From Over-Socialization to the Socialist-Oriented Market Economy

When it comes to post-1989 socialist success stories, the rapid economic growth and expanding political influence of the People’s Republic of China is usually the first to come to mind. And indeed, China’s breakneck development, targeted poverty alleviation programmes, and massive investments in global infrastructure are no doubt impressive, not to mention pose fundamental questions about the future of the US-dominated world system.

Yet just south of China lies another, perhaps even more remarkable socialist success story: the Socialist Republic of Vietnam. After emerging victorious from over three decades of anti-imperialist struggle, first against French colonization and later against US occupation, reunified Vietnam found itself facing utter devastation. The country had lost over three million citizens to the conflict, and its infrastructure was ravaged by the seven million tonnes of explosives — including 388,000 tonnes of napalm — the Americans had dropped on Southeast Asia before surrendering. Over two-thirds of Vietnamese people lived below the poverty line, and food shortages were a regular occurrence.

Initially embarking on a path of centralization and industrialization modelled on its allies in Eastern Europe, by the mid-1980s it had become clear that this policy was causing more harm than good and producing massive bottlenecks in development. In an attempt to overcome these bottlenecks, the Sixth National Congress of the Communist Party of Vietnam (CPV) held in December 1986 introduced a series of reforms known as “Doi Moi” that permitted mixed forms of property and ownership and encouraged individual initiative in the economy, in pursuit of what the government calls a “socialist-oriented market economy”.

The results speak for themselves: in the last 30 years, Vietnam has advanced from one of the least-developed countries in the world to a booming middle-income economy with strong prospects for future growth, while poverty has declined dramatically. What does Doi Moi entail? Where has it succeeded, and where has it struggled? Tran Doc Loi of the Vietnam Peace and Development Foundation spoke with the Rosa Luxemburg Foundation’s Loren Balhorn about these questions and more.

Vietnam’s path to an independent socialist republic was long and difficult, to put it mildly. After the Americans were finally driven out in 1975, what kind of economy existed and what plans were made for the country’s future development?

During the war against American aggression, the country was divided into the North, known as the Democratic Republic of Vietnam, and the South, the Republic of Vietnam. The economy in the North was dominated by nationalization and collectivization in all major spheres, while the economy in the South was based mainly on private ownership and free-market principles, and was largely dependent on foreign aid from the US. In 1956, the South’s GDP was 4.4 times larger than the North’s because the North was heavily damaged by French aggression. But by the end of the war, the economy of the North had surpassed the South due to a continuous recession and reductions in US aid.

The country was reunified in 1976 as the Socialist Republic of Vietnam, and in December of that year the Fourth Congress of the Communist Party of Vietnam (CPV) decided to apply the economic model of the North to the whole country.

The key policies of socialist construction in Vietnam in this period consisted of, first, developing socialist production based on large-scale, state-owned economic units in industry and commerce and high-level cooperatives in agriculture. To this purpose, three “revolutions” were launched in the fields of the relations of production, science and technology, and ideology and culture, which meant turning all private and individually owned economic units into state-owned, collective property.

Second, a centralized planning mechanism was applied in economic development. The Fourth Congress’s development plans foresaw average social production increasing by 14–15 percent annually, GDP growing at 13–14 percent, and agricultural production at 8–10 percent. Heavy industry was defined as the main dynamic of economic growth and development.

Third, an equal subsidy system was applied in distribution to ensure employment, free education, and free healthcare for all. Prices of all commodities were fixed by the state. The state was also responsible for the distribution of essential goods such as food, clothes, and bicycles.

What happened in reality was far worse. Productivity was very low in all fields. Despite being predominantly an agricultural country, Vietnam faced chronic food shortages and the government had to import more than one million tonnes of food annually to feed the population. The deficit was not only in food supply but in all other essential commodities, and the people’s living standards were worsening at an unprecedented rate. By the mid-1980s, inflation had reached more than 700 percent per year, and Vietnam fell into a severe socio-economic crisis.

What went wrong?

Apart from the consequences of the war and several unfavourable objective conditions, the main reasons were subjective mistakes made by the Communist Party. Our first mistake was to confuse our starting point for the destination. Building a socialist society without exploitation and a comprehensive system of social welfare is a noble objective — but it is a long process of economic, cultural, and social development. Vietnam had just entered the early phase of the transitional period to socialism, but we rushed to apply a development model incompatible with our country’s concrete conditions.

For instance, most agricultural labour was still performed manually by individual households — these were no conditions under which to collectivize labour, yet we rushed to push collectivization and even develop high-level cooperatives. In Marxist terminology, we over-socialized the relations of production beyond the existing level of productive forces, which was still very low. This was in contradiction with Marx’s teachings, and negatively affected productivity.

The application of centralized, bureaucratic planning significantly limited dynamism and creativity at the local level. Subsidizing housing, food, health care, and education while the state budget was very tight could provide basic needs at best, but spared no resources for investing in development. Investment’s dependence on the state sector also limited resources for development. The result was a fairly equal society, but in which everybody was equally poor and had no possibility to improve their lives. That is not what socialism should be in practice.

Vietnam was a firm ally of the Soviet Union and the only Southeast Asian member of the Council for Mutual Economic Assistance, or Comecon. How integrated was Vietnam into the socialist economic system dominated by the USSR?

It is important to understand the context of Vietnam’s joining Comecon in 1978. The war against French and American aggression had severe consequences for Vietnam. In 1975, the US imposed an economic embargo and continuously sabotaged Vietnam’s reconstruction efforts. The Khmer Rouge, backed by China, launched a genocide in Cambodia and aggressive attacks against Vietnam. Vietnam’s relations with China had been worsening since China turned to the US in 1972, and Vietnam’s only real partners were the USSR and the socialist countries in Eastern Europe. In this situation, Vietnam decided to join Comecon in order to help the country overcome the legacy of the war and develop its economy towards socialism.

As a member, Vietnam was obliged to follow the rules and recommendations of the bloc, but it is also important to note that Vietnam was the least integrated economy in Comecon. Vietnam’s starting point was the lowest, far behind the level of economic development in other Comecon member countries. Vietnam was not only the poorest member of Comecon but also the most backwards economy in the bloc, dominated by backwards agriculture and small-scale manual production, while other Comecon member countries had already completed industrialization long ago.

Secondly, Vietnam was the last country to join Comecon, at a time when the Soviet and other Comecon economies had already fallen into serious stagnation, which limited their capacity to help and cooperate with Vietnam. From 1978 to 1987, the total amount of assistance from Comecon members to Vietnam, a country with a population of 40 million, was equivalent to 2 billion US dollars. Assistance to Cuba, with a population of 9 million, amounted to 4 billion.

Nevertheless, the assistance from the USSR and other Comecon countries was very important and valuable for Vietnam during this critical period by supplying food and other essential commodities as well as helping Vietnam build the first power plants, factories, schools, and hospitals. One of the most valuable assistances from Comecon was providing scholarships and education to thousands of young Vietnamese intellectuals.

Doi Moi, the Vietnamese term for the economic reforms initiated in 1986, is credited with unleashing breakneck economic growth and a rapid rise in the standard of living. But for many leftist critics, these developments were little more than a return to capitalism and a break with socialism. Is that a fair characterization?

No, that is not the case. Rather, it was the CPV’s recognition of earlier mistakes in building socialism that laid the basic foundation for the Doi Moi policy.

On the surface, it may have looked like Vietnam had “stepped back” from the “socialist model” prevailing in the USSR and Eastern Europe, which consisted mainly of centralized planning, state and collective ownership of the forces of production, and equal, subsidized distribution for all. But we should not forget that there was a big gap in levels of development between Vietnam and other Comecon members. Vietnam had just started the first phase of the transition period towards socialism, whereas the European socialist countries had already accomplished this long ago.

We also should not forget Marx’s teaching about conformity between the socialization of the relations of production and the development of the forces of production. Vietnam copying the European “socialist model” while the country was still at a very low level of development led to the over-socialization of the relations of production beyond the development of the forces of production, which went against Marx’s teachings and was our main mistake, leading to the deep crisis of the 1980s.

In this context, the true essence of the Doi Moi policy was to bring the relations of production back into harmony with the existing level of development of the productive forces in Vietnam. At the same time, it aimed at unleashing and mobilizing all resources for socio-economic development and building a material and technical base for socialism.

In that sense, the Doi Moi policy is similar to the New Economic Policy (NEP) that Lenin and the Bolsheviks applied in Russia in the 1920s. During the transitional period, socialist factors coexist with non-socialist factors, including capitalist ones. Socialist-oriented development means a gradual strengthening and consolidation of socialist factors to be, at a certain stage, dominant and ultimately irreversible.