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The Party’s viewpoints on the development of the private sector in the renewal period

(LLCT) - The viewpoints of the Communist Party of Vietnam on the position and the importance of the private economic sector have changed gradually through each period of national development. That was shown in the changes of the Party’s guidelines after the Party Congresses. However, such guidelines have not fully implemented, the private sector has not become the important driving force of the economy. The article analyzed the weaknesses and proposed solutions to boost the development of private sector in order to lift the whole economy.

Key words: Private sector, renewal period.

1. The “private economic sector” is a term used to refer to the economic components based on the private ownership of capital goods, including individual economy, smallholder economy and private enterprises. Viewpoints on the development of the private sector in the country were mentioned by President Ho Chi Minh in his works titled “Basic Politics” (September 1953). He mentioned the existence of different economic types, including the private economic sector, “national capitalists and individual economy of farmers and handicraftsmen, are also necessary forces for the construction of the national economy”(1).

From 1954 to before 1986, the private sector still existed, however it did not have a continuous development process. The resolution of the Politburo in September 1954, clearly stated “the private commerce and industry are the most protected by law”, “to facilitate the operation of existing private and public manufactories”(2). The plenum of the Party Central Committee in September 1979 approved the guidelines allowing production to develop and the proper use of economic components. The 5th National Party Congress (1982) continued to affirm the above-mentioned guidelines, “For individual economic facilities and private economic sector, the State uses economic policies and administrative measures combined with public inspection to guide and control the operation of those facilities according to the State plan”(3) to encourage household economy to develop in the right direction.

Since the 6th National Party Congress (1986), a multi-sectoral economy was recognized in the Party’s documents, “It is necessary to amend, supplement and widely publicize the consistent policy towards economic sectors... to eliminate prejudices...”(4), “with appropriate measures, using all the capabilities of different economic sectors in a close link and under the direction of the socialist economic sector”(5). Non-socialist economic sectors are recognized and operate under the direction and leading of socialist economic sector. However, at this moment, the private sector in particular and non-socialist economic sectors in general were considered to be subjected to “reform”, with suitable forms and steps, avoiding subjectivity and impatience: “it is necessary to develop policies on proper use and reform of other economic components”(6). Resolution 10 NQ/TW dated 5 April 1988 by the Politburo defined farmer households as autonomous economic units, thus fundamentally renovating the management methods of agricultural cooperatives, creating the driving force for the private economic sector within the agriculture to recover and develop dynamically anh initially shifts to commodity production. Resolution 16-NQ/TW dated 15 July 1988 by the Politburo and Resolution of the sixth plenum of the 6th Party Central Committee (1989) continued to affirm the renewal policy, consistently implementing a multi-setoral economy, in which the private sector would be developed in the fields that benefit the nation and people. This is an important initial step for the private sector in the country, paving the way for further breakthroughs later on.

The 7th National Party Congress (1991) made a clearer viewpoint on encouraging and facilitating the development of the private sector: “Private sector is developed, especially in production area, under the management and guidance of the State”(7) and “Everyone is free to do business according to laws and is guaranteed the rights to legal ownership and incomes”(8). “The private capitalist economy is developed with unlimited scale and operation fields, within sectors and businesses that are not prohibited by law”(9). From the viewpoint considering the private capitalist economy as a “remnant” of the old social regime, which can be used, however should be “renovated”, with appropriate steps, this Congress truly saw the private sector as an independent economic component, having potentials for developing and contributing to the development of the national economy. The second plenum of the 7th Party Central Committee (Decemember 1991) stated the guideline to “Supplement and amend institutions to ensure collective, individual and private economies to develop with unlimited scale and operation fields within sectors and businesses that are not prohibited by law; to freely choose business forms, including joint ventures with foreign partners according to conditions prescribed by law”(10).

The 8th National Party Congress (1996) continued to affirm “the consistent and long-term implementation of multi-sectoral economy policies, encouraging all enterprises, individuals inside and outside the country to exploit potentials, to invest for development and to be assured to do long-term and legitimate businesses that benefit the nation and the people; all economic sectors are equal before law, regardless of the ownership and forms of business”(11). At the same time, it was necessary to create favourable economic and legal conditions for individual businesspersons to be assured to do long-term businesses and investment.

The 9th National Party Congress (2001) affirmed a new development step of the Party’s viewpoints when the Party considered the private capitalist sector as an important long-term economic sector in the socialist-oriented market economy, “The private capitalist economy is developed with unlimited scale and operation fields within sectors, businesses, fields and geographical areas that are not prohibited by law”(12). From the viewpoint that private capitalists are allowed to do business in sectors that benefit the nation and the people in accordance with the law(13); the Party’s viewpoints in the 9th National Party Congress had a new perspective, which was to “Create a favorable business environment in terms of policies and laws for the private capitalist economy to develop towards the State’s priorities, including overseas investment; shift to joint-stock enterprises, sale of stocks to working people; joint ventures among enterprises and with collective economic sector and state economic sector”(14). To concretize the 9th National Party Congress’s viewpoint, the fifth plenum of the 9th Party Central Committee (2002) passed the Resolution on “continuing the renewal of mechanisms and policies on encouraging and facilitating the development of the private sector”. For the first time since the implementation of the national renewal, the Party Central Committee had a specialized resolution on the private sector. This resolution continued to affirm that the private sector was an important component of the national economy.

The 10th National Party Congress (2006) continued to recognize the private economic sector to play an important role and to be one of the driving forces of the economy. The private sector is an essential component with an important position and strategic significance in the socialist-oriented market economy. At the same time, this economic sector should be encouraged to develop more strongly in the following years of the country’s renewal. For the first time, the Party officially mentioned and introduced specific regulations on the issue of the involvement of party members in private business. The third plenum of the 10th Party Central Committee (2006) discussed and passed the “Regulation on party members involving in private business”. This regulation paved the way for party members to do legal businesses, contributing to the promotion of socio-economic development.

The 11th National Party Congress (2011) continued to recognize the necessity of perfecting mechanisms and policies to strongly develop the private economic sector to make it a driving force for the economy. The concept considering the private sector as “one of the driving forces for the economy” stated in the 10th and 11th National Party Congresses reflected a new development of the Party’s thinking on the position and role of the private sector in the economy. Documents of the 12th National Party Congress (2016) emphasized, “To perfect mechanisms and policies on encouraging and facilitating the strong development of the private economy in most of economic sectors and fields, making it an important driving force of the economy. To perfect mechanism that supports the development of small and medium-sized enterprises and start-up enterprises. To encourage the formation of private multi-ownership corporations and private capital contribution to State-owned corporations”(15). To concretize the views of the 12th National Party Congress, the fourth plenum of the 12th Party Central Committee (2016) further defined the strong development of the private economic sector in terms of both quantity and quality as an important driving force in the national economic development. On 3 June 2017, the Party Central Committee issued Resolution 10-NQ/TW on developing the private economy sector into an important motivation of the socialist-oriented market economy. The resolution proposed five groups of major tasks and solutions for the development of the private economy. It is necessary to strive to have at least one million enterprises by 2020; over 1.5 million by 2025, and at least 2 million by 2030. The private economic sector will grow faster than the whole economy. The sector’s contribution to the national GDP will be 50% by 2020, 55% by 2025, and 60-65% by 2030 respectively.

2. Since the implementation of the Party’s renewal process, particularly the implementation of the Resolution of the fifth plenum of the 9th Party Central Committee (2002) on “continuing the renewal on mechanisms, policies encouraging and facilitating the development of the private sector economy”, the private economic sector has been constantly developing, making increasingly great contribution to the renewal and socio-economic development of the country. In the 2003-2015 period, the private sector reached the annual GDP growth rate of 10.2% per year, accounting for 39-40% of the GDP; attracting about 85% of the economy’s labour force. The number of private enterprises increased from 55,236 (2002) to 495,826 (2015) and 567,678 enterprises (2016); the number of non-agricultural businesses increased from 2.26 million (2002) to over 4.75 million households (2015)(16).

However, the private economic sector has not met the requirement of an important driving force of the national economy. The growth rate of this sector tends to decrease in recent years from 11.93% per annum in the period 2003-2010 to 7.54% per annum in the period 2011-2015(17). The private sector of Vietnam is small-scaled, mainly consisting of household businesses. Household businesses account for about 95% of the total private sector entities. Within the private sector, household businesses account for nearly 80% of the GDP in 2015 (equivalent to 31.33% of GDP of the country); private enterprises account for only about 20% (an equivalence of 7.88% of the GDP of the country). Over 90% of enterprises have a capital scale of less than one billion VND. More than 80% of private enterprises operate in trade and service areas. Only more than 10% of enterprises operate in the industrial area and about 1% investing and operating in the agricultural sector(18). In terms of labour size, the proportion of small and micro enterprises tended to increase in the period of 2002-2014, increasing from 90% to 97%. Particularly, micro enterprises (in terms of fewer than 10 employees) accounted for about 66%(19). Characteristics of many enterprises are not much different from those of individual business households in terms of labour size, turnover and management. According to “Vietnam Annual Business Report” published by the Vietnam Chamber of Commerce and Industry, the proportion of private enterprises suffering losses in the period 2007-2014 was from 21.7% to 45.4%. The ratio of enterprises that went bankrupt or ceased operations remained high, with the annual average of 45% of the total operating enterprises of the economy in the 2007-2015 period. The number of enterprises that ceased operations constantly increased in the last three years. In 2015, 71,391 enterprises ceased operations in the whole country, an increase of 22.4% compared to the same period of 2014. The growth rate of average turnover had the tendency of sharp decline, 34% per annum (2007-2011), and 10% per annum (2012-2015). The productivity was lower than the general level of the economy; the technology was outdated and dependent on import; technically skilled workers accounted for only 7%; investment in technological renovation only accounted for 3% of the turnover; 0.005% of enterprises had scientific initiatives; research and development actvities were at company level (47% of enterprise had research and development activities) and domestic market (39%)(20). The capacity of governance has been weak and the operation lacked of transparency.

Some reasons for the above limitations include the lack of consistent awareness on the position and role of the private economic sector; it has not been really an important economic component. The effectiveness and efficiency of the state management has been limited. The socio-economic infrastructure has not met the requirements of the development of the private sector. Mechanisms supporting private enterprises have not come into reality. Private enterprises have had limited access to supporting policies and preferential programs of the Government, and hardly got support on information on domestic and international markets. The business environment has not been favorable for the private sector to develop. The renovation process of economic institutions has been slow; the competitive environment has not been fair. Administrative procedures have been cumbersome, complicated; the “ask-give” mechanism has been popular. Attention has not been paid to mechanisms for access to loans and programs supporting private enterprises. The quality of human resources have been limited, skills of employees have not met the requirements of enterprises.

In order to overcome the aforesaid limitations and shortcomings, it is necessary to well implement the five groups of major tasks and solutions stated in Resolution 10-NQ/TW dated 3 June 2017 of the Party Central Committee on developing the private sector into an important motivation of the socialist-oriented market economy, and pay due attention to the following specific solutions:

It is imperative to create social awareness on the recognition and appreciation of the private sector’s role in the socialist-oriented market economy. The capacity of corporate governance should be enhanced; the dynamism and competitivenesss of the private sector promoted. The institution of the socialist-oriented market economy should be perfected; implementing the 3 strategic breakthroughs and building a developmental and incorruptible Government; a new industrial strategy should be built, putting the private sector in the center attached to renewal, creativeness and public administrative reform; managing and operating the economy in a transparent manner; perfecting the legal framework, mechanisms and policies; implementing synchronous solutions for development; operating smoothly and effectively all types of markets. Investors, ownership rights, rights to property should be protected; creating an equal, competitive, transparent and healthy environment; barriers in the access to markets, access to resources and access to information should be eliminated to facilitate all enterprises of economic components to operate in accordance with the market mechanism.

Separate mechanisms and policies suitable for each group of enterprises should be studied. Large enterprises should be oriented towards internationalization, linked to export and trends of the Industrial Revolution 4.0. For small and medium-sized enterprises, it is necessary to create mechanisms and policies for them to link with large enterprises and to enhance the capacity of governance renovation. For start-up, renovative and creative enterprises, it is necessary to create renovative and creative ecosystem, ensuring the most favorable conditions for the effective use of risk capitals to support enterprises. For enterprises operating in agricultural and rural areas, it is necessary to develop policies on encouraging hi-tech application and large-scaled operations. For household businesses, there should be no administrative policies on converting them into enterprises. The importance is to reduce informal and compliance expenses so that they can enhance their capacity in self-converting into enterprises.

The fundamental limitations in some areas should be overcome, continuing to implement the measures on improving the business environment, supporting the development of enterprises, with the short-term focus on such issues as the improvement of the access to input factors of production and business (land, capital, labour, technology and electricity); reduction of time and compliance expenses in such procedures as tax, custom, social insurance; the shortening of time of registration the right to own and use properties, protection of legal property of enterprises. Governments of provinces and cities should actively carry out periodic dialogues with enterprises, and at the same time, study to apply good practices in order to improve the business environment. Private enterprises should be supported to access capitals. Training and fostering activities should be strengthened for human resources, enhancing governance capacity, promoting capacity of research and development, and renewing techonologies. Trade promotion and support for access to market information need to be consolidated. Mechanisms for promoting the export of goods, services and investment in countries that we have signed agreements on trade and investment with should be developed.

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Endnotes:

(1) Ho Chi Minh: Complete Works, vol. 8, National Political Publishing House, p.267

(2) CPV: The Complete Set of Documents of National Party Congresses, vol. 15, National Political Publishing House, Hanoi, 2001, p. 295

(3) CPV: The Complete Set of Documents of National Party Congresses, vol. 43, National Political Publishing House, Hanoi, 2005, p. 234

(4), (5), (6) CPV: The Complete Set of Documents of National Party Congresses, vol. 47, National Political Publishing House, Hanoi, 2006, pp. 395, 377-378, 389

(7), (8), (9), (10) CPV: The Complete Set of Documents of National Party Congresses, vol. 51, National Political Publishing House, Hanoi, 2007, pp. 97, 155, 160, 542-543

(11), (13) CPV: The Complete Set of Documents of National Party Congresses, vol. 55, National Political Publishing House, Hanoi, 2015, pp. 320-321, 379

(12), (14) CPV: Documents of the 9th National Party Congress, National Political Publishing House, Hanoi, 2001, pp. 191, 31

(15) CPV: Documents of of the 12th National Party Congress, National Political Publishing House, Hanoi, 2016, pp. 107-108

(16) Census data for non-agricultural individual business establishments in 2015

(17), (18), (19) Synthesization of the data from the General Statistics Office

(20) Synthesization of the data from the General Statistics Office, Ministry of Planning and Investment and Ministry of Science and Technology.

MA. Nguyen Van Quy

Central Economic Commission

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