Academic journal article Journal of Southeast Asian Economies

Lessons for Last Comers from Vietnam's Transition

Academic journal article Journal of Southeast Asian Economies

Lessons for Last Comers from Vietnam's Transition

Article excerpt

1. Introduction

Since the early 1990s, when it was as poor as the poorest of today's poor countries, Vietnam has been one of the faster growing countries in the world. During most of that period--at least since 1994--all the major multilateral and bilateral aid organizations have been active in Vietnam, financing projects and building reform capacity. Vietnam's relative success and the importance that aid donors have given to "capacity building" make it a particularly relevant case study for those who hope to play a constructive role in assisting those countries that have not yet begun (or are just beginning) the transition to a market economy-- last comers such as Myanmar and North Korea.

There is an ongoing debate about the role of aid in promoting growth and development, and, in particular, about the effectiveness of technical assistance. Related to that debate is an even broader debate about the primacy of institutions and politics versus economics and policy in determining development outcomes. Is the main constraint to economic reform the technical capacity or the political will to implement reforms? The key issues in those debates are considered here from the perspective of Vietnam's transition over the past twenty-five years--from a socialist centrally planned economy to a market economy, or as the Vietnamese authorities prefer to label it, a "market economy with a socialist orientation".

I begin with a brief overview of the achievements and setbacks in Vietnam's transition to a market economy (section 2). I then consider the role that aid has played in building Vietnam's capacity to design and implement the reforms that led to the fundamental reorientation of the economy (section 3). I also briefly consider how Vietnam's experience relates to the big debates about the role of aid and the fundamental constraints to growth and development (section 4). Finally, some tentative lessons for last comers from Vietnam's experience are offered (section 5).

2. Overview of Vietnam's Transition to a Market Economy

2.1 Socialist Transformation: 1976 to 1986 (1)

The Communist government of Vietnam announced its intention to make a transition to a market economy at the Sixth Party Congress in December 1986. This marked a major change from the policy adopted a decade earlier at the Fourth Party Congress in December 1976, when it was decided to push for a complete economic unification of the north and south as rapidly as possible under the Soviet-style model of a socialist economy with state ownership of industry, collectivization of agriculture and handicraft sectors, a state monopoly on trade and a central plan for allocating inputs and outputs and fixing prices.

Economic unification of the two regions of the country proved difficult. Efforts to collectivize agriculture met stiff resistance from farmers in the south. As a result, agricultural output during the Second Five-Year Plan (1976-80) failed to keep up with population growth and never came anywhere near the targets set in the Plan (Bandara 1993, p. 6).

The nationalization of industry and commerce in the south was no more successful than the collectivization of agriculture. A 1978 decree prohibiting "bourgeois elements" from engaging in commerce led to the closing of more than 30,000 private businesses in the south (Bandara 1993, p. 24). Industry and commerce during the Second Five-Year Plan fared even worse than agriculture, growing at an annual rate of only 0.6 per cent (Doanh 1994, p. 3). Thus, just five years after political reunification, the socialist economy of Vietnam was on the brink of disaster, with real per capita income declining precipitously.

When the Third Five-Year Plan (1981-86) was adopted it was apparent that a new approach was needed. The Party retained the goal of complete socialist transformation of the economy, but adopted a more gradual approach and initiated two significant market-oriented reforms. …

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