Companies hampered by institutional bottlenecks | Company
Journalist: – Sir, coming back to enterprise development, which includes the private enterprise sector, what are the milestones that point to specific changes?
Dr Nguyen Dinh Cung:- Let’s talk about fundamental changes in business, policies and position of private companies before the Doi Moi in 1986, so at that time private companies were not legally recognized. In 1990, private companies became legally recognized and the first private investment companies were created with the first generation of entrepreneurs appearing in the market.
Since then, private enterprises have always been part of our multi-sectoral economy, operating under the management of state market mechanisms. From 1990 to 1999, private companies had the right to do what public bodies authorized. However, since 2000, private companies were allowed to do anything not prohibited by law. In 2001 private businesses were recognized as an integral part of the economy and in 2006 party members were also allowed to open private businesses.
In 2013, for the first time, the term “entrepreneur” appears in the Constitution. In 2014, the list of prohibited industries and professions and conditional business sectors was also specified more clearly and precisely. In 2017, the Party determined that building the private economy would gradually become an important driver of the economy. Now there has been a leap in the right of companies and individuals to do business. So far, the private economy has grown tremendously and has made great and important contributions to the country and is also an important driving force of the economy.
– Sir, entrepreneurs are an important force for a growing economy, but why are more than 90% of companies still SMEs?
– Despite the remarkable development, the private economic sector is only important in quantity and limited in quality. Research and development capacity and scientific and technological level, management methods, competitiveness and capacity for international economic integration are still very limited. They are not taking advantage of the opportunities offered by the open economy and free trade agreements. The reason is that there are still many obstacles.
This means that awareness and change in thinking about the role of the private sector are quite slow and do not reflect objective reality. Meanwhile, rapid change and development far exceeds the thinking framework, methods, tools and capacity of state management which is always biased towards pre-checks and control. These factors create many risks in business and cause significant limitations to the development of the private economy in particular and the economy in general.
– Sir, does this mean when we say that the private sector faces risks and challenges?
– First of all, it must be said that the social conscience of the private sector and private companies is still biased and somewhat misleading. Many people consider that the private gets rich mainly through land, fraud, illegal trade and unfair competition. State management is always biased towards control, so there is a tendency to enact many regulations. Several mandatory bottleneck situations cause private companies to break the law when doing business, so they face too much institutional risk. The larger the company, the more diversified it is and the greater the risk.
In addition, there is also a communication risk combined with an institutional risk, causing great damage to the companies involved. The damage can be to the point of turning a good business to the brink of bankruptcy. The above risks and uncertainties prevent private companies from developing further. Moreover, unequal access to resources is a consequence of the resource allocation mechanism which is unable even to access the resources needed for investment and development. SMEs barely have access to credit for investment as well as access to land use rights.
Tools and policies to support SMEs are almost ineffective. The limitations of capital, technological level and management capacity have prevented many processing enterprises from breaking the ceiling and reaching a higher scale of development or opening up new growth potential. The above factors make companies that want to become big feel the frustration of future growth. Therefore, the development of a sound private economy within the framework of the market mechanism is an objective requirement, both urgent and long-term, and an important means of unleashing productive power and effectively utilizing the resources of development.
– Sir, what more needs to be done to have a strong force of Vietnamese companies and entrepreneurs?
– In my opinion, it is necessary to encourage and create favorable conditions for the private economy to develop rapidly, sustainably and diversify with high growth rates in terms of quantity, size, quality and contribution to GDP. At the same time, it is necessary to remove all barriers and prejudices and create all favorable conditions for the development of a healthy and properly oriented private economy in all sectors and areas not prohibited by law. The state should promote start-ups and new innovations and also improve the operational efficiency of SMEs. This can be done by creating a favorable environment and conditions for business households to voluntarily join together to form cooperative organizations or operate under the business model.
It is necessary to remove the institutional bottlenecks that make private companies afraid to grow. We need to untie the knot that holds private companies that want to grow but cannot grow. At the same time, we must encourage the formation of multi-owner economic groups and the private sector to provide capital to public economic groups capable of participating in regional and global production networks and value chains. The private sector should be encouraged to contribute capital and buy shares in state-owned enterprises when privatized or handed over by the state.
– Thanks a lot.