Vietnam: The Changing Faces of Reform

During the Asia Pacific Economic Cooperation (APEC) summit held in Hanoi in November, international media attention focused on the rapid economic changes in Vietnam. “Socialist Ideals are Fading as World’s Businesses Rush In,” reads one subtitle. A young entrepreneur with a craving for Western luxury brands represents “the new face of Vietnam.” And an American expatriate in Ho Chi Minh City (Saigon) reports that “it’s all electric here.”

The implication is simple and obvious: Western capitalism is transforming Vietnam into a neo-liberal paradise. Is this fact or fiction?

Growth … And Inequality

It’s true that Vietnam’s economy really is booming—at least in the major urban areas. If you’ve never been to a place that is growing at 10-15%, as in Hanoi, Danang, and Ho Chi Minh City for the last five years or so, the change is palpable, even deafening. New buildings appear on all sides, while buying and selling spills over onto the sidewalks and streets. This dynamism, much of it fueled from below, has made Vietnam the second-fastest growing economy in the world, second only to its northern neighbor, China. And though Vietnam is not the gargantuan economic force that China is, it is, as George W. Bush might say, “a big country—really big.” With 80-plus million people, Vietnam is the 12 th or 13 th largest country in the world.

Travel an hour or two away from the cities to places where the APEC delegates never set foot, and it’s a different story. Vietnamese villages don’t contain the sort of abject poverty that you might see in the poorest developing countries. (Those who cite per capita GDP figures in dollars to claim that Vietnam is still one of the poorest countries in the world are using out-of-date or incomplete statistics.) Official poverty rates have fallen from 58% in 1993 to less than 20% today.

But if the economic prospects in rural areas are not worsening, they are not accelerating like in the cities, either. Rice farming is still the main source of income, with many families supplementing non-agricultural work and seasonal migration to earn a living. As hard as they work, rural Vietnamese are falling further behind their urban counterparts. The more Vietnam develops and integrates—into the Asia-Pacific Economic Community (APEC), the Association of South East Asian Nations (ASEAN), and the World Trade Organization (WTO)—the bigger this development gap will become. Some of the groups most likely to be left out of economic growth include ethnic minorities, migrant workers, people with disabilities, and people living with HIV/AIDS.

From a village perspective, the wonders of foreign direct investment and export trade are light-years away. The local economic issues that matter are, well, local: is there a market for my products? Will input costs rise or fall? Will drought or floods ruin my crops? These are definitely market economy questions, but they depend not on international investors but on the more mundane creation of a domestic private sector, particularly in the form of small and medium-scale enterprises in rural areas.

Behind the neo-liberal smokescreen, moreover, the state role in the economy remains strong. During the first ten years of reform, the state-owned sector’s share in industrial production actually rose, reaching a high of 47% in 1997. This includes the People’s Army of Vietnam, which, unlike its Chinese counterpart, has yet to divest from business. It owns, for instance, the fastest-growing telecommunications company in the country. While economists such as Harvard University’s David Dapice criticize Vietnam for “an ideological preference for inefficient investment and policy,” Vietnam still posted rapid growth during this period, even continuing through the Asian financial crisis that devastated much of the region. (The other exception was China, which had an even more centralized economic system than Vietnam’s.) Clearly, state involvement and economic growth are not the antonyms that they appear.

A further irony is that many of the international organizations now celebrating Vietnam as an economic success story were giving very different advice not long ago. Vietnam, like China, has grown by ignoring most of the policy prescriptions of the World Bank and International Monetary Fund—the so-called “Washington consensus.” In addition to maintaining a large state sector in the economy, Vietnam has resisted capital liberalization and proceeded cautiously on trade liberalization. (To its credit, the World Bank confesses its sins after the fact. The current Bank country director has stated that Vietnam “luckily didn’t follow all the Bank and Fund’s recommendations in the 1990′s, or it would be worse off now!”1)

The problem lies not so much with the content of neo-liberal recommendations, which may be beneficial in some cases, but with the cookie-cutter approach in which they have often been applied. The “one-policy-fits-all” approach to economics ignores the specific realities of each country’s situation. A policy that works well in one situation at one time can be disastrous when applied elsewhere.

The Vietnamese government has thus taken a largely pragmatic approach to economic and social policy, adopting only the external advice that leaders believe appropriate. The results have been mixed: excellent at head-count poverty reduction, good in education and health, less good on labor and welfare, and poor on corruption and waste. Some of Vietnam’s growth has been sustainable and productive, but both the state and foreign-invested sectors have also squandered resources on low-quality projects. Most Vietnamese have benefited to some extent, accompanied by growing inequality. This situation forms the background to Vietnam’s increasing cooperation with the United States and its impending entry into the World Trade Organization.

Normal Trade Relations and the WTO

The United States lifted a post-war economic embargo on Vietnam in 1994, but it was not until 2001 that a bilateral trade agreement restored normal economic ties between the countries. Due to the Cold War-era Jackson-Vanik provisions of U.S. trade law, however, Vietnam’s normal trade relations (NTR) status must be renewed yearly by Congress. Initially controversial, NTR renewals have passed without debate in recent years.

As part of Vietnam’s accession to the WTO, however, the United States is required to accord Vietnam permanent NTR, that is, without the Jackson-Vanik waiver. This necessitates an additional congressional vote, and passage through the pre-midterm election Congress appeared assured with support of both major parties. However, the Republican leadership did not bring the PNTR bill to the floor before the election recess. When a fast-track attempt to pass the legislation in the House surprisingly failed on November 13, President Bush came to Hanoi for the APEC summit without delivering on the most important item on the bilateral agenda. PNTR finally passed the 109 th Congress in one of its last acts before adjourning on December 9.

Passage of PNTR is a final step supporting Vietnam’s accession to the WTO, which is set to occur on Dec. 28, 2006. Accession to the WTO has been a major governmental objective for several years. Since most of Vietnam’s neighbors and major trading partners have joined, Vietnamese leaders do not want to be left out in the cold. They also expect—perhaps naively—that WTO membership will enable them to compete more evenly against developed-country trade barriers such as the anti-dumping lawsuits beloved by U.S. and European Union manufacturers. The purely symbolic value of Vietnam putting isolation behind it and integrating into the world economy is also significant, particularly in domestic public opinion.

The debate around the WTO in Vietnam has focused more on the terms of Vietnam’s entry rather than the value of accession itself. International NGOs such as Oxfam Great Britain have published studies with provocative titles such as “Extortion at the Gate” and “Do as I Say, Not as I Do” claiming that the international trade body is raising the bar on Vietnam and forcing it to accept conditions that previous entrants have not had to meet. In particular, analysts believe that Vietnam is being unfairly punished for China’s failure to live up to some of its WTO commitments when it entered in 2001. Indeed, the Byzantine web of bilateral commitments, side agreements, and tariff schedules that make up an accession package should put to rest any lingering association of the WTO with “free trade.” The club appears to function less like an open marketplace than like a college fraternity with hazing rituals.

Vietnamese decision-makers have taken these concerns seriously. Although the extra requirements and delays have hurt some sectors of the economy, such as textiles and seafood, Vietnam is overall probably better prepared for the changes that WTO membership will bring than would have been the case several years ago. It is difficult to find a Vietnamese who disagrees with joining the WTO, and the public mood is optimistic that the economy can overcome the challenges of heightened international competition and prosper on its own terms. In particular, there is little fear that Vietnam will simply be swamped by its northern neighbor. Vietnamese keep a wary eye on China, but relations between the two one-party states are good, and Vietnam has benefited substantially from China’s development.

Such economic analysis is almost always framed in national terms. At the sub-national level, the situation is more complex: not “Is joining the WTO good for Vietnam?” but “Who in Vietnam will gain from joining the WTO and who will not?” According to economic theory, growth is good for everyone, providing that the winners compensate the losers. In reality, this rarely if ever happens. Distribution is a political question, and the winners almost always hold political power as well. Economic growth may result in net gains for the country as a whole but with social consequences that limit or even outweigh these gains.

Policy Challenges for the United States and Vietnam

The United States, particularly the new Democratic majority in Congress, should encourage Vietnam to deal openly and constructively with the social consequences of economic growth. U.S. assistance to education, health, and rural development should increase. Sanctions-based approaches, such as trade and human rights conditionalities, should be left on the back burner. Americans will find we can build strong relationships and exert positive influence on Vietnamese society if we are able to look beyond labels such as “communist” and engage directly with groups and individuals. For instance, the Vietnam General Confederation of Labor (VGCL) is a state-controlled union, but it can also potentially be a strong voice to represent workers’ rights and interests against unbridled capitalism. U.S. unions should seize the opportunity and train the VGCL to fulfill this role.

Vietnam’s next challenge is to achieve social equity to match its economic achievements. The government needs to continue legal reforms, support social sectors, and further develop remote areas. Social progress also necessitates a flourishing civil society that can advocate for the public interest and fight corruption. Although a multi-party political system is not under current consideration, Vietnamese citizens do have some existing channels to affect local decisions. The past year has seen numerous demonstrations against land seizures and perceived abuses of power. While not all protests are successful, they have been handled by negotiation rather than force. In addition, the print media has shown increasing courage and independence in spite of its ownership by various branches of the state.

The specific features of Vietnam’s economic and political experience ensure that the results of development here will not simply repeat the trajectories of other countries. A market economy is here to stay in Vietnam, but not all markets are created equal. In place of the uniform modernity or “flat earth” envisioned by globalization’s cheerleaders, economic and social development in societies like Vietnam is creating alternative forms of modernity that combine tradition with international integration. To what extent these alternatives will succeed is still an open question—but it’s certainly an amazing process to watch.

Endnotes

  1. Verbal comments by Klaus Rohland at the Fourth High Level Roundtable Meeting / Review of Doi Moi in Vietnam, Hanoi, June 2006.
FPIF contributor Andrew Wells-Dang is Deputy Country Representative of Catholic Relief Services in Hanoi. The views expressed in this article are his own.