Surveillance over state-owned groups should be strengthened

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National shipbuilder Vinashin has been brought to the verge of collapse.

The company's US$4.5 billion worth of debts serve as a cautionary tale about the current management and oversight mechanisms for state-owned companies.

At present, the owners and management of these sprawling entities seem so jumbled it becomes impossible to decipher one authority from another. According to economist Nguyen Minh Phong, of the Hanoi Socioeconomic Research Institute, the cadres in charge of these groups lack both clear responsibilities and incentives for improvements.

Thanh Nien Weekly: What can we learn from the Vinashin case?

Nguyen Minh Phong: We need to re-consider the role of state-owned firms in general. These groups should focus on their core business area, and avoid rampant investment.

Second, it is necessary to tighten the oversight mechanisms that are already in place to ensure that the state can effectively control these firms' activities.

Third, the capacity and performance assessment of these groups must be measured more accurately.

State-owned groups have recently broadened their investments rather than deepening their commitments to core business practices. Is it a problem that needs to be soon solved

 

In principle, a business should strive to invest in the diversification and strengthening of its core business all at the same time. What I mean is that firms should invest in both their core areas and multifaceted fields.

However, state-owned firms should transition from playing a key role in the larger economy to focusing on specific fields "” particularly those that are essential to taxpayers' daily lives.

Thus, state-owned development should prioritize their core business first and foremost, instead of investing in multifaceted fields in an effort to broaden their scale"”these efforts often prove ineffective, and create unequal competition for non-state-owned firms.

How can we monitor state-owned groups in the future?

I think that the current oversight of the state economic sector has some shortcomings. There is an overlap in defining the owners and management agencies of state-owned firms. [As a result] some issues have not been dealt with by suitable agencies to ensure they are solved in a timely and legal fashion.

Regarding the current cadre management mechanism (in state-owned groups), the responsibility and authority of cadres has not yet been clearly defined, so they lack an incentive to improve these businesses.

We need to solve these problems in order to meet our international integration commitments. State-owned groups have a duty to act on behalf of the public interest. The culture, atmosphere and hierarchy at state-owned groups should be similar to private sector businesses in the same fields. Changing that culture will help to ensure equal competition.

What should change first about our current oversight mechanisms?

Oversight should be independent so we can avoid situations where an agency charged with granting investment licenses to firms is also their supervisor. Such an agency cannot be expected to supervise a business to which it has wrongly granted a license.

I want to stress the importance of the division and diversification of oversight of the (state) economic sector. Oversight should be conducted by not only the state, but also media agencies, and other independent sources.

The state has poured a lot of money into some large firms operating in important fields of the economy. From the Vinashin case, do you think that it is necessary to change the state's investment mode?

I think that two things need to happen in the future. We need to restructure the economy in general and we need to restructure state-owned groups in particular. The economy needs to develop a two-tiered system. The upper tier would be comprised of powerful economic groups operating in multifaceted fields. The lower tier would include small- and medium-sized enterprises, which cooperate together, and cooperate with those of the upper.

The upper tier entities should have multiple owners, including state-owned firms and joint stock companies. This helps increase their effectiveness and overall competitiveness.

State-owned groups should focus solely on specific fields that private firms do not want to participate in [due to low profitability] or are not allowed to participate in [as with those to do with national security].

We need to stop pouring capital into state-owned groups that operate in multifaceted fields in an ineffective manner, and without oversight, experience, technology.

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