The phrase ‘They punch above their weight’ could have been coined for Vietnam, though perhaps the world’s 15th most populous country is more of a natural heavyweight than is generally recognised. The modern nation started from a very low base following the French Indochinese wars, invasion by Japan during World War Two, the famine of 1945 which killed two million and eight years of war with America which defined the 1970s. This left a divided country which reunited, following a civil war, in 1976 under a socialist government looking more to Moscow than to the country’s historic partner, China.

And yet the collapse of the Soviet Union may have been the making of Vietnam. In 1986 it entered a new era of political pragmatism: whilst the one-party socialist state and the collective ownership of much of its agriculture prevailed it introduced genuine economic reforms, including private ownership within the means of production. Its economic success since that deliberate change of direction has been phenomenal, reducing the level of absolute poverty from 58 percent of the population in 1993 to 5.8 percent in 2016. This is a better record than China, Philippines or India. It has one of the world’s fastest growing economies.

Vietnam has evolved from a largely agricultural economy to a broad one led by electronics; technology equipment, from computers to wire and integrated circuits, now contributes over a third of the country’s exports. The US – which only lifted its trade embargo on the country in the 1990s – is the country’s biggest export market whilst China supplies the lion’s share of their imports. One third of the world’s supply of cashew nuts and black pepper come from Vietnam whilst rice and coffee exports are also growing.

Now established as a middle-income country, with growth as high as 8 percent per annum, Vietnam has bilateral trade agreements with 15 countries including the United Kingdom. The latter came into force in January 2021, a year after a similar compact between Vietnam and the European Union. Trade between UK and Vietnam has tripled in a decade, to £4.8Bn (2020). Although it has come from nowhere to become southeast Asia’s third largest oil producer Vietnam is investing heavily in renewable energy production. All the signs are that its extraordinary trajectory will continue into the future.

Of the ten countries in ASEAN, Vietnam is the EU’s second largest trading partner, after Singapore, and an investment protection agreement is currently undergoing ratification. By as early as 2002 the EU accounted for a quarter of all Vietnam’s trade, compared to just 7 percent a decade earlier.

Although there is a tendency for rapid growth to wreak environmental degradation it is also the case that better off countries are often the more environmentally conscious. Greenhouse gas emissions from Vietnam have risen at 5 percent per year for the past 20 years, its waste production has doubled in fifteen. It is home to the delta of the Mekong, one of the world’s most polluted rivers and a major source of microplastics in the oceans. It has one of the worst air pollution records in the world, despite 25 years of environmental legislation. However, lawmakers are catching up; in 2022 new rules came into force requiring factory owners to use the best available technology to control pollution and to limit a range of environmental impacts. The law also defines residential communities as an essential part of the environment to be protected. On the strength of this, Britain has identified a major opportunity for the export of environmental technology. If money follows this initiative it will be very welcome, as foreign investment in Vietnam to date has tended to be in ‘dirty’ industries rather than clean.

For a country where the state remains the organising force of the economy it is remarkable that 95 percent of residents favour free markets, making it one of the most pro-capitalist countries in the world. Its ‘socialist-oriented market system’ was carefully designed to reject both the ‘anarchy’ of an unrestricted market and the state socialism that was formerly identified with the Soviet bloc. The addition of the word ‘oriented’ distinguishes the approach from that adopted by the Chinese, though it has similarities. Vietnamese thought leaders claim that in developing a wealth that can be shared they aspire to socialist values rather than actually deliver socialism; yet in terms of freedom of expression, worship and belief the one-party state remains one of the world’s most restrictive nations. This does not prevent the country being open to outsiders far more than are China or North Korea; Hanoi and Ho Chi Minh City (formerly Saigon) will host no fewer than 82 major trade fairs in 2022, a year when the country would normally expect to welcome ten million tourist visitors.

Perhaps the key to Vietnam’s success is that it is at heart neither a traditional capitalist economy nor the most highly centralised one. 96 percent of all enterprises in the country, employing 60 percent of all workers, are classed as domestic private industries. Between 2010 and 2017 foreign direct investment enterprises only rose from 2.6 to 2.9 percent of all businesses but they grew from making 35 percent of all profits to 53 percent over the same period, increasing employee numbers by half along the way. Over the same period state owned enterprises declined by two thirds, falling from one employee in every 6 to one in 12. Yet the capital held by those state-owned enterprises fell by much less, from 33 percent to 28 percent of the nation’s resources, suggesting that they were greatly improving their efficiency. Controlled privatisation was one factor that helped bring these changes about.

Vietnamese-style privatisation has been based on the real value of operations. In Britain, selling off its post war monolithic state-owned business from the 1980s onwards, this was rarely the case; gas, telecommunications, water and other industries were deliberately undervalued as an ‘incentive’ – perhaps ‘gift’ would be a better word – to shareholders and commodity traders. The pace of Vietnam’s privatisation has inevitably slowed in recent years as the remaining state-owned enterprises are either too large, too complex or too debt-laden to make them attractive to stockholders, or even feasible to ‘release’ into the open market. The nature of the economy is now sufficiently relaxed that Vietnam recently became the 150th member of the World Trade Organization.

Whilst free market capitalism as we know it today has dominated the global economy since the industrial revolution it is regulated to different degrees and to different ends in different countries. There is debate over whether a large-scale economy can be truly socialist – many arguing that Russia’s historic heavy-handedness and the recent influence of its kleptocrats means that it is nothing of the sort – and diversity in economic modelling is to be welcomed. At a local level that diversity is rife in ‘the west’ and even in Vietnam social and community-owned enterprises exist. The country has 25,000 co-operatives employing 4.6Mn people; the first was developed in 1948 but a piece of 2012 legislation gave the movement new momentum.

Diversity of opinion and of economic approach is an important principle for the Europe Asia Foundation. We hope that as Europe and Asia grow closer, they will not become less diversified, more similar to each other; unity of purpose does not require homogeneity. Vietnam shows us that different economic systems have different qualities, and it is not necessary to subscribe totally to either a free market nor a tightly regulated one; that good regulation, controlled growth and the pursuit of values which genuinely reflect the common good have their place alongside the dynamism of enterprise.

Sources:

DIT Exporting Guide to Vietnam https://www.great.gov.uk/markets/vietnam/

State-owned enterprise reform in Vietnam, https://www.adb.org/sites/default/files/publication/562061/adbi-wp1071.pdf

Co-operatives in Vietnam, https://coops4dev.coop/en/4devasia/vietnam

Trade Liberalization and the Environment in Vietnam https://openknowledge.worldbank.org/bitstream/handle/10986/8727/wps3879.pdf?sequence=1&isAllowed=y

Environmental Technology (Vietnam) https://www.trade.gov/country-commercial-guides/vietnam-environmental-technology

Trading Agreements (Vietnam) https://www.trade.gov/country-commercial-guides/vietnam-trade-agreements