Vietnam’s Transition to a Market Economy
With President Obama’s visit to Vietnam in May of 2016, we thought it would be a good time to focus on Vietnam and how it’s doing. For the beginners out there (and some of us old hats, too) here’s a brief overview of the history of economic reform in Vietnam, and its transition to a “Socialist-oriented market economy”
Although the Socialist Republic of Vietnam started out a communist dictatorship, subsequent reforms and increasing affinity with the free market has triggered amazing growth from an emerging power in the Asian market. The Vietnamese dong has progressed from a currency not worth the money it was printed on in the 70’s, to a significant unit in the world market.
The Doi Moi Reforms of 1986
1985 was a dire time for Vietnam, seeing widespread poverty, crippling foreign debts, and a lack of essential staples. Inflation soared to over 700%. The Doi Moi reforms were an answer to this crisis. While they introduced many economic reforms, they tried to hold to socialist ideas. We still see a disconnect between certain protections of the free market, and centralized control, and problems that we’ve seen emerge as patterns with socialist regimes. However, the trends and changes are promising, and between continued policy changes, increased world trade, and the rising younger generation, Vietnam’s economy should continue to see steady growth.
Changes in the Agricultural Sector
One of the biggest initial changes of the Doi Moi reforms was to make it so that farms were more privatized. Although there were still quotas that farms had to meet, they were allowed to keep the surplus, and they were allowed to sell a portion of that quota in the free market. This change, coupled with a relaxation of the international trade restrictions that limited private producers’ foreign profits, enabled a major spike in agricultural production. In fact, in 1989, Vietnam became the world’s 3rd largest rice exporter.
The introduction of the Land Law in 1993 continued these agricultural reforms, abolishing any faulty cooperatives. It gave private ownership to farmers and allowed them to make decisions regarding their own land about what would be the most profitable way to use it.
The Rise of Private Business
1992 saw an amended constitution for Vietnam that recognized private ownership. This has spurred a gradual transition from centralized, state-owned business management to growth in the private sector. In 1989, 12,300 state-owned enterprises existed in Vietnam. By the year 2005, it was reduced to 3,000, and it’s gone down even further since then.
Another essential factor of Vietnam’s economic growth was based in the Doi Moi reforms that lifted the monopoly held by the government on foreign trade, to allow for more horizontal trade between businesses and foreign nations and businesses. We’ll take a closer look at Vietnam’s role in the world market in our next blog post, so stay tuned!