Vietnam forging economic 'third way'
Carolyn L. Gates looks at how the Vietnamese leadership is forging a certain policy path in its efforts at economic transformation.
As Vietnam enters ASEAN in July, analysts are asking more exacting questions about Vietnam's reform process, above all, its path of economic transformation. Many orthodox economists have postulated that Vietnam will converge with its neighbors, at least in terms of economic institutions, incentives and basic development path.
But new research on Vietnam's domestic economy offers little support for a convergence thesis. Instead, it suggests that Vietnam's state and party leaders are forging a "third way" in economic development policies--a Vietnamese variant of market socialism--and that its enterprises are bolting ahead in an environment, which is neither archetypically market nor bureaucratic hierarchy.
To an outsider, the concept of "third way" is peculiar in 1995, recalling the days of the Cold War, or even the 1930s, when the ideas of market socialism were hotly debated. Furthermore, most would question the notion that Asian economies are transforming through stylized neo-classical capitalism, or Marxist-Leninist socialism, the so-called first, or second paths of development. But in the Weltanschauung of the Vietnamese elite--some of whom remain fundamentally hostile to capitalism and committed to "workable" principles of socialist transformation--a "third way" holds great promise, particularly in a world where its old socialist allies are reborn free marketeers, and former regional enemies are welcoming Vietnam into their fold.
Although there is growing fragmentation of the Vietnamese schools of thought on economic transformation, contours of a "third way" can be identified, and they are based on Vietnamese assumptions that:
* Vietnam is unique and cannot follow either regional or international experience, although it may selectively learn from them;
* The most politically--and socially-desirable--and hence, the most appropriate strategic economic objective for Vietnam is market-oriented socialist transformation;
* It should make full tactical use of accepted market virtues;
* Vietnam can pick and choose from market and socialist transformation principles to create its own path of development.
Recent research on Vietnam's industrial enterprises, consisting of survey questionnaires of state and private enterprises and interviews of bureaucrats governing external institutional structures, is providing new evidence about Vietnam's micro- and macro-economic transformation process in three broad areas: enterprise reform, privatization and industrialization. Although this research is ongoing, several tendencies with significant economic ramifications are now observable.
Enterprise reform
State enterprise reform, as it evolved in 1988-1994, incorporating market mechanisms to discipline enterprises, but at the same time giving them far greater autonomy, has reached a peak and is now shifting to a new path, which focuses on creating a small number of vastly-enlarged state economic units in potentially-dynamic sectors. This does not mean that there will be no further mergers, closures or restructuring of existing state-owned enterprises (SOEs).
Rather, reorganization and attrition of these enterprises are likely to emerge from state neglect, as political will declines and fiscal deficits rise. In its new focus, the central government is moving to reassert control over strategic industrial enterprises and reinforce the state's economic role through these enterprises. Party/government directives and legislation, in 1994 and 1995, set out the structures of this policy: "General Corporations" (GCs), which on paper are vertically- and horizontally-integrated organizations, combining industrial, financial and commercial strengths of powerful SOEs and a few private enterprises (PEs).
While the future GCs are touted as Vietnam's answer to South Korean chaebols, they retain many characteristics of Vietnam's old Enterprise Unions, a hallmark of its socialist transformation days. On the other side of the spectrum, locally-managed, non- strategic SOEs and PEs, whose interests and resources are increasingly intermixing, will be allowed their own fates.
Privatization
Large-scale formal privatization - "equitisation" - of industrial SOEs is no longer on the cards, if it ever was. Equitisation is floundering because, simply put, it has little constituency among those who count. Of course, the central government would like to be rid of its non-strategic, loss- making, and non-viable SOEs. But, yet to emerge, is a structure expanding financial intermediation (that is, formal capital markets), which is essential to sell these SOEs. This financial constraint is linked to a second underlying problem--resistance of most state enterprise management to equitisation.
Privileges
SOE managers, who enjoy great privileges under the status quo, wish to maintain Vietnam's fuzzy financial environment, which increases their freedom of action. Therefore, unless very major political, administrative and financial changes arise, formal equitisation will proceed primarily in special cases: insider relationships, that permit management buy-outs of non-strategic enterprises possessing important financial, or physical assets (for example, highly-marketable land, state-guaranteed foreign loans) and perhaps some worker-cooperation arrangements to save jobs.
By contrast, the phenomenon of informal privatization, whereby state managers internally privatize SOE assets and private entrepreneurs operate under the "umbrella" of the state, is becoming more prominent. Whether or not it is able to create sufficient space within Vietnam's economy to develop a dynamic private sector largely depends on political variables that cannot yet be assessed.
The issues of enterprise restructuring and industrialization in Vietnam have often been conflated during doi moi (renovation) because it was assumed that market re-orientation of industrial enterprises would automatically translate into industrial growth and change. As it became more conspicuous that enterprise reform does not necessarily increase the pace of industrialization, the two are being decomposed; and a blend of old bureaucratic and new market ideas about industrialization is evolving. Accordingly, high-speed industrialization, which was a cornerstone of Vietnam's socialist transformation strategy, is re-emerging as a key component of the country's economic vision.
In theory at least, the new General Corporation will become the agent of Vietnam's renewed industrialization efforts. However, the question of how to industrialize rapidly is being answered somewhat differently. First, faith in the old socialist transformation principle, that industry must be built on a solid foundation of heavy industry, has been updated with the view that high technology-based industry may allow Vietnam to leapfrog industrial stages.
Second, export-oriented production is now seen as a means to speed up accumulation and eventually industrialization.
Third, the important role of foreign direct investment in the industrialization process is being reconfirmed, even though many Vietnamese are disappointed with the inflow of foreign capital, knowledge and technology.
Vietnam's version of "third way" economic development will be exceedingly difficult to implement, as the Chinese experience with market socialism shows. However, Vietnam's leaders also face the reality that they have no development strategy, only a vision: while the bureaucracy abounds with "strategy plans", they are often little more than wish-lists that do not make the hard choices or suggest the fundamentals of how to get from A to B. Some decision-makers make the heroic assumption that greater integration of Vietnam into the world arena will finesse these issues.
As this assumption can only be tested in the future, the question of how the growing external opportunities and challenges will affect Vietnam's path of economic transformation remains open.
Dr. Carolyn L Gates is a Fellow at the Institute of Southeast Asian Studies, in Singapore.