Based on economic theory, public sector is not a tool for governments to stabilize macro economy. Hence, if we do not change our mindset and old perceptions, and still maintain that the public sector is the core of the economy, we will waste another decade to resolve problems pertaining to this sector.
Considered core of economy
In the Constitution, the platform to transit the country to socialism and the strategy to develop socio-economic models over 2011-2020, calls for the public sector to be considered the key driver. However, so far, the effectiveness of the public sector is lagging far behind the private sector and FDI companies. The contribution of the public sector has been reducing gradually, while the contribution of the other two sectors has grown continuously and consistently.
| “The public sector in other countries usually constitutes a small proportion of GDP, hence, it does not impact much on the whole economy. However, in Vietnam, the size of assets and capital which are allocated to public sector is huge, hence, any problem that happens in public enterprises will significantly influence the economy”, said Le Xuan Ba. |
The public sector plays a key role in supplying products and essential services to consumers, however, so far the quality of these products and services is limited. The public sector has not completed the target set by the government. Public sector was set to be the leader of the economy, encourage the development of other sectors and the tool for the government to stabilize the economy. However, the products and services range in this sector are not much, and are impacting negatively the development of the country, whereby affecting peoples’ lives.
“We have tied with the public sector for many years, put on them the burden to stabilize the macro economy. Considered as the core, but the operation of the public sector is ineffective, so how can it be the leader of the economy? Furthermore, ineffectiveness seems to be the nature of the public sector, it happens in most countries in the world. Hence, we should not stick with the public sector anymore, as in practice, it is not able to work effectively”, said Dr. Le Xuan Ba, former Director of Central Institute of Economic Management.
Public sector overburdened
Public sector overburdened
According to Le Xuan Ba, most OECD countries, which do not treat the public sector as the core, still achieve the target of macro-economic stability. If we cannot get out of old thinking, the expected changes will never happen.
Ninh Binh Nitrogenous Fertilizer Plant, one of 12 loss-making projects under the SOE management mechanism. Dr. Nguyen Dinh Cung, Director of CIEM, said “using public sector as a tool to stabilize macro-economy will distort the market. The public sector is not the big problem; the key problem is our perception. They are enterprises, hence, their nature is to do business, not a tool for government to manage the economy. This perception should change”.
“We don’t understand what government wants from public sector when it does not separate the purpose of doing business from political and macro-economic purposes. When we set several targets for the public sector, we cannot evaluate its operating effectiveness” said Dr. Can Van Luc, Chief Economist of BIDV.
Dr. Nguyen Tien Cuong, former Head of Department of Enterprise Research and Development, CIEM also said “we have put many different and inconsistent burdens on the public sector. This sector is currently under huge pressure. However, regulations on responsibility, expenses, financial recourse of public sector to complete these targets are not clearly identified.”
Public sector lacks full autonomy
While facing many targets and being in process of restructuring and improving its effectiveness under market mechanism, the public sector lacks full autonomy to operate. They are restricted in many aspects compared to private sector. The reason for this issue is unclear regulations on the functions of the public sector.
Compared to private sector, public enterprises have to obey a strict regulation system on the operating mechanism, financing, controlling, labor and wages. The public enterprises do not have full rights to seek good managers and pay them based on their performance. The investment decisions have to follow long and complicated processes and administrative hierarchy.
The public enterprises also have to follow the rules of public assets. They are not allowed to invest in non-core businesses and are restricted to invest in some areas. They are not allowed to borrow more when their debt which is three times higher than the equity.
The public enterprises do not have full autonomy to transfer investment to private sector, including even small and tiny valued investments. When public enterprises divest or transfer the investment, they have to follow many requirements, such as the capital preservation principal.
Because of the above problems, many projects of public enterprises have been delayed, take more time than expected or are not suitable with the practices set for public enterprises. This mechanism is both controlling and restricting the operations of the public sector.
“Currently, while private sector says that they are not treated fairly, the public sector complains that the policies do not encourage them to grow. Both sectors are looking to the other side and both sectors are not able to grow as per expectations” said Nguyen Dinh Cung.
In order to let public sector operating under market mechanism, we need to continue improving and changing our policies and mechanism in a way to increase the rights and responsibilities of management board of public enterprises. The most important thing is we have to change our perception about public sector and private sector.
| According to Tran Tien Cuong, the government should not allow the public sector to operate in many areas, and avoid over-control of public enterprises. The targets set for public sector and private sector should be reconsidered. No sector should be over concentrated or overburdened. |
