The Independent Institute
Vietnam is credited with having one of the most successful antipoverty campaigns ever undertaken anywhere, raising up about two-thirds of those who lived in poverty two decades ago, by combating both the anti-productive aspects of tradition and the needless poverty still imposed to some degree by the dead economic hand of Ho Chi Minh and his followers. A country that experienced chronic, centrally imposed food shortages for decades has radically changed course, greatly reduced the percentage of the population living in poverty, from over 70 percent in the mid-1980s to 14.7 percent in 2007. Except for China, Vietnam has had the fastest growing economy in all of Southeast Asia.
Table of Contents
Vietnam, a country once known for chronic food shortages, is on the rise. At the heart of its transformation are reforms that Vietnam Communist Party officials insist merely renovate the economy while maintaining a commitment to socialism. What exactly are the nature and extent of Vietnams reforms? How have the fundamental beliefs that underlie Vietnamese culture shaped its recent progress? Will Vietnams progress continue apace? Or will the economy backslide in the face of a global financial crisis or a political and cultural backlash?
In Vietnam Rising: Culture and Change in Asias Tiger Cub, East Asia historian William Ratliff (Research Fellow, The Independent Institute) examines the causes behind Vietnams dramatic transition; assesses its legal, educational, and economic reforms; and provides insights on the further changes that must occur for Vietnam to fulfill its potential as a dynamic, emerging economy.
While for many years I have averaged about two months annually in China, I have also continued periodic trips to Vietnam, as an academic, journalist, and tourist, writes Ratliff in the books preface. Each time I visit the country I am more impressed by the spirit and dynamism of the people and by their determination to transform their lives and thus bring the long-embattled, stagnant, and repressed land into the modern world.
Confucianism, Colonialism, and Communism
After briefly reviewing Vietnams political and economic conditions as of mid-2008, Ratliff examines the cultural and historical background of the governments current reforms, showing their link to Confucian China, French colonial rule, and earlier programs of the Vietnam Communist Party.
Although only 3 to 5 percent of Vietnams 85 million citizens are ethnic Chinese, Confucian values greatly influenced the development of Vietnamese culture before and after Vietnams formal independence from China in AD 939. Vietnams bureaucratic political culture and rigid family hierarchies, its reverence for education and tradition, its elevation of the collective over the individual, its low esteem for entrepreneurs and merchants, and its legal practices reflect aspects of Confucianism.
Frances influence on Vietnamese culture during and after the French colonial period is also noteworthy, especially its impact on Vietnamese political thought. In addition to sparking nationalist aspirations, Vietnams French connection introduced Ho Chi Minh, among others, to communism while he studied in France.
Led by Ho, Vietnams new communists overthrew French colonial rule in 1954 and began to implement a Soviet-inspired economic model in 1960. After Hos death in 1969, his successor Le Duan launched policies that impoverished Vietnam, isolated it from most of its neighbors, and fought wars against China and Cambodia. A brutal program of mass collectivization liquidated all forms of private economic activity. This disproportionately harmed ethnic Chinese merchants and entrepreneurs in Saigon and launched the saga of Vietnams famous boat people, who escaped the country in the late 1970s and 1980s.
After Le died in 1986, Vietnamese pragmatists began the so-called Doi Moi renovation program, just as Chinas reforms were postponed until Maos death in 1976. Even today, Vietnam Communist Party leaders continue to speak of a transition to socialism, and many of the institutions established by Ho remain.
Overview of Reforms Today
Vietnams reforms are shaped by its legal system, which resembles a jungle of laws. To comply with World Trade Organization regulations, dozens of laws have been passed reforming commercial law, intellectual property, investment, competition, and standards for practicing law. Legal changes closely affecting. Party or state power, however, have come more slowly. Many laws take effect only several months after they have been passedand even then they might not be enforced. Red tape and corruption keep foreign investment and economic growth below their potential.
A flawed educational system also holds back economic growth. Private schools, though common, must follow public school standards for curricula, teaching, testing, and diplomas. Schools lack autonomy and accountability. Employers complain that graduates entering the workforce are lacking in knowledge and communication skills.
Vietnams antiquated financial system also keeps the economy from living up to its full potential. Although the banking sector has grown 20 percent annually in the 2000s, Vietnam remains a cash-based society with more money stashed in homes than deposited in banks. Central bank policies have created episodic inflation. Legislation to reform the banking sector has been hampered by a lack of expertise, bureaucratic foot-dragging, and remnants of communist and pre-communist traditions. Many banks have been undercapitalized and have held significant nonperforming loans, largely because the Vietnam Communist Party has used banks to prop up state-owned enterprises (SOEs).
Reforming Vietnams numerous SOEs is a tremendous challenge to economic modernization. They are typically overstaffed, lack adequate standards for corporate governance, and are incredibly inefficient. Attempts to reform them have been mixed at best.
Entrepreneurship in Several Forms
Since its initiation in 1986, Doi Moi policies have led to a surge of foreign investment and private entrepreneurship. Key reform measures include the Foreign Direct Investment Law (1986), the Private Enterprise Law and the Company Law (1990), official recognition of small private enterprises in the Constitution (1992), the Domestic Investment Promotion Law (1994, 1998), the Enterprise Law (1999), and the Unified Enterprise Law (2005).
Asian capital has predominated in the foreign-invested enterprises, although a significant amount of it came from U.S. subsidiaries based in Asia. Foreign-invested enterprises are responsible for almost all oil and gas production; most automobile assembly; and a significant share of electronics, textiles and garments, chemicals, steel, cement, rubber, plastics, and food and beverages. Fully owned foreign enterprises now account for almost half of committed foreign direct investment in Vietnam.
Vietnams domestic private sector will likely play an essential role in employing its young and growing workforce. The Vietnam government hopes that 500,000 small and medium-sized enterprises will be operating by 2010. Even if this unrealistically ambitious goal were achieved, Vietnam would still have only six businesses for every 1,000 people, as compared to forty-nine for the same number of people in Taiwan.
Ratliff also examines two other factors affecting Vietnams business climate: women and overseas Vietnamese involvement. Women currently own only about 20 to 30 percent of the businesses in Vietnam, although females and males are comparable in levels of educational attainment and health. Increases in women-owned businesses may be on the horizon. Similarly, increased commercial ties with overseas Vietnamese may be an additional source of economic expansion.
Special Challenges for Small and Medium-Sized Enterprises
More and more of Vietnams informal family businesses have become formal small enterprises, and some small businesses have become medium-sized businesses. Yet almost no medium-sized businesses have become large. Why not?
The rankings of Vietnam on several international indexes are instructive. The World Bank and the International Finance Corporation rank Vietnam 91 among 178 nations in the ease of doing business; the 2008 Index of Economic Freedom ranks Vietnam 135th among 157 nations. Vietnam also fares poorly in comparisons of starting a business, employing workers, protecting investors, paying taxes, trading across borders, and closing a business.
Other obstacles to the creation of large businesses include very inefficient land-use policies, poor funding/credit practices, and bureaucratic business-registration procedures. For Vietnam to break through the glass ceiling, it will need to dismantle these barriers.
Vietnam Confronts the World
Changes in Vietnams relationship with other countries have played a huge role in its recent rapid growth. The thawing of Vietnam-U.S. relations began in 1994 when President Bill Clinton lifted the U.S. trade embargo in response to greater Vietnamese cooperation in searching for American prisoners of war and soldiers missing in action. U.S. investors have plowed, directly or via third countries, an estimated $8 billion into Vietnam.
Eight other countries have invested more than the United States, due partly to Vietnams membership in the World Trade Organization, which began formally in January 2007. WTO membership has also given the country equal access to world markets.
Globalizationand Vietnams reaction to itwill likely continue to influence market-oriented reform and the successful emergence of private enterprise in Vietnam.
Recent years have shown that many Vietnamese are determined to build more rewarding lives for themselves and their families, writes Ratliff. The unanswered question is whether both the government and people want major change enough to reform the cultural characteristics that in the past impeded development into characteristics that can promote constructive change. Vietnams future will depend on how they work out these challenges.
Vietnam Rising is an informed, wide-ranging, eye-opening survey of economic policies and practices in Vietnam since 1986, when the program of economic reform or Doi Moi was launched. Ratliff argues persuasively that Vietnams post-1986 development record is very impressive in some ways but mixed or poor in others. His interesting explanation for this outcome is the contradictory influences of Confucianism, colonialism, nationalism, socialism, communism, capitalism, and globalism in Vietnam. Ratliff writes clearly and engagingly and provides rich empirical detail and documentation to support his arguments.
The Vietnamese economy is a complex combination of ideology and pragmatism, central planning and entrepreneurship, and isolationism and openness. History and culture have left their imprint, but there has been vast economic change during the past two decades. This accessible and comprehensive book is a must read for anyone interested in economic growth and this increasingly important economy.
Vietnam Rising is a much-needed book on a much-neglected topic. Ratliff clearly explains Vietnams pro-entrepreneurial evolution, where its come from, and the hurdles on the path to where its going.
In Vietnam Rising, William Ratliff has written an insightful, informative, succinct account of contemporary Vietnam, with an emphasis on the business environment. Anyone planning a business or recreational visit to Vietnam should pack a copy of this book in his carry-on baggage.
Especially given Vietnams modern history, this insightful book reveals the remarkable rejuvenation of that countrys economy in the last few years. Ratliff celebrates the progress that has been made but he also highlights the many challenges still to come if Vietnam is to create sustained economic opportunity and well-being.
About the Author
William Ratliff is a Research Fellow at the Independent Institute and a member of the Board of Advisors of the Institutes Center on Global Prosperity. He is also a Research Fellow and Curator of the Americas Collection at the Hoover Institution, and he received his Ph.D. in Latin American/Chinese history from the University of Washington.
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