Wednesday, 25 May 2011

Vietnam - Finding your own way

By Hubert Schmitz

This is part 2 of this week's mini series on Vietnam.

I found Neil McCulloch’s reflections on Vietnam-style “democracy” fascinating. As he observes in his recent blog, as a communist state, democracy may not be its strength but economic development most certainly is.

Vietnam is one of the big success stories of the last two decades. It has overcome the devastation of the American War and of State Socialism and is competing successfully in the global economy. Other countries want to learn from this success but distilling recipes is not easy. Vietnam has found its own way forward, transforming itself economically by a three-fold combination of:
  • using the market to propel economic development
  • provincial governments experimenting with ways of governing the market
  • the Communist Party retaining overall political control.
We can however draw some lessons for the debate on how to promote investment and growth.
  1. The national investment climate approach is not supported by the Vietnamese experience.  The basics of a good investment climate were not in place (enforceable property rights and contract law) in the initial growth phase. Investment did not follow improved legal reform. In our ESRC funded project 'Challenging the Investment Climate Paradigm: Governance, Investment and Poverty Reduction in Vietnam', we are currently investigating whether one can go as far as saying it was the other way round, namely that reform followed the investment.
  2. Understanding or fostering change at the national level is not promising. The national government is important in guaranteeing overall stability but the actual battle for transformation is fought at the provincial level. Vietnam has 64 provinces which have considerable room for experimentation as long as they do not challenge the supremacy of the Communist Party. As Neil noted, this currently does not appear to be a major concern.
  3. Competition between provinces helps.  The Vietnam Chamber of Commerce and Industry (VCCI) has measured annual progress made by provinces in reforming economic governance (See the Vietnam Provincial Competitiveness Index (PCI)).  This measuring has accelerated the appetite for and speed of reform with annual league tables leading to competition between provincial governments.  Some of the laggards are seeking to emulate the successful reformers. Doing well in these league tables has an influence on prospects for promotion of provincial leaders.
  4. Decentralising economic governance has encouraged experimentation. Good practices are emerging of how provincial governments can work with local enterprises. How much the reforms actually matter for investment and growth is something we are currently investigating so watch this space for the results. 
  5. Finding your own way requires taking risks. There is a risk that these reforms will result in new forms of corruption. But there is also the chance that positive lessons will emerge from this process showing how government can harness business to growth that is inclusive and clean. This is precisely what some provinces are now seeking to achieve.
For me, the exciting thing about Vietnam is not its overall rate of economic growth but the ability of its provinces to find ways forward which suit their own varied circumstances.