Reflecting on the Vietnam Communist Party's Soliloquy to the Private Sector
In early May, the Politburo of the Vietnam Communist Party (VCP) issued a new resolution on private sector development. It was one of four resolutions issued by the Hanoi leadership that General Secretary To Lam has billed as pillars intended to help the country advance.
For those desiring a new wave of reforms that can unlock Vietnam's next economic growth phase, Resolution 68 was heralded as an important policy document, and even a 'new dawn.' It goes further than the VCP has previously gone to recognize the key role of the private sector in Vietnam's economic growth trajectory, some have argued.
One local law firm told clients that Resolution 68 '…marks a turning point: the private sector is no longer seen as a supporting actor – it is now positioned as a core driver of Vietnam's socialist-oriented market economy.' Another local law firm said the resolution '… marks a significant shift in mindset, positioning the private sector not just as a supplement to the public sector, but as a vital component of the country's overall economic structure.'
To be clear, the document was issued by the VCP, and not by a state body per se. However, the government apparatus – supported by various VCP-affiliated organizations – is now tasked with turning the spirit of the resolution, couched in the slightly hyperbolic and yet leaden Hanoi-speak of the VCP, into tangible actions that bring about impactful results.
Given that various arms of the government have been working to catalyze and nurture the private sector in Vietnam for well over three decades, albeit with mixed success, why did the VCP feel the need to issue such a resolution, and to whom is it addressed?
Some might argue that it is part of Vietnam's bid to convince the U.S. Department of Commerce that Vietnam is indeed a market economy at a time when the issues of trade and tariffs are at the top of the economic agenda.
As recently as August 2024, Washington re-confirmed that it deems Vietnam to be a non-market economy (a status currently held by just a dozen countries), which has ramifications for the way the U.S. assesses duties on Vietnamese exports and any accusations of dumping. The Commerce Department noted that, despite recent reform efforts, the government's 'extensive involvement' in the economy 'distorts Vietnamese prices and costs.'
It is certainly true that the Vietnamese government's direct ownership of numerous state-owned enterprises and its degree of control over a raft of business resources are legacy issues of Vietnam's pre-1990s command economy past. It is also true that until now, the most commercially successful element of the private sector has been the foreign-invested part of it (albeit with a few exceptions that prove the rule). The degree of success Vietnam has had over the last 40 years in attracting foreign direct investment has not been mirrored in developing a more home-grown, non-state-owned sector.
State-owned enterprises (and the government that owns them) have been partly to blame, by crowding out private sector rivals in some sectors, but they are by no means the only culprits. It is widely recognized that the enabling environment for private companies to flourish and attain the economies of scale necessary to compete effectively has not been wholly conducive; more like passive-aggressive.
If Resolution 68 is to be believed, state-owned enterprises are about to lose what remains of their special privileges.
Nonetheless, old habits die hard. In an echo of the command economy days, the resolution sets various aspirational targets for private sector development by 2030, such as doubling the number of private sector firms, having 20 such firms for every 1,000 citizens, its contribution to GDP and the labor force… the list goes on.
The leadership's somewhat romantic fondness for small and medium-sized enterprises persists, even though what Vietnam really needs is a cadre of large private sector firms that can take on state-owned enterprises and foreign-invested firms at their own game, rather than having to negotiate a route around them.
The biggest gift that Hanoi's leadership could give the private sector would be to release it of such arbitrary goals, and grant it the independence to get on and be commercially successful by focusing on and leveraging the capabilities and expertise that lie within many Vietnamese firms. If the party now loves the private sector, then let it go.
This year is expected to see Vietnam refresh its national Constitution, something that the country does every decade or so. Understandably, most attention is on governance aspects of the constitution, particularly in the light of changes being made at the national and provincial levels of government. But there may also be some changes in those parts that pertain to the economy, as the mindset changes entailed in Resolution 68 begin to sit uncomfortably with some articles in the constitution.
For example, Article 51 of the Constitution declares that the 'Vietnamese economy is a socialist-oriented market economy with multi-forms of ownership and multi-sectors of economic structure; the state economic sector plays the leading role.'
In some ways, Resolution 68 has the feel of a soliloquy to the private sector, by the VCP, as if seeking to convince itself, as much as anyone else, whether domestic or foreign, that Vietnam's future economic prospects will be a function of successful private sector development. Given the recent spate of high-profile scandals in the corporate and banking sectors, maybe Hanoi feels a need to renew its vows to the market economy, however 'socialist-oriented.'
As to whether Resolution 68 will be sufficient to convince the U.S. administration that today's Vietnam is indeed a market economy, it is conceivable that Washington will be looking to see what changes are made to the wording of the Constitution, including references in Article 4 to the VCP employing 'Marxist-Leninist doctrine and Ho Chi Minh's thought.'
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