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In 2013, the General Secretary of Vietnam’s ruling Communist Party made an honest admission. “The rich-poor divide only shows signs of getting worse,” said Nguyen Phu Trong, a committed socialist ideologue.
That divide, which did indeed worsen after 2013, is now likely to widen further because of economic interruption caused by the Covid-19 pandemic. It may also cause the Communist Party to rethink how it views social welfare and its own role in society.
Hanoi can rightly boast about successfully guiding the country through the health crisis, with only 370 confirmed cases and zero deaths to date, according to official data.
In large part this was due to the government’s competent and uncharacteristically transparent handling of affairs, from early border closures to adequate track-and-tracing and effective shutdowns.
As a result, the Communist Party has burnished its legitimacy as a competent administrator in a crisis, which cannot be said for the majority of governments in the region Its appeals to nationalism and a war-like “pulling together” rhetoric has reinvigorated its “national unifier” credentials, which had faded in recent years.
But the second phase of the crisis involving the economy will be far more challenging.
Fitch Ratings agency this month predicted that Vietnam will be one of only four Asia-Pacific countries to see positive growth this year. Yet, it will be a considerable drop from previous years, from 7% in 2019 down to 2.7%, according to an IMF forecast in April. More recent predictions put growth at around the 1% mark.
The poor are already feeling the effects. Unemployment has climbed to a ten-year high, while the hardest hit areas have been the manufacturing and tourism sectors, populated largely by migrant workers from the countryside, the young and the lower middle-classes.
Vietnam’s gargantuan informal sector – or what the United Nations calls “vulnerable employment”, roughly 54% of the economy at the last count in 2018 – has been hit particularly hard. The government wants to cap inflation at 4%, not terrible for consumers but low because of falling food prices.
Anger over endemic corruption and income inequality has grown in recent years, with the former a major political fault-line in the years leading up to the Communist Party’s last National Congress in 2016.
Incumbent Party chief Trong had his way largely on the promise of sweeping anti-graft corruption and removal of the self-serving “rent-seekers” from the Party, starting with then-Prime Minister Nguyen Tan Dung, who got the boot that year.
While recent surveys have shown public anger over corruption has fallen, albeit only slightly, frustration over inequality remains high.
For the fourth year in a row, poverty ranked first in the list of issues of the public’s greatest concerns in the 2018 edition of the Vietnam Provincial Governance and Public Administration Performance Index, a nationwide survey.
Almost a quarter of all respondents said poverty and hunger were the most important issues facing the country, compared to only 18% in the 2015 report. Although wealth inequality has risen in recent decades, poverty rates have actually decreased more quickly.
The percentage of Vietnamese in poverty dropped from 58% to around 3% between 1992-2015, according to the World Bank, in large part because of urban migration and poor relief to rural peasants.
As a result, “inequality is increasingly a within-location outcome and less due to differences between locations,” according to a study by the Institute for the Study of Labor, a Germany-based research center.
In 2002, Vietnam’s urban incomes were 1.8 times higher than rural incomes, but only 1.5 times higher in 2014. In other words, wealth inequality is widening between neighbors, not strangers, making economic disparity far more conspicuous.
At the same time there is a growing divide between those who rely on often subpar state services and those who can afford to “go private.”
The percentage of patients receiving in-patient treatment in private hospitals rose from 1.6% in 2006 to 6.3% a decade later, according to Business Monitor International, a research firm.
The number of private universities is also rising, from 50 in 2010 to 65 in 2016, while the number of students at private universities rose from 1,895,000 to 2,633,000 over the same period.
In 2018, the Ministry of Education and Training issued a new decree which allows international private schools more leverage, by permitting them to have 50% of their students as Vietnamese, compared to only 20% previously.
According to one estimate, Vietnamese families now spend on average 47% of their total expenses on education for their children, often on private tutoring.
Phan Thanh Binh, chairman of the National Assembly’s Committee for Culture, Education, Youth and Children, was correct when he said that more private schools could “create a lever to lift public schools in development,” though that has rarely happened, analysts say.
Vietnamese use of private health and education services is expected to rise sharply in the coming years, thanks mostly to the growth of the middle class, which from 2016 to 2020 increased by roughly 18% each year and is predicted to make up half of the population by 2035.
Though Vietnam’s urbanization is currently one of the lowest in Asia – at only 36% of the population in 2018, about the same as China’s in 2000 – it is expected to reach 55% by 2030.
That’s a problematic trend for the Communist Party.
Not only has the private sector taken over the economy since the market reforms of 1986, with 83% of the labor force employed by the private sector, reducing the Communist Party to a mere administration of finances, the private sector is now taking more responsibility over the welfare of the Vietnamese people.
As such, the Party will serve as a provider of from-cradle-to-grave services for an ever-smaller percentage of the population. This has been on show during the pandemic.
In March, Hanoi pledged a stimulus package that has grown to around 3.4% of GDP, with $2.6 billion going towards the newly unemployed or furloughed and the poor.
But there are complaints that money has been slowly distributed, and there’s still uncertainty over who can benefit from it, especially among informal workers who struggle to prove their previous earnings and employment.
In lieu, many of the poorest have turned instead to public charity, including from the well-documented “rice ATMS” that have popped up nationwide during the pandemic to provide free bags of rice to those most in need.
The Communist Party hasn’t interfered in this, and state-run media have hyped the local solidarity on offer. In fact, Prime Minister Nguyen Xuan Phuc has even called on citizens to “combat” the disease and donate to the nation’s efforts.
“On a larger scale, many enterprises, regardless of their size, also contributed to the national combat by donating their products such as masks, rice or milk, by donating their hotels for isolation wards—or most popularly—by donating cash,” reads a study of Vietnam’s responses published recently in the scientific journal Sustainability.
That’s not quite the proletarian paradise the Party has promised. As such, the Covid-19 pandemic might be the breakthrough that sees the Party accept that civil society groups can play a bigger role in not only national development but also social relief.
Yet, if there is one major schism within the Communist Party, it is between those who reckon the Party cannot afford to lose its place as the arbitrator of almost every aspect of society including welfare, and those who believe retreat from society and economic domination should be expedited.
Bui Quang Tuan, director of Vietnam Institute of Economics, has noted that “there are too many policies while the implementation of policies is very poor.”
His advice has been to “continue to simplify administrative procedures …and remove unnecessary investment and business procedures.” In other words, the Party should jettison even more of its controls.
Prime Minister Phuc made a bold move in mid-2017 by appointing an Economic Advisory Group that included a significant number of non-Party members, as well as economists from the US, Japan, France, and Singapore.
Writing in May 2019 in the Communist Review, the party’s theoretical journal, Vu Trung Kien of the Academy of Politics Region II praised Phuc’s creation of this group and argued the government should create similar National Councils across all areas of administration, filled with Vietnam intellectuals “irrespective of ethnicity, religion, party and non-party members.”
In many ways, the government’s handling of the Covid-19 crisis confirms this transition towards more of an administrative state. And despite inevitable fear of losing control, the pandemic-exposed transition might actually be a win for its long-term domination of politics.