• EN
Tìm kiếm

[Podcast] Restoring aggregate demand to promote growth in 2024 – Viewpoint from the perspective of building a socialist-oriented market economy in Vietnam (Part 1)

19 September, 2024

Keywords: Market economy, aggregate demand, growth promotion in 2024

The socialist-oriented market economy is a breakthrough in the thinking and the practice of leading the innovation cause of the Communist Party of Vietnam. In the upcoming time, Vietnam needs to develop counter-cyclical fiscal policies to stimulate demand during a period of declining global growth; reversing the decline in public investment, increasing efficiency and concentration through national monitoring and regional development plans; modernizing the social security system suitable for middle-income, industrialized countries; making fiscal policy transparent. This proposal by the author group of University of Economics Ho Chi Minh City (UEH) is presented in the research topic “Restoring aggregate demand to promote growth in 2024 – Viewpoint from the perspective of building a socialist-oriented market economy in Vietnam.

In a market economy, the State and the market both have their own roles and functions. The market itself always operates in accordance with the objective inherent laws; actually, the market mechanism is an effective mechanism in allocating and exploiting resources. On the other hand, the free movement of the market always tends to push the economy into a state of instability and crisis. The market has inherent shortcomings, requiring state intervention in the economy to overcome. Nevertheless, the State has limitations and fails when it intervenes too much. The socialist-oriented market economy is the breakthrough in the thinking and the practice of leading the innovation cause of the Communist Party of Vietnam.  This is a new and extremely complex theoretical and practical issue, linking the awareness of objective laws with promoting the proactive and creative role of the Party, State and people of Vietnam; being the result of a long process of exploration and experimentation, from incomplete to increasingly complete, from less profound to increasingly deeper. In the upcoming time, Vietnam needs to develop counter-cyclical fiscal policies to stimulate the demand during a period of declining global growth; reversing the decline in public investment, increasing efficiency and concentration, through national monitoring and regional development plans; modernizing the social security system suitable for middle-income, industrialized countries; making fiscal policy transparent.

In Part 1 of the article, the author group will explore how the domestic and international context has been affecting Vietnam’s socialist-oriented market economy.

The current status of the international context to Vietnam’s market economy

The world situation has undergone drastic changes: the development of a socialist-oriented market economy faces great opportunities and are being accompanied with other significant challenges. Forecasting the world situation in the next period will follow the following main trends:

First, science, technology, innovation and the 4.0 Industrial Revolution have been leaving an increasingly profound and multidimensional impact on countries. Digital technology will promote the development of digital government, digital economy, and digital society; changing state management methods, models of production, business, consumption and cultural and social life; completely changing the way that people interact with each other and to the world. In this context, economic and trade competition among countries continues to shift to science and technology competition, research and application of core models and technologies of the 4.0 Industrial Revolution. These trends create opportunities for Vietnam to continue promoting the implementation of the national digital transformation plan, developing digital government, digital economy, digital society, enhancing position and competitiveness in the fields of digital transformation, production chain, global value chain, shortening the development gap with other countries in the region and the world. In addition, the 4.0 Industrial Revolution creates opportunities for the Vietnamese economy to exploit and to promote the potential and the advantages of young, dynamic, creative and intellectually potential human resources to promote Industrialization, modernization associated with the 4.0 Industrial Revolution for the rapid and sustainable development. The problem for building and developing Vietnam’s socialist-oriented market economy in the upcoming time is to proactively participate in Industrial Revolution 4.0 in order to avoid risks and to make the most of the opportunities brought by the 4.0 Industrial Revolution.

Second, the process of globalization and international economic integration in the coming years has always been an irreversible trend and requires adjustments. As international integration is increasingly expanding, the economic dependence and the mutual ties between countries are increasing. The trend of signing bilateral free trade agreements (FTAs) is strong and will continue to be powerful in the coming period. The scope of FTAs ​​is broader: tariff reduction and trade facilitation as well as those areas related to how goods are produced (services, investment, intellectual property, competition policy, public procurement), high level of liberalization and formed on the basis of links among partners in different geographical areas, especially between developed and developing countries. The content, the methods and the institutions of international economic integration are changing, the process of economic and trade globalization continues to shift to digital globalization, green globalization and so on. In this global trend, actively participating in globalization, regionalization, international integration, especially participating in new generation FTAs, creates important opportunities for Vietnam to promote institution reform and development model transformation. FTAs, in particular, as well as the process of globalization and regionalization, in general, force Vietnam to adjust their current rules to make Vienam more effective, more transparent, more progressive, and more suitable as one common ‘playing fields’ regionally and globally. The above changes will have a profound impact and force businesses, people as well as the entire economy to mobilize, to change and to adapt in a more modern and effective direction. However, the trend of globalization with unpredictable developments and adjustments in the upcoming time poses various difficulties and challenges for Vietnam. It is a challenge of independence and autonomy, especially in the economic field. In the upcoming years, as the scale of the economy increases and the economy becomes more open owing to FTAs ​​taking full effect, Vietnam will connect and depend more on the world market, especially the US and China. Vietnam needs to build and to effectively implement the Strategy for economic independence and self-reliance for resilience and competitiveness improvement; to adapt flexibly and effectively to those changes in international and regional situations.

Third, the trend of reshaping supply chains and investment capital flows helps diversify and limit the risk of dependence on one market and partners. The recent Covid-19 pandemic and the conflict in Ukraine have profoundly changed the perception of countries in promoting internal strength, enhancing independence, self-reliance, and self-reliance associated with international integration. Countries, especially large countries, are adjusting their development strategies, reducing their dependence on outsiders, and changing supply chains. Economic competition, trade wars, competition for markets, resources, technology, high-quality human resources, and attracting foreign investment between countries are increasingly fierce, strongly impacting the production chain and global distribution. In terms of the trend of adjusting and shifting the global supply chain, Vietnam has a number of strongpoints to take advantage of the supply chain shift: stable macro environment, dynamic economy, consumer market extension; stable political situation and consistency in economic development policies and attracting foreign investment; adequate legal environment; open foreign investment policies, open markets, reform of administrative procedures and investment incentives; improved business environment; Vietnam being a member of various important multilateral and bilateral trade agreements of large scale and stature and beyond. Besides opportunities and advantages, challenges and difficulties are always intertwined. Vietnam’s investment environment, currently, has a number of shortcomings that have not been overcome, listed as limitations in management capacity, infrastructure, investment procedures, lack of skilled labor, supporting industries and logistics networks and so on. Facing this challenge, Vietnam needs to have timely, synchronous and appropriate responses and solutions to prevent and to limit risks and to take advantage of opportunities of the changing trend of global supply chains as well as to reshape the world economic development model to exploit and to take advantage of opportunities, to overcome difficulties and challenges, and to realize the country’s aspiration for rapid and sustainable development.

Fourth, some uncertain factors continue to increase with the increasing occurrence of epidemics, natural disasters, and geopolitical fluctuations, leading to the changes in investment and consumption behavior that are greener and more cautious, paying more attention to investments in health, environmental protection, sustainable growth and so on that are forecasted to continue to grow strongly in the world in the upcoming time. In terms of Vietnam, shifting to a green economy and green growth is not only an inevitable choice but also an opportunity to become a pioneer country in the region, catching up with the world’s development trends. This trend creates opportunities and motivation for Vietnam to transform production models, to improve productivity and quality in production towards a circular economy and sustainable development; reducing energy consumption, reducing emissions, green production, responding to climate change and so on gradually aiming to meet the standard that production must be more responsible to the environment and the people. This is the motivation for more businesses to invest more in sustainable solutions listed as managing plastic waste, cutting greenhouse gases, and implementing the Prime Minister’s strong commitment to bring net emissions to ‘zero’ in 2050 at COP26 and beyond. Nevertheless, the biggest challenge preventing businesses from converting green production is investment capital. Therefore, the State promulgates additional legal frameworks and policies to encourage sustainable production and consumption, aiming to build a circular economic model in production and consumption. In particular, it is necessary to focus on connecting sustainable production and consumption networks to form chain links from production to distribution and consumption of products.

Fifth, the profound social and environmental changes with wealth gap, food security, energy security, supply chain security, health security, labor market issues, aging population, water resources, environmental pollution and so on have all become the top concerns of diverse countries, requiring each country to adapt and to be proactive, independent and self-reliant in association with the international integration in a more appropriate and effective way. The social and the environmental changes will have a major impact on Vietnam, especially in ensuring socialist orientation in the market economy, economic development with social progress and justice so that “no one is left behind” in terms of national development.

The current situation of the domestic context towards Vietnam’s market economy

The domestic context in the coming time being expected to blend both advantages and disadvantages

*Advantages:

Firstly, the reform and the international integration process over the past 40 years have achieved important achievements, and the country’s position has been increasingly enhanced in the international arena. This full, modern and integrated market economic institution, following socialist orientation, has been gradually established.

Second, the economy inherits the development achievements of the previous period as well as the efforts of recent years: the macro-economy is maintained stable, the average income per capita is increasing, the finance system is consolidated and healthy, international economic integration is becoming deeper and deeper. The growth drivers have many changes in depth (attracting higher quality FDI investment, exports continue to increase quite well with increased value content, more quality and sustainable development of the private economic sector). Major macro-economic balances continue to be guaranteed: public debt remains at a safe level, the budget revenue and the expenditure structure shifts in a more positive direction, the credit structure focuses more on priority areas and production and business with limited access to high-risk industries; the balance of payments and current affairs have improved positively. Institutions, investment and business environments continue to improve. Global countries and businesses change the way they cooperate in the supply chain. Green economy, circular economy, energy transition and beyond continue to be important trends. These are very basic advantages that create position and strength for Vietnam to continue to accelerate in the upcoming time.

Third, in the upcoming time, Vietnam will increasingly have the potential to participate relatively equally (capital, technology, human resource, international cooperation and so on) and take advantage of opportunities from the 4.0 Industrial Revolution. Vietnam is facing an opportunity to depend on innovation and transformation of growth models, improving competitiveness and labor productivity for breakthrough and breakthrough development. Taking advantage of this opportunity depends on the ability to restructure, to adjust the growth model, to increase internal resources, to take advantage of international cooperation to strengthen the foundation and to promote the application of science and technology to serve for development.

Fourth, Vietnam is one of the countries with the most extensive and extensive free trade agreement (FTA) network in Southeast Asia, with most of the world’s major economic and political centers. The FTAs ​​that Vietnam has been participating in will be strongly enforced in the coming time, creating conditions for Vietnam to take advantage of the opportunities to expand its market, attracting foreign direct investment (FDI) and high-quality resources, in combination with domestic institutional innovation to innovate growth models and quality, to enhance position in regional and global value chains and supply chains. Vietnam can enlist the following partners, listed as the US, China, Russia, Japan, and European countries, to cooperate in responding to global issues, expanding export markets, capital, technology, and upgrading high position in the supply chain, as well as partners with specific strengths in digital economy, green development, responses to climate change and so on.

*Besides these advantages and opportunities, in the upcoming time, Vietnam will be affected by difficulties and challenges as follows:

First, the existing bottlenecks in the economy are the factors hindering Vietnam’s development process in the coming time listed as: the economic growth model is not absolutely in-depth; the economic structure is being unreasonable; growth quality is not high; the ability to withstand external shocks is weak; socialist-oriented market economic institutions are being in the completion process. There are other signs of not paying enough attention towards ensuring socialist-oriented development, cultural development, ensuring social welfare, and implementing progress and social justice in market economic development; the overall and synchronous development of regions, regions and localities has not been ensured in accordance with the comparative advantages and the promotion of specific socio-economic conditions.

Second, as international integration deepens in the coming time, Vietnam’s economy will continue to face challenges, being directly and quickly affected by external economic fluctuations and fluctuations in the regional market and world markets on prices, interest rates, and exchange rates of currencies, especially those with great influence, from changes in international and serious flows of goods, finance, and investment; rather than being affected very quickly by regional and world economic and financial crises. In addition, Vietnam’s comprehensive and extensive international integration process poses various challenges in resolving the relationship between independence, autonomy and international integration. Our country’s economy is highly open, increasing the vulnerability risk to adverse developments from the outside.

Third, Vietnam will continue to face the risk of falling behind if it does not promptly grasp the new trends and achievements of the 4.0 Industrial Revolution. Vietnam has been being behind and following in the trend of developing technology and new business models. This risk increases when the economy is facing difficulties after the Covid-19 pandemic and the global economic recession, in addition to a number of limitations that have not been overcome yet. Besides, in the upcoming time, Vietnam will have to fully and effectively implement commitments upon participating in signed new generation FTAs; nevertheless, the economic development is not completely sustainable besides various limitations, weakness, difficulties and challenges. The impact on the country’s economy will be very serious if Vietnam does not proactively take response measures and if the internal strength of the economy is weak.

Fourth, Vietnam is being affected by non-traditional security challenges, listed as emerging epidemics, climate change, cyber security, water security, sea level rise and more, all of which will have an increasingly significant impact on Vietnam’s strategic environment, posing significant challenges for the country in handling and responding while the awareness, the institutional capacity, the policies and the resources are devoted to dealing with these threats. This challenge is being limited. In addition, the trend of rapidly aging population; the increasingly sharp speed of industrialization and urbanization; severe and complex climate change and so on is increasingly impacting the country’s sustainable development, especially affecting the implementation of progress and social justice in the process of economic development.

Please refer to the full research titled “Restoring aggregate demand to promote growth in 2024 – Viewpoint from the perspective of building a socialist-oriented market economy in Vietnam” HERE.

Author group: Assoc. Prof. Dr. Pham Thi Kien, Dr. Bui Xuan Dung – Universsity of Economics Ho Chi Minh City (UEH).

This is an article in a series of articles spreading research and applied knowledge from UEH with the message “Research Contribution For All – Research For The Community”, UEH respectfully invites dear readers to look forward to upcoming newsletter UEH Research Insights.

News and photos: Author, UEH Marketing and Communications Department

Voice: Thanh Kieu