Issue Briefs

How Vietnam established itself as one of Asia’s top economies?

Southeast Asia has been constantly growing as a region for the past few decades, especially in the economic context. The region is also known to draw valuable investments and financial support from other major countries in hopes that they can unlock the capital potential the region has to offer, which inevitably boost their businesses and influence in the region which can very much be detrimental to the global market. With countries like Vietnam, Singapore, Malaysia, etc. continuously expanding their horizons and potential, whether be it in the field of international trade, commerce, technological advancements, innovation, etc. These countries are the major contributors to the region’s development and growth.

There’s no denying that Southeast Asia has a very much bright future considering the resources and economic prospects many of the countries residing In the region have; however with reference to the main subject of this Issue Brief we will be focusing on a country residing in Southeast Asia that has been making the global headlines in terms of its economic growth especially given the traumatic history the country has gone through with full-fledged Wars constantly fought even before the country had properly established its sovereignty.

Vietnam’s Socio-economic History

Vietnam is a country occupying the eastern portion of mainland Southeast Asia. The country has been inhabited by Tribal Viet people who occupied the Red River Delta until China’s southward expansion reached them in the 3rd century BCE. From then on, a major aspect of Vietnam’s history has been its interaction with China, which is considered the source of Vietnam’s high culture. Subsequently, as a tribute-paying state after throwing off the Chinese rule in 938CE, Vietnam sent tropical products and souvenirs such as lacquerware, animal skins, ivory, etc., to the Chinese emperor and received knowledgeable resources like scrolls on philosophy, administration, and literature in return.

Looking back Vietnam has a long history of affiliation with a more dominant civilization and incorporating that civilization’s ideas, institutions, and technology into Vietnamese culture. This form of affiliation and adapting is pretty evident when we look at Vietnam’s historical relations with mainland China, for example most Viets in the 20th century, who were descendants of mandarins responded to the challenge of the west by rejecting tradition and becoming communists to combat colonialism. We can observe this again as it animated in the 20th century artistic movements that employed westerns forms to promote social renovation; it has also been the driving force behind the Vietnam’s Communist Party’s embrace of economic liberalization and integration into the world economy which were implemented in the 1980s. It is such strategic absorption and adaptation that have helped propel and push Vietnam to become one of the most populous countries in the world, along with one of the most rapidly expanding and growing market economies.

Vietnam is also home to diverse cultural traditions, geographies, and historical events that havecreated distinct regions and areas within the country. The lowlands generally have been mostly occupied by ethnic Vietnamese, while the highlands are mostly inhabited by smaller ethnic and indigenous ethnic groups that may differ culturally and linguistically from the Vietnamese.

One of Vietnam’s greatest resources that fuels its economic growth is its energetic population. Along with its other valuable resources such as its long coastline which provides excellent harbors, access to marine resources, and also acts as a major tourist attraction for visitors with a number of attractive beaches and areas of scenic beauty that are pivotal for the development of tourism In the country, which can also act as a great source of revenue. Since the late 1990s, the country’s economy has been on a vigorous upswing. The economy especially accelerated during the early 21st century, when state markets were opened to foreign competition, and on top of that Vietnam became a member of the World Trade Organization (WTO). This surge of economic development followed two decades of post-reunification economic instability, during which a slow developing infrastructure, excessive economic population growth, environmental degradation, domestic issues, and a rising domestic demand impeded and slowed economic development.

Economic reforms measures in the 1980s, which included reducing subsidies to inefficient staterun operations, introducing incentives, and slowly accepting restricted market mechanisms, which initiated Vietnam’s conversion to a market economy that was more flexible to capitalistic values. When we look at the impact the reforms had on the manufacturing industry, Light industry registered significant gains, while heavy industry appeared to be more stagnant but nevertheless showed some improvement. This, coupled with encouragement from the central government, spurted growth in the private sector and enterprises, however at the expense of the state sector. During the 1990s the government further implemented a range of economic policies to curb inflation. These policies included lower interest rates, decreasing the country’s budget deficit, and ultimately stimulating production and labor.

As a consequence of the Vietnam war both parts of Vietnam faced trade deficits during the war, and deficits even continued after reunification. Furthermore, the United States imposed a trade embargo which created problems of low efficiency and poor-quality control that hampered imports. After reunification, the value of exports was only one-third that of imports. The Soviet Union and the communist countries of eastern Europe took this opportunity to initiate commercial trade with Vietnam and eventually came to be Vietnam’s most important trading partners. Vietnam’s decision to broaden trade relations with the foreign countries as part of its larger program of economic reforms gained urgency in the late 1980s and early 1990s with the breakup and fall of the Soviet Union following the demise of the communist governments in eastern Europe.

Because of the current unstable situation in Europe trade with the region drastically reduced, this meant that Vietnam needed to look for an alternative, subsequently Vietnam shifted its focus more heavily toward Asia, and was admitted to the Association of Southeast Asian Nations (ASEAN) in 1995. Shortly thereafter, Singapore, along with Japan and China, emerged as Vietnam’s major trading partners. In addition, South Korea and Taiwan also became significant suppliers of imports.

Political and Economic Reforms in Vietnam

The break-up of the Soviet Union and the end of Marxism influence around the world also had its effects on the Asian region. The socio-political revolutions in Eastern Europe around that time brought a lot of significant consequences to the last remaining communist regimes in Asia. Throughout the 1980s, Mikhail Gorbachev’s economic and political reforms to boost the economy have also affected the political development of the largest communist regime in Asia, that is China, furthermore it also had its effect on smaller countries like Vietnam, Laos, Cambodia, and Myanmar. This backed the remaining socialist states into a corner where they are increasingly under pressure to undertake political and economic reforms, as holes and flaws in their political structures and repressive systems seemed more evident by the day, in a world where democratization seemed like the most dominant regime to ensure a state’s sovereignty and survival. The end of the Soviet Union sparked apparent world-wide freedom from tyranny, democratization, political pluralism, constitutionality, and separation of powers, as well as effective market economies.

Vietnam had already taken significant steps in communist reform in Indochina and, at present, in the area of economic reforms is surpassed only by its great neighbor, China, which can be credited towards its “open-door policy”. The war against the French colonial rule in 1954, the Victorious war against the United States from 1964-75, the occupation of Cambodia in 1978, and the border war with China in 1979, as well as economic and unilateral dependence on the Soviet Union, which had already disintegrated, had completely sapped Vietnam’s strength. The country had struggled to rebuild itself and join the ranks of the international community. Vietnam was also having a hard time receiving needed financial credits from the Asian Development Bank, the International Monetary Fund, and the World Bank.

Doi Moi and the Role of the State

Vietnam’s renovation process was highly influenced by the context of the economic crises of the Mid-1980s. Vietnam has been going through a rapid transition from a command or “conservative” economy to a “socialist-based market economy” since 1986. The “renovation” (doi moi) policy began with a reform in the agricultural sector, where land was redistributed among rural households. Wide array of economic reforms had been introduced ever since. As a result of the reforms, the economy has achieved a steady growth of about eight percent per year since 1992. Living standards have steadily improved over time but unfortunately the benefits have been distributed unevenly, leaving poverty a rural phenomenon. The renovation was carried out without outside help. The doi moi program has been characterized by openness to foreign
investment and trade and strong economic reforms, which enabled a stable exchange rate, low inflation, and a low deficit policy. The program introduced macroeconomic policies to help stabilize the economy which would in turn attract foreign investment. A series of reforms was formulated, including that of the tax system, the banking system, foreign trade, exchange rate management and so on.

China and Vietnam relations

The border between China and Vietnam provides a remarkable spectrum of border activities in different border activities in different policy environments. In the past few decades, the border has been the scene of revolutionary collaboration, national alliance, armed hostility, and normalization. Despite the stability in the regional borders, however, cross-border influence has been strong and usually reflected the existing hierarchy of power. In the 1870s and 1880s, the Chinese irregulars known as the Black Flags played a significant role in resistance to the French in Northern Vietnam, backed up by the regular Chinese military. If one generalizes the Sino-Vietnamese relations, it is evident that a border region is not simply a microcosm of the nation. The very essence of the bilateral relationship at the border creates a difference. The current condition of the relationship-hostility, indifference, or friendship-sets the economic and political narrative for both countries

The Way Forward

Looking at the current scenario, Vietnam, as of now, is an autocratic regime with a very poor human rights record whose state-owned enterprises significantly crowds out its private sector innovation. Subsequently, other states have recognized that Hanoi’s intervention in opening the country for free trade and foreign direct investment can be seen as an overwhelming positive and non-threatening change to the global trading system. Hanoi’s political “renovation” continues to contain socialist traits, while Party and state are attempting to reform the system from within. The leaders want to do everything better than the former socialist friends and their great neighbor, China. Vietnamese politicians and economic experts have not yet grasped the basic know-how for a concerted transition from a planned to a market economy. Hanoi’s idea of a combined “multi-sectoral commodity economy” can only be achieved as a transitional stage in the process of social change. Vietnam’s model of state capitalism is indeed compatible with market driven economic growth.

Vietnam’s race to become the next Asian tiger certainly has its ups and downs, especially when the question on how to reduce the country’s overreliance on foreign innovation inputs and investments. However, this can be a positive trait for Vietnam as it appears that its core elements of an innovation ecosystem are taking roots as it establishes itself as the next high tech-export power. All in all, amid increasing globalization, Vietnam has emerged and proved itself as an outlier, showing that its state capitalism is a capable and potentially influential growth model.

References

Eljoezer Sun