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Vietnam’s state capitalism and the rise of Southeast Asia

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In Brief

The IMF’s World Economic Outlook suggests the ‘miracle’Asian economies have been resilientpost-financial crisis, whereas the US and Europe are still experiencing lacklustre growth. The newer ‘miracle’ economies of Malaysia, Indonesia and Thailand (known together as ‘MIT’) demonstrate that other countries with no development for over a generation might well be able to create Confucius, Islamic and Buddhist forms of modernity.

The new cycle of  economic growth in these Southeast Asian tigers has been accompanied by a measure of economic and political freedom, and brought with it a relatively high standard of living.


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Will Vietnam’s state capitalism evolve and follow the trajectory of the MIT countries? Or will communist Vietnam continue its revolutionary path using ‘state capitalism’ to maximise its chances of survival?

On the surface, Vietnam seems to be on the MITs’ trajectory — recently becoming a middle-income country with average GDP per capita of US$1,160. The country’s projected GDP growth (6.8 per cent) for 2011 is behind only that of China and India.

A year ago, Ian Bremmer, who argues that the greatest threat to global economic growth is the rise of ‘state capitalism’ and not the financial crisis, said that the prospects for Vietnam ‘never looked sunnier.’ Because Vietnam has enormous growth potential, foreign investors have also taken the risks in their stride, although most have an exit strategy on hand.

Exactly what are the strengths and liabilities of Vietnam’s state capitalism?

The comparative advantage of Vietnam’s state capitalism is its geopolitical resource. Vietnam remains the focal flashpoint of great power rivalry that has returned to the region (amongst China, the US, Japan, India and Russia). The country has a geographic advantage in becoming the next major hub of Southeast Asia and having some ‘co-control’ of the South China Sea, which has vast prospected oil reserves.

While its geopolitical resources pose great challenges to the country’s sovereignty, since 1986, Vietnam has hedged these successfully.

In the post-1997 financial crisis, Vietnam’s export economy and its geopolitics distinctly shifted towards the US, Japan and the EU. In the post 2008 crisis, Vietnam has shifted back to ASEAN and China, to which exports were 40 per cent of Vietnam’s total exports in 2007. It is also counting on China’s outward FDI to sustain growing FDI in low-cost, low-tech manufacturing. This strategy may indeed ensure Vietnam’s ‘V-shape’ economic recovery with a 6.5 to 7.5 GDP growth in the coming years.

Recent commentary from Vietnam’s state-run Center for Foreign Policy and Regional Studies suggests that the US priority in Vietnam is still linked to the calculations of China’s rise and the ‘peaceful evolution’ of its long-term intentions toward Vietnam. And, in the context of the financial crisis, Vietnam’s party leadership is seeking to ‘renew’ its relationship with China.

Experts from China’s international studies institutes also expect Vietnam’s new Party General Secretary Nguyen Thu Trong and President Truong Tan Sang, elected in January by the country’s 11th Congress, to enhance diplomatic relations with China.

The rise or fall of Vietnam’s state capitalism will likely depend on the government’s ability to fully employ its geopolitical resources.

Because state capitalism serves the interests of those in power, the Vietnamese leadership’s agenda is not about maximising the quality and productivity of the country’s labour force. Rather, it is about attaining an equilibrium that, on the one hand, allows the Vietnamese state to maintain its vertical and horizontal power over society and, on the other hand, maintain economic development.

Here, the leadership has fallen short. Vietnam’s growth rate has never been balanced and still depends on state credit. A disproportionate share of government finance goes into the inefficient state-owned enterprises (SOEs) some of which came to the brink of bankruptcy last year. Vietnam leads the region in having the highest inflation rate, a deteriorating budget and trade deficit, and the weakest currency and sovereign risk rating in the region from 2009–10.

The shift toward China may not lessen the ‘north-south relations’ that generally define China-Vietnam relations. Vietnam is the only middle-income Asian country that runs an entrenched trade deficit with China. China is by far the largest import supplier in Vietnam and this may over time stifle Vietnam’s export economy.

Prime Minister Nguyen Tan Dung’s recent new ‘socio-economic development strategy’ for 2011–2020 has come under fire for not being able to curb corruption and inflation.

Acknowledging the deteriorating macro-conditions, the prime minister’s strategy calls for SOEs to diversify ownership and become subject to market disciplines so that SOEs do not appropriate resources needed for national development. It also promotes ‘direct democracy’ in which citizens have opportunity to study and build up a knowledge-based society under Party guidance.

These reforms imply that the Communist Party can contemplate ‘democratic evolution’ (with party leadership subjected to some form of public elections and the possibility that Leninist/Marxist ideologies might be discarded) in order to achieve a ‘correct leadership’ at the right time.

On questions of ‘generational change’ the Party leaders favour prudence rather than speed, as noted by academic David Koh. In the past, it took an ‘L-curve’ type economic slowdown, like the one leading up to the 1986 doi moi economic reform, to mobilise political will to implement serious structural reform. Perhaps only a ‘W-shape’ economic boom and bust will shake up reform of Vietnam’s state capitalism and set it on a trajectory like that of the MITs.

Long S. Le is Professor and Director of International Initiatives for Global Studies at the University of Houston.

5 responses to “Vietnam’s state capitalism and the rise of Southeast Asia”

  1. Prof. Long Le begins with a very controversial claim: “The newer ‘miracle’ economies of Malaysia, Indonesia and Thailand… demonstrate that other countries with no development for over a generation might well be able to create Confucius, Islamic and Buddhist forms of modernity.”

    What exactly are Confucian, Islamic and Buddhist forms of modernity? Do they have empirical counterparts? How are these “forms” of modernity different from each other? More importantly, how are they different from the “western” modernity? What prevented their creation till now?

    Is economic transformation sufficient or even necessary for a cultural transformation of the kind Prof. Long Le refers to? If we accept that secularization can be treated as part of the “western” modernity then it bears noting that the genesis of secularization predates economic development/industrialization at least in England. In any case, it took three centuries if not more for the “western” modernity to assume a recognizable form. Is it possible that good economic performance for a few years alone can lead to the birth of “other” modernities identified by Prof. Long Le in the near foreseeable future?

    Why see countries in terms of the majority’s religious affiliation? And why identify modernity in terms of religion? Is there a Protestant, Catholic, or Orthodox modernity as well? Is Islamic modernity Shia or Sunni? Is Buddhist modernity Theravada? Will Chinese modernity be Confucian or Confucian, Tibetan Buddhist, etc? Why have we not seen Zen modernity so far? (Japan structurally broke away from Asia almost a century ago.) And what about Hindu modernity/ies?

    In any case, why should every people have their own modernity? May be they have something else.

    Unfortunately, rising Asia seems to have a great appetite for half-baked alternatives.

  2. Vikas and Jess:

    1. For some empirical evidence of the “miracles” in SE Asia/East Asia (including Singapore, Japan, and China) see a graph that I put together for this article (but was not used by EAF) at’s-state-capitalism-and-the-rise-of-southeast-asia/.
    2. My intention of noting the Confucius, Buddhist, and Islamic forms of modernity was to suggest that a country’s culture or religion need not be a hindrance to economic development. Instead, it could complement economic development. See Jeffrey Sachs’ ‘Notes of a New Sociology of Economic Development.”
    3. Vikas’ inferences from one sentence in my article may say more about Vikas’ study/perspective of SE Asian economic development than my own. Nevertheless, I am aware of the World Values Survey/World Value Research (led by Ronald Inglehart) that does address Vikas’ questions. But I had no intention of addressing them in this article.

    Long Le

  3. I found this very interesting. However, I think the claim “Vietnam is the only middle-income Asian country that runs an entrenched trade deficit with China.” may not be entirely correct. India has a trade deficit with China, while I think Indonesia and a few other ASEAN economies also have run bilateral trade deficits since early 2009 as well. Either way this isn’t an important point for your piece.

  4. Nikhilesh:

    Last year, about 20 percent of India’s trade deficit derive from China. Indonesia last year saw soaring non-oil/non-gas trade deficit with China, although compared to 2008 the deficit in 2010 was lower. Whereas about 90 per cent of Vietnam’s trade deficit last year derived from the trade gap with China.


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