Can a Socialist-Orientated Market Economy Succeed in a Capitalist World?
The Socialist Republic of Vietnam, with its 90.5 million inhabitants and annual growth rate of 6.4% in 2015, is a factor in global economy that cannot be ignored anymore. Its economic growth likely to surpass that of its neighbour, China – the only faster-growing economy today -, Vietnam is arguably on route to become the next miracle.
Since the economic reforms of 1986, Vietnam has experienced rapid economic growth. With an average annual per capita growth rate of 5.3% since then, in 32 short years, its GDP per capita has increased from US$18.1 billion in 1984 to US$198.8 billion this year. If this rate of growth continues to persist, Vietnam may as well prove to be the next Asian tiger.
Impressive forecasts reinforce this prediction. HSBC predicts that Vietnam’s GDP will be higher than that of Portugal or Norway by 2050. Goldman Sachs believes that by 2025, Vietnam will become the 21st largest economy in the world, while a forecast of PricewaterhouseCoopers implies that Vietnam is likely to reach a growth rate of 10% by 2025, thereby becoming the fastest-growing emerging economy. However, these are only predictions. The most recent indicators fuel concern over Vietnam’s economy. Is rapid growth soon over for good or is the country only experiencing a brief setback? Can these optimistic predictions still become reality?
To answer these questions, we have to take a look at the country’s economic history. After the near-destruction of the country’s economy during the Vietnamese War, it found its feet relatively fast. When the communist North and the capitalist South finally reunited in 1975, Vietnam was a divided country in a devastated economic state. The much needed change arrived in 1986 with the Đổi Mới reform, a shift from centralised to mixed economy. Formally called socialist-oriented market economy, the system combines private and state enterprise and is governed through 5-year plans, which use both directive and indicative planning. The reform supplied free-market incentives and encouraged private businesses and foreign investment.
Today’s economy stands as proof to its success. Vietnam, now a leading power in labour-intensive manufacturing, opened up to trade to great effect. Trade now accounting for 150% of its GDP, it bases its growth largely upon its openness. Today, the state places immense emphasis on education, its rigorous curriculum and teaching methods ensuring that students leave education with the right skills for employment.
Vietnam endeavours to guarantee long-term economic growth. Yet now, despite all efforts, this growth could be in danger. Although the government predicted a growth of 6.7% in GDP this year, in the first half, it has barely reached 5.5%. Growth forecasts have been revised down to 6.0% in 2016 and 6.3% in 2017. The slowdown can be attributed mainly to weak performance in mining and agriculture. With the mining sector largely based on fossil fuel exploration on sea, the fall in oil prices have had a major impact on the economy. If this wasn’t enough, the country also experienced the worst drought in nearly a century this year. Still predominantly an agricultural society, harm has been considerable. Even more so as the drought has led to a steep fall in the exports of major agricultural goods such as rice, coffee and seafood.
Seeing as this slowdown comes after 30 years of steady growth, most economists agree that it is unlikely to persist. Yet it is crucial that such setbacks are taken seriously, even if they seem to be only of short-term effect. Vietnam should work to ensure that this fall in growth does not prove to be a sign of more fundamental problems with its rigid economic system. If it succeeds in doing so and continues with its impressive economic growth, it might still reach its goal and become a developed nation by 2020.