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How the Doi Moi reforms redefined the role of public property in Vietnam’s economic development


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.

Tran Dac Loi is the vice-president of the Vietnam Peace and Development Foundation.

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.

A worker on the production line at a Coca-Cola factory in Ho Chi Minh City, April 2000. Coca-Cola opened its bottling first plant in Vietnam in 1995 after the US finally lifted its long-standing embargo on the country. Photo: picture-alliance / dpa | epa afp Hoang Dinh Nam

What are some of the key changes that have happened under Doi Moi?

There are four key components of Doi Moi: first, turning the centrally planned economy into a socialist-oriented market economy that utilizes the dynamism of the market to stimulate economic development and build the material foundation for socialism. Second, turning the state-owned and cooperative economy into a multisectoral one in order to unleash all available resources for socio-economic development. Third, replacing subsidized distribution by distribution according to labour and invested capital in order to motivate investment and productive activities. Fourth, transforming a closed and isolated economy into an open and internationally integrated economy in order to tap new markets for the country’s products and attract foreign investment, technology, and know-how.

Doi Moi has led to significant positive changes. The economy has sustained a high growth rate, with GDP rising from 31 billion US dollars in 2000 to 266 billion in 2019. Economic growth in 2019 was 7.02 percent, among the world’s highest. Food production increased from 12 million tonnes in 1980 to 43.6 million in 2016. Once a country suffering from food scarcity, Vietnam is now the second-largest rice exporter and the top exporter of many other agricultural products. Industry grew from only 29 percent of GDP in 1986 to 34.49 percent in 2019, while agriculture’s share of GDP declined to only 13.49 percent. Inflation has been contained to below 4 percent in recent years and foreign reserves have reached record highs.

This economic growth changed the country’s image, and, most importantly, created the conditions to significantly improve people’s lives. Per capita income increased from 98 US dollars in 1990 to nearly 2,800 in 2019. Vietnam rose out of the under-developed country group in 2008, while per capita income increased by 10.8 percent per year on average from 2016 to 2018 — higher than the economic growth rate.

What is the role of state, or public, property in Vietnam? Do the commanding heights of the economy (energy, health, transport, etc.) remain in public hands? Or are they also open to privatization?

While diversifying ownership of the means of production, the CPV has carved out a key role for the public sector. Land and natural resources continue to belong to all the people and are managed by the state. State-owned enterprises (SOEs) are not for competing with non-state enterprises, but rather are the state’s economic tool to be directly involved in the market and carry out important development tasks that other enterprises do not want to or cannot undertake.

For instance, SOEs have a monopoly in areas directly related to national security such as armaments and electricity transmission. They also remain dominant in areas that decisively influence the stability of the macro-economy, such as finance, energy, post and telecommunication, and public transport, and work actively in important areas that can significantly affect the public interest such as infrastructure, food, pharmaceuticals, and water. They play an important role in the implementation of the state’s socio-economic development programmes, and are also an important tool to stabilize the market and macro-economy.

While opening up to private investment in most socio-economic areas, the state maintained its overwhelming domination in essential areas such as health, education, and mass media. Out of total investment in 2018, the state sector accounted for 33.3 percent, the non-state sector accounted for 43.3 percent, and foreign investment was 23.4 percent. This figure shows that if we rely only on the state sector we could mobilize only one third of total available resources. At the same time, by maintaining the state sector’s key role, we can direct market functioning and socio-economic development towards socialist objectives.

What role does planning play in Vietnam’s “socialist-oriented market economy”?

In terms of objectives, the socialist-oriented market economy aims at promoting prosperity for the people and a strong country. It takes economic development as a tool to improve people’s lives — not only in terms of economic growth, but also the advancement of social progress and justice, culture, morality, and environmental protection.

In order to achieve that, the functioning of the market must first and foremost be combined with macro-planning. The state and all local authorities establish short-, medium-, and long-term plans to achieve comprehensive development targets.

Because market resources are often concentrated in high-profit areas, the allocation of resources in a socialist-oriented market economy combines and complements public with market resources through targeted programmes of state and public investment to better meet development needs such as infrastructure, rural and agricultural development, and poverty alleviation. Moreover, the socialist government uses market dynamism to stimulate economic development, while at the same time containing its negative impacts and directing market activities via regulations.

What sorts of social rights are ensured to workers and other citizens?

In terms of social policy, while encouraging the people to enrich themselves legally, the party and state focus on supporting and empowering the poor via national poverty reduction programmes, agricultural and rural development, workers’ housing, and more. The minimum wage is raised every year, often at a higher rate than economic growth and inflation combined.

More than 20 percent of the state budget is allocated to education, and the state prioritizes reduced or free tuition for poor students and ethnic minorities. Free health insurance is provided for the poor, children under six, and the elderly, and the state continues to develop the health care system, especially at the local level in rural and remote areas. The CPV and the government have also issued a series of policies to ensure gender equality and protection for people with disabilities and other disadvantaged groups.

On average, the poverty rate in the country has halved every ten years, and Vietnam was recognized by the UN as one of the few countries to reach the Millennium Development Goals on poverty eradication early. Moreover, Vietnam’s Human Development Index (HDI) rose from 0.472 in 1990, when it was among countries with the lowest HDI, to the top of the middle HDI group. It was recognized by the UN Development Programme as one of the countries with the highest HDI growth from 1990 to 2018 with 1.36 percent per year, reached 0.63 percent in 2019, and needed only 0.007 more points to rank among the high HDI group.

In Germany and elsewhere, the last few years have witnessed a growing discussion about the need for socializing some important economic goods, such as housing, to ensure that all citizens have access to a safe and healthy life. Does the concept of socialization play a role in Vietnamese economic and political debates today?

The question of socialization has been one of the key issues under debate during the more than three decades of the Doi Moi process. There is a general consensus on the necessity of expanding socialization in order to mobilize resources and expand people’s participation in management to meet society’s essential needs. The issues under discussion are the path, extent, and method of socialization

That said, the direction of socialization in Vietnam may differ from Europe, since we are mainly moving from over-socialization by state ownership and control towards more popular participation in providing public services.

How does the political leadership of Vietnam reconcile the contradiction between the country’s growing integration into the global financial system and the goal of building a socialist society?

Vietnam began its transition towards socialism when the country’s economy was very poor, the productive forces were extremely backwards, and the socialist camp in Europe was collapsing. In this situation, Vietnam had to adopt open-door policies of global integration to widen the market for Vietnamese products and attract foreign investment, technology, and advanced management experiences for the country’s development. Vietnam has been a member of the World Trade Organization since 2006 and is a signatory to 17 trade agreements with nearly all of the major economies in the world.

This policy helped Vietnam’s exports to rise consistently, from 2.4 billion US dollars in 1990 to 263.5 billion in 2019. Foreign investment has been also rising rapidly, and constitutes 23.4 percent of the country’s total investments at present. These factors contributed significantly to the overall development of the country in recent decades.

In this process, Vietnam prioritizes the maximization of internal resources, constantly improving its self-reliance and the competitiveness of the nation’s economy. Vietnam has also widened and diversified international economic relations to avoid being dependent on any single foreign market. The National Assembly and the government strictly keep public and foreign debt below a secured limit. The government is also applying measures to identify and prioritize high-tech, socially and environmentally friendly foreign investment.

At the same time, the party and the state strictly maintain the country’s political independence from both market interference as well as any foreign force. By doing so, the Communist Party ensures Vietnam’s socialist-oriented development in the process of international integration.