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Theory of economic development in Vietnam: Achievements and limitations

(LLCT) - The theory of economic development was formulated by Adam Smith, which has been continually developed by K. Marx and other economists to this day. This theory is the basis for planning and implementing development policies of market economies. Vietnam has approached theories of economic development since the Doi Moi (Renovation), although it has achieved many important results via awareness and in daily life, it still faces several challenges and difficulties.

(Source: http://logistics.gov.vn.)

Keywords: theory of economic development in Vietnam.

1. The process of forming a theory of economic development in Vietnam

In Vietnam, the idea of economic development originated from the early 1960s in the context of two strategic tasks being carried out: promoting the construction of socialism in the North and struggling for the liberation of the South, and national reunification. However, only after 1986, in response to the country’s urgent need of reforms were initiated and led by the Communist Party of Vietnam, the ideas of economic development were realized and became the fundamental theory to implement a socio-economic development strategy. The process of theoretical development can clearly be seen in two stages:

1st stage from 1986 to 2000

The 6th Congress of the Party (1986) determined: “The overarching mission, the overall goal of the remaining years of the first journey is to stabilize all socio-economic situations, continue to build essential foundations to accelerate socialist industrialization in the next stage”(1). Accordingly, it is required to link stability with development: “Stability and development are closely linked with each other in the process of moving forward, stability promotes development and can be achieved via development”(2). The importance of economic development and its relationship with social development is also determined: “Economic development is a physical condition for social policies implementation, but social goal is the purpose of economic activities”(3). Thus, economic development must be closely related with stability in all aspects of the socio-economic situation.

The 7th Party Congress (in 1991) adopted the Strategy for socio-economic stability and development during the period between 1991 and 2000, in which the first view of sustainable development was raised: “Economic growth must be closely linked with social progress and justice, cultural development, and environmental protection”(4). This view was further affirmed at the 8th Congress (in 1996), with the need to attach economic growth to social progress and justice “right in every step and throughout the development process”(5).

In 1998, the Party Central Committee (8th tenure) promulgated Directive No. 36-CT/TW on “Enhancing environmental protection in the period of industrialization and modernization of the country”, in which, it was clearly stated that environmental protection was an inseparable basic principle in the socio-economic development guidelines, plans of all levels and sectors, and an important basis to ensure sustainable development, successfully implementing the cause of industrialization and modernization of the country.

Thus, in this period, the basic features of economic development were shaped with factors of economic growth, progress, social justice, and ecological environment protection in mind. These factors are placed in a close relationship with each other, in which economic growth plays an important role in creating material conditions to achieve other factors. This is a creative feature in applying the theory of Marxism - Leninism to economic development under conditions of a transition to a socialist-oriented market economy.

2nd stage from 2001 to the present

Since the 11th Party Congress (2001), the process of Doi Moi (Renovation) has been conducted in depth; the awareness of economic development is directed at the goals and modes of implementation of the era.

The perspectives on Vietnam’s socio-economic development in the 2001-2010 period are: “developing rapidly, efficiently and sustainably, growth is coupled with the implementation of social progress, equality, and environmental protection”; “rapidly increasing social labor productivity and improving the quality of growth. Thoroughly saving, combating wastefulness, increasing accumulation for development investment”(6).

In particular, fast, effective, and sustainable development is considered the most important guiding ideology to explore and select solutions for the socio-economic development of the country.

The lessons drawn from the 11th Party Congress (2011) were: “The importance must be attached to the quality, efficiency of growth and sustainable development, improving the quality and efficiency of the economy, and maintaining the reasonable growth, sustaining macroeconomic stability”(7). The Congress added to the thorough thinking in the Platform for how to build the country during the transition to socialism: “Economic development is the central task; implementing industrialization and modernization of the country associated with the development of the knowledge economy and protection of natural resources and the environment; building a rational, modern, effective and sustainable economic structure, closely associated with industry, agriculture, and services”(8).

The socio-economic development strategy for the period of 2011-2020 requires that: “Rapid development must be associated with sustainable development, sustainable development is an integral element of the Strategy”. “Sustainable development is the basis for rapid development, rapid development is to create resources for sustainable development. Rapid development and sustainable development must always be closely linked in the socio-economic development plans and policies”(9). “The solution to implement the Strategy is to renovate the growth model from mainly developing in width to rational development between width and depth ..”.(10).

The 12th Party Congress (2016), based on the 30 years of renovation experience and approaching the trends of the era, set a requirement to continue renewing the growth model in the direction of combining development width with depth efficiently, with a focus on developing depth; improving the quality of growth and competitiveness on the basis of raising labor productivity, applying scientific and technological advances; innovation and creativity, improving the quality of human resources, promoting comparative advantages and proactive international integration...(11).

2. Achievements in the innovation of theory and practice of economic development in Vietnam

Achievement of theory

Firstly, it has defined the category of economic development in the knowledge system of a socialist-oriented market economy aligned with its fundamentals. Specifically:

It is well recognized that economic development is not merely the activity of entities but is also closely related to the common and important goals of the nation. It involves both economic issues and social development. Therefore, the Party and the State can not just let it be determined by the market mechanism but must plan and implement strategies and policies for socio-economic development in order to guide the country’s economic development process in accordance with its target.

The basic attributes and elements of economic development have been identified. Economic growth is not only about quantity, but also quality. It is not only shown in the general growth of the economy writ large but also reflected in the process of perfecting economic structures, economic institutions, and improving the quality of life. Currency has been used as a measure of economic growth in lieu of abstract estimates before the renewal period. 

For the first time, economic development has been put in the context of sustainable development, in which sustainable economic development must work towards efficiency, while still ensuring social justice and protecting the ecological environment. The keenness to these two factors has marked a critical development step in the Party’s thinking about the country’s economic development associated with new elements of the era.       

Secondly, economic development has been affirmed as the central task. Previously, the Party used to identify industrialization as a “central task”(12), but during the renewal period, the Party identified economic development as a central task and a great orientation for the country to develop(13). This task is set in the current context, the production force is putting human beings in a stage of great development for a scientific and technological revolution. The economic development path of latecomers like Vietnam is no longer limited to industrialization but must take into account the modernization and development of knowledge economy. In particular, economic development is the central task, while industrialization, modernization, and the knowledge economy are fundamental ways to successfully accomplish this central task. This is a new stage in the theory of economic development in Vietnam, born out of the results of a creative application of Marxism - Leninism in the new era.       

Thirdly, the solutions of economic development has been established and put into practical use. Along with new perceptions and perspectives, the Party’s theory has paid close attention to strategic solutions for economic development, including:

All aspects of the political, economic, and social situation have been stabilized. In the theory of modern economics, stability and economic development are two general goals of macroeconomics that every government must pay attention to. These two goals mutually interact. In Vietnam, since the beginning of the reform process, this theoretical knowledge has been used by the Party and is considered not only a goal but also a condition and solution for economic development.

Economic growth has been promoted. This solution aims to develop a market economy, affirm and create the conditions for the development of domestic economic sectors, attract foreign investment, and renew economic mechanisms from the viewpoint of combining markets and the State, creating the motivation to encourage entrepreneurship of all individuals and organizations.

Relations with other countries and international organizations have been expanded, focusing on developing the external economy based on the view that Vietnam is a friendly and reliable partner of all countries and international economic organizations.

Breakthrough  strategic implementation in terms of institutions, human resources, and infrastructure, especially the mechanism of a socialist-oriented market economy to strongly unleash resource production, mobilization, allocation, and usage creating favorable conditions for economic development(14).   

Achievements in practice

In terms of efficiency: The economy has maintained a higher growth rate than before the renewal period. Gross domestic product (GDP) grew at an average rate of 6.6% in the period from 1986 - 2017 and reached 7.08% in 2018. The period with the highest growth was from 1992 - 1997 with a GDP growth rate of 8.1-9.5%. Compared with other countries with fast growth rates throughout the world recently, the average GDP growth of Vietnam is only behind China at 9.4%, and above Republic of Korea and Malaysia at 5.9%, Thailand at 5.2%, America at 2.6%, Japan at 1.7% and Germany at 1.8%(15). The economic scale of Vietnam has increased from only 6.4 billion USD, ranked 90th in the world (in 1990) to 171.2 billion USD, ranked 57th in the world (2013). From one of the poorest countries in the world, Vietnam became a lower-middle-income country in 2008 with a per capita income of U.S. $1,154. In 2018, the size of the economy reached 240.5 billion USD, 34 times higher than that of 1986, ranking Vietnam in the top 50 countries with the strongest economy in the world(16). The average income per capita in 2018 reached 2,587 USD ($7,640 if calculated using the purchasing power parity (PPP) level(17), 26.7 times higher than in 1989.

The effectiveness of economic development is also reflected in the quality of growth and labor productivity. From 2011 to now, Vietnam’s economic growth has gradually improved in depth. The contribution rate of total factor productivity (TFP) in GDP growth for the period between 2011-2015 was 33.6%; the period between 2016-2018, was 43.3%; in 2018, 43.5%. Social labor productivity has increased steadily over the years, making Vietnam a country with a high rate of labor productivity growth in the ASEAN region. Labor productivity of the whole economy at a comparative price in the period of 2011-2015 reached an average increase of 4.35% / year; and the period between 2016-2018, 5.75%/year. The ICOR (efficiency of investment capital use) is gradually being improved, from 6.25 (2011-2015) to 6.17 (2016-2018); and 5.97 in 2018(18). 

Outcomes of structural changes in the economy: Vietnam’s economic structure has shifted towards a more progressive direction. In 1986, the agricultural sector accounted for the highest proportion of 38.1%; service 33%, and industry accounted for the lowest proportion of 28.9%. By 2018, the economic structure underwent significant changes: service became the highest contributor to GDP with a proportion of 41.1%, followed by industry accounting for 34.3%, and agriculture decreased to only 14.6%.

The labor structure has also shifted from agriculture to industry and services. The proportion of employees working in industry and services increased from 11.2% and 16.3% (in 1989) to 26.6% and 35.2% in the second quarter of 2018; in agriculture, the rate decreased from 71.5% to 38.2%. The structure of quality human resources has been shifted towards reducing the proportion of unskilled workers from 92.7% in 1989 to 78.3% in the second quarter of 2018; The percentage of employees with technical expertise (especially the proportion of employees with college and university degrees or higher) increased rapidly from 1.9% to 12.5% at the same time.

Accumulated wealth and openness of the economy: The size and proportion of accumulated assets within the economy have increased and remained at a relatively high level in the last 10 years. In 1986, the total internal accumulation of the new economy was 12.5% of GDP, by 2016 it reached 26.7% and in 2018 it was 29%. This is a high figure compared to many countries in the Asia - Pacific region (second only to China in the same period). The result of asset accumulation not only creates a foundation for investment but also a material factor that directly promotes economic growth. As a result, the scale of investment capital contributed by the entirety of society increased over time. If in 1986 it was only at 9.42% of GDP, in 2018 this figure was 33.5% with an absolute amount of VND 1,856.6 trillion(20).

Foreign investment (including direct investment, indirect investment in the form of capital contribution to purchase shares and loans) has increased. In 1987, the whole country did not have a foreign direct investment (FDI) project, by 2018 there were more than 26.5 thousand licensed projects with a total registered capital amount of more than 334 billion USD, capital for implementation was about $184 billion. Vietnam is considered an attractive country for FDI capital. Foreign investment contributed nearly 20% of GDP and was an important additional source of capital for development investment with a proportion of about 23.7% of the total social investment capital in 2018(21). In addition, Vietnam has trade relations with more than 200 countries and territories, of which about 70 markets have exports of more than US$100 million, such as the US, Japan, China, Australia, Singapore, Germany, Malaysia, the UK and so on.

Achievements on the mode of distribution: prior to the Doi Moi (Renovation), the distribution of production results in the economy was mainly done based on the contribution of labor of each member and supplementation of the distribution method through social funds. Since the Doi Moi, the mode of distribution has been fundamentally transformed. Distribution in Vietnam now includes the following forms: labor-based, economic efficiency, and distribution by capital and other resources contributing to production and business activities and distribution through social funds. Forms of distribution are implemented on the principle of fairness. The mechanism of operating forms of distribution is not simply the business of the state, but also through a market mechanism. The principle of fairness in distribution has been a direct driver for socio-economic stability; stimulating positiveness, creativity, and promoting economic development. As a result, the income level of the population has increasingly been improved. If in 1986, per capita income was still very low, in 2014 it was at 5,629 USD and in 2018 increased to 6,100 USD at the purchasing power parity (PPP) price(22). The unemployment rate in the labor force decreased from 12.7% in 1986 to 2.0% in 2018. The proportion of poor households following the multi-dimensional approach in 2018 decreased to 6.8%(23).

3. Challenges of innovation in economic development theory in Vietnam today

Although many achievements have been made, when contending with new circumstances and requirements, the theory of Vietnam’s economic development faces many challenges.

Firstly, while we are fully aware of the importance of economic development and consider it a central task for development, we still lack a long-term holistic vision of the goals for development and a chosen path with steps to effectively carry out that task.

Secondly, rapid, effective, and sustainable economic development is a strategy-oriented view that was officially identified from the 9th Congress of the Party. The prerequisite for realizing this view is to ensure adequate resources and use them effectively. However, the country faces many limitations and challenges in the creation and use of resources.

According to experts, Vietnam still has 60 billion USD of idle money among the people(24) but is mainly stored in the form of hoarding and consumption such as housing, shopping, black credit, etc., which have not been used for economic development investment. Meanwhile, the state budget revenue is not enough for regular spending and debt repayment. Because there is no accumulation, the Government is forced to borrow to invest; issue bonds, and have public debt keep rising. Bad debt, speculation, cross-ownership, cross-lending in commercial banks, and credit institutions take many forms, they are complex and difficult to control. The state-owned enterprises’ implementation of the project is behind schedule, contends with losses, and has their “out of channel” investment causes losses and waste that has not been solved yet.

Although natural resources, especially land, mines, and marine areas, have many advantages for economic development, they have not been used effectively. Agricultural land in many places (especially on farmland) is abandoned or used for inefficient purposes. Many businesses still suffer losses for their mining business...

In particular, human, scientific, and technological resources, despite being identified as key resources, still have inherent disadvantages.   

In fact, Vietnam’s economy is still producing below its potential. The country still lacks a synchronous and effective mechanism in mobilizing and using resources.

Thirdly, the most basic and key solution to economic development chosen to promote industrialization and modernization is associated with the development of the knowledge-based economy. However, up to now, Vietnam has not defined specific standards to evaluate the results of implementing this solution. Although the 12th Party Congress has set a requirement to define the criteria system of industrialized countries in the direction of modernization, and the country is in the second stage of the process of industrialization and modernization(25), the perception of what an industrialized and modernism directed country is like remains unknown. Therefore, we are still confused about implementation, such as which projects and key breakthrough fields should be selected for investment.

Fourthly, it is the challenge of institutional issues. Although institutional improvement is one of the three strategic breakthroughs to be considered, the breakthrough in awareness of the mode of economic development is still unclear. The 12th Party Congress pointed out that the goal of this “breakthrough” is to release, allocate, and effectively use resources. However, the basis of the interaction between this solution and the goals has not been clarified yet. A full understanding of how institutions and economic development interact with each other is necessary for policy formulation and implementation in the current period n

 

Endnotes:

_______________________

(1), (2), (4) CPV: Complete set of Party Documents, vol.47, National Political Publishing House, Hanoi, 2006, pp.723-724, 723-724, 160.

(3) CPV: Document of the 6th National Congress, National Political Publishing House, Hanoi, 1987, p.86.

(5) CPV: Document of the 8th National Congress, National Political Publishing House, Hanoi, 1996, pp.82-113.

(6) CPV: Document of the 9th National Congress, National Political Publishing House, Hanoi, 2001, p.162.

(7), (8), (9), (10), (13) CPV: Document of the 11th National Congress, National Political Publishing House, Hanoi, 2011, p. 180-181, 75, 99, 107, 75.

(11), (14) (25) CPV: Document of the 12th National Congress, National Political Publishing House, Hanoi, 2016, p. 87, 89, 90.

(12) CPV: Complete set of Party Documents, vol.21, National Political Publishing House, Hanoi, 2002, pp.543-544.

(15) Lan Anh: “32 years of renovation, Vietnam has reached the Top 50 of world economies”, https://www.brandsvietnam.com.

(16) According to the Vietnam General Department of Statistics and IMF statistics.

(17) Thuy Mien: “Average income per capita in 2018 reached 2,587 USD”, https://vneconomy.vn.

(19), (24) General Department of Statistics: “Vietnam Socio-Economic Overview 2018”, https://www.gso.gov.vn.

(20) General Department of Statistics: 2nd Quarter Labor Force Survey Report 2018, Statistical Publishing House, Hanoi, 2018, p.11.

(21) According to the statistical yearbooks and official reports of the General Department of Statistics.

(22) According to the official statistics of the Ministry of Planning and Investment in 2018.

(23) Published data of IMF and WB.

(25) https://vov.vn.

Assoc. Prof., Dr. An Nhu Hai

Institute of Political Economics,

Ho Chi Minh National Academy of Politics

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