Matija Šerić
The Socialist Republic of Vietnam is a specific country in many respects. It has a unique place on the world map, especially on the geopolitical one. It is one of the few remaining communist totalitarian states, but at the same time a state that possesses a rarely recorded rapid economic growth that delights year after year. It is expected that by 2050 it will be able to compete with the biggest economic giants.
Although it was once America’s most hated enemy, in recent years it has been one of the main partners of the USA in the Southeast Asian region. Although neighboring China is also a communist power, the Vietnamese have bad relations with the Chinese mostly because of territorial disputes in the South China Sea. Contemporary Vietnam is a country of paradoxes and constant changes, but precisely thanks to the changes, the country is becoming an economic giant of Asia and a regional power.
Geographically, Vietnam is the easternmost country of Indochina. On the mainland, it borders China to the north, and Laos and Cambodia to the west. At sea, it borders Thailand in the Gulf of Thailand and the Philippines, Indonesia, Malaysia and China in the South China Sea. The official capital is Hanoi, and the largest city where business life takes place is Ho Chi Minh City, which is better known by its original name of Saigon. As many as 99 million inhabitants live on 331 thousand square kilometers of the state territory. By population, Vietnam is the 9th most populous country in Asia and the 15th most populous country in the world. Growth and progress are visible everywhere. However, it was not always like that. Moreover, it was terrible.
Vietnam wars
In the 1960s and 1970s, Vietnam was one of the worst places in the world. What was happening in the country at that time was in the range of top horror films, but even scarier because no film can describe the horror and horror that happened in the Vietnam War. Cause: Western colonialism. In the summer of 1945, near the end of the Second World War, the nationalist Viet Minh coalition led by the communist revolutionary Ho Chi Minh declared the independence of Vietnam. Almost 30 years of continuous war followed before the Vietnamese could enjoy their independence. The price of that independence was never higher in human history. In the First Indochina War, the Vietnamese fought the French from 1946 to 1954 and won. At least 191 thousand Vietnamese soldiers lost their lives. As a result of the peace treaties signed between the Viet Minh and France in 1954, Vietnam was divided into northern and southern parts.
The very next year, 1955, war began between communist North Vietnam, supported by the Soviet Union and China, and anti-communist South Vietnam, supported by the United States. The war was marked by a brutal American military intervention. In the war, the Americans used practically all types of weapons at their disposal, except for nuclear weapons. They probably would have used nuclear if the American governments were not under great domestic pressure to withdraw forces from a country thousands of kilometers away in Asia. Between 400 thousand and two million Vietnamese civilians died in the war, and with the soldiers, the total victims are estimated at around three million. About 60 thousand American soldiers lost their lives.
Difficult situation after the war
After the war finally ended in 1975, Vietnam was a devastated and extremely poor country. The following year saw the formal unification of countries under communist rule and the creation of a Marxist regime. The state of misery was further aggravated by the fact that the country was ruled by a rigid Communist Party that implemented central planning and Stalinist economic policy, which, of course, did not produce results.
The government determined 5-year economic plans and economic goals, prices of goods and services, volume of trade inputs and outputs, etc. The situation was worsened by the fact that the West imposed a trade embargo, and wars with China and Cambodia followed. Post-war economic growth was minimal, if any. By the mid-1980s, Vietnam’s GDP per capita was an incredibly low $200-250. Then there was a turning point, after which nothing would be the same again.
Reforms Đổi Mới
In 1986, communist leaders realized that the literal implementation of economic policy as outlined in Karl Marx’s Capital and other communist books did not produce results, and that they had to deviate from the economic postulates of Marxism-Leninism in order to achieve economic growth and development. Either take the path of reforms or collapse economically. Economic collapse would very likely threaten the survival of the communist government. Therefore, modeled on the Chinese model of economic reforms (“socialism with Chinese characteristics”), the government under the leadership of General Secretary Nguyen Van Linh began a series of economic reforms in December 1986 under the name Đổi Mới (Renovation). The reforms transformed Vietnam’s economy. Vietnam changed from a planned economy state to a “socialist-oriented market economy” state.
Under the Đổi Mới policy, the state continued to play an important role in the economy, but private companies and crafts also gained their valuable place in the production of consumer goods and services. The government encouraged privatization of factories, farms, deregulation and foreign direct investment while maintaining control over strategic sectors. Officially, the Communist Party reaffirmed its commitment to a socialist economic orientation and reforms were introduced to consolidate socialism. However, in practice, socialism and socialist frameworks began to be dismantled and capitalism was widely introduced. Of course, the reforms were exclusively economic and the political framework remained communist. In a way, the Vietnamese rewrote the Chinese model of economic liberalization. In addition, Vietnamese leaders looked up to the progress of industrialized countries in the region, such as members of the Association of Southeast Asian Nations (ASEAN) such as Singapore, the Philippines, Indonesia, but also Japan and South Korea. There was not much socialism in those countries, at least not of the communist type.
Vietnam’s economic miracle
In those 30-odd years, the economy of the Socialist Republic of Vietnam has become one of the fastest growing. Few countries have recorded such high growth except for China. The growth of the economy was so fast and efficient that there was very little labor left that was not employed and little production capacity remained unused. Vietnam’s economy has achieved the strongest growth in agricultural and industrial production, construction, exports and foreign investment, although at the same time some new problems such as social and gender inequalities have emerged.
The question arises, how did the Vietnamese economic miracle happen? There are three main factors that contributed to the rapid rise of GDP growth, production and investments. The first factor refers to the almost maximum liberalization of trade with Asia and the rest of the world. Another factor is domestic reforms through the deregulation of the economy and the lowering of labor prices. The third important factor is large investments through public investments in human and material capital.
The Communist Party allowed and encouraged privately owned enterprises. In the first half of the 1990s, there were changes in the legal framework for the private sector. In 1990, the Law on Private Companies was passed, which gave a legal basis to private companies, while the Law on Commercial Companies recognized joint-stock companies and limited liability companies. That same year, the party began discussing the potential of privatizing state-owned enterprises, along with normalizing relations with the People’s Republic of China. After that, the 1992 Constitution officially recognized the role of the private sector.
In the agricultural sector, the Land Law was passed in 1988, which recognizes private ownership. In addition, a Central Committee resolution was issued according to which farmers were not obliged to participate in cooperatives and were allowed to sell their products on the free market. Also, the resolution recognized private agricultural households as autonomous economic units. As a result, the agricultural sector and the rural economy began to shift from autarky to trade. The government allowed each region to produce according to needs. In the market model, the state withdrew, and the market began to determine the prices of goods and services.
In the early 1990s, Vietnam accepted some reform advice from the World Bank to liberalize markets, but rejected structural adjustment programs as well as financing in exchange for the privatization of some state-owned companies. With the reforms, the number of private companies increased: by 1996, 190 joint stock companies and 8,900 limited liability companies were registered. In those years, the National Assembly introduced various tax incentives to encourage domestic and foreign investments. In terms of rural development, the government restructured the rural economy by abandoning large agricultural estates in favor of small estates and artisan crafts while training the workforce for industrial work.
Trade liberalization
Regarding trade liberalization, it is very important that Vietnam has joined many international organizations and associations that promote free trade in the last 20-30 years. In 1995, it joined ASEAN, and in 1998, it joined the Asia-Pacific Economic Cooperation (APEC). In 2000, the Vietnamese government signed a free trade agreement with the United States, and in 2007, Vietnam joined the World Trade Organization (WTO).
In addition to these agreements, special trade agreements were signed with China, Japan, India, South Korea, and in 2018, Vietnam joined the renewed Trans-Pacific Partnership (TPP-11) without the US. The overall effect of all these trade agreements was a gradual reduction of tariffs imposed on Vietnamese imports and exports. Internal reforms were a very important component of Vietnam’s embrace of an open economy. In 1986, the state passed the first law on foreign investment, allowing foreign companies to enter the Vietnamese market. Since then, the foreign investment law has been extensively revised several times in order to create more pro-investor conditions, while at the same time trying to reduce bureaucracy.
Progress in all fields
Vietnam’s efforts have not gone unnoticed by international organizations and economic think tanks. According to the World Economic Forum’s (WEF) Global Competitiveness Report, Vietnam’s economy rose on the competitiveness list from 77th in 2006 to 67th in 2020. According to the World Bank’s Ease of Doing Business Report, Vietnam jumped from 104th in 2007 , to rank 70 in 2020. According to the report, Vietnam has made progress in all areas from contract implementation, increased access to credit and electricity, tax incentives and international trade. It is extremely important that the authorities invested a lot in human resources and infrastructure. The government has invested a lot in infrastructure in order to better connect the country with traffic and to make access to the Internet and the IT sector as easy as possible.
The reforms paid off many times over. Vietnam’s economic growth is about 6 to 7% per year, which is a reflection of China’s growth. Since 2010, GDP has generally grown at least 5% per year, and last year it grew by 8%. Vietnam has become a hub for foreign investment and factory production in Southeast Asia. The main economic regions are Hanoi and Ho Chi Minh City. Almost all global famous products are manufactured in Vietnam, from Nike, Adidas to Samsung smartphones. Walmart, IKEA, Starbucks, McDonald’s, INTEL, Microsoft, LG Group, etc. operate there. Vietnam has become an alternative to China for investors. The prices of labor, lease and purchase of real estate are cheaper, the risks of inflation and disruptions in the production supply chain are lower. By 2020, the country had become the largest apparel exporter in the region and the second largest exporter of electronic products after Singapore.
Positive economic trends
Rapid economic growth has transformed Vietnam from one of the world’s poorest countries to one of the middle-income countries. In 1985, GDP per capita was $230 and in 2022 it was $4,475. This puts Vietnam in 116th place in the world, which is still a low level of GDP due to the huge population, but the progress is huge. Total nominal GDP last year was 406 billion USD. The GDP of PPP per capita is estimated to be around $14,458. In 2022, the unemployment rate was only 1.92%, and 9.8% of the population lived below the poverty line. Public debt was 37% of GDP. Inflation was only 3.2% last year, which is excellent data compared to the rest of the world.
GDP is composed of services (51.3%), industry (33.3%) and agriculture (15.3%). 29% of the workforce is employed in agriculture, 33% in industry, and 37.8% in service activities. The most important agricultural products are: rice, coffee, tea, soybeans, cashews, sugar cane, bananas, peanuts. Industrial production grew by 7.8% last year. In terms of industry, Vietnam leads in addition to textiles and electronics and in food processing, making machines and machine parts, steel industry, artificial fertilizers, glass industry, etc. Last year, goods worth $371.5 billion were exported, and goods were imported and services worth $360.5 billion. The most important trade partners are the USA, China, Japan, South Korea and the European Union.
A young nation
Vietnam is a country with a predominantly young population. More than half of the population is under the age of 35, which is an indication of the vibrancy and vitality of the nation. From the moment the bloody Vietnam War ended in 1975, the country had about 50 million inhabitants, and now there are twice as many. The labor force today is about 56 million Vietnamese. The authorities invest a lot in primary education. This is important in order to prepare the population for the labor market. Fascinating demographic growth is visible on the streets of all major cities.
For example, when a tourist walks through the streets of the capital Hanoi, he can feel the positive and dynamic energy in every corner of the city. The city lives literally 24 hours a day. Young people ride the streets on scooters, the aisles are filled with numerous small shops and souvenir shops selling everything from smart phones to food, drinks and props. The streets are full of children and young people leaving or returning from school or college. Hanoi, like the whole country, is extremely young and increasingly crowded.
The face and back of success
Vietnam’s success lies in sustainable growth and effective structural reforms. Growth was made possible by adherence to the free market and the abolition of trade and investment barriers, but also by cheap labor, the size of the population, and the repressive state apparatus that ensured that workers were obedient to foreign employers. Vietnam has made great progress (40 million people have been lifted out of poverty), but it is still a poor country whose inhabitants still have a long time to wait to reach the standard of living in the West. Corruption is widespread due to a weak rule of law and a corrupt bureaucracy. Research reveals that while petty corruption has slightly decreased across the country, high-level corruption has increased significantly as a means of abusing political power.
According to estimates by PricewaterhouseCoopers, by 2050 Vietnam’s economy could be the 10th largest in the world. Experts include Vietnam among the group of Next-11 countries such as Egypt, Mexico, Nigeria and others, which together with the BRICS countries will be among the largest world economies of the 21st century. Economic power also carries political power. Modern Vietnam is experiencing an increasingly strong affirmation in the geopolitical sphere. Country is a member of ASEAN, the Non-Aligned Movement, the International Organization of La Francophonie and was twice a member of the UN Security Council. Also country organized the international conferences of the World Economic Forum, APEC, ASEAN, the American-North Korean summit, etc. Vietnam is already a regional (middle) power, and in the future it could become an even stronger power in the area of Asia, the Indo-Pacific region, maybe even wider. Vietnam’s economic model is good, but politically Vietnam should not be glorified in any way. It is about an authoritarian communist regime that gave up communist economic policy, but not in other segments. It is still a communist country and no one should be deceived.
The Vietnamese government brutally violates the human rights and privacy of citizens, media freedom is one of the worst in the world. Government secret services monitor internet surfing and human rights activists are not welcome. Repression is not abating, even increasing against independent and free-thinking intellectuals. Many bloggers are intimidated and thrown into prisons. The government regularly uses Article 117 of the Criminal Code, criminalizing the act of “creating, storing, disseminating or propagating information, materials and products aimed at opposing the state” against civil society activists. In January 2021, a court in Ho Chi Minh City brought prominent members of the Association of Independent Journalists to trial. Pham Chi Dung, Nguyen Tuong Thuy and Le Huu Minh Tuan were sentenced to between 11 and 15 years in prison. Minority national and religious communities were discriminated against. Despite the economic improvement, the question is how long the communist regime will be able to keep under control the young and freedom-hungry Vietnamese population.
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