Folks in Vietnam are very entrepreneurial. Anyone who visits the country can testify to this fact as they see the cities being filled with street vendors and small shops. Except the very studious students whom dream to be hired by various foreign companies, almost every family has their own business. Please note that “owning a business” in Vietnam does not carry the same image as in the US, “owning a business” in Vietnam can mean a push-cart with various merchandise ranging from tooth-paste to cookies and fish-sauce. In this sense, a person who has their own business still struggles to to earn enough for their basic daily expenses.

Now, despite being very entrepreneurial in one of the fastest growing economies in Southeast Asia, Vietnamese folks are not very innovative, especially in the fields of sciences and technologies. The 2009 Global Innovation Index ranks Vietnam as #73 out of 110 countries with scores of -1.09 and -0.16 for Innovation Input and Innovation Performance.

The Innovation Input takes into account of the following categories:

1. Institutions (political, regulatory, etc.)

2. Human Capacity (education investment & quality)

3. Infrastructure & Information Technology

4. Market Sophistication (access to private credit, investors conditions, etc.)

5. Business Environment (openness to competition)

The Innovation Performance includes:

1. Scientific Outputs (patents, applications of technologies)

2. Creative Outputs (things that benefit the welfare of the society – very vaguely defined)

Vietnam’s negative scores indicate that there are negative impacts on economic and innovation growth that are caused by the innovation input factors (institutions & business environments). Also, the negative innovation performance score means a negative growth in innovation in 2009.

(source: Global Innovation Index)

Vietnamese are very intelligent. This year, 6 Vietnamese students won medals in the 51st International Mathematics Olympiad (IMO) including 1 gold, 4 silver, and 1 bronze. In addition to those, professor Ngo Bao Chau of Vietnam just won the Fields Medal for Mathematics in August 2010. Then, the question is: Why are Vietnamese not innovative?

I believe the answer lies in the institutional environment that does not incentivize innovations. Vietnam just joined the World Trade Organization in 2007 and only began to specify a large part of its intellectual property protection law since the last decade. This means that in case of a dispute, Vietnamese laws still cannot provide a strong guidance to solve any problems between competing firms. Also, the fact that Vietnamese is known for corruption also raises the already high risk of uncertainty in lawful protection in litigation disputes. Under such environment, many Vietnamese firms tend to focus on short term targets and profits because long-term R&D projects are illogical due to high costs and very low expected return on investment.

To improve this problem, it is useful for Vietnam to examine its public governance and corporate governance structure to reduce corruption and increase profit expectation so that firms will have more incentive to innovate.

But how can Vietnam even take the first step of reducing corruption?

Well, understanding the problem is the first step of solving it. Here is my speculation of why do people give and receive bribery: everyone juggles between integrity and the ability to support their family financially. More importantly, many people are willing to give away a little bit of integrity in order to free their families from poverty. Given this fact, many officers who are paid at very low official wages are very much obliged to find extra income for their families through other unofficial means – which means briberies.

The private companies, on the other hand, know that the officers need extra income. Also, sometime the amount that can satisfy these officers is actually lower than the cost of obtaining official documents and legal status for these companies, thus the private companies have lots of incentive to reach out to the officers and give them an offer that they can accept. At this point, we find a case of bribery.

My silly proposal is this: How about require all officers to pass cognitive tests developed by well-respected international company like Criteria Corp? Then, for the officers that meet integrity and IQ requirements, their wage should be at a realistic level and according to their responsibility. For example, we should not expect the Chief Import Custom Officer to earn $500/month, but a salary of $300,000+ is not ridiculous for inspecting the import goods of the country. Also, these offices should have fixed terms, and their salary level will increase or decrease depends on the votes of the industry leaders.

I’m expecting different opinions, and I welcome any thoughts =)