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Gezgin, U. B. (2007). Social and economic development of Vietnam: Governmental and management challenges. Paper presented at International Colloquium on Business & Management, Bangkok 2007. Bangkok, Thailand, 19-22nd November 2007. http://icbm.bangkok.googlepages.com/112.Ulas.Gezgin.RP.pdf

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  1. 1. International Colloquium on Business & Management Bangkok 2007 Bangkok, Thailand, 19-22nd November 2007 Social and Economic Development of Vietnam: Governmental and Management Challenges Dr. Ulas Basar Gezgin, PhD, Ho Chi Minh City, Vietnam E-mail: [email_address]
  2. 2. Abstract <ul><li>An overview of the recent trends in social and economic development of Vietnam. </li></ul><ul><li>Economic growth, income inequality and poverty </li></ul><ul><li>Tentative projections for the near future, and </li></ul><ul><li>Governmental and management challenges for Vietnamese economy with a practical aim of offering policy proposals. </li></ul><ul><li>Full text is available on request. </li></ul><ul><li>Contact: [email_address] </li></ul>
  3. 3. An Overview of Vietnam’s Social and Economic Structure <ul><li>Vietnamese economy seems to be characterized by a shift from a Soviet-style centrally planning economy to the free markets at first blush. </li></ul><ul><li>However this characterization is far from correct: Actually, just like the case for China, the shares of the state-owned enterprises (SOE) are still great and the governmental regulation is immanent over the so-called ‘free market’. </li></ul>
  4. 4. An Overview of Vietnam’s Social and Economic Structure <ul><li>Vietnamese economy is an economy of </li></ul><ul><li>privatization-equitization [1] efforts; </li></ul><ul><li>economic growth due to supply-side policies; </li></ul><ul><li>increasing income gap as well as a relatively effective poverty reduction program (World Bank, 2007a); </li></ul><ul><li>and high-publicity incidences of corruption; fortunately accompanied by macro-level attempts to thwart them (Viet Nam News, August 30, 2007). </li></ul><ul><li>[1] Equitization is the translation of the Vietnamese word cổ phần hoá and it means offering the shares of SOEs to public. </li></ul>
  5. 5. An Overview of Vietnam’s Social and Economic Structure <ul><li>Though Vietnam is considered to be a transition economy, the large SOEs are yet to be targeted for equitization, and efficiency considerations are not at optimum after equitization, since the equitized SOEs still hold large shares owned directly or indirectly by the government. </li></ul><ul><li>Furthermore, there are 19 strategically important sectors that were closed to equitization, in other words under full state control. They cover sectors such as press and media, air traffic control, lottery, weapons etc (World Bank, 2007b). </li></ul><ul><li>The state still owns around 39% of industry and this figure is higher than that for China. </li></ul><ul><li>The state pursues the idea of economic efficiency in keeping SOEs with high revenues and equitizing those with deficits (Sjöholm, 2006). </li></ul>
  6. 6. Corruption <ul><li>In Vietnam, corruption and poverty are biting problems, but unlike many countries abundant (!) in corruption and poverty, Vietnamese government does not deny the existence of these two dramatic problems. The government rather explicitly states that poverty reduction and the elimination of corruption is the key in modernizing the society. </li></ul><ul><li>Many stories appear on media about corruption, but this does not mean that the cases of corruption is increasing; the increase is rather in the media coverage (Gainsborough, 2005a; World Bank, 2006a). </li></ul><ul><li>Keeping in mind that the newspapers are owned by the government, media coverage of corruption is rather a social improvement and it acts as a deterrent. </li></ul>
  7. 7. Ex-command Economies <ul><li>China and Vietnam: Gradual / incremental reform. </li></ul><ul><li>Russia and Eastern Europe: ‘Big Bang’ transition. </li></ul><ul><li>China and Vietnam: Economic reforms only. (stability considerations) </li></ul><ul><li>Russia and Eastern Europe: Both economic and political reforms. </li></ul>
  8. 8. Weak Points of the Private Sector in Vietnam <ul><li>1) The private sector is mostly constituted by small firms with low capital and outdated technology in contrast to a small number of medium-level or large firms. </li></ul><ul><li>A few larger firms will benefit from accession to WTO due to economies of scale. It seems that the Vietnamese government has to make a decision about what kind of a market structure they would endorse as a consequence of the economic reforms: oligopoly, monopolistic competition or perfect competition, along with state monopoly over certain industries. </li></ul><ul><li>2) No access to credits due to informational gaps or financial barriers. </li></ul><ul><li>3) The governmental policy over property rights for land. </li></ul><ul><li>4) Most of the small firms are family business and not professional. </li></ul><ul><li>5) Problems in the enforcement of the laws and regulations </li></ul><ul><li>(Tai, 2006). </li></ul>
  9. 9. What-to-do for Private Sector <ul><li>A governmental decision for promotion of a particular market structure, </li></ul><ul><li>Technological improvements in private sector, </li></ul><ul><li>Public relations campaigns as to credits available to public, </li></ul><ul><li>Improvement in governmental policy on land, </li></ul><ul><li>Providing incentives for professionalization of family businesses, </li></ul><ul><li>A pro-enforcement policy. </li></ul>
  10. 10. Labor Markets <ul><li>The skills of the workers do not match the transformation of the economy. </li></ul><ul><li>The shortage of skilled labor is endemic along with the shortage of skilled managers (Tang & Yue, 2006). </li></ul><ul><li>Vietnam exports unskilled labor and imports skilled labor rather than vice versa. </li></ul><ul><li>Due to the high proportion of population still living in rural areas (VASS, 2006), the work skills of most of the workers are agriculture-oriented and they do not fit the non-agricultural diversification of the rural enterprises and the technical skill requirements of the industrial zones (Tiet, 2006), and poor people are under-educated and lack information about production methods and economic processes involving micro-credits (World Bank, 2007a). </li></ul><ul><li>Restructuring of higher education system (unemployment is prevalent among university graduates). The scope of labor skills training is limited and it has to be expanded. </li></ul><ul><li>The official target is lifting the percentage of skilled labor force from 30% to 40% in 2010 (The Central Department of Ideology and Culture, 2007). </li></ul>
  11. 11. Information Gaps and Supply Shocks <ul><li>World Bank (2006b) proposes agricultural diversification as a solution for Vietnamese economy against global demand shocks and price fluctuations. </li></ul><ul><li>For instance, a firmly observed trend in global rice market is that demand for rice has been declining as the food consumption patterns of world population tilt away from rice, albeit that rice production increased due to the technological advances (World Bank, 2006b). </li></ul><ul><li>Thus, rice production may lose its status as a significant factor for raising the overall income levels. </li></ul><ul><li>Likewise, due to the excess supply of coffee on the world market, a decrease in coffee prices is expected (World Bank, 2006b). </li></ul><ul><li>The bird flu incidence: If farmers cannot switch to production of other goods easily, their losses due to bird flu would be fatal. </li></ul>
  12. 12. An Overview of Vietnam’s Social and Economic Structure <ul><li>Economic reforms turned the rice-importing country into a rice-exporting one (An, 2006) as a consequence of economic growth and achieving food security in international standards (World Bank, 2006b). </li></ul><ul><li>A paradigm shift occurred to switch governmental confidence over demand-side policies to supply-side policies. </li></ul><ul><li>Vietnam’s full membership of IMF and the World Bank is far before the implementation of economic reforms. (1976) </li></ul><ul><li>The recent accession of Vietnam to WTO (2006) precipitated the reform processes. </li></ul>
  13. 13. FDI <ul><li>The following are the countries who own the largest shares in FDI to Vietnam in 2006, ordered on the basis of percentages: </li></ul><ul><li>Hong Kong, South Korea, The United States, Cayman Islands, Japan, British Virgin Islands, Singapore, Taiwan, The Netherlands and India (Trinh, 2006). </li></ul>
  14. 14. Export-import <ul><li>Vietnam exports </li></ul><ul><li>crude oil, textiles and garments, footwear, aquaculture products, wooden products, electronics, computers, rice, rubber, coffee and coal; </li></ul><ul><li>imports machinery, equipment, and accessories, petrol, machinery oil, steel, garments, electronics, computers and accessories, garment inputs and leather, plastic, chemicals, chemical products, animal feed and related products (Trinh, 2006). </li></ul>
  15. 15. Income Inequality in Vietnam <ul><li>Basic idea behind income inequality under socialism (Vn and Cn): </li></ul><ul><li>In order to share wealth rather than poverty, a transition is necessary which would take time and produces income inequalities and poverty in the short run, but soon or later, low-income citizens will catch up with a fairer standard of living (Tang & Yue, 2006). </li></ul>
  16. 16. Income Inequality in Vietnam <ul><li>In Vietnam, in 1993-2004, 61% of the income inequality was due to the regional inequality while 39% was due to the within-region inequality (VASS, 2006), and 85% of the poor people were living in rural areas in 2004 (World Bank, 2007a). </li></ul>
  17. 17. Gender Inequality <ul><li>Decreased in most areas of life in the recent years: </li></ul><ul><li>No gender gap in school enrolment, nutrition and labor force participation; </li></ul><ul><li>The gender gap in earning has been declining </li></ul><ul><li>Vietnamese National Assembly is the one with the highest level of female parliamentarians in all over the Asia-Pacific region. </li></ul><ul><li>However, Vietnamese women are still over-represented in less prestigious jobs and under-represented in asset ownership (World Bank, 2006a). </li></ul>
  18. 18. Future Trends <ul><li>Pessimistic view: </li></ul><ul><li>The economic growth will not be sustainable for a long time. Economic growth is due to </li></ul><ul><li>(1) nonreliance on heavy industry which has been the fatal headache for ex-Soviet transformation in downsizing attempts, </li></ul><ul><li>(2) large oil production just when the Soviet aid had ceased, and </li></ul><ul><li>(3) the increase in rice production which cannot be always sustainable due to the trends in the global rice market. </li></ul><ul><li>Vietnamese economy will decline due to the structural constraints such as the unmatched population growth with relative scarcity of resources, </li></ul><ul><li>the policy shortcomings such as the uneven distribution of finance over urban vs. rural areas and lowlands vs. highlands, </li></ul><ul><li>the institutional rigidities such as the governmental regulation and control over private enterprises (Fritzen, 2002). </li></ul>
  19. 19. Future Trends <ul><li>Optimistic view: </li></ul><ul><li>High level of hope for the transformation of economy </li></ul><ul><li>Young population as an asset in terms of human capital and labor force rather than liability. </li></ul>
  20. 20. Future Trends <ul><li>For a fair balance of growth, poverty and equality: </li></ul><ul><li>(1) Macroeconomic stability should be maintained. </li></ul><ul><li>(2) Policies increasing demand for labor ie employment should be endorsed. </li></ul><ul><li>(3) A more equitable access to public services should be ensured. </li></ul><ul><li>(4) The allocation of public goods should be more equitable. </li></ul><ul><li>(5) Less developed provinces should be favored in funding and budget decisions. </li></ul><ul><li>(6) The suggestions above should be enforced by a positive political atmosphere (Fritzen, 2002). </li></ul>
  21. 21. Future Trends <ul><li>For unemployment rate, labor-intensive sectors should be favored along with capital-intensive ones (Fritzen, 2002). </li></ul><ul><li>Extensive public services should be provided to rural unemployed or underemployed to train and integrate them to industry sectors. </li></ul><ul><li>Long term solution: Reallocation of resources for vocational schools and adult education programs. </li></ul>
  22. 22. Summary and Conclusion <ul><li>To conclude, the following are the proposals of this paper for Vietnamese economy: </li></ul><ul><li>i) A mass education and training campaign is necessary to help the labor force acquire the updated work skills. This measure has to be complemented by a restructuring of higher education system as well, since unemployment is prevalent among university graduates in Vietnam. The scope of labor skills training is limited and it has to be extended. </li></ul><ul><li>ii) An improvement in domestic technical expertise is fatally necessary. Vocational education has to be encouraged in Vietnam by increasing shares of budget on vocational schools and training, and by higher amounts of salary for the labor force with vocational education or training. Diversification and a wider scope in education and training is necessary for economic growth for which a well-qualified labor force is indispensable. </li></ul><ul><li>iii) A governmental policy allowing agricultural diversification has to be endorsed to alleviate the destructive effects of the price fluctuations in the global markets, and this measure necessitates a campaign to provide updated information for producers. </li></ul>
  23. 23. Summary and Conclusion <ul><li>iv) The government has to make a decision about what kind of a market structure they would endorse as a consequence of the economic reforms: Oligopoly, monopolistic competition or perfect competition, along with state monopoly over certain industries. </li></ul><ul><li>v) Governmental programs for macro-crediting as well as micro-crediting is indispensable to lower the financial barriers to entry. </li></ul><ul><li>vi) The business relations with Overseas Vietnamese has to be expanded to boost FDI. </li></ul>
  24. 24. Summary and Conclusion <ul><li>vii) The investment for infrastructure has to be raised. </li></ul><ul><li>viii) A policy motivating technological improvements in private sector is necessary. </li></ul><ul><li>ix) The governmental policy on land has to be improved. </li></ul>
  25. 25. Summary and Conclusion <ul><li>x) Incentives have to be provided for professionalization of family businesses. </li></ul><ul><li>xi) A pro-enforcement policy in favor of enforcing tax law and labor regulations has to be endorsed. </li></ul><ul><li>xii) Coordinative processes have to be established among micro-finance suppliers to avoid free-rider problems, as well as problems due to information lag. </li></ul><ul><li>xiii) Ethnic minorities have to be served micro-credits and public services more than the present levels, to eradicate poverty. </li></ul>
  26. 26. International Colloquium on Business & Management Bangkok 2007 Bangkok, Thailand, 19-22nd November 2007 Social and Economic Development of Vietnam: Governmental and Management Challenges Dr. Ulas Basar Gezgin, PhD, Ho Chi Minh City, Vietnam E-mail: [email_address]