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Developing the socialist-oriented market economy in Viet Nam: Theoretical awareness, practices and recommendations
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Awareness on the socialist-oriented market economy after nearly 30 years of renovation

After nearly 30 years of renovation, awareness on the socialist-oriented market economy has become clearer.

First, market economy (the high development level of commodity economy, when all products can become commodities) is a product of human civilization which emerged since the end of the primeval communist regime and developed to a high level under capitalism thus by itself is not synonymous to capitalism. It means that the market economy is not an exclusive product of capitalism, but commodity economy, the feeding source and starting point of the market economy, has existed in several social regimes, however, there is no common and unanimous market economy for different social regimes. In each of the different social regimes, the market economy has different characters and nature depending on the development level of production forces and political nature of that social regime and conforming to each country’s history, culture and customs. Although economic laws which regulate evolution and development of the market economy are objective and have similar essential demands, viewpoints, customs and habits to apply those economic laws in each country are different. No country’s market economy can be found as a copy of other country’s market economy.

Second, the nearly 30-year renovation of Viet Nam has demonstrated convincingly that the path to socialism in Viet Nam should undergo the market economy. Without going through the market economy, it cannot transit to socialism. This is because the market economy has incompatible advantages which in-kind and autarkical economy does not have: First, the market economy creates the driving force for active and self-conscious production of each laborer through competition to become the best (most creative, dynamic and reasonable); second, the market economy drives deeper specialization to promote multifaceted potentials of different people; third, the market economy coordinates and regulates people’s behaviors in a self-conscious manner through a voluntary commodity exchange mechanism in line with the supply and demand law; fourth, the market economy reflects high level of freedom and democracy when resources to meet demands are still scarce. Compared with the State’s centrally planned mechanism during the subsidized period, the market economy does not need to pay for making and executing plans but promotes everybody’s strength. It is necessary to affirm that the market economy by itself cannot bring about socialism to people. To advance to socialism, Viet Nam should develop the socialist-oriented market economy.

However, due to lack of information, unhealthy competition and maximal incentives to talents and those who have information, the market economy which operates spontaneously will eventually lead to harms unacceptable to society such as stratification between rich and poor and the winners in competitions will take all while the losers will have nothing. Moreover, while holding production materials, the rich can impose on the poor unequal commodity exchange. Especially, when wealth is concentrated in the hands of some groups of people, if they are not satisfied with profits brought about by market, goods will be loaded in stock while laborers have no jobs. This is what K.Marx clearly pointed out: the commodity economy (market economy) if left to develop spontaneously would essentially advance to capitalist production mode. Spontaneous market economy is also detrimental to the common living environment in the short-term interests, leading to supply and demand shocks which make life very uncertain. That is why, the State should, on behalf of the society, regulate the market economy, compelling it to operate within certain frameworks. The capitalist State regulates the market economy but does not change its fundamental foundation such as private ownership, freedom to business and prices mainly determined by the market, the State only redistributes wealth through the state budget and intervenes in supply or demand when shocks occur. The socialist State is responsible for possibly having deeper interventions in the market economy through changing ownerships of certain production materials or assisting forms of production and business organizations beneficial to laborers such as cooperatives and state-owned enterprises. Here, interventions are likely to be similar between capitalist and socialist states but objectives are different. The capitalist state will only provide support to stabilize market and assist to a certain extent those affected. The socialist state pays attention to training laborers and enabling them to master the production and distribution processes beneficial to them. Besides, what laborers cannot do, the State will assist through social security system, social assistance and social welfare. The Communist Party of Viet Nam and the socialist state have striven to search for production and business models which are both effective and beneficial to laborers. In the current period, the market economy will mainly assume the task of regulation, the socialist state intervenes in regulation based on theory and practical experiences to make the market economy more effective and beneficial to laborers. This is why, the socialist state does not limit its activities like the capitalist state. This is the basis for our Party to identify Viet Nam’s economy as the socialist-oriented market economy which is governed by objective market economy laws while respecting the economy’s socialist orientation. The law of the market economy and socialist nature are not two physically separate parts put together but are organically associated with each other, regulating the economy’s nature, goals and development direction. The problem is there is no non-political, non-historical and non-national economy. The socialist element is manifested by the fact that the Communist Party is the vanguard of the working people (if the Communist Party degrades or is unable to take leadership, naturally the market economy will spontaneously follow capitalism). The socialist state is also an institution for the working people to carry out reform in their interests and also a subject of the market economy not only a political institution. If the state apparatus and public employees degrade to such a level as acting only in their interests and trampling upon the working people’s interests, the Communist Party will lead the working people to reform the state.

If the Party and the people fail to do so, the market economy will either bring the country spontaneously to capitalism or back to feudalism. Thus, this is not putting together but a struggle in the name of the working peoples’ interests. As the market economy can adapt to different political regimes and the socialist production mode has not yet asserted with effective model in practice, the socialist-oriented market economy is substantially a search which both abides by the market economy’s laws (because until now it is still the most effective economic form) and looks for economic models with higher effectiveness, adaptability to the market economy and benefits to the working people. If this search fails, it means that once again the socialist-oriented market economy will fall into capitalist orbit like in former East European socialist countries and the Soviet Union. Thus, it means that the socialist nature is creative efforts and loyalty to the common interests of the working people, Party, State and people.

To do so, three conditions are needed:

+ The working people must raise their awareness and enhance their political and economic capabilities to be masters and grasp democracy;

+ The Communist Party of Viet Nam should act in the interests of the working people and be able to lead the State and society;

+ The State (meaning legislation and public employees) should possess management capacity while acting in the interests of the working people.

Third, the socialist-oriented market economy of Viet Nam is the multi-sector commodity economy operating under the market mechanism and the management of the socialist state. By now, the market economy’s socialist orientation has been established (1): “The socialist-oriented market economy is the economy where institutions, tools and principles for market economy operation are set up consciously and used to fully liberate production forces, gradually improve people’s life to achieve the objectives of prosperous people, strong country and equitable, democratic and civilized society. Develop the economy with different forms of ownership and different economic sectors in which the state economic sector plays the leading role, and the state and collective economic sectors increasingly become firm foundation of the national economy. Encourage legal efforts to get rich alongside hunger eradication and poverty reduction; gradually enable all members of society to have plentiful and happy life, implement social progress and equity in each step and each development policy; raise economic growth while developing culture, healthcare, education and environment protection, and effectively solve social issues for human development objectives. Implement distribution mechanism based on labor results, economic efficiency and at the same time in proportion to contribution of capital and other resources, and through social welfare. Promote the people’s right to mastery, ensure the law-governed State’s role of economic management and regulation under the leadership of the Party.” (2)

Fourth, continue to complete the socialist-oriented market economy institution in the following domains:

+ Complete ownership institution: develop the market economy with different forms of ownership, different economic sectors and different forms of enterprise which are equal before the law and protected by law in terms of rights and legal interests.

+ Complete distribution mechanism: complete legislation, mechanisms and polices on distribution of social resources according to the market mechanism in line with socio-economic strategies, plans and development plans of the country. Distribute and redistribute social incomes according to State’s policies to maintain effectiveness and equity acceptable to the majority of people in the principle of harmoniously ensuring national, enterprise and working people interests, and create motive force for development. Combine different forms of distribution including by labor, by amount of capital and by contribution of other resources, and pay attention to redistribution through social welfare system.

+ Continue renovating, developing and enhancing the effectiveness of subjects’ operation, creativeness and competitiveness in the market economy, different forms of enterprises and production and business organizations.

+ Complete institutions to ensure the synchronization of market factors such as prices, competition and monopoly control.

+ Complete institutions to ensure the synchronization of different markets namely commodity-service, finance, stock, real estate, labor, and science and technology markets.

+ Complete institutions to link economic growth to ensuring social progress and equity in each step and each development and environment protection policy.

+ Complete institutions to promote the Party’s leading role and the State’s effective and efficient economic management; and strengthen the supervision and social criticism of the Fatherland Front, organizations and the people.

The development of socialist-oriented market economy in Viet Nam

The Party and State’s lines on abolishing the State-subsidized centrally-planned economy, shifting to the market economy and international integration have been warmly responded to by domestic and foreign investors and consumers. Plans assigned by ordinances were removed; more and more domestic private and foreign-invested businesses have been established; farmer households have turned to trading commodities; trading households have increased in number; and community and service market has developed to a larger scale with more varieties. Financial market has developed relatively rapidly, especially credit and stock markets. Real estate market has taken shape. Though standard labor market and scientific-technological market have not yet developed, they have been formed. Export and import have been growing and Viet Nam has become an open economy at a high level. However, socialist elements have either appeared but without effectiveness or been unclear. Concretely, the state economic sector if understood as a group of state budget, public assets and state-owned enterprises, accounts for a large proportion in the economy, but its effectiveness is very low, especially when it is valued by ICOR coefficient of public investment (approximately 5-6), or by particular efficiency of state-owned enterprises. Even some state-owned economic corporations have lost capital, gone bankrupt, and suffered debts (state-owned enterprises’ debts by 2014 reached more than 1 million billion dong). Cooperatives are worse, particularly they are of no interest to farmers. The State has managed the economy mainly with short-term policies, low effectiveness and efficiency and problems such as market manipulation, fraud and fake commodities have been rampant. The people have gradually lost confidence in the State as the latter has not effectively and equally managed the economy, due to group interest manipulation many economic policies have not yet started from the common interests of the broad public. Within the current resources and capacities, there has not been a mechanism to rationally distribute social resources and assets, and thus rich and poor gap has been widened, relations between market mechanism regulation and the State’s management and regulation have not been well solved, and bureaucratic, wasteful and corruptive procedures have not been prevented effectively. Given the world economic changes, the majority of people living on agriculture with low income can hardly get rid of poverty. All these problems once again pose a question: where does the socialist characteristic of the market economy lie? Although the 11th Party Congress emphasized the issue of renovating growth model, economic restructuring and considering completion of the socialist-oriented market economy institution one of the three breakthroughs, over the past three years, these lines have not yet yielded expected results:

- Macro-economy has been stabled but not sustainable and has to face numerous difficulties and challenges;

- There remain difficulties in production and business;

- Economic restructuring and growth model transformation have met with many difficulties and have failed to meet requirements;

- Initial results in the implementation of the three strategic breakthroughs have not been sufficient to bright about substantive changes in growth model renewal, and growth quality has not been substantially improved and sustainably maintained;

- There are limitations and weaknesses in the fields of culture and social affairs;

- There are constraints in resource and environment management;

- Prevention and fight against corruption and waste have fallen short of requirements and objectives which are to prevent and gradually repulse corruption and waste;

- There remain potential threats in political security which can cause instability beside challenges to national sovereignty and resentment in social order and safety. (3)

Special characteristics by nature and law of the market economy

Judging by appearance, the market economy means competition and prices determined by relation between supply (volume of commodity to be sold and selling prices) and demand (volume of commodity to be procured and buying prices) through a voluntary negotiating mechanism realized by contracts and right to business freedom (freedom of production and freedom of sale and purchase). However, the nature of the market economy is relations between commodity-money-commodity, the method chosen by people to connect activities of production, business and creative freedom to economically maintain social existence. In other words, the commodity-money-commodity relations are the solvent for people to maintain their freedom to production and business for deeper specialization while connecting closely with others through exchange relations for cooperation in increasingly rational social labor division network. Thus, the market economy is an economic form in which production forces are free to develop based on a process of deeper specialization and quicker application of technical advances in production thanks to people’s freedom to develop their potential capacities in their cooperation through the exchange of commodity-money-commodity. In other words, necessary relationship for the exchange of commodity-money-commodity such as freedom of business, legal equality among partners, sanctions to ensure implementation of commitments as contracted and agreement among partners on measurement units, currencies and transaction methods are production relations and should conform to production forces’ development demands. This is inevitable regardless of political regime chosen by the country which maintains the market economy. Today, economic circle has called the production relations mentioned above the market economy institution.

The commodity-money-commodity relations in any society is agreed relations between selling and purchasing sides in negotiation strength and profit and cost analysis of each side. Among purchasing partners, it is the competition to procure scarce commodities at reasonable prices. Among selling partners, it is the competition on costs to gain reasonable profits. In commodity transaction, each side has freedom to decide and is accountable for risks derived from its decisions. These are common principles in market transaction in any economy and recognized by international laws. The socialist or capitalist characteristics and development levels are not shown through these fundamental transaction relations. Development level of an economy is reflected through market scale and categories, and transaction methods. The socialist or capitalist characteristics are reflected as to whom a great volume of production materials belong, to a small number of owner or to the working people. If production materials belong to the working people under a certain mode they have substantial economic potential to force the state to stand out and protect the interests of the working people. If production materials belong to owners, economy power stays in the hand of employers who influence state economic policies in their favor to protect their interests. However, holding production materials only cannot solve the issue of effective use of production materials. To effectively use production materials, it is necessary to create motive for the working people for proactive labor. People can have several motives for effective labor, but by now, the material motive accounts for large proportion, particularly in developing countries like Viet Nam.

So, the difference between the capitalist market economy and the socialist-oriented market economy is who grasps economic and political power in a country. In the capitalist market economy, it is the owners; in the socialist-oriented market economy, it is the working people. This is the unique difference. Remaining technical and organizational issues of the market economy such as commodity exchange principles, techniques on the market economy control, and techniques on management organization to ensure national economy in general and each economic organization in particular operate effectively can be similar in countries with the capitalist market economy and those with the socialist-oriented market economy because it is an evolutional achievement in awareness and science of humankind.

Recommendations on building the socialist-oriented market economy in Viet Nam in the coming years

- It is necessary to affirm that the market economy is an achievement of thousands of years of development of humankind which has recorded high development speed when transiting to an economy based on mechanical industry for mass production. The highly-developed market economy can only be achieved when industrialization and modernization with a deeply specialized economic structure based on comparative advantages are completed. So, industrialization and modernization to raise labor productivity and specialization are objective imperative solutions. The problem is to identify branches with comparative advantages.

- Build regulations to ensure organizational and civilized transactions in market, particularly in cost and risk reduction for economic subjects, paying attention to, among others, product quality standards, provision of information on products, contract observation and non-cash payment. Gradually develop derivative transaction and support methods (among them interactive transaction and insurance).

- Minimize the State’s interventions in prices, strengthen regulation through market tools such as state-owned enterprises’ equal competition with other forms of enterprises, the State uses financial, monetary and international commerce policies to allocate resources and distribute social property.

- Search for collective economic models attractive to household families. Diversify state-owned enterprise management mechanisms to improve effectiveness and competitiveness of state-owned enterprises alongside assistance to achieve the State’s objectives. While no conclusion on socialist ownership of production materials has been reached yet, it is suggested to manage current state-owned enterprises by three ways: if they are state-owned enterprises which produce public commodities, manage them either as public sector organizations, or organize biddings for the State’s support packages. The remaining enterprises should be oriented according to specific effective norms in comparison and equal competition with other enterprises of the same branches. It is possible to equitize appropriate state-owned enterprises. Those state-owned enterprises which fare poorly can be dissolved or let go bankrupt while considering individual managers’ responsibilities. Establish mechanism to control state assets in enterprises according to three methods: assign one administrative agency to monitor enterprises’ operation and business, collect share interests, increase or revoke state capital on orders of state administrative agencies (after Hungarian model); assign provincial people’s committees and ministries to set up public asset management financial companies to invest in enterprises (after Chinese model); and assign management to independent agencies depending on each enterprise (after British model).

- Resolutely carry out administrative reform to make state management agencies clean with simple, accessible and transparent management procedures and enhance public employees’ responsibilities and accountability. The reform is an important task of the Party. The Party should successfully lead the reform, and attract and turn out clean and capable public employees who can live up to assigned duties. Create mechanisms for people to strengthen monitoring Party members and public employees (setting up information channels to provide evidence of wrong doing of public employees, protecting effectively witnesses and enhancing public criticism particularly from the press and media).

- Promote the country’s position in the world market through flexible external policies and safeguard effectively national interests.

- For remaining issues such as, among others, infrastructure construction, renovation, improvement of vocational training quality, raising awareness of the Party’s theory, heightening the Party’s fighting spirit and leading capacity, and completing legislation, state management apparatus and policy system are long-term issues which need positive short-term steps with selected investment objectives for the best long-term effectiveness. This cannot be done overnight with haste.

- To complete the socialist-oriented market mechanism, the following issues should be paid attention to:

+ Clear orientation of lines and solutions for development of ownership forms, economic sectors and enterprise forms suitable to Viet Nam’s context.

+ Appropriate steps to be taken to renovate and achieve really effective growth model and economic restructuring for synchronous development of market elements and market categories.
+ Organization and adoption by the people of civilized and modern transaction customs and habits in the market.

+ The State and enterprises develop skills suitable to the market economy and rationally solve relations between the State’s management and the market mechanism.

+ Identify more clearly the socialist model in Viet Nam as a basis for orienting the market economy. Harmoniously and rationally settle relations between the market economy with socialist orientation. Nevertheless, the socialist principle which is all State’s socio-economic development policies should be made and implemented in the interests of the working people majority is unchangeable. That is the goal, socialist principles should not go astray.

- It is necessary to unify understanding of socialist orientation of the market economy: beside the two principled issues including most of the accumulated production materials should lie in the hands of laborers under certain forms and the State is of the working people, by the working people and for the working people, are there any other issues? For example, is it necessary to set up norms to identify more clearly the socialist orientation of the market economy? Which are fundamental solutions to firmly maintain the socialist orientation of the market economy in Viet Nam? Issues on model to organize production activities and circulation are to be solved flexibly towards effectiveness and appropriateness to market relations. Unfair distribution should be solved by systems of various tools such as tax, assistance, social welfare and humanitarian activities. It is not possible to solve the problem of unfairness only by production material ownership and model of production and business.

Practices have shown that building the socialist-oriented market economy in Viet Nam is a difficult, heavy and long-term task as its starting point is a less-developed country. The development level of the market economy is the result of a process of production force development with deeper specialization alongside increasing productivity in all stages of labor division structure. The more diversified the economic structure, the higher the number of market catagories. The larger the outputs of economic branches, the bigger the market volume. A country with age-old history of commodity production development is conducive to establishment of transaction habits, customs and methods and business ethics appropriate to the market economy’s principles of free and negotiable exchange of commodity. High level of technology and diversity of transaction methods also result in the development and modernity levels of transaction in the market. Thus, renovation of management mechanism alone cannot lead to a high level market economy. The market economy’s high level is the result of efforts of several sides such as efforts to accumulate large-scale capital over time, enhance scientific and technological research and application of a country, implement specialization in the economy, industrialize and modernize the economy, improve efficiency and competitiveness of the market, and reform management institution to facilitate the development of production force. So, it is necessary and possible to build renovation plans and persistently implement the plans to raise the development level of the market economy in Viet Nam. Do not expect that by reforming institution and removing prohibitions we can have a developed market economy over night.

However, we cannot disregard the reform to facilitate favorable development of commodity-money exchange relations. The people’s confidence in money as a means of circulation and use of money to measure prices of commodities for exchange are achievements of social relation development of human being. Due to commodity exchange the market is formed. In its turn, the market, through prices and supply and demand, is able to regulate behaviors of billions of people without a colossal machine with not small expenditure of a State Planning Commission. Moreover, under the market mechanism’s regulation, each people feel his/her freedom of choice and is voluntarily responsible for his/her behavior through award and penalty of market relations. Thus, commodity exchange creates motive force for development (namely the freedom of creativity and award to winners in the market) and boundless space for the process of specialization and cooperation. Such a beneficial mechanism proves to be much more effective than the rigid and totalitarian planning mechanism of a state agency. However, transactions in the market consist of fierce competition to own scarce raw material sources or monopolize influence on a certain number of customers and potential dangers such as because of their interest, businessmen can cause harm to each other as well as consumers and laborers. Hence, the State’s interventions are necessary to contain businessmen’s operation in the framework beneficial to the country, society and people, particularly the working people. The State should promulgate and ensure observance of regulations to prevent fraud, especially in financial market, to maintain equal competition and protect consumers, common living environment and national interests. Wise and timely promulgation of those regulations and devotion in supervision for strict implementation of those regulations are contribution of the socialist State to facilitate the socialist-oriented market economy’s operation in reality.

Here, the State’s efficiency and devotion play an important role. We have seen that the socialist nature of the State is compulsory in the socialist-oriented market economy. That nature, first depends on the socialist nature of the ruling Communist Party, the Party represents the interests of the working people who lead the State. A Party with socialist nature in the transitional period in Viet Nam should not only support policies beneficial to laborers, but to a higher extent, be able to train, educate and lead laborers to socialism. Thus, that Party should be equipped with leading theory and effective socio-economic development lines, be prestigious and capable of persuading the people to be confident in implementing those lines. The Party should also rally national elite management circle in the state apparatus to successfully lead the cause of national development. If the confidence of laborers in the Party fades, if public employees who are Party members do not work in the interests of the laborers but for factional interests, and if the Party fails to win the hearts of best people, the Party’s leadership will face with lots of challenges, hence low effectiveness.

The Party leads the State which is not tantamount to work in replacement of the State. The State is an institution, a product of humankind with, perhaps, longer development history than the market economy and communist party. Particularly, in the regime of republic and democracy, the state has its principles and operation mechanisms which we should abide by. Thus, the State of the people, by the people and for the working people in Viet Nam should be organized according to principles of a modern and democratic state, in which power division and control should be designed based on scientific basis and conform to Viet Nam’s history, culture and practices. The supreme principle is the people should control the State power. State agencies should control each other. First and foremost, the State should effectively and efficiently operates in the national and the working people’s interests.

In a nutshell, developing the socialist-oriented market economy is a realistic and optimal way for the Vietnamese nation. However, it is a challenge for the Party, State and people to design concrete effective operation models. Nevertheless, in the aspect of theoretical awareness, there is no doubt of the chosen path. The problem is to be consistent in achieving the goals, flexible in implementing methods and considering sustainable development and prioritization of the working people’s interests are supreme norms for policy selection.

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(1) After the 10th Congress of the Party, the Resolution of the Central Committee, 10th Tenure, identified socialist orientation of the market economy as in quoted statement

(2) Documents of the 6th Plenum of the Central Committee, 10th Tenure, the National Political Publishing House, Ha Noi, 2008, pp. 139-140

(3) See: Documents of the 8th Plenum of the Central Committee, 11th Tenure, the National Political Publishing House - Truth, Ha Noi, 2013, pp. 38-48

This article was published on Communist Review No 858 (April 2014)

Assoc. Prof. Vu Van Phuc, PhDEditor-in-Chief of Communist Review