Making private economy an important driving force

(Vietnam Logistics Review) One of the three resolutions on economy issued at the 5th Central Meeting puts emphasis on developing private economy. The article discusses some issues thought to be old yet new: How to make private economy a driving force?

Identifying private economy

In general, private economy is the one outside the field of State-owned economy, not relating to State’s possessions of production and trade processes. This is an economic sector related to a form of private possession in forms of private businesses, limited companies, J.S companies and business individuals, including those having FDI. However, due to difference in management mechanism, there has been a distinction among private sector with State-owned economic sector and FDI sector.

There is a popular rule, but it is not recognized by all: all developed countries should base on private economy. In nature, private economy is founded and develops naturally, which is different from State-owned economy, which is “artificial”: deriving from the prejudice of recognizing private economy as sources of unfairness and exploitations. Natural feature of enterprises belonging to private economy sector is that they use the capitals of their own and they have the right of the fruits of their labor. It is a mechanism of investing with their own money, self- organizing, self-operating and then being under their own responsibility. The mechanism connects their interests with their performance, thus, it always creates a driving force for better performance.

Role of the private economic sector has been mentioned many times in resolutions, conferences and meetings. In general, it has had important contribution to the economy: it meets the increasing needs for daily consuming by increasing both quantity and quality of goods and services, it makes economic activities more active, expands new markets to the outer world, and gives more employments.

According to statistics of Vietnam Chamber of Commerce and Industry (VCCI), there has been 500,000 private enterprise in the total of 600,000 enterprises. 96% of them are small-sized or super small-sized. Only 2% are medium-sized and 2% are large ones. Common disadvantages of small enterprises are they are small in scale and they are not powerful enough. In addition, they have low competition ability, low technological knowledge, low management skills and low product quality. Moreover, they receive less market information, fewer incentives from the Government’s program and they have difficulties approaching resources. Some large enterprises have been coming in shape of groups as Vingroup, Hoa Phat, TH True Milk, Masan, Sun Group… In other countries, the forming of groups is mostly based on technology and market developments, most of private economic groups in Vietnam’s developments are connected to the field of real estate or mineral resouces.

Becoming a motive force

Making the private economic sector become a motive force for the economy can be done when it is powerful enough, there is not too much sluggishness and there is a clearer road.

First, for a powerful enough motive force - a well - developed private economic sector, attention should be paid to both large private groups and small and middle - sized enterprises. It is a paradox that large private groups are received more advantages in approaching sources of capitals, land and resources. To approach these resources, enterprises normally have to build especially good relationship States’ organizations and authorities, creating factionalism or interest groups. At the same time, many small enterprises operate unstably and even go bankruptcy. If small enterprises connecting with other economic sectors take part in production value chains in the country and abroad, and at the same time become important consuming market or take part in production delivery tasks for other private economy groups, the strength of the private economic sector will have a remarkable increase.

An inadequacy: When all private economic sector contributed 39-40% GDP, that of business individuals accounted for 31.33%. Large enterprises have smaller contributions in GDP, but enjoy more advantages from the mechanism thanks to their brands and relationships.

Second, discrimination between the State-owned economic sector, FDI enterprises and private economic sector should be removed in allocating national resources to avoid sluggishness. If the State-owned economic sector has still been considered as a motive force and has still been allocated with half of resources, despite the fact that many large groups have been ineffectively operating or in continuous loss, it is difficult for the private economic sector to be a motive force. Together with innovations of Stateowned enterprises, fair markets and fair opportunities of approaching resources among various economic sectors should be created. For example, with many purchasing items, the State should order and then put it in bidding process, instead of unfairly assigning to a State-owned enterprise.

Third, for a smoother road ahead, market mechanism should be improved, that is, to make the economy fully operated in accordance to principles of market economy. Tasks and solutions for this strategy issue, including the shifting of the State’s management functions, improvements of the system and administration innovations, have been suggested and are not necessary to be re-mentioned.