Brian Jeffrey
The growing focus on institutional reform reflects increasing awareness of its significance. Nonetheless, it’s crucial to differentiate between ‘institution’ (the framework of rules) and ‘regime.’ An article by VietNamNet titled “Institutional Reform Viewed Through the Lens of ‘Why Nations Fail'” provides a concise explanation of this differentiation.
According to the Vietnamese Dictionary, an institution refers to the “rules and regulations of a regime that all must adhere to.” The Vietnam 2035 Report defines institutions as both formal and informal systems that dictate how society operates, playing a vital role in facilitating sustained economic progress. They create frameworks of incentives and penalties that shape the actions of both organizations and individuals.
Former Vice Chairman of the National Assembly, Phung Quoc Hien, discussed the concept of institutions during the 13th Party Congress, describing them as a blend of formal and informal rules or collective understandings that can facilitate or hinder political interactions in various sectors. Such institutions are enforced by both state and non-state actors.
Hien categorized formal rules as the Constitution, laws, subsidiary laws, and international treaties, while informal rules include ethics, customs, and traditions. Internal regulations pertain to organizational policies and charters. These rules span political, economic, and cultural domains, implemented by state entities and organizations or individuals operating outside the state framework.
In essence, institutions function as the foundational “rules of the game,” and reforming these institutions signifies a transformation of the underlying rules. The impact of these rules—whether they promote inclusiveness or extraction—greatly influences the lived experiences of individuals.
This simplification aids in addressing the topic with clarity and sensitivity.
This piece zeroes in on economic institutional reform, an area where refreshed perspectives have driven considerable advancements.
The previous model of agricultural collectivization, which was seen as a “fundamental rule” after the 12th Congress of Communist and Workers’ Parties of Socialist Countries in November 1957, ended up causing critical food shortages in a predominantly agricultural nation, leading the government to import basic food supplies like wheat and barley.
By the 1980s, as economic turmoil unfolded, the introduction of “Khoan 10” or the Household Contract Policy dismantled the previously revered agricultural collective system. This significant reform facilitated Vietnam’s transformation from a food importer to a significant exporter, cementing its status as a top rice exporter globally, even amidst a decrease in agricultural land due to industrial and urban expansion.
This major transition, together with other local advancements, led to substantial reforms at the Sixth Party Congress in December 1986, reconfiguring economic management based on critical principles: (i) restructuring the economy to support a multi-sector model and market-friendly production; (ii) dismantling the centralized bureaucratic subsidy system in favor of a democratic centralized economic governance model; (iii) forming a unified national market where multiple economic sectors coexist, with the state stepping back from direct price control in favor of market regulation.
These changes propelled Vietnam away from a stagnant, centrally governed economy towards a dynamic multi-sector economy respecting market principles and supply-demand dynamics.
During this pivotal time, Prime Minister Phan Van Khai assembled a task force to ensure a rapid rollout of the Enterprise Law, targeting the elimination of unnecessary regulatory restrictions. This initiative resulted in the swift removal of nearly half of existing permits, leading to a significant uptick in private business growth within the 5-7 years post-adoption of the law.
Furthermore, Article 33 of the 2013 Constitution affirms, “Everyone has the right to freely operate in businesses not banned by law.” Yet, since the introduction of the Enterprise Law, the array of business conditions and regulations has burgeoned, totaling almost 16,000, according to government data.
Licensing procedures remain overly centralized, with 54% managed at the ministry level and 32% at provincial levels. The Central Economic Commission reported a disheartening 7.54% timely processing rate for administrative procedures at ministries compared to a much better 84.33% at local levels. Such business conditions have become impediments, imposing challenges on firms, with PCI reporting that 61% of businesses struggle with licensing, and 22% have had to pause or abandon business plans due to these barriers.
Given these constraints, the growth of Vietnam’s private sector has faced unanticipated obstacles, despite various resolutions and policy efforts. This situation is unsustainable; any obstruction of citizens’ “freedom to conduct business in non-prohibited industries” should be recognized as a constitutional infringement and addressed accordingly.
To tackle this issue, it is crucial to outline and publicize the specific industries where business operations are limited or banned, particularly affecting private enterprises, and develop channels to manage potential losses stemming from these restrictions.
One persistent challenge has been Vietnam’s lagging economic position compared to neighboring nations and the global landscape—one of four critical risks identified since the 7th Party Congress in 1994.
The 2021 Resolution from the 13th Party Congress reiterated strategic breakthroughs aimed at establishing a robust institutional framework for development, particularly in fostering a socialist-oriented market economy. The focus was placed on modernizing governance to enhance competitiveness and effectiveness, with an emphasis on refining and implementing a sound legal framework and policies that cultivate a fair and healthy investment environment across all economic sectors.
The Resolution also highlighted the need for innovation, effective resource management and utilization, especially in land and finance, alongside mobilizing public-private partnerships. It stressed the significance of rational decentralization while ensuring legal monitoring of power dynamics.
These objectives represent extensive institutional reforms that extend beyond shifting mindsets to implementing factual actions, particularly as Vietnam deepens its integration into the global economy.
General Secretary To Lam: “Vigorous Legislative Reform”
1. Change in Legislative Mindset: The approach to legislation should harmonize state management with fostering innovation and resource mobilization for growth, moving away from the outdated stance of prohibiting what cannot be controlled.
2. Long-Term and Stable Legislation: Laws should prioritize frameworks and principles, avoiding excessive detail. Rapidly changing matters should be governed by executive or local authorities to ensure adaptability. Reduce rigor in National Assembly functions and avoid redundancies in decrees and circulars.
3. Revitalize Legislative Processes: Create laws that reflect Vietnam’s context, allowing for learning and flexibility. Avoid rushing or striving for perfection at the expense of citizen and business needs. Continuously evaluate policy effectiveness post-implementation to promptly tackle inconsistencies and resource wastage, clearing legal obstructions swiftly.
4. Promote Decentralization: Emphasize the principle of “local decisions, local actions, local responsibility.” Significantly revamp administrative processes to lower compliance costs and optimize convenience for citizens and businesses.
5. Strengthen Control of Lawmaking Power: Enhance discipline, foster accountability—especially among officials—and combat corruption and vested interests.
6. Develop a Legal Framework for New Issues: Proactively construct legal structures for emerging phenomena, especially within Industry 4.0, artificial intelligence, digital transformation, and green initiatives. Set legal boundaries to effectively facilitate digital transformation, propelling national growth in the upcoming years.
(Excerpt from remarks at the opening session of the 8th meeting, 15th National Assembly)
