 |
| High-quality steel pipe products manufactured by Hoa Phat Steel Pipe Co., Ltd., a subsidiary of Hoa Phat Group__Photo: VNA |
Assoc. Prof. Dr. Hoang Van Hoan
Director of the Politics Department
Ho Chi Minh National Academy of Politics
In the process of economic development of different nations, identifying leading drivers for economic growth is not only an economic and technical matter but also the strategic selection that reflects long-term vision and institutional orientation. For Vietnam, after nearly 40 years of doi moi (renewal), the affirmation that the “private economic sector” is “one of the most important drivers” is not only an adjustment in economic policy but also an advance in development thinking, showing both consistency and breakthroughs in the Party’s line.
In his article entitled “Development of the private economy - A lever for a prosperous Vietnam,” Party General Secretary To Lam stressed: “A strong and prosperous economy cannot solely rely on the state sector or foreign investment but must also rely on internal resources, especially a strong private economic sector which plays the vanguard role in national renewal and development.”[1] This is not only a conclusion of profound practical significance but also a clear political commitment, demonstrating the Party’s consistent viewpoint on socialization of development drivers, mobilizing internal resources in the current context of extensive and intensive international integration.
Theoretical foundations
The history of mankind’s economic development can be divided into three basic stages corresponding to the stages of development of productive forces and particular institutional models. According to Karl Marx, the first stage was primitive society with a mode of production based on land and labor, demonstrated by simple production with two input elements.[2] The second stage was the industrial economy characterized by the steam locomotive, production chain and labor division, where the “creative driving forces” started playing the key role.[3] As Schumpeter pointed out, innovation was the element breaking the stationary balance of the economy and creating new cycles of growth.[4] At the third stage, the knowledge-based economy emerged with technologies and human knowledge becoming the leading production forces.[5] Peter Drucker stressed that knowledge, rather than land or capital, was the basic economic resource in the new time.[6]
Together with the development stages was the constant evolution of the ownership institution – a decisive factor in liberating the development driving forces. F. Engels held that the appearance of private ownership was the necessary condition to boost the production forces and also the starting point of social inequalities.[7] Max Weber, from a cultural perspective, stressed the formation of the sense of personal responsibility and the principle of ownership constituted the foundation of Western capitalism.[8] According to Karl Marx, each social revolution disrupted the old order of ownership in order to unleash new drivers of development.[9]
In modern economies, institutions not only regulate behaviors but also create an enabling environment and orient development drivers. Adam Smith stated that it was the personal interests that served as the principal driver of economic behavior, which, when regulated by reasonable institutions, would bring about common interests through the “invisible hand of the market.”[10] This standpoint was added by Hernando De Soto, who affirmed that the key difference between developed countries and underdeveloped countries lies not in the amount of assets they possess, but in the inability to transform those assets into legally recognized capital through effective institutions.[11]
So, from the above theoretical foundations, we can affirm that institutional breakthroughs constitute the process of establishing, revising and comprehensively changing the system of rules, especially official regulations, aiming to guarantee property ownership rights, promote fair competition, and unlock the drivers of innovation. In the current context, the private economic sector is the resource owner and the center of generating and maintaining development drivers via competition, innovation and entrepreneurial spirit. The institution can really play a leading role when it mobilizes and regulates these drivers in a sustainable and equal manner.
Private economy development in Vietnam
Prior to the 1986 doi moi, the Vietnamese economy operated under a centralized model with an extremely high share of the state economy and collective economy. The 6th National Party Congress (1986) marked a turning point with the recognition of the multi-sector economy, creating a prerequisite for the private economy to develop. The important policy landmarks from 1986 to 2025 have reflected the renewal of the Party’s perception of the position and role of the private economy as from being one of the drivers to becoming one of the most important drivers of the socialist-oriented market economy.
After nearly 40 years of doi moi, the private economic sector has step by step affirmed its role as one of the most important drivers of the national economy. With more than 940,000 sole proprietorships operating along with more than five million business households, the private economic sector has currently contributed about 50 percent of GDP, more than 30 percent of total state budget revenue, and created jobs for some 82 percent of the national workforce. This also means that among every 10 laborers, eight are working in the private sector, ranging from large corporations to small production establishments, traders, and business households.[12]
Compared with other economic sectors, the overwhelming dynamism of the private economy is obvious. While state enterprises have contributed 25-30 percent of GDP and employed about 10 percent of the national workforce, the private sector has not only absorbed a larger workforce but also generated a stable budget revenue source and played a central role in macro-economic growth.[13]
The above figures show that the private economic sector has constituted not only the main source of livelihood for the vast majority of people but also the key driver of economic growth, innovation, and national competitiveness. In recent years, many brands of Vietnamese enterprises have affirmed their positions on regional and global markets such as Vingroup/VinFast, Thaco, Vietjet Air. Sole proprietorships have been the vanguard not only in creating jobs for tens of thousands of laborers but also in widely spreading the image of Vietnam as a country of renewal, dynamism and international integration.[14] The private economic sector’s contributions have appeared in all domains of the national economy, from industry, commerce, and services to agriculture. It has occupied a large portion of the domestic market in fields such as consumer goods, retail, services, construction, and tourism, and has been involved more intensively in hi-tech industries and sectors as well as sectors previously dominated by state enterprises such as infrastructure, energy, finance and high technology. Thanks to their dynamism, flexibility and high adaptability to the business environment, many sole proprietorships have played the vanguard role in the application of new technologies, renewal of administration models, and connectivity with the international market.[15]
Limitations and institutional barriers
Although the private economic sector has positively contributed to economic growth and job creation, it has not yet fully realized its development potential. Especially when taking the labor productivity index into account, it is revealed that labor productivity, calculated as the average value added per worker in state enterprises, has reached about VND2,187,000/person, about VND1,087,000/person in foreign-invested enterprises, and only about VND746,000/person in sole proprietorships.[16] These figures show that the labor productivity of the private sector only represents about 34 percent and some 69 percent as compared to the state sector and the FDI sector, respectively. These remarkable differences clearly reflect the limitations in technology, management level, human resource quality, and capital-accumulating capability of the private sector, which are elements directly affecting the labor productivity and competitiveness of the entire economy.
The private sector’s capability to take part in global value chains is limited. For example, in the automobile industry, which requires high technological level and high localization rates, Vietnam currently has fewer than 100 enterprises supplying tier-1 and tier-2 parts and components, as compared to 690 enterprises in Thailand.[17] This shows the private economy’s limitations in forming networks of supporting industries and cross-sector production.
In addition, the private economic sector’s investment in R&D activities remains limited. Approximately 10.2 percent of enterprises are involved in R&D activities with average investment of about 0.3 percent of turnover, much lower than in new industrial countries such as the Republic of Korea (10 percent) or India (5 percent).[18] This leads to lower technological capacity and competitiveness in the market, especially with the increasing import of hi-tech products. Weaknesses in innovation have made it difficult for domestic sole proprietorships to expand their market shares, which have even shrunk under increasingly fierce competition.
Besides its internal limitations, the private economic sector is facing systematic institutional barriers.
(i) The system of laws and regulations on business management remains overlapping, non-transparent and unstable. Though there have been great reform efforts, business laws in Vietnam still retain 3,518 business conditions applicable to 243 conditional sectors and trades.[19] The existence of a large number of such regulations not only obstructs the process of policy enforcement and supervision by state management bodies but also places heavy burdens on enterprises, especially small- and micro-sized enterprises, which still have many limitations in financial capacity, human resources, and the ability to comply with complex legal regulations.
In addition, administrative procedures are considered the biggest barrier for the development of the private economic sector. According to a survey, 50 percent of enterprises thought that the complexity and lack of transparency in administrative processes are directly hindering their production and business activities.[20]
(ii) The capability to access essential resources such as credit and land remains one of the major bottlenecks for the development of the private economic sector in Vietnam. The relatively high lending interest rates (7-9 percent/year) lead to an increase in input costs especially for medium- and small-sized enterprises. In addition, access to production land is still non-transparent, usually with priority being given to state enterprises.[21]
(iii) The unequal competitive environment remains a big bottleneck for the development of the private economic sector. According to surveys by the Vietnam Chamber of Commerce and Industry (VCCI), 60 percent of sole proprietorships said they were discriminated against in accessing public resources, especially credit capital, land and public investment contracts compared with state enterprises and foreign-invested enterprises.[22] When institutional barriers and unequal competition are not removed, sole proprietorships may miss their opportunities in potential markets, causing the national economy to lose one of its most important sources of innovation and growth.
(iv) The costs of entering and exiting the market are relatively high. The average duration for completing business registration in Vietnam is 16-20 days, longer than in regional countries such as Singapore (2-3 days). Meanwhile, the enterprise bankruptcy process lasts up to 2-3 years, causing damage to investors and obstructing the flow of efficient capital reallocation.[23]
(v) A noteworthy institutional barrier at present is the inconsistent policy thinking between the central government and local administrations. Though the policy on the development of the private economic sector was clearly identified in various resolutions of the Party, the enforcement at local level remains inconsistent. According to VCCI, some localities tend to prioritize projects related to state or foreign-invested enterprises while sole proprietorships, especially medium and small ones, face difficulties in accessing support policies and resource distribution mechanisms.[24]
(vi) Corruption and group interests continue to be a big hindrance to the process of institutional reform in Vietnam. According to Transparency International, in 2023, Vietnam scored 41 out of 100 on the CPI, ranking 83/180 countries, reflecting that the corruption level in the public sector remains alarming.[25] According to VCCI’s report (2023), many sole proprietorships had to pay unofficial expenses for access to public services or participation in bidding for investment projects, thus increasing risks and weakening confidence in the transparency of market economy institutions.[26]
Proposed solutions
First, to effectively implement Resolution 68 by way of joint oversight and transparency
Resolution 68 is an important landmark in strategic thinking on the development of the private economy. However, the Resolution’s implementation through traditional administrative methods has generated “institutional disparities” between policy and enforcement. To address this situation, it is necessary to establish a mechanism based on joint oversight, accountability and information transparency. Each locality should set up a provincial-level council for development of the private economy, co-headed by the secretary of the provincial Party committee and outstanding businesspeople elected by the business community. This model guarantees the political direction, on the one hand, and creates a formal space for the private sector to engage in policy dialogues and enforcement supervision, on the other hand. At the same time, a Resolution 68 Enforcement Index (NQ68 Index) should be established by an independent alliance composed of business associations, research institutes and experts. This index will quantitatively assess the local commitment and reform progress, with the assessment results publicized quarterly in order to create pressure on policy transparency and promote substantive institutional reforms.
Second, to carry out legal and policy reforms - the institutional foundation for sustainable development of the private economy
Law constitutes a pillar of modern market institutions, guaranteeing ownership rights, business freedom and equal regulation of socio-economic relations. A transparent and stable legal framework is the prerequisite for the private economic sector to develop.
- Priority should be given to revising the Civil Code to clarify the rights to property ownership, transfer and mortgage. A unified property registration system will help enterprises use their property as credit guarantee and expand their capital access.
- To expeditiously slash unnecessary business conditions. The Government should assign the Ministry of Justice to coordinate with VCCI and independent experts in conducting a comprehensive review to reduce at least 50 percent of business conditions within 12 months, while encouraging business households to officially transform into enterprises through accounting support and tax reform.
- To clearly distinguish administrative and civil violations from criminal offenses in handling violations involving enterprises. Party General Secretary To Lam emphasized the urgent requirement: “Vietnam should study the elaboration of the Law on Development of Private Economy early and amend relevant provisions, ensuring the full institutionalization of the policies set out in Resolution 68-NQ/TW.”[27]
Third, to protect property rights and contract enforcement, strengthen the trust in institutions
Ensuring property ownership rights, business freedom and transparent contract enforcement constitutes a core condition of the socialist-oriented market economy. Party General Secretary To Lam stressed: “One of the State’s functions is to protect property ownership rights…, reforming commercial justice in order to give enterprises peace of mind.”[28] At the same time, it is essential to improve the law on intangible assets such as intellectual property rights, data, and business models.
Fourth, to restructure the fair competition environment - an essential condition for sustainable development of the private economy
The Competition Law should be revised to prevent the abuse of dominant positions, restricting monopolies, and handling interest groups. At the same time, it is important to accelerate the equitization of non-essential state enterprises, aiming for at least 50 percent divestment by 2027.
Fifth, to promote innovation and digitalization - the strategic foundation for heightening the competitiveness of the private economy
It is necessary to build innovation support hubs in three key economic regions, aiming to connect enterprises with research institutes, universities and investment funds. Each center should support at least 100 innovative projects a year, creating a prerequisite for a national innovation network. A regulatory sandbox should be introduced for new technologies such as AI, blockchain, fintech, and biotechnology, enabling enterprises to operate in an experimental environment.
Sixth, to enhance capital access as an essential condition for investment expansion and innovation in the private sector
In order to diversify capital mobilization channels, it is necessary to develop channels outside traditional bank credit, including the securities market, venture capital funds, innovation start-up funds, and crowd-funding. These models will supply flexible capital sources for small and micro enterprises and technological startups.
Seventh, to establish private economic groups and support small enterprises, business households and cooperatives
In order to develop the private economy into a driver of national growth, it is necessary to develop big private groups with strong international competitiveness while supporting small businesses, business households and cooperatives for sustainable development.
Eighth, to unleash land and credit resources for small enterprises and innovation startups
Land and credit are two key elements determining the investment, production and innovation capacity of the private economic sector. This requires the synchronous application of strong institutional solutions:
- Each locality should spare at least 5 percent of the industrial park land area for small and medium enterprises, and hi-tech startups, and apply land-rent preferences.
- To set up commercial credit channels with priority quotas, low interest rates and simple procedures for small and medium enterprises, and innovative enterprises.
In short, Vietnam’s private economy has constantly affirmed its important role in the national economy, making great contributions to economic growth, job creation, innovation and international integration.
In order to leverage the private economic sector’s strategic role as one of the most important drivers, comprehensive solutions such as completing institutions on a socialist-oriented market economy, reforming laws on the protection of property ownership rights and business freedom, transparentizing the competitive environment, promoting innovation and digitalization, and increasing competitiveness, must be implemented. Sole proprietorships should be placed at the center in the sustainable development strategy. With favorable institutions and policies and the strong mutual trust between the State, enterprises and society, the private economic sector will become the major driver contributing to realizing the aspiration for fast and sustainable development, making Vietnam a high-income nation by the mid-21st century.-
[1] Party Secretary General To Lam: Developing the private economy - A lever for a prosperous Vietnam.
[2] Marx and Engels. Collection. Vol. 46. Part I, National Political Publishing House, Hanoi, 1996, p.166.
[3] Ibid.
[4] Schumpeter. J. A. The Theory of Economic Development, Harvard University Press, 1934.
[5] See footnote (2).
[6] Drucker, P. F. Post-Capitalist Society, HarperBusiness, 1993. p. 45.
[7] Engels: The Origin of the Family, Private Property and the State.
[8] Weber, M: The Protestant Ethic and the Spirit of Capitalism.
[9] Karl Marx and F. Engels; Collections, vol. 21, National Political Publishing House, Hanoi, 1995, p. 173.
[10] An Inquiry into the Nature and Causes of the Wealth of Nations, London, Book I, Chapter II, 1776, pp. 26-27.
[11] De Soto, H: The mystery of capital. Why Capitalism Triumphs in the West and Fails Everywhere Else. Basic Books, 2000, p. 288.
[12] Promoting the private economy’s role. From 40 years of “doi moi” to Resolution 68, http:// vietnamplus.vn, May 16, 2025.
[13] Sole proprietorships: Resilient and persistent, yet lacking maturity, http://vneconomy.vn, March 16, 2025.
[14] See footnote (12).
[15] See footnote (12).
[16] General Department of Statistics: While Book, Vietnamese Enterprises, Statistical Publishing House, Hanoi, 2023. pp.38, 45.
[17] VCCI: Report on institutional reform to enhance the connectivity of value chains, Hanoi, 2023, pp.33, 23, 10, 12, 14, 16-18, 22, 25.
[18] Ibid.
[19] Ibid.
[20] Ibid.
[21] See footnote (16).
[22] See footnote (17).
[23] See footnote (17).
[24] See footnote (17).
[25] Transparency International, Corruption Perception Index 2023, http://www.transparency.org/en/cpi/2023, February 11, 2025.
[26] See footnote (17).
[27] New driver for economic development, https://xaydungchinhsach.chinhphu.vn, May 18, 2025
[28] Ibid.
