The Widening Income Gap in Vietnam

Vietnam has experienced rapid economic growth in the last two decades with an average GDP growth rate of 7.1% while the proportion of the population living below the poverty line has dropped from 20.2% in 2005 to 12.3% in 2009 (ADB 2009). However, while the country moves towards its goal of becoming an industrialized nation by 2020, the income inequality gap continues to widen. The Gini coefficient for Vietnam grew from 0.345 in 1990 to 0.410 in 2002 to 0.432 in 2006 (Hodgson 2007). Despite the socialist and egalitarian ideology of the Vietnam Communist Party (VCP), income inequality in Vietnam has risen substantially and can most starkly be seen in the rural-urban divide. This essay argues that in Vietnam, where the VCP controls all spheres of life, the authoritarian regime has perpetuated the issue of rising income inequality, and in order to sustain its economic growth, the government will need to address this issue effectively. The main causes for the rising inequality can be attributed to tight controls of an authoritarian regime as well as corruption, which lead to ineffective delivery of goods and services, ultimately resulting in poor governance.

Income Inequality and Governance

Governance is the process of decision making followed by the implementation of these decisions and ensuring the delivery of public goods and services. I would argue that good governance results only when this process is participatory, accountable, inclusive, rule abiding, effective and most importantly equitable. Public goods and services include not only security and rule of law but also the provision of equal opportunities to access basic public services such as education, employment, healthcare and infrastructure.

Good governance is necessary for sustained and inclusive economic growth especially in a transition economy like Vietnam. To understand if Vietnam has good governance, it is important to have an understanding of the regime’s involvement in the process and the factors that affect the implementation of public policies. Vietnam’s authoritarian government has been relatively successful in providing for its people; however this process has resulted in uneven benefits and, eventually, a wide income gap. Party elites in the VCP and local administration continue to benefit and hence are content with the status quo of a controlling regime. Opportunity to education is unequal across the country especially between the rural and urban areas. In the 1990s, the increasing income inequality was attributed mainly to the rural-urban divide but towards the end of the 90s this divide started to take place within urban and rural areas. This trend in the growing inequality can be blamed on poor quality governance at the local levels. Change in Vietnam has therefore been “uneven in extent, depth and direction” (Dixon 2004). The analysis on the regime’s contribution to the widening income gap will be covered in greater detail in the next section of this paper.

A major concern that is facing Vietnam and other Southeast Asian countries today is the dissatisfaction with political management and their governance. The groups that have been ‘left behind’ in the economic growth process are particularly disgruntled. Minxin Pei states, “the most likely and most potent source of disruption is rising discontent with political leadership, lack of government integrity, and misguided public policies in most of Asia (Pei n.d.).” In other countries like Thailand, the Philippines and South Korea, discontent with governance has forced their leaders out of office. In Vietnam’s authoritarian regime, such action is unlikely due to the rigid control of the VCP over its people. The fruits of the economic reforms, including the agricultural reforms and the encouragement of foreign direct investment implemented by the VCP, are unevenly distributed. In a democratic regime like India, despite rapid economic growth, uneven distribution of this growth led to dissatisfaction among voters, who exercised their discontent by changing the political leadership in 2004. In an authoritarian regime such as Vietnam, such drastic change is not possible as the VCP is the only party in a one-party system. Hence, income inequality and the resulting public dissatisfaction continue to grow.

There needs to be an increase in the governing capacity of the VCP to ensure legitimacy and public cohesion, and policies need to be implemented to ensure equity. Pei appropriately argues that “any sustained economic progress must be based on solid political foundations that are constantly rebuilt and strengthened…. Political institutions that were once so suitable for mobilizing resources for rapid growth are adapting poorly to an era in which government integrity and social equity are assuming political importance (Pei n.d.).” This paper also contends that the VCP needs to take action towards governing in an equitable and inclusive fashion; else Vietnam’s economic growth could well be short-lived. The case of Indonesia during the post-financial crisis of the 1990s, illustrates this point: Suharto’s authoritarian regime collapsed mainly due to lack of equity and uneven economic growth. Like the VCP, Suharto’s regime ensured rapid economic growth by maintaining an authoritarian regime. However, poor governance, and inequitable distribution of the benefits of this growth ultimately led to the collapse of the government in Indonesia.

The Role of an Authoritarian Regime in Perpetuating Income Inequality

The authoritarian regime in Vietnam has perpetuated the income inequality challenge in three main ways – 1) The government controls all sectors of the economy, 2) Patron-client relations continue to grow at the local levels and 3) The government uses its control to suppress the growth of a strong and autonomous middle class.

Control over all sectors of economic production

The VCP’s authoritarian grip over agriculture, business and all other forms of income generation in Vietnam is a vital reason for the widening income gap. The VCP has established itself as a Marxist Leninist front-line Party which serves the interests of the Vietnamese people. However, Vietnam today is “interpenetrated with the sprawling political apparatus of the Communist party, which encompasses the whole of the state, and whose top down instructions must be carried out (Kadir 2010).” Thus, the VCP has complete concentration of state power. Asset inequality, which is directly or indirectly controlled by the agencies of the government, plays a crucial role in perpetuating the income divide. In the agricultural sector for instance, The VCP has introduced land reforms such as the de-collectivizing of land, which has led to the growth of illegal land markets due to the rent seeking behavior of government officials at the local levels. Institutional constraints and policy measures of the authoritarian regime, such as subsidized goods for those remaining where they are, impede free mobility from rural to urban areas. Hence, the people in the rural areas are indirectly forced to remain where wages are low and hope for income growth is minimal. Taking a look at another sector, credit and financing, The Vietnam Bank for Social Policies (VBSP) was set up by the government with the intention of providing loans to the low income population. However, only 5 % of the 2.75 million households across the country who received VBSP loans were in fact from the low income population (Vietnam Inequality Report: Assessment and Policy Choices 2005). Hence the income gap continues to expand and the VCP has failed to effectively address it since several high ranking officials are benefitting from this process. The VCP, its associated agencies, the new business elite and other well connected individuals are therefore gaining an unjust advantage to extract wealth for personal gains.

Patron-Client Relations

To understand the influence of the authoritarian regime and the growth of Patron-Client relations in Vietnam, it is necessary to look at its historical development which has undergone changes over time. Vietnam can by categorized into the pre-reform and the post-reform period. In the pre-reform period, governance was no doubt a clear top-down process. However, the need for wartime sustenance led to the government looking at a process of action and reaction for policy implementation at the local levels to ensure people support (Dixon 2004). Hence governance was accountable and inclusive to some extent despite the centralized structure. But, after the war in 1975, an authoritarian state arose and its accountability started to fade. In the post-reform period, the governance continued to maintain a top-down process, but the feedback mechanism receded in importance, while the scope of the local governments increased. The reforms, therefore, provided the perfect space for corruption to materialize where influence and bribery became the norm. The VCP, therefore, was transformed from a central controlling entity to one that controlled the economy with the help of local governments. It is at this point that the income gap started to widen as a result of these new ‘business elites’ who had the power and control to extract wealth for personal gains. The local governments favored some of the emerging business interests and led to the emergence of patron-client relations. Today, taxes are collected under the table by local authorities who have found an opportunity to supplement their salaries by rent seeking.

Towards the end of the 1980s, the economic reforms through the Đổi má»›i programme resulted in replacement of lower level officials, changes in the Politburo and easing of media constraints. Furthermore, the 1992 constitution and the subsequent elections, which brought in new, young and educated members in the National Assembly, gave rise to a more autonomous institutional structure and the VCP was charged to abide by the rule of law. However, the VCP’s privileged position, and its resulting iron grip throughout Vietnamese society remains essentially unchanged.

A Suppressed Middle Class

The authoritarian regime in Vietnam has successfully stifled the growth of a strong middle class and hence ensured its continued dominance. When the rising middle class reaches a certain level of prosperity, it is ‘hijacked’ by the state by means of taxation or by forcing it to become a State Owned Enterprise (SOE). The rise of an educated middle class is a necessary factor for good governance in Vietnam because a middle class has the capacity to organize and advocate its own interest and hold the state accountable. A real middle class can enable civic capacity while countering an authoritarian, non-responsive government. Thus, the government tacitly allows for the growing income inequality in order to continue its stronghold on the people. If the middle class is emerging, they get co-opted into SOEs, and hence will not maintain middle-class status in terms of wealth and income. This is a function of a regime that doesn’t trust having a middle class. The attitude of any regime is implied by the norms under which it acts. In the case of Vietnam, these norms are based on communism, anti democracy, and fear of an autonomous middle class with organized interests. Although the VCP has a capitalist mindset, the contradictory goals of the regime lead to the suppression of an autonomous middle class. What results is a ‘Leninist Capitalism’ framework where the government wants its people to contribute to economic growth through the capitalist framework, yet retain the communist value of favoring the collective interest over individual gain. So the attitude that arises from such a contradictory ideology is that the country allows the rise of an ‘artificial middle class’ but if they become too prosperous and vociferous, the VCP needs to thwart it, thus leading to a scenario of ‘all checks but no balances.’

Conclusion

Vietnam is a classic case of a country that has faced ‘rapid but inequitable’ economic growth. This growth that has resulted from reforms and market oriented economic policies will need to be inclusive in order to be sustained. As the paper explains, unequal growth will not be sustainable because a discontented public can protest against the VCP and shake its current stability. Hence the issue of income inequality is an important governance challenge for Vietnam especially if it aims to strongly position itself in the competitive world economy. The VCP’s authoritarian control over all economic sectors, the rising patron-client relations in the local government and the containment of a rising middle class are important factors that continue to perpetuate the widening income gap.

To move towards a more equitable distribution of income and wealth, Vietnam should undergo administrative reforms. The government has managed to maintain a stable policy environment through authoritarian rule. However, a move to a more flexible policy environment will benefit the citizens and improve governance. Responsibility has been increased in the hands of local authorities and greater control of local expenditure has been handed to them. These policy changes however need to be supplemented with checks to ensure that the local authorities are performing their duties diligently. Such checks can be implemented by setting up anti-corruption agencies similar to Singapore and by allowing the media to publish information regarding scandals involving corrupt officials. With these new policies, Vietnam can address the challenge of growing income inequality and achieve sustained and inclusive economic growth.