Today’s world is changing rapidly. Climate change, geopolitical tensions, digital transformation, and global supply chain shifts are reshaping the economic landscape. In this environment, countries that adapt quickly, reform proactively, and strengthen governance will lead the way.

Modern history shows that economic and social breakthroughs happen only when a nation boldly carries out deep and timely institutional reforms. Such reforms remove invisible barriers, unlocking creativity, entrepreneurial spirit, and the drive for prosperity. This is when a country enters a new path of growth that is not only faster but also more sustainable and meaningful.

Vietnam is no exception. The key question is: What must it do to grow faster and more sustainably? How can it attract, manage, and activate resources more effectively? What are the strategic levers that can elevate it to the next level of development?

The answer, as proven by international experience and Vietnam’s own journey, lies in institutions. It is not capital, human resources, or market size that matter most, but institutions - the factor that determines how all other resources are mobilized and utilized efficiently.

Importance of institutions

Along every nation’s development journey, institutions play a central role. They are the “central processor” that coordinates the entire functioning of the economy and society. Rapid growth may be fueled by capital, resources, or cheap labor, but sustainable, innovative, and inclusive growth can only be ensured by effective, transparent, and fair institutions.

First, institutions determine how efficiently a country uses its development resources. A nation’s success is not guaranteed by its abundance of natural resources or large population, but by its ability to institutionalize its potential into real development outcomes. In Vietnam, the link between institutional quality and development outcomes is clear. Provinces such as Quang Ninh, Bac Giang (now part of Bac Ninh), and Dong Thap that have introduced advanced institutional reforms have seen breakthroughs in investment attraction, administrative reform, and GRDP growth. Meanwhile, areas that lag behind in reform often struggle with stagnation, lack of momentum, and missed opportunities in the global capital shift.

Second, institutions are the foundation for effective policy implementation. Private investment cannot thrive if administrative procedures remain complex, property rights are not well protected, or risk-sharing mechanisms are unclear. Infrastructure development under public-private partnerships (PPPs) cannot succeed if related laws are unstable, frequently changed, or influenced by vested interests. Digital transformation and high-tech innovation require a flexible legal environment that encourages experimentation and protects intellectual property rights.

In today’s new context, where stricter requirements from new-generation free trade agreements, green standards, labor conditions, traceability, and ESG (environmental, social, and governance) standards are in place, institutions are no longer just prerequisites. They are a strategic competitive advantage. A country with strong institutions can anticipate trends, respond proactively, and seize opportunities. Those without will remain reactive, miss out, and fall behind.

Lastly, institutions form the foundation of trust - a vital form of soft capital in a modern market economy. Business confidence in policy stability, public confidence in legal fairness, and foreign investor confidence in a transparent environment all stem from institutional quality. A World Bank study found that countries with strong institutions, marked by low corruption and strong rule of law, attract two to three-times more foreign investment than peers with weak institutions. In Vietnam, sudden policy changes, lack of clear roadmaps, or overlapping regulations have sometimes undermined market trust. On the other hand, provinces committed to institutional reform and consistent governance have become attractive destinations for both domestic and international investors.

In short, institutions are not just the “outer shell” of the economy. They are the central nervous system that ensures smooth operation and drives development. A strong institutional framework enables efficient resource allocation, builds social trust, and spreads innovation. That is why institutional reform is always the most essential and sustainable lever in any national development strategy.

Enhancing the State’s enabling capacity

If institutions are the foundation of development, then the State is the architect that builds and shapes them. A capable and visionary State can anticipate future trends, plan wisely, and lead both society and the economy forward. Conversely, if the State merely performs routine administrative functions, it risks becoming an obstacle rather than a driver of growth. In today’s increasingly competitive global environment, the State’s enabling capacity must be placed at the heart of institutional reform.

First, the State must shift its role from “managing and intervening” to “creating and guiding”. Rather than direct intervention, handouts, or excessive licensing, the State should focus on three core functions: establishing clear and stable rules; fostering an environment that encourages innovation, competition, and collaboration; and safeguarding property rights, addressing market failures, and managing systemic risks. This requires a shift in mindset, from control to facilitation, from standing in the center to stepping back while still leading. For example, to develop the semiconductor industry, the State does not need to build factories, but rather design talent development strategies, support research, connect businesses with academia, and provide consistent, long-term investment incentives.

Second, an enabling State must prioritize the quality of policies over the quantity of legal documents. The proliferation of laws, decrees, and circulars - often inconsistent and frequently revised - creates legal uncertainty and erodes market trust. A good institutional framework is not one that is complex, but one that is simple, clear, and predictable. To achieve this, policy must be evidence-based, developed through genuine consultation, and accompanied by thorough impact assessments. Institutionalizing evidence-based policymaking and requiring Regulatory Impact Assessments (RIA) can help reduce subjective or interest-driven policy decisions.

Third, no enabling State can function without a competent and accountable civil service. In the era of digital transformation, knowledge economies, and globalized markets, civil servants must go beyond routine administration. They need strategic thinking, policy analysis, critical evaluation, and the ability to proactively propose solutions. This remains a significant challenge in Vietnam, where recruitment still favors degrees over capabilities, performance evaluation leans toward formality, and a risk-averse mentality persists. Addressing this requires a major overhaul in recruitment, training, and evaluation processes; the adoption of results-based management systems (such as KPIs (key performance indicators) and performance-based reviews); and mechanisms that reward innovation while protecting those who dare to take the initiative.

At the same time, effective decentralization and clear accountability are essential to foster proactivity across all levels of government. An enabling State cannot operate under rigid centralization. It must be flexible enough to delegate authority to local governments, social organizations, businesses, and citizens - provided that this power is accompanied by strong oversight and transparency mechanisms.

In short, for institutions to truly drive growth, reform must begin within the State itself. An enabling State requires not only strong management capacity but also strategic vision, reform-oriented thinking, and the courage to innovate. This is the essence of a modern institution, one capable of leading the nation through the challenges of a new era.

Concrete recommendations

Institutional reform cannot stop at general statements or slogans. To become a real driver of fast and sustainable growth, institutions in Vietnam need a clear, focused, and consistent action roadmap. In the current context, four key directions should be advanced simultaneously and decisively.

First, a breakthrough in institutional thinking is essential. Institutions are not just a set of legal documents or laws, but the totality of formal and informal rules that govern social behavior, including how laws are enforced, political culture, levels of transparency, and public trust in justice. Institutional reform, therefore, is not merely about revising regulations but about transforming the State’s governance model and its interaction with markets and society. Vietnam must decisively move away from the mindset of administrative control over economic and social life, and shift to a partnership mindset, where the State acts as an enabler and a leader, not as a passive distributor of resources or direct administrator.

Second, in the short term, Vietnam should prioritize revising core laws that are hindering progress. These include the Land Law, to ensure transparent, fair, and efficient access to land; the Law on Investment and the Law on Enterprises, to protect the right to do business and improve the investment environment; the Law on Planning, to remove regulatory overlaps and free up development space; and laws governing financial markets, to build a healthier, more modern, and safer financial system. Legal reform should not be limited to technical language fixes, but must be guided by a reform vision, with simplicity, transparency, and feasibility as core design principles.

Third, Vietnam must accelerate digital transformation and the use of open data in public governance. This is not only a technological trend but a foundation for improving institutional quality. A modern institution is one that operates based on accurate and timely data rather than subjective judgment. Vietnam needs to complete national data infrastructure, integrate information systems across ministries and provinces, develop open data platforms, and apply digital tools to monitor policy implementation and public service performance.

Fourth, sustainable institutions require effective mechanisms for policy feedback and power oversight. Good policies come not from top-down directives but from critical review and practical testing. Vietnam should enable experts, business associations, the media, and the public to participate in policy making and provide feedback. At the same time, accountability and independent monitoring must be strengthened, especially at the local level, where policies are implemented and where risks of distortion are highest. An institution that listens, adapts, and corrects itself is one that evolves and earns public trust.

In summary, institutional reform takes time but must start now with concrete, practical, and strategic steps. This is the only way for Vietnam to grow faster, more sustainably, and with greater resilience in an uncertain global environment.

In a nation’s development journey, there are certain defining moments, when the right choice not only narrows the gap with the world but also shapes the destiny of a generation. Vietnam is now at such a turning point. To escape the middle-income trap and avoid falling behind in the digital and green transition, the country can no longer rely on outdated growth drivers. A new push is needed, and that push must come from institutional reform.

A strong institution is one where power is kept in check, the rules are fair, policymaking is grounded in evidence, and feedback is welcomed. It is an enabling institution, where the State does not dominate from the center but designs systems, empowers stakeholders, encourages innovation, and upholds justice. It is also a living system, capable of internal renewal, self-correction, and continuous learning.

Institutional reform is not a policy option. It is a necessity. In the 21st century, institutions define not only how people live today but how nations are positioned tomorrow. Strong institutions are not born by chance. They are built and sustained by the vision, courage, and wisdom of those who lead.

Vietnam is ready for its next leap forward. With the right institutional reforms carried out consistently and boldly, institutions will become the strongest lever for the nation to advance, thrive, and take its place as a prosperous and responsible global actor.

^(*) Dr. Nguyen Si Dung is the former Deputy Head of the Office of the National Assembly