Institutional reform has been regarded by the Party and State as a central task for many years and vital for the country’s development. Party General Secretary To Lam has emphasized that institutions are not just management tools but also the “bottleneck of all bottlenecks”, representing the greatest obstacles that, if not addressed, will make it difficult for Vietnam to fully leverage its potential and advantages.

Institutions are also the “backbone” of a country, where policies, regulations, and laws are established to foster a transparent, equitable environment that promotes innovation. However, in practice, numerous issues within the current institutional framework hinder the country’s progress. From legal overlaps and ineffective enforcement mechanisms to a lack of accountability and unclear decentralization of management, these “bottlenecks” must be addressed if Vietnam is to achieve its goals of industrialization and modernization in the near future.

Role of institutions in national development

Institutions are a set of rules, laws, organizations, and mechanisms that regulate economic, political, social, and legal activities within a country. They can be divided into three main categories.

First, economic institutions, which include policies and regulations that govern economic activities, such as property rights, market mechanisms, fiscal policies, and business regulations.

Second, political institutions, which refer to the structures of power, forms of government, and methods of governance, such as democracy, dictatorship, federalism, and unitarism.

Third, legal institutions, which consist of the legal systems, regulations, and enforcement mechanisms designed to ensure justice and protect the rights of all parties involved.

Institutions serve as the backbone of social and economic activities, determining how resources are distributed and disputes are resolved and how society evolves in a sustainable manner. Well-functioning institutions create a stable environment, encourage investment, foster innovation, and enhance human resources development, thereby improving the overall quality of life.

Institutions also form the foundation for fairness, transparency, and efficiency in society. Clear and stringent legal institutions ensure equal rights and obligations for all, without discrimination. Social justice helps reduce inequality, promotes unity, and ensures social stability. Transparent management mechanisms reduce corruption and build public trust in governance. For example, a transparent public bidding system ensures the efficient use of national resources. Strong economic institutions guide the market, minimize risks, and drive productivity. Effective political institutions help allocate resources, manage crises, and promote sustainable development.

A country with a strong institutional system, where the government operates transparently, laws are strictly enforced, and the economy is well-regulated, fosters creativity, protects intellectual property, and creates a fair environment for both businesses and workers.

Conversely, countries with weak institutions often experience problems such as corruption, injustice, and inefficient resource management, leading to poverty and social instability. For instance, many African and Latin American countries have struggled to develop due to the absence of a robust institutional framework.

Therefore, institutions are not only operational tools but also the fundamental foundation for ensuring sustainable, fair, and efficient national development. A strong institutional system is the primary driving force behind economic, political, and social progress. Developing countries, including Vietnam, must prioritize institutional reforms to ensure long-term competitiveness and prosperity.

Institutional bottlenecks in Vietnam

Institutional bottlenecks in Vietnam can be identified in four key areas.

Overlapping and inconsistent legal system and policies

Current laws and policies are often inconsistent and sometimes contradict one another, which complicates enforcement and application. This overlap negatively impacts the business environment, increasing compliance costs for companies and causing difficulties for the public. For instance, vague or poorly-defined regulations lead to varying interpretations by regulatory bodies, resulting in instability and unpredictability in legal enforcement. Examples of this include inconsistencies in investment, land, or tax regulations.

Complex administrative procedures

Bureaucratic, opaque, and inefficient administrative procedures waste both time and resources. This creates opportunities for bureaucracy, harassment, and corruption within the administrative system. For example, the “one-stop shop” process often involves multiple steps, requiring that businesses or individuals go through numerous approval stages. A typical example is the delay in issuing construction permits or investment certificates, which is often due to unnecessary paperwork and approvals.

Limitations in decentralization and delegation of authority

Unclear division of responsibilities and powers between central and local governments leads to inefficiencies in governance. This results in overlapping efforts in implementing major policies or projects. For example, public investment projects or urban planning can be delayed because of disagreements between central and local authorities over approvals or coordination. Sectors such as healthcare, education, and land management frequently encounter these challenges.

Quality of personnel and implementation capacity

Inadequate skills and capacity among some officials hinder the effective implementation of policies. Low accountability, along with a lack of professional expertise and ethical standards, obstructs progress in reforms. For example, officials may either lack understanding of regulations or intentionally exploit legal loopholes to create difficulties for citizens and businesses. There is also an inability to address urgent societal issues, such as environmental pollution, traffic congestion, and education reform, in a timely manner.

These institutional bottlenecks not only lead to inefficiencies in governance and economic development but also erode public and business confidence in the management system. To address these issues, comprehensive reforms are necessary to ensure legal consistency, streamline administrative processes, clarify the decentralization of power, and improve the capacity of public officials.

Main causes of institutional bottlenecks

Historical and traditional administrative culture

Vietnam’s administrative system is influenced by its historical and traditional roots, which have fostered outdated management practices characterized by bureaucracy, rigidity, and a lack of innovation. These antiquated approaches not only reduce the efficiency of governance but also limit the system’s ability to adapt to modern societal demands, especially amid rapid globalization and technological advancements. The absence of innovative thinking leads to stagnation, preventing the administrative system from meeting the expectations of citizens and businesses.

Disconnect between policy and practice

Policies are often developed without sufficient practical research or real-world insights, resulting in rules and regulations that are difficult to implement effectively. When policies fail to address actual needs or align with current realities, their application becomes inefficient, leading to wasted resources and sub-optimal outcomes. This gap between policy and practice not only undermines public trust but also places an additional burden on the administrative system to revise or replace ineffective policies.

Influence of vested interests

The policy-making process is sometimes influenced by interest groups aiming to prioritize their own benefits over the public good. This interference skews the creation of policies, resulting in decisions that disproportionately favor a select few rather than serving the broader community. Such influence compromises social fairness, weakens State management effectiveness, and fuels public discontent.

These challenges are interconnected, forming a cycle that degrades the overall quality of institutions. To address these issues, it is essential to embrace innovative management approaches, ensure policies are grounded in practical realities, and enhance transparency and oversight in the policy-making process to curb the influence of vested interests.

Consequences of institutional bottlenecks

Slowing economic growth

Institutional bottlenecks create significant challenges for businesses in accessing essential resources such as capital, land, labor, and technology. Furthermore, vague or inequitable regulations foster unfair competition, limiting the potential of enterprises and weakening their ability to compete globally. This results in slower economic growth, reduced job creation, and limited income improvements for the population.

Wasting societal resources

Inefficient governance, overly complicated procedures, and corruption lead to significant losses of public resources. Lengthy administrative processes and institutional barriers cause missed opportunities for investment and development. Financial, human, and time resources are squandered instead of being effectively allocated to drive socio-economic progress, leading to stagnation and reduced societal productivity.

Undermining public trust

A lack of fairness and transparency in institutional operations erodes public confidence in regulatory bodies and the legal system. Social inequality worsens due to corruption, favoritism, and inadequate oversight mechanisms. As trust declines, public dissatisfaction grows, increasing the likelihood of conflicts, protests, and social instability. This undermines political stability and obstructs efforts for reform.

Institutional bottlenecks not only hinder economic performance but also create broad societal challenges, from resource mismanagement to weakened cohesion and stability. Addressing these bottlenecks through institutional reform is essential for fostering sustainable development.

Solutions to address institutional bottlenecks

Overcoming institutional limitations requires focusing on five key solutions.

The first is to strengthen legal and administrative reforms by developing a transparent, stable, and practical legal framework. This ensures that all stakeholders understand and comply with the law, reduces arbitrary enforcement, and avoids conflicts among legal documents. A stable legal system encourages long-term investment and effective implementation, requiring coordinated efforts across legislative, executive, and judicial bodies.

The second involves enhancing decentralization and delegation, granting local authorities greater autonomy in resource management to adapt to local conditions. This improves resource efficiency and reduces central pressures. However, effective oversight mechanisms are needed to prevent abuse of power and address capacity gaps at the local level.

The third focuses on training and building the capacity of public officials to ensure they are qualified, competent, and committed. High-quality personnel are essential for effective policy implementation and public administration, although this requires significant investment and overcoming resistance to change.

The fourth emphasizes applying technology and advancing digital transformation in governance. E-government systems streamline procedures, enhance transparency, and reduce corruption risks while improving decision-making through data integration. Initial costs for technological infrastructure and the need for synchronized systems remain challenges.

And the fifth targets controlling vested interest groups and increasing social oversight. Encouraging citizen and business participation in policy monitoring promotes transparency and reduces the risk of abuse of power. However, clear mechanisms for public involvement and efforts to counter resistance from entrenched interests are essential.

These solutions collectively aim to enhance governance efficiency, institutional transparency, and State-society interactions. Success requires coordinated implementation, public and business support, and sustained effort. Institutions are not only a foundation for governance but also a driver of national progress. Effective reform unleashes potential, fosters innovation, and empowers collective contributions, paving the way for a prosperous and sustainable Vietnam.

 ^(*) Associate Professor Ngo Tri Long is the former Director of the Institute of Price Research at the Ministry of Finance.