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We often mention the serious issues of the country today - reforming and perfecting the institution – so we need a formal interpretation of this concept.
As defined by the World Bank (WB), the institution is not a work or an organization but regulations to which individuals, companies and the state interact with each others. Commonly, the institution has the playing rules among three groups of subjects. In economic activities, human society has produced many playing rules - some rules encourage the market, which link individuals who act for their own interests, and also rules that are unfair to protect decision-making rights and benefits for a group of people.
Today the majority of economies around the world have chosen the market economy model but with very different levels as they apply dissimilar institutions and the use of different organizations and market operating structures.
For example, developed countries are rated as the leading economies not only by their high per capita GDP, but also the capacity to create fundamental innovations in technology and organization – the highest requirement for creativity and talent which play the role of a major impetus for the increase of labor productivity.
Internet, biotechnology, nanotechnology, antimatter energy and other forms of clean energy ... are vivid illustrations of this concept. A question is naturally raised: choosing the same market mechanisms to develop, but why can’t a majority of countries make a breakthrough to create fundamental innovations?
The answer is so simple so it surprises many people: the decisive factor for the ability to create the basic innovation of an economy lies in its institutional environment and thus it is not surprising when the World Bank states that "the institution is seen as the main factor determining the long-term development of a country."
Institutional quality competition
The statistics over a long period shows that the countries that apply inclusive political and economic institutions often achieve high and sustainable development.
In countries where the opposite institution - extractive institution - is applied (under this institution, some groups of people hold monopoly, seize or occupy material assets, spiritual values or promotion opportunities of others ...), the level of development is generally low or high in the short term but contain hidden rifts in society, and long-term and comprehensive crises in the future that can hinder these countries from overcoming the middle income trap.
The world today is increasingly "flat" where the movement of information, capital, manpower and goods is easy with low cost thanks to the remarkable progress of information technology and transportation. However it is an "inclined flat" because talent and capital flows tend to pour into the countries that are highly attractive in terms of institutionalization.
Statistics show that most of the countries with inclusive institutions have tremendous appeal for capitalization and skilled manpower. Therefore the fierce competition between countries today is considered competition for institutional quality.
Sometimes narrowing the gap of income by GDP between economies does come along with institutional similarities, and differences of institutions can hardly be solved overnight by micro measures.
As for provisions and sanctions between the three groups of subjects, including the State, businesses and individuals, the institution includes written provisions in the Constitution, the laws, decrees, regulations ... issued by the State, which are mandatory, and also unwritten rules that have existed for a long time in society, between communities. Though they are not mandatory, they contain strong pressure of public opinion and endurance of living habits, ways of thinking and behavior in everyday life that are mainly formed under the long-term impact of the native history and culture.
The written regulations are called the visible institution and the unwritten regulations are called invisible institution. Between these two parts is the multidimensional interaction, so once the State understands the culture and historical characteristics and the wisdom of the community of residents on its territory, it is likely that the State will have policies in line with the aspirations and the level of development of the people, creating consensus and their inspiration, contributing to raising social capital and the overall strength of the country.
On the other hand, that State will have policies to gradually reverse the conservative practices, outdated way of thinking and doing (under visible institution) that tend to inhibit social progress to bring the national culture to a new level.
In such view, indeed an appropriate, progressive institution is an invaluable asset. And vice versa, when an institution is no longer relevant it can become the chain confining creativity and enthusiasm, wasting talent and materials, and it must be disposed of by society.
Also because of the presence of the invisible institution - a product of history and culture – so synchronous institutional reform must be planned on the basis of deep, comprehensive analysis of inherent nature that hinder the development of society and choose the solutions and tools to reduce radically persistent obstacles. At the same time promoting positive attributes in the process of formation and consolidation of the environment for the new institution.
Today, reviewing the Doi Moi (renovation) policy, which was launched nearly 30 years ago and contributed to a fundamental change of the country’s position and strength, we need to objectively assess the role of the people's initiatives in many localities, who sought to "break the fence," to dodge the gap of the existing institutions to operate more efficiently.
The practical renovation in localities provided material for the thinking of the Party and the State in making specific policies with innovative steps: Directive 100 CT/TW (1981) of the Secretariat on "Improvement of the on-the-product payment mechanism, expansion of this mechanism to groups and workers in agricultural cooperatives" and the Resolution 10 dated April 5, 1988 of the Politburo on "innovation of management of agricultural economics". [1]
We can say that the Party's reform thinking concretized through the Innovation policy or comprehensive reform of economic institutions at that time originated from and then brought into full play the strength of the hidden institutional levers – creativity, dare to think, dare to do by the masses.
Pham Gia Minh
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[1] The article by Prof. Dr. Duong Phu Hiep in the book "Innovation in Vietnam" published by the Knowledge Publishing House, 2008).
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