This is Vietnam, A Southeast Asian nation that is home to close on 100 million people.
This rather picturesque nation is unfortunately only really remembered
for one thing by most people, but it is so much more than that.
Sure the nation was home to one of the most pivotal events in modern history.
A war that has defined the global political and economic landscape to this very day.
But it is so much more than that.
Vietnam is one of the fastest growing economies in the world today. In 2019 its growth was only
beaten out by a selection of far smaller and far more unstable national economies.
With a huge and very hardworking population not to mention a powerful
ally to it’s north this could be the country to watch out for in the next 10 years.
It is poised to make such a large impact on the global stage that it’s history
will no longer be the first thing one thinks of when they think of Vietnam.
But this success is by no means guaranteed. As with many other nations in the Southeast
Asian region it has many hurdles it needs to deal with to become a fair dinkum developed economy.
The middle income trap, global trade hostilities,
and an increasingly competitive global market for manufacturing.
Oh and if all of this wasn’t enough lets not forget a global pandemic and ensuing
economic crisis to really spice up this obstacle course on their journey to success.
All of these factors make Vietnam a fascinating country to explore
and use as a case study for some very intriguing economic questions.
Foremost amongst these is a challenge to the assumption that all nations can become
developed economies, so long as they embrace industry, and free trade and free markets.
So,
What has been behind Vietnam’s Economic Growth?
What will the impacts of 2020 do to this growth?
And perhaps most importantly
How will this nation break into the Developed Nations club?
Or could Vietnam go to prove that there is only so much room at the top of the global economy?
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Economic curiosities aside Vietnam also has a fascinating and very extensive history,
by some historical estimates dating back as far 3,000 BC.
But to really understand understand the economic situation of the nation in the modern-day,
we need to pick up the history book where everybody else puts it down,
When the war came to an end
The Vietnam way was of course a very turbulent time for for the nations of Vietnam.
where what was effectively a civil war between the communist north, and the free market south
was used as a stage by world superpowers to release the tensions of the cold war.
The war was long and devastating and left a trail of destruction in it’s wake.
Factories were destroyed, cities burnt, and countless lives lost.
But we have seen this all before, anybody who has watched our video on South Korea,
Japan or Germany knows what comes next.
The unified government enacted widespread construction efforts
supported by their communist neighbors, which all helped to rebuild the nation,
Factories were built, infrastructure was donated and food production was able to flourish again
now that the threat of hueys wasnt impacting the harvest.
Sounds great right?
Well it would, but it just didn’t happen.
Actually post-war Vietnam is one of the few nations in modern history to
experience a sharp economic decline during a post-war recovery period.
This was all down to a few factors, for starters, its largest and most logical ally was china,
they were both neigboring, communist nations that could go along way to helping one another
buuuuutttt there were some problems with this little match made in heaven.
The first was that the newly unified vietnamese government was strongly allied with the soviet
union, and while technically china, the soviet union and almost all of the other communist
states were cool with one another, it was kind of like choosing between a parent in a divorce.
The other one is still gonna love you, but just a little bit less.
China saw Vietnam as a threat to it’s sphere of influence in the region
so wasn’t super keen to help them get back up to full fighting force.
These mild tensions then boiled over when conflict broke out between vietnam
and cambodia just 4 years after the end of the american vietnam war.
Hao Guofeng’s communist China and pol pots Cambodia were very close allies at this time so
this hostility sealed the deal that no help was going to come from china.
Now the lack of foreign support, and getting into yet another war certainly did not help
the freshly unified nation but perhaps it’s biggest problem was that of internal policy.
Industry and commerce in the south had run off free-market principles,
all of which came to an end after the unification of the nation.
The business owners and workers who did not flee the nation after the end of the war
were now working for the state under a heavy system of bureaucracy, the favored the north.
It favored the north because well while the nation was technically one,
there was still alot of animosity amongst the people that saw each other as enemies.
The south also lost all of the support it was previously receiving from nations like the US,
so many infrastructure projects came to a halt.
The breakdown of functioning markets, another war, the lack of outside support, and a government
desperately trying to string this all together with fundamentally flawed five-year economic plans
meant that Vietnam quickly became one of the poorest nations in the world.
During the early 1980’s it had a GDP per capita of around $200 USD adjusted for inflation.
For reference, there is no country on earth that is this poor today.
Now, of course, all of this started to turn around with the rollout of the
Đổi Mới
This plan loosely translated means renovation and this was an apt description of this policy.
It was a plan to transition the country from a centrally controlled command economy to a
market-led socialist orientated economy.
This was in a sense a way for the government to go ok, this isn’t working,
but we are not going to completely knock down and rebuild our economic system.
We are just going to renovate it you know, throw on an extra bedroom,
bathroom, oh and maybe a free market.
This worked well but it wasn’t happening in isolation.
This whole plan started in the late 1980’s
around the same time the soviet union was, not doin so great.
This was a great opportunity for the nation to repair its strained relationship with China,
who all things being considered was probably a more logical ally for them to have.
China at this time was rolling out similar reforms,
in which they were very slowly starting to introduce free-market
influences into their economy to boost innovation, trade and industrial output.
If you are interested in the mechanics of how they did this go and watch our three-part series
on the economy of china because that goes into much more detail than we have time for here.
Now the economy of vietnam has done well of its own accord but it is no great secret that
a lot of its growth has been achieved by piggybacking off the rise of China.
Now there is nothing necessarily wrong with this,
a lot of nations have done very well of second-hand success from china
Just look at Australia for example, our mining industry has been almost solely
devoted to fueling the growth of this industrial powerhouse,
and by extension, a lot of our economic success has come from our mining industry.
Vietnam probably took this to a different level though,
it blurred the line from sharing in China’s success to being outright dependant on it.
Vietnam has three main industries, Agriculture, manufacturing and tourism.
Vietnam is really good at growing difficult crops, things like cashews, coffee, black pepper,
but it doesn’t quite have the landscape to truely benefit from industrialized farming
that make more subsistence crops like wheat and rice possible to produce en masse.
The solution is relatively simple,
produce these luxury crops and trade them with a more developed farming nation, like China.
Manufacturing is always a staple of rapidly developing economies. The low incomes of a
large population mean that it is a good pool of unskilled labor to produce low cost goods.
But it lacked a lot of the infrastructure to manufacture even rudimentary electronics or
industrial goods so a good portion of this sector is dedicated to producing clothing,
with is not nearly as profitable as higher-end manufacturing.
Finally, there is tourism, which is a huge part of the economy,
unfortunately it to has been and still is heavily reliant on China.
Up until recently, it must be remembered, for the average citizen of a western country,
the idea of going on holiday to Vietnam would have been as crazy as going on holiday to North Korea.
Sure people do it, but it’s rare.
A tourist base that didn’t mind at all were newly wealthy Chinese citizens
who even to this day makeup over 30% of the nation’s tourism industry and contribute
heavily to the countries casino’s that operate almost entirely for these foreign gamblers.
Actually up until recently, these institutions did not let anybody in unless they presented a
foreign passport, because well it was illegal to gamble in the nation, unless you were a tourist.
Despite these severe restrictions these casino’s were amongst some of the largest in the world,
which all goes to show how dependant the nation really is on tourist dollars.
Now luxury produce, low end manufacturing and most of all tourism,
have not exactly been, growth industries in 2020.
So could the economic fallout of the coronavirus be the demise of this nations
Leap for prosperity One of the biggest threats
to a nation going through a period of rapid economic growth is the middle-income trap.
This is what happens when a nation becomes wealthy and passes that wealth along to it’s citizens.
This sounds like a good thing, but it can undermine the very
industries that worked to make it wealthy in the first place.
If worker become too wealthy then they will demand higher wages,
higher wages make manufactured goods more expensive and suddenly the nation will lose
its job as the worlds low-cost manufacturer to some other nation with a cheaper labor force.
A 2008 paper published by the Vietnam Development Forum
noted that Vietnam would be particularly susceptible to this for a number of reasons.
The first are its strong social policies. Now there is nothing wrong with social policies
in and of themselves necessarily, but in the case of Vietnam it is working to raise the wealth of
all workers more equally which means in turn there is less low-cost labor to use later on.
There is a famous quote by Deng XiaPing who was the defacto leader
of china during its period of rapid growth with roughly translated to
“I hope all men get rich, but we are going to achieve this be letting some get rich first”
Alot of people look at this quote as a display of textbook corruption,
but in reality, this was first translated and published by The Economist in 2001
when addressing the issue of the middle-income trap.
Even outside of that breaking through the middle-income trap requires a bit of a
run-up and jump. An economy needs to grow very rapidly from exports, and then pivot to the
local industry before a cheaper competitor to their local industries can be found.
In many ways 2020, might have just swatted the nation out of the air mid-leap.
But if becoming a developed nation is such a treacherous leap, is it one that
All countries will make?
Well no, probably not
In the same way that deng xio ping saw his
nation growing wealthy by allowing some people to grow wealthy first,
alot of economists have argued that there is only so much room for developed economies.
There are obvious complications, like the fact that if everybody on earth lived like
the average american we would need 4 earths worth of resources to sustain them all.
But even if we assume that we lived in a world with almost limitless access
to resources there would still be a disparity.
Their argument is that there is a clear and obvious distinction between
developed economies and undeveloped economies and that is businesses.
Think of any developed economy and you will most likely be able
to thing of a multinational that is headquartered there.
When you think of any developing economy this is a little bit more difficult.
Having strong multinational corporations works to produce wealth above and beyond
what a nation would have otherwise been able to with its own industrial potential.
Nike for examples, makes shoes in vietnam from plastics produced in china and then
transports those shoes on greek ships to the UK, where they are purchased.
Throughout this entire process the USA has been completely uninvolved,
although when Nike turns a profit, it is the USA who benefits.
Now sure this type of global industry is a win for all of those involved,
it has provided jobs and incomes to all of the nations that formed this supply chain,
but they did not win nearly as much as the US.
In many ways developing economies are like the ambitions career driven nations of the world,
willing to put in the hours, work hard, get paid less than their worth for years for
the hope that one day they will make it into the big leagues.
Developed economies are the landed gentrys,
they have systems in place that they bring in income without lifting a finger.
Unfortunately, economies don’t really run if everybody is content to sit
back and live off their laurels, which means there almost has to be a hierarchy of nations.
Now this is a super interesting theory,
all be it a very controversial one but let me know what you think.
Could the global economy accommodate a world full of developed nations?
Rankings
Ok so now it is time to put Vietnam on our economics explained leaderboard,
a leaderboard that I am petitioning to the IMF to consider as a genuine benchmark of economic
success, right in their with GDP and unemployment figures.
Vietnam’s economy is growing rapidly but it is still not huge,
with a GDP in 2019 of around 262 billion USD it gets a 6/10
GDP per capita is much the same, it has made massive improvements from where it was a few short
decades ago but it is still a poor nation, with a GDP per capita of only $2,715 USD, it gets a 3/10
Stability and confidence is a bit of a tricky one, the nations recent history has
been nothing if not turbulent but it has had pretty consistent success in recent decades.
Even still with its heavy reliance on china, as well as industries
that are particularly exposed to the economic fallout of 2020 it gets a 3/10
Growth, well it’s one of the fastest growing major economies in the world,
it can not get anything other than a 10/10
And finally industry, well, as we have seen it has been improving and it has been diversifying
but it is a long way from where it is probably hoping to end up and with a
majority of its workforce still in non industrial agriculture it gets a 3/10.
This gies the nation an average score of 5 out of 10 and put it into 5th place on the leaderboard.
Final Thoughts
Vietnam is a fascinating economy for so many reasons.
And despite the doom and gloom of the world today, and in fairness this video,
it is still a nation that holds a lot of promise to become a prominent world superpower.
Will this success happen overnight? Well no. especially when you consider current setbacks.
But it is a nation that has proven to be nothing if not resilient.
If nothing else it serves as a reminder to most of you watching from developed that if
you are ever hating on trust fund babies, or millionaires living off their passive income, you
need to look internally because that is you at a global level.