On November 1st, the Institute for International Economic Policy hosted a seminar featuring Minister Bui Quang Vinh to discuss the Vietnam 2035 Report. Mr. Bui Quang Vinh is a highly regarded leader in Vietnam, a strong proponent of bold institutional reform, and, at the time, Minister of Planning and Investment – a guiding force behind the writing of the Vietnam 2035 report.
IIEP Director Stephen Smith served as Chair for the seminar, and Growth Dialogue Managing Director Danny Leipziger was a discussant.
The Vietnam 2035 report, a joint undertaking of the Government of Vietnam and the World Bank Group, captures the country’s long-term aspirations and reinforces out the supporting policy and institutional agenda. The aspirations and the reform agenda, according to the report, stand on three mutually reinforcing pillars:
- Balancing economic prosperity with environmental sustainability
- Promoting equity and social inclusion to develop a harmonious middle- class society
- Enhancing the capacity and accountability of the state to establish a rule of law state and a democratic society.
Mr. Bui Quang Vinh started the seminar by speaking on Vietnam’s successes and shortcomings in recent years. Vietnam has seen huge growth, with its GDP per capita raising 5.5% and economic growth rate increasing by 6.6% since 1990. However, relative to other regional countries, Vietnam is lagging in terms of income and economy size, and the gap is widening.
Poverty alleviation is especially critical in Vietnam as it results in higher life expectancy, ensures social security, and narrows the wealth gap. Mr. Vinh went on to discuss the future of Vietnam saying, “With reform, Vietnam could be a higher-end middle income country with a prosperous, creative, equitable, and democratic society.”
Moreover, the country must make great reforms in order to win in its own market with new trade agreements such as the AEC (the ASEAN Economic Community). Along with the pillars mentioned above, there are six major transformations that must take place: modernizing Vietnam, developing the capacity for innovation, enhancing the effectiveness of urbanization, ensuring environmental sustainability, ensuring social equity, and building a modern rule of law with a democratic society.
Pillar one of economic prosperity, with environmental sustainability, has been a large challenge for Vietnam with productivity growth on the declining trend since 1990 along with the GDP. Unfortunately, many factors have attributed to negative labor productivity growth, like the lack of institutional foundations for an advanced market economy, underdeveloped labor and capital markets with allocations influenced by arbitrary administrative decisions and connections, weak supply chain linkages and transfers of knowledge between domestic and FDI enterprises, and government favoritism to SOEs (state-operated enterprises).
The domestic private sector is a large concern to the Minister, who says its low and rapidly declining productivity growth rate can be attributed to the government undermining the private sector. He states it should be the “driving force” of the economy, but the government is not providing the proper mechanisms to make it strong. SOEs specifically are seeing low productivity growth because of lack of coordination and inefficiency in the business and production operations.
“The private sector can do better, we should let them” – Bui Quang Vinh
Vinh sees multiple solutions that must be undertaken if pillar one of Vietnam 2035 is to succeed. For one, immediate priority must be given to productivity in the domestic private sector including strengthening market institutions like property rights, liberalizing factor markets, and restructuring the SOE sector to eliminate privileges and favoritism.
Minister Vinh also advocated for strengthening Vietnamese participation in global value chains, modernizing the agricultural sector, removing barriers to education and social services, and tailoring policies to put development on the sustainable path.
Pillar two, regarding social equity and inclusion, is a current and emerging issue. Among the issues are high poverty rates for ethnic minority groups, an aging population with an emerging middle class, and the lack of sufficient resources for those suffering with disabilities.
To combat these issues, Vietnam 2035 calls the country to pursue an emerging agenda for the rise of the middle class and the aging population. Minister Vinh explained to the public that Vietnam must pursue the “unfinished agenda” of ensuring equality of opportunity through reforms such as reducing gender gaps and making those with disabilities full members of society.
Vietnam’s low ranking of governance for its level of income and its weak enforcement of laws form the foundation of the final pillar: a capable and accountable state.
For one, state capacity must be strengthened by increasing competition, enhancing property rights, and reducing direct intervention in economic activity. Central-local relationships must be reformed, along with relationships between the Prime Minister, ministries, and central level agencies to increase autonomy. Public administration can also be improved through methods such as building a disciplined, meritocratic bureaucracy and changing the role of the state from producer to that of regulator and service provider.
Checks and balances must be enhanced through mechanisms that prevent power abuses and increasing the role of oversight agencies. Finally, the citizen’s voice must be ensured in lawmaking and governance by increasing the transparency of mass media and the government.
Finishing his lecture, Vinh said Vietnam 2035 is a report on Vietnam’s issues examined by national and international experts to help come up with major transformations to embark on for Vietnam’s development in the next twenty years. Vinh ended on the note that Vietnam is at a turning point in its development path, where “opportunities abound”, and “future generations have the capacity to carry out these reforms.”
Following Bui Quang Vinh was panelist and Growth Dialogue Managing Director, Danny Leipziger, who gave his views on Vietnam and its future.
Describing Vietnam 2035, Leipziger said it had “major challenges for lofty ambitions.” He continued, “The world is changing, and what we currently believe will work may not in the future.” He complimented Vietnam on being open to learn from others, being ambitious, and being smart which has consistently paid off for the country. Finishing his talk, Leipziger gave his advice for Vietnam in their quest to reform. “They need to put greater emphasis on market institutions, shrink their state enterprises to allow for private sector growth, account now for urbanization through infrastructure and connectivity, move banking and finance to more competitive structures, and create a more modern, accountable, transparent state.” Leipziger commented that with continued growth rates the country will be very successful.
The future of Vietnam will continue to hold great importance in the Asia-Pacific region and the global economy. With the reforms set forth by Vietnam 2035, the country has an excellent foundation for its economic growth and its future.
Thank you to Bui Quang Vinh for his insightful discussion, and to Danny Leipziger for his thoughts on Vietnam’s past and future.
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