Containing the pandemic allowed Vietnam to quickly reopen businesses, and it is now expected to be the world’s fastest growing economy this year. While more than 80 nations have gone to the International Monetary Fund for financial rescues, Vietnam is growing at a 3% annual pace. Even more impressive, its growth is driven by a record trade surplus, despite the collapse in global trade.
After World War II the “Asian miracles” – first Japan, then Taiwan and South Korea, most recently China – built themselves into manufacturing export powerhouses, and lifted themselves out of poverty. Now, Vietnam is following the same path, but in a much more difficult age.
The postwar baby boom is over. The era of rapid globalisation, with growing trade and investment flows, is over. Economic growth is slowing worldwide. The superpowers no longer ignore the tactics that the earlier miracles used to get an edge. The United States is investigating Vietnam for currency manipulation – the same charge that triggered the tariff war with China.
History had never seen a success comparable to the original Asian miracles, which grew rapidly for five straight decades, driven largely by export manufacturing. During their booms export growth averaged close to 20% – nearly double the average for emerging nations at the time. Vietnam has sustained a similar pace for three decades. Even as global trade slumped in the 2010s, Vietnam’s exports grew 16% a year, three times the emerging world average.
Over the last three decades, Vietnam’s average income increased fivefold to $3,000, surpassing countries such as India along the way. And unlike most emerging countries, Vietnam has managed to balance investment in social welfare with investment in export infrastructure. The share of the population living in poverty is unusually low, and the quality of infrastructure unusually high, for a country at Vietnam’s stage of development.
The ratio of people living on less than $2 a day has fallen from 60% to less than 5%, “leaving no one behind”, according to the IMF. Meanwhile the government invests heavily (about 8% of GDP) on building projects, including roads and ports. The lesson for India is that the perceived tradeoff between economic growth and social equality is a false one: Rapid per capita GDP growth is what makes human development possible.
Vietnam steers foreigners’ money towards export manufacturing too. Over the last five years, foreign direct investment has averaged more than 6% of GDP in Vietnam, the highest rate of any emerging country. Most of it goes to factories and related infrastructure, and most of it comes from fellow Asian countries, including South Korea, Japan and China. The old miracles are helping to build the new one.
Vietnam has become a favourite destination for export manufacturers leaving China in search of cheaper labour. Despite the sharp increase in recent decades, wages are still half those of China, and the workforce is rather well-educated, thanks to heavy spending on schools.
Skilled labour is helping Vietnam move “up the ladder”, perhaps faster than any rival, to manufacture increasingly sophisticated goods. Tech surpassed clothing and textiles as Vietnam’s leading export in 2015, and accounts for most of its record trade surplus this year.
In a protectionist era Vietnam is also a trend bending, communist champion of open borders, a signatory to more than a dozen free trade agreements – including a landmark deal recently signed with the European Union.
The question is whether Vietnam can stay on the miracle path, in an age when growth is slowing worldwide? Probably. Over the last five years, no country has increased its share of global exports more than Vietnam has. While its own working age population growth is slowing, most Vietnamese still live in the countryside, so the economy can continue to grow by shifting workers to urban factory jobs.
The long term threat to Vietnam may be autocratic rule. Autocrats can force rapid growth, but with unchecked power their whims and excesses often derail development, long before the nation emerges from the lower income classes. The early Asian miracles started out as autocracies, but transitioned to democracy on their way to prosperity.
Vietnam’s unusually competent ruling party has been in power nearly half a century, without committing the classic mistakes. The economy remains largely free of the excesses, like large government deficits or public debts, that signal crises to come.
One possible problem: Most state companies have already been privatised, but those still owned by the government are huge, and account for nearly a third of economic output – same as a decade ago. They hold many of the bad loans in the banking system. If trouble comes, bloated state companies are one place it could start.
It’s worth noting that rising debts also led to financial crises that marked the end of sustained growth in Japan, South Korea and Taiwan, and now hang over China as well. So there are perils on any development path. For now, Vietnam looks like a miracle from a bygone era, exporting its way to prosperity.
© 2020 The New York Times (distributed by The New York Times Syndicate)
DISCLAIMER : Views expressed above are the author’s own.