Government role in the economy of Vietnam

In Vietnam, as in other states ruled by Communist parties, the government is expected to play a guiding role in all matters, including the national economy. Classical Marxist economic theory calls for all major industries and utilities to be nationalized and for farmland to be placed under state or collective ownership.

Such was the situation in North Vietnam during the Vietnam War and initially in the reunified country established in 1976. However, Vietnam’s economy performed disastrously in the first decade after the war. Excessive government controls, lack of managerial experience, limited capital resources, and the absence of a profit incentive all contributed to the weak economy. In 1986 the government launched a reform program called doi moi (economic renovation) to reduce government interference in the economy and develop a market-based approach to increase national productivity.

The need for economic reform gained urgency in 1990, when poor harvests and economic mismanagement left millions of Vietnamese facing malnutrition. However, Vietnamese leaders initially encountered many difficulties in their effort to renovate the system. Among those obstacles was the reluctance of party leaders to further privatize the economy as well as a high level of bureaucratic interference in economic affairs.

The pace of economic reforms accelerated following the Communist party’s approval in 2001 of a ten-year development strategy enhancing the role of the private sector. The strategy simultaneously affirmed the primacy of the state in driving economic development, and Vietnam’s economy came to be characterized as “a market economy with socialist orientation.”

In the second decade of the doi moireforms, Vietnam achieved one of the fastest-growing economies in the world. Annual growth rates exceeding 7 percent ranked Vietnam second only to China. The country’s economic vitality attracted surging levels of foreign investment and significantly decreased the number of Vietnamese living in poverty. However, Vietnam lagged behind in modernizing its infrastructure, a crucial step in making Vietnamese businesses competitive against foreign competition. Vietnam sought to increase foreign trade and investment through membership in the World Trade Organization (WTO). Following more than a decade of negotiations, Vietnam’s entry was formally approved in November 2006, paving the way for the country to become the organization’s 150th member in December. Encarta

Vietnamese economy. Picture by E. Buchot