Vietnam is one of the fastest growing economies in the world, and has been for decades. But it is also a socialist republic. How do these apparent contrasts fit together?
Since the defining ‘doi moi‘ reforms of 1986, Vietnam’s classic socialist economy has been transformed into a ‘socialist-oriented market economy’, or in other words, capitalism with a socialist influence. The Communist Party still holds the reins of power, both in business and in public life, but a series of reforms has provided far greater freedom for potential entrepreneurs.
Although there are still thousands of state-run enterprises, not to mention five-year plans, price regulation and a few sectors still completely under state control (utilities, banks, telecommunications), large parts of the economy, particularly commerce, have been liberalised and even opened up to foreign investors (albeit subject to restrictions). The government’s aim is to permit a market economy in those areas where it benefits the country’s economic development – and naturally it is the government that decides which areas these are.
However, Vietnam’s strong economic surge is not due solely to market deregulation. The ongoing process of opening up the country to the outside world through various international agreements – the latest being the signing of a free trade agreement with the EU – makes Vietnam attractive to foreign investors. Labour costs are only half what they are in China so many manufacturers are relocating production facilities here. Vietnam is also investing heavily in public infrastructure and human capital in order to make it more attractive to foreign investors. A digital sector is currently emerging with a large number of start-ups.
The impact of the reforms is clear: from being one of the world’s poorest nations, Vietnam is now a middle-income country (ranked 130 out of 214 nations, figures from 2017). Exports account for almost 100 per cent of gross domestic product – most of the country’s wealth comes from the export sector and the activities of foreign investors.
But where there is light, there is also shadow: corruption is endemic in business (Vietnam is ranked 117 out of 180 in the global corruption index). Networks play a major role in this, with Communist Party members in private companies continuing to exercise influence on the economy. And while standards in business have improved enormously, press freedom and human rights are underdeveloped. Whether and to what extent reforms will boost the standard of living in future remains one of the key questions facing Vietnam.