Amid growing public interest in reforming Vietnam’s institutional framework, experts clarify the meaning of institutional reform and discuss its implications for economic progress.
Institutional reform: reforming the rules of the game
Interest in institutional reform has grown, signaling positive attention toward this critical topic. However, it’s important not to confuse the terms institution (rules of the game) and regime. VietNamNet recently published an article, Institutional Reform Viewed Through the Lens of "Why Nations Fail", which briefly explains this distinction.
In the Vietnamese Dictionary, institution is defined as "rules and regulations of a regime that everyone must follow." According to the Vietnam 2035 Report, institutions are the formal and informal "rules of the game" that govern societal interactions, supporting long-term economic growth and development. They establish reward and penalty systems that influence the behavior of organizations and individuals in various ways.
Institutions are the rules and regulations of a regime that everyone must follow. Photo: Hoang Ha
Former Vice Chairman of the National Assembly, Phung Quoc Hien, in a commentary for the 13th Party Congress, explained that institutions are a collection of formal and informal rules or shared understandings that can encourage, restrain, direct, or influence the interactions of political actors in specific fields. These institutions are established and enforced by both the State and non-State actors.
According to Hien, formal rules include the Constitution, laws, sub-law documents, and international treaties. Informal rules encompass ethical standards, traditions, customs, and beliefs, while internal regulations involve charters and organizational or corporate policies. Institutional areas include political, economic, and cultural institutions, and those carrying out these institutions include the State and non-State entities such as organizations, businesses, and individuals outside the State system.
In short, institutions represent the "rules of the game," and institutional reform is essentially reforming these rules. The nature of these rules—whether they are inclusive or extractive - will shape the framework in which individuals live and behave.
Defining it this way clarifies the issue, making it simple and free of sensitivity.
Institutional reform towards inclusivity
This article focuses on economic institutional reform, a field where renewed thinking has consistently led to significant achievements.
The former agricultural collectivization model, once regarded as a "fundamental rule" following the Declaration of the 12th Congress of the Communist and Workers' Parties of Socialist Countries in November 1957, was treated as a "common platform." However, the extensive implementation of this model resulted in severe food shortages in a primarily agricultural country, compelling the government to borrow staple foods like wheat and barley for the population.
By the 1980s, as the economy fell into crisis, “Khoan 10” or the Household Contract Policy was introduced, effectively dismantling the old agricultural collective system once deemed a "principle" for building socialism in Vietnam. This fundamental reform quickly transformed Vietnam from a food importer to a major food exporter. Today, Vietnam has become one of the world's leading rice exporters, even as its agricultural land shrinks due to infrastructure, industrial, and urban development.
This transformative shift, along with other local "breakthroughs," prompted the historic reform at the Sixth Party Congress (December 1986), which redefined economic management with several principles: (i) Reforming economic management based on restructuring the economy, embracing a multi-sector economy, and transitioning to a market-oriented production model; (ii) Resolutely abolishing the centralized bureaucratic and subsidy-based system, replacing it with socialist-oriented economic management grounded in democratic centralism; (iii) Establishing a unified national market with multiple economic sectors. The State relinquished control over price setting and focused on regulating prices through economic tools and measures.
Thanks to these shifts, Vietnam moved from a single-sector, centralized economy with bureaucratic subsidies and administrative mandates to a vibrant, multi-sector economy where supply and demand dynamics and market values were increasingly respected.
Today, Vietnam has become one of the world's leading rice exporters. Photo: Hoang Ha
Institutional perspectives on business engagement
The Foreign Investment Law (1987), the Company and Private Enterprise Laws (1990), and notably the Enterprise Law (1999) have significantly encouraged the emergence and growth of the private sector in Vietnam. A revolutionary change brought by the 1999 Enterprise Law was the shift from "citizens can only do what the law permits" to "citizens can do anything not prohibited by law."
At the time, Prime Minister Phan Van Khai established a task force to swiftly implement the Enterprise Law, focusing on removing unnecessary regulatory barriers. This team systematically reduced about half of the existing permits within a short period, contributing to a rapid increase in private businesses over the initial 5-7 years following the law’s enactment.
More importantly, Article 33 of the 2013 Constitution states, "Everyone has the right to freely conduct business in industries not prohibited by law." However, since the implementation of the Enterprise Law, the number of business conditions and regulatory requirements has grown exponentially, reaching nearly 16,000, according to a government report.
Administrative procedures for licensing remain heavily centralized, with 54% handled at the ministry level and 32% at the provincial level. According to the Central Economic Commission, only 7.54% of administrative procedures at ministries and agencies are processed on time, compared to 84.33% at the local level. Business conditions have created obstacles that restrict business freedom and introduce risks for companies. The PCI report indicates that 61% of businesses encounter challenges with licensing procedures, while 61% face high informal costs, and 22% postpone or cancel plans due to licensing difficulties.
Under these circumstances, Vietnam’s private sector has struggled to expand as hoped, despite numerous resolutions and policies. This situation cannot persist indefinitely. Any action by organizations or individuals obstructing citizens' “freedom to conduct business in industries not prohibited by law” should be considered a constitutional violation and dealt with accordingly.
To address this issue, it's essential to clearly define and publicly announce the industries in which business activities are restricted or prohibited, including for private enterprises, and establish mechanisms to address potential damages resulting from these restrictions.
Economic lag and strategic breakthroughs for institutional reform
Lagging economically behind neighboring countries and the world has been one of four significant risks identified since the 7th Party Congress in 1994.
The 13th Party Congress Resolution in 2021 reaffirmed key strategic breakthroughs: achieving a comprehensive institutional framework for development, especially by creating a socialist-oriented market economy. It emphasized modernizing national governance to be competitive and effective, with a focus on refining, implementing, and organizing a robust legal framework, mechanisms, and policies to foster a fair, healthy investment climate for all economic sectors.
The Resolution also called for encouraging innovation, mobilizing, managing, and efficiently utilizing resources for development, particularly in land, finance, and public-private partnerships. It emphasized promoting decentralization in a rational and effective manner, while enhancing legal oversight to regulate power.
These tasks represent institutional reforms on a strategic scale, moving beyond a mindset shift to tangible actions, especially as Vietnam deeply integrates into the global economy.
General Secretary To Lam: "Vigorous legislative reform"
1. Shift in Legislative Thinking: The legislative approach should balance state management with fostering innovation, unleashing productivity, and mobilizing resources for development. Abandon the outdated mindset of "prohibit what cannot be controlled."
2. Stable and Long-Term Legislation: Laws should focus on frameworks and principles, not overly detailed content. Matters that frequently change should be regulated by the government or local authorities, ensuring operational flexibility. Avoid over-administration of National Assembly activities or codifying decrees and circulars.
3. Innovate Legislative Processes: Draft and implement laws that are grounded in Vietnam's realities, allowing for learning and adaptation. Avoid haste or perfectionism that could hinder progress, centering on the needs of citizens and businesses. Continuously assess policy impact post-implementation to quickly address inconsistencies and reduce resource waste, resolving legal bottlenecks promptly.
4. Enhance Decentralization: Promote the philosophy of "local decisions, local actions, local responsibility." Radically reform administrative procedures to reduce compliance costs and maximize convenience for citizens and businesses.
5. Strengthen Power Control in Lawmaking: Reinforce discipline, uphold responsibility, especially among leaders, and combat corruption and "group interests."
6. Build a Legal Framework for New Issues: Actively develop a legal framework for emerging trends, particularly in areas like Industry 4.0, artificial intelligence, digital transformation, and green transition. Establish legal boundaries to successfully support digital transformation, driving national development in the coming years.
(Excerpt from remarks at the opening session of the 8th meeting, 15th National Assembly)
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