prosperity - Priority and Action", hosted by the Ministry of Planning and Investment (MPI)on September 19, domestic and foreign experts gave comments and orientations for institutional reform, helping Vietnam develop in the right way of a market economy and socialist orientation.

According to international experts, Vietnam has a good level of jurisdiction compared to its income level and attracts a lot of foreign direct investment (FDI). However, according to PhD.David Dollar, Senior Researcher at the Brookings Institution inthe US, domestic investment had been low and the private sector was dominated by small and medium enterprises.Notably, Vietnam's direct export activities were mainly undertaken by foreign enterprises.

Amongdomestic experts, PhD. Cao Viet Sinh, former Deputy Minister of the MPI, said that in building a socialist-oriented market economy, Vietnam had gradually improved, withmany characteristics in the direction of modernity, synchronization and integration.

However, according to this expert, our market economy institutions have not been comprehensive to ensure the smooth operation of the market.Some regulations in the legal system, mechanisms, policies, and managementwere overlapping, inconsistent,changedquickly,with different interpretationsin many cases,leading to difficulties in performance. In addition, the market had not been a basis for mobilizing and allocating development resources.Some marketsdeveloped slowly, with many problems and inefficiencies,including the land use rights market andthe science and technology market. Administration reform in some areas was still not substantial. Unequal competition among types of businesses and economic sectors persisted.

Especially, when judging Vietnam's reforms, PhD. Nguyen Si Dung, former Deputy Head of the National Assembly's Office, said that we have only "changed a half-look".

According to Mr. Dung, we could followtwo models including the adjusted State model andthe tectonicdevelopment State model. Vietnam talked about tectonic development models,such as Japan, South Korea, and China, but it was operated increasingly under the adjusted model like the UK and the US.

"If following the adjusted model, it is easy to fall into the middle income trap," Mr. Dung noted.

In addition, PhD. Nguyen Si Dung said that the institutiondoesnot havea clear separation between the executive agencies and the policy agenciesin the country,so no unit was professional.The Minister was called the Sector Commander – who wereexecutives, not policymakers.The consequence was difficulties in professionalization,as well as slowand ineffective policy implementation.

He also said that the State should strengthen the decentralization of local government. Evidence is that the fire at theRang Dong Factory was unclear on the level of responsibility and overlaps in operation.

Agreeing with this, PhD. Nguyen DinhCung, former Director of the Central Institute for Economic Management and Research (CIEM), said that the tectonic State was difficult to implement because our administrative apparatus was poor. Therefore, we should focus on the core issues.

Create a level playing field

According to the experts, the most importantthing to overcome these shortcomingsisimprovement and enhancement for institutional quality.

According to PhD. Cao Viet Sinh, the State needs to continue building and perfecting the institutional and legal frameworks in a stable, specific and transparent direction. The State needs to attach importance to the role of the market and build appropriate institutions to create favorable conditions for the economic sectors,especially so the private sector could do business and develop.

David Dollar said that it was necessary to create a level playing field between the State and private sectors, while opening the service sector (finance, telecommunications) for foreign investment and trade.

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According to Mr. Jonathan Pincus, President of Rajawali Foundation (RF), Former Chief Economist of UNDP Vietnam and Director of Fulbright Economics Teaching Program in Ho Chi Minh City,central and local governments should rationalize toensure focus in personnel organization. The State also needs to focus on market discipline, more transparency in land and credit markets;clear separation betweenState-owned enterprises, equitized enterprisesand management agencies;monitorcloselyrisks in the banking system.In particular, the Government needs to increaseaccountability to the people,apply e-government and social media transparency.