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Case 2. Economic Transformation in Vietnam
Vietnam is a country undergoing transformation
from a centrally planned socialist economy to a system that
is more market orientated. The transformation dates back to
1986, a decade after the end of the Vietnam War that
reunited the north and south of the country under communist
rule. At that time, Vietnam was one of the poorest countries
in the world. Per capita income stood at just $100 per person,
poverty was endemic, price inflation exceeded 700 percent,
and the Communist Party exercised tight control over most
forms of economic and political life. To compound matters,
Vietnam struggled under a trade embargo imposed by the
United States after the end of the Vietnam War.
Recognizing that central planning and government
ownership of the means of production were not raising the
living standards of the population, in 1986 the Communist
Party embarked upon the first of a series of reforms that,
over the next two decades, transformed much of the
economy. Agricultural land was privatized and state farm
collectives were dismantled. As a result, farm productivity
surged. Following this, rules restricting the establishment of
private enterprises were relaxed. Many price controls were
removed. State-owned enterprises were privatized. Barriers
to foreign direct investment were lowered, and Vietnam
entered into trade agreements with its neighbors and its old
enemy the United States, culminating in the country joining
the World Trade Organization in 2007.
The impact of these reforms has been dramatic.
Vietnam achieved annual economic growth rates of around
7 percent for the first 20 years of its reform program.
Although growth rates fell to 5 percent in the aftermath of
the 2008–2009 global financial crisis, by 2015 Vietnam was
once again achieving growth rates of around 6–7 percent.
Living standards have surged, with GDP per capita on a
purchasing parity basis reaching $6,400 in 2016. The
as the economy has transitioned to a market-based system.
Vietnam bans all independent political parties, labor unions,
and human rights organizations. Government critics are
routinely harassed and can be arrested and detained for long
periods without trial. The courts lack independence and are
used as a political tool by the Communist Party to punish
critics. There is no freedom of assembly or freedom of the
press.
To compound matters, corruption is rampant in
Vietnam. Transparency International, a nongovernmental
organization that evaluates countries based on perceptions
of how corrupt they are, ranks Vietnam 113th out of the 176
countries it ranks. Corruption is not a new problem in
Vietnam. There is a well-established tradition of public
officials selling their influence and favoring their families.
However, critics say that the problem was exacerbated by
privatization processes that provided opportunities for
government officials to appoint themselves and family
members as executives of formerly state-owned companies.
Although the ruling Communist Party has launched
anticorruption initiatives, these seem to be largely symbolic
efforts. Many observers believe that widespread corruption
has a negative impact on new business formation and is
hamstringing economic growth.
Case Discussion Questions
1. Why did Vietnam experience a low economic growth rate
in the decade after the end of the Vietnam War in 1976?
2. Vietnam now has an economy that is growing strongly
with low unemployment and rising living standards. What
changes in economic policy have been responsible for this
economic transformation?
3. The level of public corruption in Vietnam is high. Why is
this the case? How do you think this affects Vietnam’s
economic performance? What should the government do
about this?
“Vietnam,” World Report 2015.
Source: Hill, Charles W. International Business: Competing in the
Global Marketplace (Page 60).Mc Graw-Hill Higher Education.
Kindle Edition.
