Institutional breakthroughs to develop the private economy.

(Chinhphu.vn) - Institutional reform is a continuous and ongoing process with no end point. In the long term, we need to establish a mechanism to control the quality of newly issued regulations to avoid situations where: licenses are abolished this year and reappear next year, or regulations abolished in one sector are introduced in another.

The private sector is the driving force for a prosperous Vietnam.

The private sector, from being restricted and even condemned before the Doi Moi (Renovation) period to being accepted as an economic component developing on equal footing with other economic sectors, and then becoming a crucial driving force for the economy, has been a long journey. The role of the private sector in the economy has been gradually affirmed and recognized in policies, laws, and in practice, demonstrating its important position in almost all fields and sectors of the economy. Recently, General Secretary To Lam affirmed that the private sector is a lever for a prosperous Vietnam and that developing the private sector must be considered a central task today.

However, many targets set for the development of the private economy have not been achieved as expected, from the number of businesses, competitiveness, innovation, to contributions to economic and social development. Currently, the Government is developing a plan and a draft resolution of the Politburo on the development of the private economy. The new context demands and expects this resolution to adopt a comprehensive approach, with strong and substantive solutions accompanied by effective implementation mechanisms.

At the Government's thematic meeting on law in April on April 13th, Prime Minister Pham Minh Chinh emphasized that institutions are currently the biggest bottleneck, the bottleneck of bottlenecks, but also the easiest bottleneck to overcome, easily transforming from a state of difficulty and obstacles to a state of competitiveness, turning institutions into a competitive advantage.

The Prime Minister requested continued review to concretize and institutionalize the Party's policies, removing all institutional difficulties and obstacles to serve development; abandoning the "if you can't manage it, ban it" mentality; implementing the "if you don't know, don't manage" approach; unleashing the entire productive capacity of the country, mobilizing all social resources for development; maximizing decentralization and delegation of power with inspection and supervision mechanisms, coupled with resource allocation and improved implementation capacity; eliminating all cumbersome and unnecessary administrative procedures and strengthening the authority to impose administrative penalties, with specific and clear sanctions and regulations.

Solutions to promote private enterprises are not lacking, such as Resolution 10, Resolution 41, the Law on Supporting Small and Medium-Sized Enterprises, the Government's thematic resolutions on improving the investment and business environment, and other solutions can be found in almost all legal documents on enterprises and enterprise support policies. This resolution on the private economy, in addition to inheriting the viewpoints and solutions already present in previous resolutions and projects, is expected to introduce new, more groundbreaking solutions to create a turning point for the private economy.

Experience in our country shows that only strong, groundbreaking reforms can create a boost and change the current situation. For example, the groundbreaking reforms of the 2000 Enterprise Law changed the mindset regarding enterprise management, emphasized the right to freedom of business, shifted from licensing to registration, and abolished hundreds of business licenses… creating a major impetus for the formation of the business force we see today. Many people compare it to the "Contract 10" system in agriculture and liken the 2000 Enterprise Law to "Contract 10" in business.

Institutional reform continues to be the central solution, which will include both immediate and long-term solutions, at least three groups of solutions: (1) Improving the quality of existing institutions; (2) Controlling the quality of new regulations to be issued; (3) Incentives and support for businesses.

The most urgent and central aspect of institutional reform is improving the quality of existing legal regulations. It is necessary to consider the perspective and viewpoint of businesses to identify key reform priorities, along the various stages of the investment and business process: from market entry to production and business operations (taxes, sales, inspections, dispute resolution, etc.) and market exit.

High-quality institutions must facilitate easy market entry and exit for businesses; the burden of time and costs associated with legal compliance should be minimized. The state's licensing role should be reduced and replaced by maintaining competitive order and combating monopolies. Policies that incentivize and support businesses need to be comprehensively reviewed and evaluated for effectiveness and suitability to address current shortcomings, such as: overly bureaucratic procedures, lack of resources, fragmentation, or overlapping and duplication.

In addition to supporting businesses in overcoming difficulties, new support policies are needed to promote and develop potential businesses, enabling them to quickly become large enterprises with sufficient competitiveness in the region and the world. In the long term, it is necessary to establish a mechanism to control the quality of newly issued regulations to avoid situations where licenses are abolished one year and reappear the next, or regulations abolished in one sector are introduced in another…

From a business perspective, reforming the investment and business environment will increase competitive pressure and foster good ideas. Conversely, a difficult business environment with numerous licenses and administrative procedures that restrict market entry can sometimes inadvertently become a protectionist tool for businesses, hindering good ideas.

The principle that "businesses are allowed to do anything that the law does not prohibit" is enshrined in the Constitution. However, this principle has not been fully implemented in practice, from policy design to law enforcement. The list of prohibited or conditionally permitted business activities remains extensive, and administrative procedures are still cumbersome. Furthermore, practice shows that what is not prohibited by law but "lacks regulations" is a very vague "grey area," making it unclear whether or not it is permissible.

This can hinder and jeopardize creative and innovative ideas, limiting the freedom of business for enterprises. The legislative process shows that in many cases, practice precedes law. If a new business activity is deemed risky, the State should issue regulations to address it appropriately, rather than prohibiting it altogether. Only then can we foster the initiative and creativity of businesses.

How can we expand business freedom for enterprises? Clearly, the State needs to narrow the list of prohibited and restricted business sectors, eliminate business conditions and administrative procedures, and enforce the principle that businesses are allowed to do anything that is not prohibited or not yet regulated by law. Furthermore, a breakthrough mechanism is needed – the model of free economic zones or free trade zones, which has been successful in many countries.

The free economic zone model is characterized by creating a broad scope of business freedom and minimizing licensing or administrative procedures, aiming for 'free' – meaning zero (no) or extremely quick and convenient business procedures if any; and conveniently connected infrastructure. The free economic zone model can be likened to a business area where production and business activities are carried out most efficiently, with very low compliance and business costs. For example, we need to consider that there are business sectors not yet stipulated in the law but which can absolutely be operated within this zone, if production is solely for export or processing for foreign partners.

Free economic zones and specialized zones dedicated to new business ideas, such as AI, semiconductors, self-driving cars, small and medium-sized enterprises, etc., need to be researched and established in our country as soon as possible.

How can we improve the quality of current institutions most quickly and thoroughly? The mindset should focus on abolishing and proactively abolishing cumbersome regulations that act as barriers, rather than making minor modifications; abolition should not be limited to conditions and procedures that have been criticized as inadequate, but should proactively abolish those deemed unnecessary to shorten the time and reduce the cost of implementing procedures; abolition is not about abandoning state management but about changing the mindset of management.

For example, are some existing investment procedures truly necessary? In reality, during the project implementation process, many changes and adjustments are needed due to market demands and business requirements. By the time all procedures are completed, the project implementation deadline according to the investment policy has expired. Then, procedures to extend the investment policy are required, and another period of waiting is necessary – essentially, extending the deadline for the business is unavoidable. It's necessary to consider whether these procedures are still truly necessary; if not, they should be abolished.

Furthermore, instead of reviewing each specific clause of a document, one could consider abolishing the entire document if it is no longer necessary.

Institutional reform is an ongoing, continuous process with no end point. The biggest challenge is that almost all previous reforms stemmed from the decisive actions of the Government and the Prime Minister, while ministries and agencies rarely proactively proposed reforms or abolished business conditions under their management. Regulations that are reasonable today may become outdated tomorrow and need to be abolished or amended promptly.

Reforming the investment and business environment can be seen as similar to managing a swimming pool. For a pool to be good, you need to filter the water and have a "poolkeeper" to promptly address any factors affecting its quality. Instead, filtering the water means improving the quality of current regulations, while the "poolkeeper" is the mechanism and agency responsible for implementing and maintaining the momentum of reform.

I believe it is necessary to consider establishing a specialized, authoritative, and official body, similar to the Government's Institutional Reform Committee – a model established in many countries such as South Korea, Japan, and the United States – to implement a comprehensive, widespread, and robust institutional reform program. This mechanism should be institutionalized in this Resolution.

Alongside improving the quality of existing regulations, greater emphasis should be placed on strictly controlling newly issued regulations. All regulations related to businesses must undergo an impact assessment, based on careful cost-benefit analysis and ensuring fairness for different groups of businesses with varying sizes and business characteristics.

Beyond legal and political grounds, the necessity of enacting or amending a regulation must be based on a cost-benefit assessment. If a regulation is mandatory but disadvantages a group of businesses, a mechanism to compensate those negatively impacted businesses should be considered, avoiding the creation of new compliance burdens that significantly affect production and business operations.

If we look closely, there are numerous measures and policies to support businesses, especially a law on supporting small and medium-sized enterprises, not to mention resolutions and decrees… However, it can be felt that these support policies do not seem to be as effective as expected, still involving a system of favoritism, lack of resources for implementation, and difficulty in access… Support policies are essential in the current period to alleviate difficulties and ease the burden on businesses.

On the other hand, supportive policies for potential businesses to grow and develop rapidly are lacking. In the short term, a comprehensive review of all support policies issued and applied to businesses to date is needed to focus and redesign solutions that are non-duplicate, prioritized, and meet the specific needs of businesses, along with the necessary resources. The bureaucracy of support policies should be reduced, along with the "request-and-grant" mechanism, and automated mechanisms should be used, eliminating the need for businesses to register or declare – for example, a mechanism for the simultaneous exemption or reduction of financial obligations: taxes, fees, land use fees, etc.

It is crucial to maximize the application of market mechanisms in the design and implementation of output-based financial support solutions to create business equity, enhance efficiency, and limit direct government support through administrative procedures. Implementing support policies through market mechanisms not only improves efficiency and fairness but can also create new business opportunities with the participation of private enterprises in support activities.

Recently, I had the opportunity to visit two foreign investment groups operating under a model that combines state and private capital. Their business involves investing in other companies' projects if they deem them to have development potential. This has become an important source of capital, alongside traditional funding, for many businesses and innovative business ideas – and has led to success. Of course, there have been failures, but the successes far outweigh the failures. Importantly, this model operates within a market mechanism and is also a legitimate business sector.

Furthermore, it is essential to have policies that strongly promote intermediary services supporting businesses (business development services) such as market research, business skills training, and business networking. These are the intermediary channels to promote and support business development.

There may be a phenomenon of "hot at the top, cold at the bottom," a sense of anxiety and hesitation in law enforcement. However, I share this concern with the enforcement agencies because in many cases, regulations are unclear, and many different regulations apply to the same issue. Applying one regulation might work, but applying all regulations leaves one unsure how to proceed. Therefore, to address this issue and improve the effectiveness of law enforcement, more power should be granted to local authorities – the agencies directly responsible for implementing the law.

In reality, the law can never be so perfect that it is always clear and without contradictions. If an investment project has to stop pending legal amendments, it is unreasonable and could be delayed for a very long time, causing waste and reducing investment efficiency. This Resolution should include solutions to empower enforcement agencies, especially local governments, to issue specific guidance documents and resolve procedures in cases where the law is unclear or contradictory, thereby promoting creativity and best practices in applying the law at the local level.

In other words, local authorities (possibly the People's Council) should be empowered to issue guidelines on the application of laws in cases where legal provisions are unclear, subject to multiple interpretations, or contradictory, based on the principles of openness, transparency, and the prevention of corruption, negative practices, and waste. This solution would help address the significant problem of investment projects no longer being delayed by limitations and shortcomings in legal regulations.

When institutional reforms are implemented vigorously, competitive pressure on businesses will increase significantly. With the removal of legal barriers to market entry, more new businesses will enter and compete with existing ones. Businesses that have already entered the market may cease operations if their quality, services, and amenities are not guaranteed or maintained, and are replaced by new ideas and business models. Improving management and business capabilities, and prioritizing compliance with laws and contracts, becomes a mandatory requirement to avoid being eliminated.

In reality, many businesses execute contracts and business agreements based on their own habits and perceptions, disregarding the agreed-upon terms, leading to unnecessary losses. Many businesses, upon reaching a certain scale, lack an effective governance framework, resulting in internal conflicts among shareholders and managers, difficulties in generational transition, and ultimately weakening the business – a regrettable situation.

Now, along with strong institutional reforms by the State, businesses themselves must also improve their management capabilities to develop and grow in a systematic, long-term, and sustainable manner, as set out in this Resolution on the private economy.

Phan Duc Hieu

Standing Member of the National Assembly's Economic Committee

Member of the 15th National Assembly

Source: https://baochinhphu.vn/dot-pha-the-che-de-phat-trien-kinh-te-tu-nhan-102250414154726315.htm