The Role of the State in Economic Growth

To innovate, we must start with investment in education, training, scientific research, summarizing knowledge and experience, and then self-discovery and manufacturing before we can apply it to production.

In addition to the factors of production, today people also put forward a series of other economic factors that affect the total supply, such as economies of scale of production, labor quality (or human factor) and management ability. These supply-generating factors have clearly increased the output of many industries.

The scale of production is expressed in the volume of inputs used. While the ratio between the factors of production remains constant, other conditions are the same, for example, doubling the scale of inputs will also double the output. The increase equivalent to the increase in inputs is called "Returns to scale". If the increase is larger or smaller than the scale of the increase in inputs, it is called "increasing (or decreasing) returns to scale".

It is also found that with the same level of investment in technical equipment and technology, advanced industrial countries with higher levels of culture among their people will bring about higher labor productivity and higher growth. That shows that the quality of labor or the human factor has created an increase in output, Karl Marx believed that it is the most uniform and revolutionary factor in production.

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- Labor quality: includes general knowledge (general education level), trained technical skills, experience and accumulated ingenuity in work, sense of organization - discipline and the desire to achieve efficiency in work. To have a team of good workers and businessmen, which many economists believe is the driving force to achieve high growth, there must be investment in training and development of cadres and employees in the industry and it takes time.

Each industry and each material production area has different productivity. The innovation of the macroeconomic structure makes the areas and industries with high productivity account for a large proportion of the economy, which will inevitably increase output.

Innovation in structure is reflected in the rearrangement of resources for the new structure, the rearrangement of accumulation and consumption structures and measures to create supply and demand, etc. That makes positive factors multiply, reduces costs relatively, and also brings efficiency like an investment. Thus, economic organization and management are considered as a factor that increases output.

Although these factors affecting aggregate supply create a certain growth, in reality it is very difficult to measure and compare specifically in accounting as production factors, because of its complexity with other input flows. Therefore, it can only be considered as data rather than production factors. As analyzed above, growth has a functional relationship with production factors such as capital (K), labor (L), resources (R) and technical and technological progress (T). However, due to the economic and technical characteristics of production, input factors are not discrete parameters, but a system of interactive and interdependent relationships in very close proportions. Therefore, analyzing each factor separately to determine the contribution of each factor to the growth process, as we have been doing for a long time, is unreasonable. This problem is not only in theory when analyzing but in reality, many countries and many industries still believe that just increasing one production factor can increase output and growth. This shortcoming is seen in many theoretical models when emphasizing a certain factor, they ignore other factors or simplify the interactive relationships between factors. Therefore, to ensure growth and the quality of growth, it is necessary to clearly see the interaction and dependence between factors as a system and in the process of promoting each other, it will create conditions to promote growth and ensure growth quality. The issue that industries are concerned about is which factor should be started from to grow rapidly and which factor should be invested in to ensure growth quality.

1.3.2. Non-economic factors

- Political institutions: Nowadays, people recognize the role of political institutions as an important factor in the growth process. If a stable and flexible economic-political institution will create conditions for continuous innovation of investment structures and production technology in accordance with actual conditions, creating rapid growth rates and high growth quality. On the contrary, if the institution is not suitable, it will cause many obstacles and destabilize business and cooperation relations, which can significantly affect the overall growth of an industry. However, no matter how important the institution is, it only creates conditions to promote growth, create favorable conditions to direct production and business activities in a beneficial direction or limit disadvantages in the overall development of the industry.

Since the foundation of the market economy is based on exchanges between individuals and groups of individuals, institutions play a decisive role in activating and regulating the above relationships. According to Douglass, individuals participating in transactions often do not have enough information, so there will be costs arising called transaction costs. All these costs are related to institutions. A bad institution will make the cost of enforcing contracts high and thus will not encourage economic transactions. Moreover, a good institutional structure will create certain incentives, decisively affecting the allocation of human resources in a good or bad direction for economic growth.

- Culture - society: is an important factor that greatly affects the development process of each country. Cultural - social factors cover many aspects, from general knowledge to the accumulation of the quintessence of human civilization in science and technology... High cultural level means a good foundation for reaching high civilization and the development of each country. Cultural level and legal awareness of the people are also factors that affect the quality of labor. Therefore, to ensure long-term and stable growth, investment in training

Training and education are considered necessary investments and a step ahead for the future.

- Regarding ethnic and religious factors: in general, the more diverse a country is in terms of its religious and ethnic components, the more likely it is to have political instability and conflict. These conflicts and political instability within the country can lead to violent conflicts and even civil wars, leading to a waste of valuable resources that could be used to promote other development goals, such as Indonesia or Thailand. On the contrary, the more homogeneous a country is, the more likely it is to achieve its development goals, such as South Korea, Hong Kong or Taiwan.

Community participation is also a non-economic factor affecting the speed and quality of economic growth. Democracy and development are two issues that have a reciprocal impact. Development is a condition that increases the capacity of the community to exercise democratic rights in society. In turn, community participation is a factor that ensures the sustainability and intrinsic motivation for economic and social development.

1.4. The role of the state in economic growth

There have been many studies by different schools examining the role of the state in economic growth. The classical and neoclassical schools do not attach importance to the role of the state in economic growth. However, economist Keynes in 1936 argued that the state plays a very important role in economic growth. Up to now, all countries share the same perception that the state is a real material factor for growth, it is both a driving force and a lubricant for the engine in the process of promoting growth that countries cannot ignore. Accordingly, the state and the legal framework are not only input factors but also output factors in the production and business process. World practice has shown that policy mechanisms have real economic power, a correct policy can create an environment that generates capital, increasing resources for growth.

growth and vice versa, a wrong policy can destroy the living cells of an economic body, leading to the gradual elimination of national economic growth. In 2000, Stiglitz argued that efficient markets can only be achieved under certain conditions. Therefore, in many cases, an efficient allocation of resources and outputs will be difficult to achieve without government intervention. Thomas, Dailami and Dhareshwar in 2004 also pointed out the positive impact of state management on economic growth in terms of quantity and quality.

Thus, it can be seen that economic growth depends largely on the capacity of the state apparatus, first of all in performing the state management role. Effective state management of the growth process can be considered through the criteria of macroeconomic stability, political stability, institution building and the effectiveness of the legal system. The prospect of maintaining high growth in the future will be easier to achieve in countries with transparent, clear institutions and regulations and high law enforcement, with a state apparatus with little bureaucracy and corruption, and at the same time creating conditions for all citizens to exercise their rights well.

competitive force

Synthesizing the issues presented above, the researcher presents a summary chart as follows:

Social justice & progress

Economic efficiency

Economic structure

Economic black box

Economic growth

Competitiveness

Environmental issues

Chart 1.1: Summary of basic issues on growth quality

State Management

Economic factors

 Capital – finance

 Labor

 Technology

 Resources

Non-economic factors

1.5. Lessons learned from some countries on promoting growth in relation to the requirement of improving growth quality

1.5.1. Lessons learned from China's growth model

(1) – Success in maintaining growth rate

After more than 20 years of reform, shifting from a centralized economy to a market economy, China's economy has developed very rapidly, with brilliant achievements. China is now the "farm" and "factory" of the world. According to experts' predictions, by 2020 China will surpass Japan and by 2040 it will surpass the US to become the country with the largest GDP in the world. China holds the world record for the number of years of continuous growth (27 years) and for high growth rate (GDP doubles every 8 years). China is the country with the highest accumulation rate compared to GDP in the world and is continuously increasing (since 2002 it has surpassed the 40% mark, of which since 2004 it has reached 45%) [16]. China is the third largest exporter in the world, after Germany and the United States, and in foreign trade relations, China has always had an increasingly large trade surplus. China's export market share is both large and widespread, not only in areas with high density of unskilled labor but also in areas with high technological intensity (accounting for 15% of US imports, 13% of Europe). China's foreign exchange reserves have reached over 900 billion USD, surpassing Japan to become the world's largest. Compared to other economies, China's rapid growth has the following notable characteristics: First, in the context of starting from a very low point, if the country wants to avoid falling further behind, quickly escape from underdevelopment and basically become a modern industrialized country, it must have high and continuous economic growth over a long period of time. Although Vietnam's economic growth has been continuous for more than 20 years, the growth rate has been relatively good, reaching 8-9% in some years, but it is still lower than China. Not without reason.

solution when many people suggest double-digit growth targets.

Second, to increase continuously, China has a very high savings rate, while Vietnam's has increased but only reached 35%, still far below China's. To increase savings, consumption must be saved. It is true that in a market economy, consumption is also the driving force of growth, but the consumption of a segment of the population far exceeds the amount of production, which is unacceptable to any economy. China has a high growth rate and large foreign exchange reserves, but its consumption rate compared to GDP is only 54.1%, the lowest in the world, thanks to which Chinese goods flood the world; while Vietnam's consumption rate compared to GDP is over 70% [16]. Notably, the rate of wage growth in state-owned enterprises is higher than the rate of labor productivity growth.

Third, increasing the amount of capital is important, but improving investment efficiency is much more important. Vietnam's investment capital is lower than China's, but Vietnam's ICOR coefficient (investment rate per unit of growth) has increased rapidly, from 3.4 times in 1995, to about 5 times in the past 5 years (meaning that for every additional VND of GDP, 5 more VND of investment capital is needed), almost 1.5 times higher than China's [16]. Vietnam's high ICOR coefficient is mainly due to the large amount of waste, loss and embezzlement of investment capital. Corruption in China is widespread and serious, but the punishment of corruption here is also very strict. Every year, thousands of officials are executed, including those holding very high positions.

To reduce the heat of economic growth, China is adjusting its investment, but mainly reducing investment in overheated industries such as iron and steel, aluminum, cement, energy, education, transportation, etc.

Fourth, according to the comments of economic experts around the world, countries in the process of transition from agriculture to industry, from a centrally planned subsidized mechanism to a market mechanism need to draw lessons for themselves from China's development. The nature of growth (arising not from technological innovation in production but from

The main problem is that the industry is mainly industrial, making it heavily dependent on orders from outside; competitiveness is still low due to weak production productivity; the market share in exports of foreign-invested enterprises is quite large (59%) . Another important issue is the large disparity in the distribution and enjoyment of growth results between urban and rural areas, between regions, which China is also having to draw out and make adjustments, but not easily.

Fifth, in trade relations with foreign countries, China has always had a trade surplus; the trade surplus is increasingly large and is among the top two in the world. Vietnam has always had a trade deficit, increasing continuously from 2000 to 2004 with a peak of nearly 5.5 billion USD; in 2005, although it had decreased, it was still over 4.5 billion USD [16].

Sixth, despite high world prices, inflation in China is low (average annual rate in the period 2001-2005 was only about 1.3%) due to the supply of goods being larger than demand, and the purchasing power of the population, especially farmers and inland areas, is still low. The exchange rate between the Chinese yuan and the USD is almost fixed; recently, the yuan has appreciated slightly, although the US has continuously demanded that China appreciate the yuan much more strongly.

(2) - Problems that arise

Besides the successes, we need to deeply understand the issues arising related to China's growth quality to draw lessons from the process of developing the country's economy.

One is the growing gap between rich and poor. The gap between rich and poor between urban and rural areas is clearly shown in the disproportion between the proportion of residents and the income of each part. In 1978, city residents accounted for 18% of the country's population, with an income of about 34% of the total national income, but by 1996 the proportion of urban residents increased to 28% and the income ratio accounted for 50% of the national income.

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