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Introduction
During recent decades, many countries in Europe and Asia abandoned socialist regimen. Changes related to such transitions have influenced different spheres including political, economic, and social. Vietnam is an example of a successful transition of a low-income country, which moved from centrally planned to a market economy (Tran, 2013). The country managed to overcome the poverty trap and achieve certain stability and growth. Moreover, according to the classification of the World Bank, Vietnam “emerged as a lower middle-income economy in 2008” (Tran, 2013, p. 122). Later, rapid economic growth slowed down. Nevertheless, the tendency for stable economic growth is still observed. The current paper studies the preconditions of economic transition in Vietnam such as the decline of the socialist era and analyzes the course of political and economic events that determined the life of the country for the following decades.
Socialist Period and Decline of Socialism
The Socialist Republic of Vietnam started in 1958 after the Vietnamese Communist leaders accepted the Leninist system of the government (Vasavakul, 2015). One of the major principles of this system was that if a centrally planned economy. Moreover, the social sector was put under state control. Social classes were changed into socioeconomic sectors. The creation of these sectors in the period from the late 1950s to early 1960s followed the intentions of Viet Nam Lao Dong Party to “collectivize agriculture and nationalize trade and industry” (Vasavakul, 2015, p. 62).
For example, in agriculture, the Three-Year Plan was established. It was supposed to be completed from 1958 to 1960 and “called for the setting up of production cooperatives in which land and capital belonged to the collective” (Vasavakul, 2015, p. 63). The principle of central planning was executed in the following way. Every year, the State Planning Commission was developing a plan, which included certain goals to achieve for every province. In their turn, provincial offices provided plans for districts, which were further transferred to all the cooperative presidents. Thus, the relationship between the central government, cooperatives, and their members could be described as three-tiered (Vasavakul, 2015). Agricultural infrastructure was getting substantial investments from the government. For example, the spheres of investments included irrigation or agricultural machinery together with the supply of fertilizers and agricultural instruments at lower prices. In return, apart from taxes, the cooperatives were supposed to sell some of their production to the state at prices lower than the market ones as well.
The Three-Year Plan was also applied in industry. According to Vasavakul (2015), it “advocated the transformation of private enterprises into mixed private/state arrangements” (p. 64). Already at the end of 1959, about half of all private enterprises became state capital. During the decade, the industry in Vietnam was mainly producing consumer goods. However, the First Five-Year Plan presented in 1960, was focused on the development of heavy industry. The share of investments in the industry grew up from 78 percent in 1961-64 to 82 percent in 1965-68 (Vasavakul, 2015, p. 64). On the whole, the state was determining activity in every sphere of economic life through central planning. Thus, it influenced wage rates and benefits of workers, distribution of resources and labor. Labor management was characterized by high rates of bureaucracy while labor unions were subordinate to managers at enterprises (Fry & Mees, 2016). However, low efficiency, which was a result of a disagreement between planners and managers, notified about the necessity for change. These problems were made worse in 1975 by the reunification of Vietnam. The country leaders had to take some measures to reform economic sector, and these changes were finally adopted in 1979 (Vasavakul, 2015). However, central planning remained a major framework. Nevertheless, in the 1980s, need for change became more evident. The benefits experienced in different sectors of economy as a result of partial reform prompted a more global change. Thus, in 1986, the Communist Party of Vietnam adopted doi moi or renovation. The major goal of this project was to open the Vietnamese economy to the world and enter outside markets (Vasavakul, 2015).
The end of central planning provoked a social revolution in Vietnam. However, it was more related to economic and not violent. Among its achievements, there was the discovery of “the old economic basis of the state and the socioeconomic sectors with vested interests in the old system while creating new social classes outside the state sector” (Vasavakul, 2015, p. 65). In the political context, the abolishment of central planning resulted in a crisis of the state apparatus. The problem was that the old administrative system was ruined and a new one was not functioning properly. Thus, apart from the expected advantages, the decline of Socialism in Vietnam and withdrawal of the central planning brought in many challenges that the new country had to face.
Political and Economic Events After Transition
The adoption of doi moi project caused the change in all the spheres of life in Vietnam. The shift from the central planning system was completed only in 1989, and the first elements that could construct a functioning market economy appeared only in the 1990s (Vasavakul, 2015). One of the major events in agriculture of Vietnam happened in April of 1988. It is known as Contract 10, and it announced decollectivization of agriculture. Despite that fact that the land was still owned by the state, the producers had fixed rights to cultivate the land for a definite period (usually from 15 to 19 years), according to the defined conditions. The sphere of enterprise was also influenced. In the process of 1990s reforms, small- and medium-sized state-owned enterprises, which were not profitable, were supposed to be eliminated (Vasavakul, 2015). However, the results of the reform in the state industrial sector were not so evident as in agriculture.
The beginning of the 1990s in Vietnam was characterized by the development of new labor legislation (Fry & Mees, 2016). It was a necessary step to manage the changed labor market. The major laws that were adopted included a trade-union law (1990), a new union constitution (1993), and a labor law (1994) (Fry & Mees, 2016). These changes positively influenced the productivity of agriculture, “shifted labor away from the traditional agricultural sector to the modern sectors, and promoted the inflows of foreign financial and managerial resources” (Tran, 2013, p. 123). The reform turned Vietnam from a country suffering from food shortages to an important rice exporter. Also, the reform was characterized by the shift of labor force from agriculture to such sectors as industry, construction, and service. After almost two decades, the share of employment in sectors other than agriculture had risen from 25 percent in 1985 to 45 percent in 2008 (Tran, 2013, p. 123). Structural changes in exports should also be mentioned. Immediately after the start of the reform, up to 80% of exports consisted of the products such as rice, coffee, crude oil, and coal. However, as of 2005, manufactured exports made about 50% (Tran, 2013). Moreover, the reforms opened the way to world markets for Vietnam. This integration was also important because it let Vietnam enter East Asian markets. Such transition promoted economic growth. Thus, exports included in gross domestic product increased from 26% in 1990 to more than 70% in 2007 (Tran, 2013, p. 123).
The policy of doi moi project did not succeed at once. Nevertheless, after some years of attempts and mistakes, the Vietnamese economy achieved the desired increase. Even under the influence of the Asian Financial Crisis, the country did not stop its development, and its economy preserved an increase of 5% a year in the late 1990s. From the beginning of the 21st century, economic growth of Vietnam increased. It could be stated, that the period of doi moi was characterized by macroeconomic stability for Vietnam’s economy.
Success in economic performance had a substantial impact on the social sphere of the country. Thus, a rapid decrease of poor people was recorded. At the end of the 1980s, there were up to 70% of people living under the poverty line, and already in 2004, this figure did not exceed 10% (Tran, 2013). The World Bank has classified Vietnam as the country which “was able to escape the poverty trap and emerge as a lower middle-income economy in 2008” (Tran, 2013, p. 123). By 2008, the gross national income per capita in Vietnam was over $1000. (Tran, 2013).
However, the changes would not have been so rapid and efficient without the participation of international development agencies. For example, World Trade Organization (WTO) is considered to have a significant impact on the flow of foreign direct investment (FDI) to Vietnam (Cuong, 2013). On the whole, FDI is crucial for the developing economies due to many benefits. First of all, FDI in Vietnam helped to generate new resources in finance, management, and technology. Moreover, FDI was favorable for employment, because new modernized enterprises, which were opening due to investment, provided new working places for the citizens of the country. Vietnam became a member of WTO in 2007. Since then, Vietnam “attracted about 143,950.3 million USD of FDI capital” (Cuong, 2013, p. 962).
Another partnership which became decisive for Vietnam is the one with the World Bank. Their relationship started ten years before doi moi, in 1976 (“The World Bank and Vietnam,” 2012). The Socialist Republic of Vietnam joined the World Bank Group after reunification. Two years later, in 1978, the first credit for Vietnam was approved. The International Developmental Association funded the Dau Tieng Irrigation Project for Vietnam. After Vietnam’s renovation, the participation of the country in the activities of the World Bank became more frequent. Thus, in 1993, Vietnam attended its first Consultative Group Meeting in Paris. The same year, the World Bank funded the Primary Education Project, which was aimed at making education in Vietnam more available even in rural areas (“The World Bank and Vietnam,” 2012). One of the big credits received in 1994 had a purpose to transform Vietnam’s economy from a central planning model to a market one. This investment made Vietnam a developing market in the Asian region. The following cooperative interventions significantly contributed to the development of the country. Thus, in 2001, the work of the Bank was considered “the best practice” to eliminate poverty, and the second rural project of 2004 provided thousands of people with access to electricity (“The World Bank and Vietnam,” 2012).
International Monetary Fund (IMF) is another organization which significantly influenced the becoming of Vietnam as a modern country with sustainable economics. Being a member of IMF since 1956, Vietnam felt need for its support during the period of reforms. However, the US rejected any projects of financial assistance to Vietnam until the 1990s. Later, the country received some loans mainly aimed at the reduction of poverty rate and provision of economic stability.
Conclusion
The way of Vietnam resembles the change processes in some other states that abandoned Socialism and developed a market economy. However, the country has its peculiarities due to its location in Asia. Nevertheless, the way of Vietnam from renovation to success is a memorable event in the history of the world economy. From a country with extreme poverty and weak agrarian economy, Vietnam became an equal member of the world market and a competitive exporter. A timely shift from central planning to market economy allowed Vietnam find its niches in the global market, which provide the sustainable GDP increase. Participation in international development agencies assisted Vietnam’s in its becoming a country with sustainable economy due to loans which finance both economic and social spheres and provide implications for further development.
References
Cuong, H.C. (2013). The impact of the World Trade Organization (WTO) regime on foreign direct investment (FDI) flows to Vietnam: A gravity model approach. Journal of Modern Accounting and Auditing, 9(7), 961-987. Web.
Fry, S., & Mees, B. (2016). Industrial relations in Asian socialist-transition economies: China, Vietnam and Laos. Post-Communist Economies, 28(4), 449-467.
Tran, V.T. (2013). Vietnamese economy at the crossroads: New doi moi for sustained growth. Asian Economic Policy Review, 8(1), 122-143.
Vasavakul, T. (2015). Vietnam: Sectors, classes, and the transformation of a Leninist state. In J. W. Morley (Ed.). Driven by growth: Political change in the Asia-Pacific region (pp. 59-82). New York, NY: Routledge.
The World Bank and Vietnam: A strong and enduring partnership. (2012).
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