The Political Economy of Growth in Vietnam

Between States and Markets

Guanie Lim

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781000196450
• Edition: 1
• Topic: Social Sciences
• Subtopic: Asian American Studies
• Index: Social Sciences

Since the doi moi reforms in 1986, Vietnam has experienced a dramatic socioeconomic

transformation. Lim examines the role of the state and its interaction

with market forces in bringing this change about.

Taking the motorcycle and banking industries as case studies, this book explores

the dynamics between the state and transnational corporations in shaping

the manufacturing and service sectors, respectively. Vietnam, as one of Southeast

Asia's quintessential latecomer economies with little prior experience of

dealing with transnational corporations, has nevertheless been quite successful

in maintaining some control over the impact of foreign direct investment. Yet,

the learning outcomes remain highly uneven. In addition, Lim argues that Vietnamese

advancement in both industries mirrors only partially the more generalized

patterns of state-led development in East Asia's earlier batch of latecomer

economies. Vietnam's case thus presents practical lessons on how to succeed

in crafting and utilizing policy instruments to achieve domestic economic and

technological upgrading.

This book will be of great interest to scholars of political economy and industrial

policy in East Asia, as well as to scholars and policy professionals analyzing

approaches to development strategy more broadly.

1 Introduction

Since the doi moi (renovation) reforms in 1986, Vietnam has experienced a dramatic socioeconomic transformation. Market forces were introduced, while instruments of control were curtailed considerably in order to reform Vietnam’s command and control economy. In spite of some challenges along the way, there is little doubt that the doi moi has yielded results as a large section of Vietnam’s population has witnessed a noticeable increase in their living standard, in addition to the country’s growing sophistication in several industries (see Masina 2006; Rana 1995). The doi moi has since been hailed as one of the most successful economic reforms undertaken by a transition economy. It is especially remarkable given the dramatic socioeconomic collapse in various centrally planned economies in the years following the dissolution of the Soviet Union (see Sachs and Woo 1994; Jo 1999; Beattie 2010). Unlike the ‘big bang’ reforms that took place very quickly in various countries of the former Soviet Union, the doi moi is known for its more gradual and piecemeal approach to reforming the economy.¹ Indeed, Vietnam has become Southeast Asia’s fastest growing economy since the mid-1990s, closing in on its more mature East Asian peers such as the first-tier (i.e. Korea, Taiwan, Singapore, and Hong Kong) and second-tier tiger economies (i.e. Indonesia, Malaysia, Thailand, and the Philippines). In addition, there is China, a late developer with its own unique socio-historical circumstances, which does not fall easily into either of the two aforementioned categories (See Chapter 2).

The Political Economy of Growth in Vietnam offers a fresh view into the realities of this transformation process by focusing on two of Vietnam’s leading industries – motorcycle and banking. They are important because of their substantial linkages to the rest of the domestic and international economy. For example, much of Vietnam’s motorcycles and their components are exported – after considerable domestic value-added is injected into their production cycles – as the country has been earmarked as a regional motorcycle production and export hub by global lead firms. In banking, both established and budding Vietnamese firms draw much of their capital (both short term and long term) from the large state-owned banks that dominate the credit supply market. Put another way, their survival and growth owes much to the vitality of the banking industry (and, by extension, the state-owned banks) (See Chapter 5).

In view of the impressive industrial transformation, how – and to what extent – is it driven by the state or market forces? In addition, is Vietnam following the pathways of the more mature East Asian economies? These are important questions as Vietnam’s nation-building process cannot be decoupled from the role of the state, especially if one considers its deep socialist roots and the resilience of its ruling regime. Nevertheless, facing severe economic hardships, Vietnamese policymakers, by the 1980s, were forced to open up the economy to attract transnational corporations (TNCs) from the advanced economies and their expertise. Since the doi moi, Vietnam’s cohort of state-owned enterprises (SOEs) (a remnant of its socialist roots), its poorly designed state structure, and the savviness of the capital-intensive TNCs have combined in a constantly evolving assemblage, generating often uneven results. As a key member of East Asia and an emerging economic powerhouse in the Greater Mekong Subregion, Vietnam’s intimate socioeconomic linkages and historical roots to the region means that it is bound to influence (and be influenced by) the policies and practices of its East Asian peers (See Chapter 2). The rapid growth of the first-tier and second-tier tiger economies as well as that of China must also not have escaped the attention of Vietnamese policymakers in the latter’s reform agenda. However, when transposed into the place-specific setting of Vietnam, the resultant power contestation and its shifting dynamic will likely make policy planning and industrial transformation more unpredictable than what is commonly expected. Such a constantly shifting power dynamic in turn circumscribes opportunities for growth and policy options available to the Vietnamese.

With the aforementioned as a backdrop, The Political Economy of Growth in Vietnam brings together a series of careful comparative analysis, first exploring the state versus TNC dynamic in the Vietnamese motorcycle and banking industries. To this end, the commonalities and differences between the two industries will be examined. The book subsequently compares and contrasts the Vietnamese experience of dealing with TNCs vis-à-vis that of more advanced Asian economies, especially Korea, China, Malaysia, and Thailand. The main theme is how Vietnam, one of Southeast Asia’s quintessential latecomer economies with little prior experience in dealing with TNCs, manages to push industrial transformation and arrive (either fully or partially) at its desired pathway. The Political Economy of Growth in Vietnam argues that Hanoi has enticed various well-capitalized TNCs to invest into its previously derelict motorcycle and banking industries, ensuring that some value resulting from their foreign direct investment (FDI) is retained and redistributed accordingly. However, one cannot say that the path towards the gains made in these two industries was a bed of roses. The reality reveals a struggle. While the TNCs enjoy more operational freedom in the motorcycle industry, they have not been granted such autonomy in the banking industry as Hanoi and its cohort of SOEs retain considerably more clout in the latter. Notwithstanding the shifting power relations between the state and the TNCs since the 1986 doi moi reforms, the trajectories of both industries can only be described as qualified cases of progress. Overall, Vietnamese advancement in both industries mirrors only partially the more generalized pattern of state-led development in Asia’s earlier batch of latecomer economies.

Unpacking the state in East Asia

Surveying East Asian development over the last decades, four points stand out: (i) Japanese success in achieving dominance in several key industries since the 1950s; (ii) the emergence of Singapore, Hong Kong, Taiwan, and Korea (the region’s first-tier tiger economies) in the 1960s; (iii) industrialization of Malaysia, Indonesia, Thailand, and the Philippines (the region’s second-tier tiger economies) since the 1970s; and (iv) explosive growth in the region’s transition economies (mainly China and Vietnam) since the 1980s.² One of the most prominent factors undergirding the rise of these economies is the close relationship between the state and commercial interests, with the state playing a key role in pushing the development agenda. According to Beeson (2007), there is a region-wide belief in the importance and legitimacy of the state in shaping the development pathway of these nations, at least in the initial stages of growth. For instance, one of the key vehicles is the deployment of SOEs, especially in China, Malaysia, and Singapore. In view of the increasingly competitive global economy, many of these SOEs have since been privatized, or at least have formed partnerships with TNCs in their internationalization efforts. A similar situation has been observed in Vietnam.

Nevertheless, the economic boom resulting from the doi moi does not mean that the SOEs’ grip on the Vietnamese economy has completely loosened. Ishida (2013) argues that there remain some industries where SOEs occupy monopolistic or oligopolistic positions under (explicit or implicit) state protection. These industries include but are not limited to electric power, oil and gas exploration, and rice exports. While it is true that concrete steps have been taken by the Vietnamese state to discipline the SOEs (especially in the dissolution and consolidation of small and underperforming SOEs, and the equitization of capable SOEs by converting them into joint stock companies), the objective of the doi moi reforms has not been simply to abolish the SOEs or to ‘privatize’ them. More specifically, the SOEs are still expected to play a ‘leading role’ in the ‘socialist-oriented market economy’ (Sakata 2013, 7). In other words, the ultimate aim of SOE reform is to concentrate the state’s resources to enhance the capacity of large and capable SOEs, which then helps them to compete against other firms in the domestic and international markets.

However, this effect is likely to play out unevenly across industries, stimulating different outcomes and opportunities for growth. Research on the Vietnamese textile and machining industries reveals the emergence of a group of ‘reformed SOEs’ after Vietnam liberalized its economy in the post–doi moi years (Fujita 2017, 126). This includes market-savvy SOEs and/or quasi-private firms (that have since been partially or fully privatized) that respond positively to opportunities opened up since the launch of the doi moi. Notwithstanding their access to state-related privileges such as easy access to capital and land, these ‘reformed SOEs’ have capitalized on the learning opportunities brought about through their integration into the investment and trade network of the TNCs, deepening their know-how and growing their income.

Research significance

Studying the evolution of the Vietnamese motorcycle and banking industries and their comparative dynamic will thus offer scholars and policymakers pragmatic lessons in approaching economic development, a seemingly elusive yet crucial task. This also implies that state intervention remains critically important, even in this era of supposedly accelerated globalization, in which states (and earnest scholars and policymakers) are commonly advised not to intervene in the market economy. The Political Economy of Growth in Vietnam offers practical lessons on how to succeed in crafting and utilizing policy instruments to achieve domestic economic and technological upgrading. It does so by unravelling Vietnam’s development since the doi moi was announced, focusing on two of the country’s more critical industries (i.e. motorcycle and banking) and the reasons behind their progress. Further, it will shed light on some of the stumbling blocks and the political contestation that have impeded the growth of the two industries. As the fastest growing economy of the region since the mid-1990s, Vietnamese advancement holds a wider comparative significance for other developing economies aspiring to catch up to the rest of the industrialized world.

Given the increasingly complex economic environment, one needs a more integrative and context-sensitive study to make well-informed decisions. The Political Economy of Growth in Vietnam represents one such avenue. In engaging with and bolstering the existing literature, this book revitalizes and enhances the debate on the role of the state in social and economic transformation in the 21st century. It will especially appeal to students and scholars in the fields of International Business, Economic Geography, International Political Economy, Development Studies, Southeast Asian Studies, and Public Policy, as well as policymakers whose work involves international investment and trade.

Book structure

The Political Economy of Growth in Vietnam begins by providing background information regarding the Southeast Asian economy. It sheds light on the political economy of Vietnam, delineating its development with respect to the 1986 doi moi reforms. More specifically, Chapter 2 assesses Vietnamese development over the last three decades, covering changes in key industries and the main players involved. Particular focus will be trained on SOEs, which have long been at the centre of Vietnam’s industrialization strategy, even if the country has liberalized its economy to market forces. It also provides information on the state versus market dynamic, illustrating how Vietnam’s supposedly market-driven transformation is a multidimensional process simultaneously shaped by and shaping Hanoi.

Chapter 3 introduces the ‘obligated embeddedness’ conceptual framework that helps explain how countries negotiate and interact with TNCs to advance their development goals. This framework was first proposed by Liu and Dicken (2006) in their study of the Chinese automobile industry and has since influenced various social scientists in their research. Chapter 3 upda...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• 1 Introduction
• 2 Background information
• 3 Theoretical survey
• 4 Progress amidst confusion: the Vietnamese motorcycle industry
• 5 Control under dirigisme: the Vietnamese banking industry
• 6 Comparison and analysis
• 7 Conclusion
• Index