Vietnam: The Great Ascent
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Vietnam: The Great Ascent

Vietnam has been experiencing an impressive economic upswing for 30 years. A young generation of entrepreneurs wants to write the next chapter in the country's success story – and celebrate the market economy in the process.

According to the World Bank, Vietnam's economy is expected to grow by around 6.3 percent this year – faster than most of the other countries in the booming region. It's nothing new for Vietnam, whose economy has been growing by an average of 6.2 percent every year since 2000. Back in 1989, the annual per capita income was below 100 dollars. Today it is over 2,000 dollars.

Fame Doesn't Fill Your Belly

The World Bank calls Vietnam's rise a "development policy success story." This story began in 1986, when Vietnam's Communist Party had to admit that its radical planned economy had failed. The Americans had been driven out for a decade, but the economy was in the basement. The pride of having beaten a world power couldn't fill the population's bellies. 

With the Doi Moi reforms, Vietnam implemented measures similar to those its huge neighbor China had taken a few years prior. First the Communist Party gave farmers more freedoms and allowed people to start businesses. Then the country increasingly opened up to international investors. "Socialist-oriented market economy" is the name the leadership has given its system. The government continues to play a major role, but is also enabling the market – a development model that is also called the "Beijing Consensus." It is considered an alternative plan to previous concepts from the World Bank and International Monetary Fund. Their "Washington Consensus" often overwhelmed emerging markets by opening up the economy too brutally.

But Vietnam is growing to trust more heavily in the market. The government is currently signing one free trade agreement after another: A deal has already been agreed upon with the EU, and negotiations are still under way with Switzerland. The government is also participating in several regional free trade zones such as the RCEP. Vietnamese people welcome the liberalization of their economy. According to a Pew survey, 95 percent of the population supports the market economy system. That's a higher number than any other country in the world. The tension between socialism and the liberal market economy shapes life in Vietnam. People stand in line in front of Ho Chi Minh's mausoleum in Hanoi – and also outside of Starbucks. In fact, they're so excited that they take selfies in front of the coffee shop.

The Market Rebel

Thuy Dam, 56, experienced the system changeover personally – and took advantage of it. Before she became President of Fulbright University Vietnam, she was one of the country's most well-known managers in the finance industry. Her past jobs include CEO of ANZ Bank for the Mekong region. From her glass office in a Ho Chi Minh city landmark, the Bitexco Financial Tower, she can look out over the hustle and bustle of the metropolis. It's a sharp contrast to her childhood, when she had to get up at three in the morning to get food stamps. As a little girl in December 1972, she experienced Operation Linebacker II, also known as the Christmas Bombings, firsthand. From twenty kilometers away, she had to watch as hundreds of American tactical bombers laid waste to Hanoi. 

But Thuy Dam (in Vietnam, the family name comes first) embodies a characteristic common to many Vietnamese: iron discipline. Thuy studied by the light of oil lamps, going on to study English and then snag a coveted position at the Ministry of Economy in 1986. Her career began at the same time the country started opening up. She was responsible for patents and licenses at the ministry – and suddenly companies like Citibank and Coca-Cola started registering their trademarks. "That's when we knew that something was happening," she says.

With four colleagues from the ministry, Thuy opened Vietnam's first corporate consulting firm specializing in market entry for foreign companies. "I was a market rebel," she says looking back. In 1989, her consulting firm invited the heads of the European stock exchanges to Ho Chi Minh City's Opera Square for a public discussion on what a Vietnamese trading venue could look like. Public interest was high, and thousands of Vietnamese gathered at the square. "People had never seen anything like it," recalls Thuy.

It was also something new for the Communist Party in Vietnam. The government shut down Thuy's consulting firm for six months. "Perhaps we were a bit too enthusiastic," she says today. Party officials weren't too fond of the idea of erecting two giant Coca-Cola bottles in front of Hanoi's opera house shortly after the Americans lifted the embargo in 1994, either. But because of that she was accepted shortly thereafter into one of the world's toughest MBA programs – the Wharton School in Philadelphia.

Not Creating Enough Value?

To this day, the party leadership is wrestling with the question of how far the liberalization should go. A five-year plan continues to be enacted that dictates the principles of economic policy. Some prices are regulated and large state-owned enterprises still dominate the economy. "Internally the government is emphasizing its socialist direction," says Le Dang Doanh, one of Vietnam's best-known economists. "To the outside world, it communicates that the country is a market economy."

There is a reason for that, because foreign direct investment is still the elixir of life for the country's economy. Vietnam attracts companies with lavish subsidies and an army of inexpensive labor. In 2014, the average monthly income was 214 US dollars, according to a study from the International Labor Organization (ILO). That's around one third less than in China. Technology giants Panasonic, Microsoft and Intel, for example, recently expanded their production significantly. South Korean electronics company Samsung also uses Vietnam as a production location: 40 percent of their mobile devices are assembled in Vietnam.

But this growth model could soon reach its limits, because the country's own value creation remains low, complain critics. The devices are often only assembled there; the technology and software are imported. "We need to climb further up the value chain," states Le. Otherwise Vietnam will face the same fate as many emerging nations and remain stuck in the "middle income trap."

Growing Inequality

The mixture of capitalism and a powerful party elite is turning the country into a tough place. "The general consensus in some areas is that business dealings are a zero-sum game where there is always a winner and a loser," says Fulbright President Thuy.

Capitalism is certainly challenging for Vietnam. Although deregulation has reduced poverty decisively, inequality has been growing rapidly at the same time. Between 1992 and 2012, the average daily consumption of the poorest ten percent increased by about 1.3 US dollars, while the richest 10 percent's increased by more than 17 US dollars. Nevertheless, Vietnam is considered politically stable. As long as everyone is doing better, hardly anyone questions the conditions in principle. Instead, the Vietnamese try to stay on the more comfortable side of the growing gap between rich and poor.

But the growing individualism also unleashes creative energies. Young entrepreneurs in particular hope that economic success will also help open up the country politically. "What is Vietnam's identity?" asks Son Ha, a young entrepreneur. "For a long time, it was the war we won, but that's no longer enough." Instead, he believes that the new Vietnam needs to define itself through economic strengths – and the entrepreneurial spirit of its citizens.