Vietnam's War With Progress
by William Ratliff
Posted November 11, 2008
Vietnam today is in many respects “the darling of foreign investors and multinationals,” or at least that’s how the Economist magazine put it in a special report earlier this year.
The numbers are impressive: Nearly 1,000 foreign direct investment (FDI) projects worth nearly $60 billion have been pledged in the past 10 months. Vietnam’s real GDP growth since 1991 has averaged 7.5% annually and the people living in poverty plunged from 70% in 1986, when the Vietnam Communist Party (VCP) finally began productive reforms, to 15% in 2008.
Vietnam is indeed Asia’s newest “Tiger” cub, but it’s increasingly clear that its leap toward the developed world could fall far short in the years ahead. If so, Vietnam will be a grunt economy, producing mainly cheap manufactures with unskilled labor and exporting the varied fruits of the earth, as it is today.
It is not just that VCP leaders must “get the economics right,” for they already have in some important respects. They now have plenty of experience, data (though of uneven reliability) and expert advice to make further changes that should assure Vietnam’s continuing rise. In addition to knowing what will best promote economic growth, they have extensive international support beyond FDI, such as, in recent weeks, a $60 million World Bank credit to modernize the financial sector and an Asian Development Bank loan of $72 million to improve health care.
But a tug-of-war is underway in Vietnam between forces that promote and impede economic development. VCP leaders don’t always agree on the economics, but the determining factors are more the cultural and institutional preferences of party members that are rooted in more than five decades of communism and two millennia of Confucianism and broader Chinese culture. This culture is like love or vengeance, impossible to quantify but often more likely to sway decisions and actions than all empirical data, knowledge, lessons and common sense combined.
These factors have been strong for some decades in East and Southeast Asia where they along with getting the economics right gave birth to the earlier tigers. All of these developing countries are entirely or largely Chinese, have deep Confucian roots or have overseas Chinese communities that are the most economically productive groups in the marketplace.
Vietnam’s own Confucian roots go back more than 2000 years to its being a part of China. Then “after the occupiers had gone” in 938 AD, as Hanoi law professor Pham Duy Nghia has written, Confucianism “remained and expanded to generate the standard norms that would govern the society for centuries.”
These norms live on in two ways. First, in the authoritarian paternalism with its commitment to groups over individuals, disdain for private enterprise, and apparatus to enforce its will. Despite reforms since 1986, this authoritarian tradition remains strong and helps to legitimize the VCP dictatorship.
The tradition is most obvious today in the VCP’s paternalistic monopoly of power and the state owned enterprises (SOEs) the government still insists will be the foundation of a future socialism. The SOEs sit on half the country’s assets, but produce very few new jobs and little real growth. Efforts to “reform” them have been half-hearted so they are still largely creatures of government-linked special interests.
But Vietnamized Chinese tradition thrives also in an often very different “People’s Confucianism,” the deeply ingrained traditions and norms of ordinary people striving to survive the often repressive authoritarianism. These norms include seeing education as the route to success, a rigorous work ethic and frugality in the use of funds.
After 1986, a series of laws increasingly allowed individual Vietnamese to found several million formal and informal private household businesses and so-called small and medium enterprises (SMEs). This private sector and FDI have each created 45% of real growth and almost all new jobs. But though formally legal, this private sector consists almost entirely of small, undercapitalized firms suffering under state obstructionism over property, credit and legal protection.
The qualities of these two “Confucianisms” are not uniquely Confucian, but the combination of such strong negative and strong positive influences is more evident in these developing countries. In today’s most successful Asian Tigers the positive qualities clearly dominate, but in Vietnam the two still often confront each other.
When reforms that would obviously promote more rapid economic development are rejected or listlessly implemented, we know that something besides economics is in the driver’s seat. Among various factors, the most important is the considerable remaining VCP belief in certain traditional norms and institutions that run counter to economic development, such as the dominance of a paternalistic, authoritarian state over entrepreneurs and free markets.
Party leaders must calculate the probable consequences of those commitments. If they think some blend of authoritarian paternalism (now called “socialism”) and private initiative will serve Vietnam’s needs, perhaps by simply leveling the economic playing field across the country, let them show strong progress in that direction. If they persist in current dithering, they will certainly condemn Vietnam to grunt status in the modern world.
William Ratliff, a fellow at Stanford University’s Hoover Institution and the Independent Institute, is the author of "Vietnam Rising: Culture and Change in Asia’s Tiger Cub" (Independent Institute, 2008).
