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Hoàng Dạ Lan wrote this article in Vietnamese and published it in Luật Khoa Magazine on January 29, 2025. Đàm Vĩnh Hằng translated it into English for The Vietnamese Magazine.

When Measuring National Development, Institutions Matter Most High living standards are often seen as the hallmark of a developed nation. In countries with strong social democratic traditions like Germany, Sweden, and Denmark, this prosperity goes hand-in-hand with transparent governance, advanced welfare systems, and relatively equal societies.

By contrast, middle-income nations such as Việt Nam and China face persistent social inequality and systemic corruption, while North Korea ranks among the world’s poorest, plagued by chronic shortages and economic dependency. [1]

What explains these vast disparities? What is the fundamental factor that determines whether a country thrives or stagnates? The answer, according to Daron Acemoglu, James Robinson, and Simon Johnson—recipients of the 2024 Nobel Prize in Economics—lies in institutions.

Institutions: The Rules That Shape Development At their core, institutions are the “rules of the game” in a society—the formal and informal norms that govern how individuals interact. [2] They fall into two main categories: economic and political , which can be further classified as either extractive or inclusive . Extractive institutions concentrate power and resources in the hands of a small elite, while inclusive institutions allow for broad participation in economic and political life, fostering innovation and long-term progress.

The distinction is as follows:

Inclusive economic institutions protect private property, uphold the rule of law, ensure fair competition and contract enforcement, and promote broad access to education and opportunity. Inclusive political institutions are pluralistic, with checks and balances and broad citizen participation. [3] Extractive economic institutions are marked by a lack of rule of law, barriers to market entry, insecure property rights, and a skewed playing field. Extractive political institutions concentrate power in a small elite, lack accountability, and operate outside legal norms and standards. [3] According to Acemoglu, Robinson, and Johnson, this framework explains the divergent paths of nations. European democracies prospered because they built both inclusive economic and political institutions, combining free markets with protections for labor rights and inequality mitigation. Politically, they established parliamentary democracies, encouraged civic engagement, and enhanced transparency and accountability. Conversely, North Korea has stagnated under a toxic blend of extractive political and economic institutions for over 70 years, resulting in widespread poverty, corruption, and repression.

Nighttime satellite imagery shows North Korea in darkness, while South Korea is ablaze with lights. Acemoglu and Robinson use this image to illustrate the disparity in development between North Korea (a predatory regime) and South Korea (an inclusive regime). Image source: Earth Science & Remote Sensing Unity, NASA Johnson Space Center. Việt Nam and China lie somewhere in between. By adopting some inclusive economic elements, both have achieved impressive growth. However, their political systems remain extractive, a combination of authoritarian governance with partially liberalized markets that has enabled deep state intervention and fostered collusion between political elites and business tycoons. This has resulted to a host of socio-economic challenges: widening inequality, rampant corruption, weak public governance, bad debts, underperforming state enterprises, land disputes, and severe environmental degradation. [4][5][6][7][8][9]

This is not to say that social democracies like Germany or Sweden are without problems; they grapple with aging populations, stress on their welfare systems, rising populism, and immigrant integration. The key challenge for any state is balancing economic growth with social equity. However, the laureates' work suggests that inclusive democratic systems, with their transparency and accountability, are inherently better equipped to navigate these tensions.

Marx and Bernstein: Institutional Contrasts in Ideals When historical thinkers are evaluated through the lens of institutional economics, their visions for a just society reveal stark contrasts. In The Communist Manifesto, for example, Karl Marx and Friedrich Engels promoted what would now be classified as extractive institutions: a proletarian dictatorship, the abolition of private property and inheritance, the suppression of free markets, state monopolization of credit, and the confiscation of assets from dissidents. [10]

While their stated goal was a classless society free from exploitation, the prescribed methods curtailed individual freedom and centralized all power within the state. History has shown that this vision of a "dictatorship of the proletariat" often became a dictatorship of the Communist Party, leading to authoritarianism and ideological repression.

This reveals a central contradiction: Can the ideal society described by Marx, "where the free development of each is the condition for the free development of all," truly be realized if the path to it is paved with extractive policies? [11]

In direct contrast, Eduard Bernstein, the founder of revisionist socialism, championed inclusive institutions. He advocated for achieving a just and humane society not through violent revolution, but through expanded democracy, including suffrage and political participation for the working class. Bernstein supported welfare policies such as public education, healthcare, and unemployment insurance, all while preserving private property and market economics.

Eduard Bernstein's grave in Berlin, Germany. Here, Dr. Klaus-Jürgen Scherer, former director of the Cultural Forum of the Social Democratic Party of Germany (SPD), delivers a speech on the 90th anniversary of Bernstein's death. Since 2016, his resting place has been designated an honorary grave in Berlin, and the orange plaque next to his grave is a symbol of Bernstein's important role in history. Photo source: spd-tempelhof-schoeneberg.de . Việt Nam at the Crossroads of History In the mid-18th century, while French philosopher Montesquieu was publishing The Spirit of the Laws, calling for the separation of powers to protect freedom, the prominent Vietnamese scholar Lê Quý Đôn was emphasizing moral self-cultivation and Confucian virtue as a solution for a decaying bureaucracy. [12]

This divergence in thought became starker in the mid-19th century. When faced with foreign pressure, Japan responded with the Meiji Restoration (1868), dismantling feudalism and embracing Western models of governance, which transformed it into a modern power. Around the same time in Việt Nam, the reformer Nguyễn Trường Tộ submitted similar proposals, but his ideas were blocked by conservative court factions. The Nguyễn dynasty chose military resistance over reform, leading to disastrous defeat and eventual colonization. [13][14]

This pattern repeated in the early 20th century. While Swedish socialists like Hjalmar Branting rejected Lenin's anti-democratic tenets and steered their country toward democratic reform and social capitalism. Meanwhile, Nguyễn Ái Quốc (later Hồ Chí Minh) embraced the revolutionary communist path. Following the war, Việt Nam adopted a centrally planned economy under one-party rule, stifling civil liberties and leading to severe economic problems.

That trajectory began to shift in 1986 with the launch of Đổi Mới, a series of economic reforms that introduced inclusive elements and unleashed significant growth. Yet today, the nation remains bogged down by institutional inertia rooted in slow political reform. Bureaucratic inefficiency, corruption, and rising inequality have eroded public trust.

This problem is now acknowledged at the highest levels. At the opening of the 8th National Assembly in Oct. 21, 2024, General Secretary Tô Lâm declared that institutions are “the bottleneck of all bottlenecks” and must be reformed to seize development opportunities. [15] While state media celebrates a “new era of national resurgence,” the Party leadership itself has identified the core problem.

The central question remains: What is the biggest bottleneck in Việt Nam’s political system? The country has lifted itself from poverty through market liberalization and economic competition. But to fully unlock its potential and ensure a prosperous, sustainable future, it must go further—toward democratization and healthy political competition.

The crucial choice now rests with today’s Vietnamese: Which path will they take, and what legacy will they leave for future generations?

Acknowledgment: The author sincerely thanks their teacher and several colleagues for feedback on this article series, and especially a reader from Luật Khoa Magazine for suggesting the topic.

Reference: CIA. (2024, September 09). North Korea . The World Factbook. https://www.cia.gov/the-world-factbook/countries/korea-north/#introduction North, D. (1990). Institutions, Institutional Change and Economic Performance . Cambridge University Press. Acemoglu, D., & Robinson, J. A. (2012). Why Nations Fail: The Origins of Power, Prosperity, and Poverty (Translated into Vietnamese by Trần Thị Kim Chi). Youth Publishing House (Nhà xuất bản Trẻ). Kurlantzick, J. (2016). State Capitalism: How the Return of Statism is Transforming the World . Oxford University Press. Pei, M. (2018). China’s Crony Capitalism: The Dynamics of Regime Decay (Vietnamese edition translated by Nguyễn Đình Huỳnh). Writers’ Association Publishing House (Nhà xuất bản Hội nhà văn). Originally published in English in 2016. Pei, M. (2018). [Repeated entry; possibly redundant]. Economy, E. C. (2018). The Third Revolution: Xi Jinping and the New Chinese State . Oxford University Press. Pomfret, J. (2013, March 7). China village seethes over land grabs as Beijing mulls new laws . Reuters. https://www.reuters.com/article/world/china-village-seethes-over-land-grabs-as-beijing-mulls-new-laws-idUSBRE9260CH Joseph, W. A. (Ed.). (2019). Politics in China: An Introduction (3rd ed.). Oxford University Press, USA. Marx, K., & Engels, F. (1848). The Communist Manifesto . Marx/Engels Internet Archive (marxists.org) 1987, 2000. https://www.marxists.org/archive/marx/works/1848/communist-manifesto/index.htm In the English version of The Communist Manifesto , Marx and Engels describe the ideal society as: “the free development of each is the condition for the free development of all.” Lê Quý Đôn. (1961). Kiến văn tiểu lục ( Small Records of Things Seen and Heard , translated by Phạm Trọng Điềm). Culture and Information Publishing House (Nhà xuất bản Văn hóa – Thông tin), pp. 44 & 51. Hoàng Hằng, & Hồng Nhung. (2017, April 13). Nguyễn Trường Tộ from the Perspective of the French . National Archives Center I. https://www.archives.org.vn/gioi-thieu-tai-lieu-nghiep-vu/nguyen-truong-to-duoi-goc-nhin-cua-nguoi-phap.htm In East Asia before the 19th century, China regarded itself as “the center of the universe,” and surrounding countries—such as Việt Nam, Japan, Korea, Tibet, and the Ryukyu Islands—were considered vassal states. These nations acknowledged Chinese supremacy, paid tribute, and participated in diplomatic rituals following Chinese norms. Peoples who did not conform to Chinese cultural, social, and administrative standards—especially Confucian moral values—were often labeled as “barbarians” ( man di or nhương di ). Western countries like Britain and France were also viewed as barbarians within this Confucian worldview. Reference: Kang, D. C. (2020). International order in historical East Asia: Tribute and hierarchy beyond Sinocentrism and Eurocentrism . International Organization , 74(1), 65–93. Phương, A. (2024, October 21). General Secretary and President Tô Lâm: Institutions are the "bottleneck of the bottleneck" . Sài Gòn Giải Phóng Newspaper. https://www.sggp.org.vn/tong-bi-thu-chu-tich-nuoc-to-lam-the-che-la-diem-nghen-cua-diem-nghen-post764593.html