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Vietnam's hybrid model of socialist governance and market economics

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13th-Mar-2019       
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Rayhan Ahmed Topader :
On its own motion, it is converting its economy from the communist model to a market-oriented system. It has, for example, unified and devalued its exchange rate, decontrolled prices, lifted interest rates, eased foreign trade controls, enacted banking reforms, opened itself to foreign investment and begun deregulating its labor market. That's the kind of stuff that wins plaudits from the International Monetary Fund, world preacher of economic efficiency. In fact, says Michel Camdessus, the IMF's managing director, the IMF's executive board "has several times praised the (country's) progress toward a market economy and fundamental economic reform.
According to a commentary in People's Daily by former Vietnamese President, corruption is worse now than at any other time in the Communist Party of Vietnam's 70-year history. There is collaboration between those in power and rent-seekers to abuse state policies, he wrote. They arrange business deals that benefit some individuals and groups greatly, but cause immeasurable damage to the state budget and disrupt the economy.
Moreover, Vietnam's previous growth was based heavily on speculation in real estate and stocks, rather than on manufacturing, technology, and other high-value-added industries. But if the country wants to move up the global value chain and achieve more sustainable growth, deep political reforms are needed.
Over the past three years, the CPV's top thinkers have held a public discussion about introducing more checks and balances into the system. Apart from the anti-corruption trials, there are plans both to reduce the number of people on the state payroll and to raise the salaries of those who remain.
Recently US President Donald Trump and North Korean leader Kim Jong-un met in Hanoi for their second summit; two former Vietnamese ministers of communications were arrested and charged with violations related to management and use of public capital. The two officials are alleged to have approved a state-owned telecom company's purchase of a private television provider for over four times its estimated value, at a loss to the state of around $307 million.
Similarly, a few months ago, two vice ministers, a minister of transportation, and a former head of the state petroleum corporation were all brought to court on charges of selling state property to private companies at a loss. Taken together, these cases point to a high level of state capture a form of corruption, rife in former Soviet-bloc countries, in which powerful private actors use insiders to gain control of public institutions and assets.
Like North Korea, Vietnam started opening its economy while allowing little to no private ownership. However, after three decades, Vietnam - like many developing countries - is not immune to the detrimental effects of extractive elites. There is evidence of powerful private companies' undue influence over domestic policies. Nonetheless, Vietnam's hybrid model of socialist governance and market economics has been widely touted as an example for Kim to follow.
Between 2007 and 2017, Vietnam's wealth grew by 210%, and according to the real-estate consultancy Knight Frank, more than 200 Vietnamese have investable assets of at least $30 million. Having expanded by 320% between 2000 and 2016, Vietnam's super-rich class is growing faster than that of India 290% and China 281%. And if current trends continue, it will have grown by another 170% from 14,300 to 38,600 millionaires by 2026.
A significant share of these nouveaux riches has acquired their wealth by taking advantage of loopholes in the governance system. Such cronyism has thrived in the absence of clear regulations governing property ownership and conflicts of interest on the part of public officials. One obvious reason is that government employees typically receive exceedingly low salaries; even the prime minister earns only around $750 per month. Against this backdrop, the CPV launched its unprecedented anti-corruption campaign, while publicizing its efforts to fight interest groups and thwart state capture. So far, the prosecution of some former high-ranking officials has alleviated public discontent.
And the Hanoi summit, together with Trump's trade war against China, seems to have driven more foreign direct investment into Vietnam, thereby relieving some pressure on the economy, and thus on the government. But in the long run, the Party cannot rely on such windfalls. In crafting its new development plan, the CPV seems to have been inspired by Singapore and the Nordic countries. Its goal is to move from a model based on cheap labor and capital-intensive, high-pollution, industrial-based investment to one based on advanced technologies and services, which would ensure more sustainable and equitable growth. Judging from public statements, the Party's leaders seem to have recognized that flagrant corruption and rapidly rising inequality pose a threat to their legitimacy.
Yet it remains to be seen if the current enforcement efforts will actually lead to meaningful political reforms, stronger safeguards against corruption, and clearer regulations for property ownership, so that the rich no longer have to rely on insiders to accumulate and protect their wealth. Much of the CPV's rhetoric has focused on the need for "morality and ethics" on the part of government officials. But it would be better to accept that self-interest is a powerful and inescapable human trait. By simply enjoining government officials to behave honestly out of a sense of public duty, the Party risks missing the opportunity to establish stronger and more rational corruption-monitoring mechanisms.
When Kim's car passed through Hanoi this week, many Vietnamese cheered, not because they miss the closed economic policies of the 1980s, but because the scene was reminiscent of Vietnam's own negotiations to normalize relations with the US in 1993-1994. That diplomatic success paved the way for a significant share of the Vietnamese population to be lifted out of poverty. But while most Vietnamese have enjoyed years of rising living standards, the economic model of the past three decades must be transformed. Vietnam is once again at a crossroads.
Although Kim and Trump couldn't reach an agreement on ending US sanctions this week, Kim still seems to be heading down the Vietnamese road. If he is serious about emulating Vietnam's hybrid model of socialist governance and market economics, he will have to be mindful of the risks. As for the Party's attempts to transform the economy, it is worth noting that in the run-up to the Trump-Kim summit, Vietnamese Prime Minister Nguyn Xuan Phuc went to unprecedented lengths to bolster his country's public image by personally selecting some Vietnamese dishes for foreign journalists. In the past, the Party has always regarded the foreign press as a threat to be avoided, owing to past criticisms of Vietnam's track record on human rights. But now, the goal is to boost the tourism industry by establishing Vietnam as a top travel destination.
World Bank and Asian Development Bank loans could change that. So could sizable loans from Japan and Europe, but these, too, are unlikely without U.S. acquiescence. Until those loans come, the clamor from American business over lost trade and investment opportunities seem premature. During the war, the United States lost about 58,000 lives, Vietnam an estimated 1 million. Americans rightly want to know the whereabouts of their nearly 23,000 missing in action or prisoners of war. The Vietnamese, no doubt, still long to know what became of their 300,000 reported missing in action. Competition and conflict in the South China Sea involves many nations due to its resources and vital sea lanes.
However, it is China which increasingly serves as a common denominator of intensifying anxiety for its South China Sea maritime neighbours due to the aggressive scope of its claims to the sea and its islands. Among those states, Vietnam is most affected as it is first in the path of Chinese ambitions which authorities fear would give China significant tactical military and economic advantage.
For China, there are similar fears over threats to the sea lanes and sea bed resources. Leaders of both states also perceive their diplomatic and martial actions in the sea in historical terms as well. However, enforcement actions taken by either state may lead to a worsening security dilemma in which reactive security strategies could dangerously destabilise relations.
Rayhan Ahmed Topader , Writer and Columnist , raihan567@yahoo.com

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