Five core institutional capacities

From our case studies and interviews in both the South and the North o f the country (listed in Appendix 1) it is obvious that Vietnam still provides a very weak institutional support to its new market economy. This is probably more apparent in the new high-tech IT industry than in several traditional bra nches of Vietnamese industry.

Here, the ultimate question is which institutional capacities that r eally would matter to an export-led IT industry development in Vietnam . Of course, we cannot provide an easy answer to such a fundamental q uery. Nevertheless, during our investigations in 1993, supplemented by discu ssion in early 1994 with foreign IT vendors and potential investors in the te lecom area, we could list five general institutional weaknesses: (1)

FE The legal and regulatory system: Several business or c ommercial laws must be updated and, more importantly, new ones promulgated. The industry needs clear rules -- also for the IT markets. The organization and liquidat ion of firms must be monitored and regulated. Little respect for contracts and other formal business deals regarding royalties, licenses, property rights, etc. creates chaos in the different IT markets (including the market for computer software) and prevents innovations, international trade and general growth.

FE The financial system: The organization and regulation of banks and other credit agencies plays a paramount role in any highly-industrial economy, especially if investment capital is not easily generated by industry itself. The g overnment could monitor the development of financial institutions in Vietnam so t hat they, on a professional basis, can provide investment capital also to the IT indus try and related service firms.

FE The labor market and labor relations: The character of labor relation s at the shop floor and on the labor market in general has certainly influenced posit! vely innovative capabilities in industrial economies such as the German, the Jap anese, and the Swedish. High quality, production flexibility using IT, new produ cts accommodat- ing microelectronics, etc. may more easily be generated and produce d depending on labor relations and the organization of production.

FE Institutions creating and/or disseminating knowledge and know-how : Any industrial economy is dependent on an institutional set-up responsible for the effective diffusion of knowledge to industry and other economic sectors. The organization of the country's RkD base and of its technological infrastructure has to be up-dated continuously. The combination of public and private forms of di sseminating and appropriating knowledge could be stimulated by institutional means.

FE The political-administrative system: The government must have the c apacity to shape economic adjustments by setting and enforcing rules and alloca ting resources selectively towards purposes it may define. Fundamental institutio nal changes in support of a dynamic market economy would be the result of many different initiatives at various levels of the government machinery, including the provincial administrations. In Vietnam -- like in the highly-industrialized count ries restructur- ing their industries and their national economy -- there will be a need also to modernize government continuously in order to better promote indust rial innovation and sustain economic growth.

If these five institutional weaknesses or shortcomings were tac kled more or less simultaneously while being connected to the high ambitions of the 1993 national IT program, this would, most likely, stimulate the IT industry con- siderably and induce economic growth. Administrative and other institutional reforms, and the creation of new market-supporting instit utions, could facilitate necessary changes in the economy in general and in th e diffusion of microelectronics and other information technology in particular. If there will be only minor institutional and regulatory cha nges, and if they will be tackled without linking them to the industrial ex pansion, there will probably be obstacles in attaining the objectives for the na tional IT pro- gram. In the introduction to this report, we suggested a pro-a ctive approach specifically to the advancement, diffusion and application of i nformation and communications technologies. The approached contained a wh ole set of medium-term objectives, which would address also the five institutional weaknesses listed above.

While learning from the experiences of other countries, Vietnam must find its own ways of promoting an IT industry. There is no univ ersal route to success. Institutional capabilities for economic growth vary a mong countries and new organizational and regulatory inventions may stimulate development. During our investigations, we have noticed useful informal and pragmatic solutions to administrative problems. We have witnessed early examples of constructive involvement of private sector experts, consultancy firms, foreign advisors, and professional associations in the design, planning and implementation of various public policies.

Whilst market forces, including foreign direct investments, may play the main role in modernizing Vietnamese industry technologically, both public institutions and non-governmental organizations must continue to adapt and streamline the market-supporting institutions.

Foot Notes:
  1. We acknowledge John Zysman's original contributions to our deliberations.

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