Path to Prosperity

10:34:11 AM | 8/14/2023

The Association of Southeast Asian Nations (ASEAN) was founded on August 8, 1967 in Bangkok, Thailand. Currently, ASEAN is a developed community of 10 member states seeking to maintain political stability as the foundation for fostering economic prosperity and social progress in the region.

In recent years, Vietnam’s exports to ASEAN have changed positively from agricultural, aquatic and mineral products to manufactured and high-tech industrial products

Three basic trends

Over nearly 60 years of development, ASEAN has formed a dynamic economic community of 700 million people in the context of the rapidly changing global economy with three basic trends.

 First, despite growing global economic pressures, ASEAN is still a fast-growing economy whose GDP grows by 5-6%. Over the past decade, intra-ASEAN trade reached US$750 billion, accounting for over 20% of the region’s total trade. With a total trade value of more than US$3 trillion, ASEAN has become the fourth-largest trading area in the world, behind only the European Union, China and the United States. Total FDI inflows into ASEAN increased from US$108 billion in 2010 to nearly US$200 billion, making it the third largest FDI recipient in the world after the U.S. and China. In ASEAN, there is also a country that is ranked among the most productive and competitive countries in the world. Second, the geopolitical position of the East Sea is increasingly important in the context of global supply chain redirections, thus affirming ASEAN’s centrality in the Indo-Pacific economic integration (Regional Comprehensive Economic Partnership - RCEP and Indo-Pacific Economic Framework - IPEF). Currently, ASEAN in regional connectivity has actively and effectively addressed common challenges such as economic crisis, climate change, conflicts, epidemics and natural disasters.

Third, there are two emerging trends in the region that will shape the future of ASEAN integration and community-building efforts – the most prominent of which is digital transformation (ASEAN’s digital economy is expected to reach US$1 trillion by 2030) and the urgent need to consider sustainability (bioenvironment and development disparities are widening among countries). Both are on the ASEAN Economic Integration Agenda. A whole-of-community approach is needed due to the cross-pillar nature of these important issues.

In Vietnam, advocating bilateral diplomacy and elevating multilateral diplomacy, the Document of the 13th National Party Congress stated: Actively participating in and promoting Vietnam’s roles in multilateral mechanisms, especially ASEAN and the United Nations (UN). In that process, Vietnam has now become the Vice President of the UN General Assembly. Moreover, besides close cooperation with Northeast Asia, Vietnam has become an active member of the friendly neighboring ASEAN region. ASEAN is also a major trading partner of Vietnam, after China, the United States and South Korea. In recent years, Vietnam’s exports to ASEAN have seen a strong shift from agricultural, aquatic and mineral products to manufactured and high-tech industrial products. The Industrial Revolution 4.0 is evolving rapidly while its advantages of abundant labor resources and cheap labor are fading. Instead, new resources for growth are labor productivity and quality, innovation and scientific and technological expertise. Although its average labor productivity grew by an average of 5.4% a year in 2011-2020, higher than that of Malaysia, Singapore, Thailand, the Philippines, Indonesia and South Korea, Vietnam’s labor productivity remained low. In 2022, its labor productivity was equal to only 12.2% of Singapore, 63.9% of Thailand, 94.2% of the Philippines, 24.4% of South Korea, and 58.9% of China. This is probably one of the biggest challenges to Vietnam’s long-term sustainable development, which leads to fallbacks and middle-income trap.

According to economic strategists, improving labor productivity and possessing national competitive advantages will lead to sustainable prosperity. Just a few percent increases in productivity can make a big difference in a country’s wealth and standard of living over time. When a rule of law state allows and supports the fastest accumulation of specialized wealth and skills (a country’s skills in creating and commercializing innovations, enabling investment and helping workers with more efficient work) - sometimes simply because of greater effort and commitment - businesses will gain a competitive advantage. When a national environment provides better continuous information and a better understanding of product needs and processes, companies gain a competitive advantage. Finally, when the national environment forces companies to innovate and invest, they both gain competitive advantages and upgrade those advantages in the future. In the process, the private sector will accelerate Industry 4.0 transformation by investing in production digitization, using advanced manufacturing solutions, building smart factories and establishing R&D facilities, technology centers and regional excellence centers.

Historically, in the early 1980s, our country was successful in a product contracting policy that increased agricultural productivity to create strong effects on other industries to move toward the market economy and laid the foundation for market economy theory and practice in the doi moi (renovation) process.

ASEAN’s centrality in the Indo-Pacific economic integration

Four important contents toward a prosperous country

To successfully execute State policy lines in positive ASEAN trends toward a lasting and prosperous country, Vietnam needs to study and implement four important contents:

Integration vision: Vietnam prioritizes developing friendship and economic cooperation with neighboring countries in Northeast Asia and ASEAN. This is clearly the foundation of the country’s sustainable integration policy and the basis for the strong and comprehensive development of the country’s bilateral and multilateral international economic cooperation strategies. In that process, it is necessary to actively coordinate with ASEAN countries to build and complete active cooperation institutions (laws and COC code of conduct) with ASEAN+ strategic partners such as ASEAN-China, ASEAN-India and ASEAN-U.S. as well as regional cooperation initiatives such as RCEP and IPEF to ensure the principles of openness, equality and win-win for all parties.

Government: The government has an important role to play in developing the fair, competitive national business environment, encouraging investment and promoting businesses to conduct innovation, research and development to both gain competitive advantages and enhance those advantages. It is necessary to determine the country’s position in production factors, such as skilled labor or infrastructure, necessary to compete in a given industry. This thus helps identify capable, influential industries in Vietnam’s market economy such as agriculture, logistics, energy, marine economy and high technology.

In addition, it should be recognized that the Government’s fiscal and monetary policies, inspired by friendly companies to build a business environment that enhances national competitiveness, often lead to overexploitation and interest groups. Pursuing these policies, for all their short-term appeals, hardly any country (even advanced countries) is certain to achieve real and sustainable competitive advantages. National prosperity is created, not inherited. It does not grow out of a country’s natural resources, labor force, interest rates, or currency value as asserted by classical economics but it is based on a country’s competitiveness in raising labor productivity. In the long term, it mainly depends on how core industries are reformed and upgraded by market dynamics.

Business: Business cooperation and selective use of alliances bring a lot of benefits to business. At the simplest level, it can be a way to save costs and avoid repeated efforts. Besides, competition makes the market work well. Inspired by competition, companies are encouraged and motivated to become more efficient, so that consumers enjoy competitive prices, more choices and high-quality products and services. In the long run, competition leads to increased productivity, ensuring economic competitiveness and supporting sustainable economic growth.

When a business achieves innovation-driven competitive advantages, it needs to maintain those advantages by continuously improving and building core competences because any advantage may be copied by competitors. Strategically, businesses need to firmly build local market share and gradually go regionally and globally in line with the country’s international economic integration programs.

Building sustainable culture that supports and promotes innovations and creativity

A working culture of solidarity and equal cooperation facilitates the formation of an innovation culture. The innovation culture at school and at work will enable organizations to reap the benefits of their innovative successes while learning from their failures.

Building the innovation culture is a time-consuming process that requires time, patience and considerable resources, especially before failures or even societal hostility. So, if we want to strongly develop great innovations, we need to build a culture that is economically, environmentally and socially sustainable, and must adapt to innovations in rapidly changing global landscape. Successfully carrying out the above contents, Vietnam will certainly help drive the ASEAN community towards the Vision beyond 2025 and effectively contribute to prosperity and social progress for the region and the world.

Dr. Doan Duy Khuong

Former Chair of ASEAN BAC

Source: Vietnam Business Forum