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10729_harvard_choosing-success-The Lessons of East and Southeast Asia and Vietnam’s Future

10729_harvard_choosing-success-The Lessons of East and Southeast Asia and Vietnam’s Future

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 HARVARD UNIVERSITY
ASIA PROGRAMS
79 John F. Kennedy Street, Cambridge, MA 02138Tel: (617) 495-1134 Fax: (617) 495-4948
Choosing Success:
The Lessons of East and Southeast Asia and Vietnam’s Future
A Policy Framework for Vietnam’s Socioeconomic Development, 2011-2020
1
 
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This study, which is based on a paper by David Dapice, incorporates research by Dwight Perkins, NguyenXuan Thanh, Vu Thanh Tu Anh, Huynh The Du, Jonathan Pincus, and Tony Saich, all of whom also contributedto the text, which was edited by Ben Wilkinson. Research funding was provided by the United Nations inVietnam
 
Choosing SuccessHarvard Vietnam ProgramJanuary 2008Page 2 of 56
Choosing Success:
The Lessons of East and Southeast Asia and Vietnam’s Future
A Policy Framework for Vietnam’s Socioeconomic Development, 2011-2020
2
 
Overview
In the early 1990s the Harvard Vietnam Program compiled a series of strategy papers entitled
 InSearch of the Dragon’s Trail 
, the objective of which was to provide a framework for setting policy priorities and making economic policy decisions.
 In Search of the Dragon’s Trail 
was tailored to therealities of an economic moment that has passed. The regional economic crisis in 1997 exposedunderlying weaknesses of certain aspects of East and Southeast Asia’s development. Perhaps moreimportantly, the structure of the global economy has continued to evolve. Trade liberalization hascreated truly global markets for manufactures and increasingly for services. Two decades of mergersand acquisitions on an unprecedented scale have created massive global corporations at the apex of supply chains that penetrate deeply into the production systems of developed and developingcountries alike. Developing countries can no longer rely on industrialization strategies that haveworked in the past and must continually reassess their positions in light of rapidly changing trends inforeign investment, financial markets, technology and demography.Vietnam is also a very different country today. Many Vietnamese have escaped poverty and thecountry’s economy has grown rapidly. This success is due in part to far-sighted decisions by thegovernment to liberate the productive forces of society and integrate into the international economy.As a result of these changes, the Vietnamese economy is today much more complex, and deeplyintegrated. It is likely that the decision-making process is more heavily contested; politicaldecentralization and the rise of influential interest groups make it easier to maintain equilibrium thanto press ahead with additional reforms. In contrast to the urgency of the early years of 
doi moi,
 widespread optimism—nurtured by increasing foreign direct investment and lavish praise from donorsand the international media—is breeding a sense of complacency and satisfaction with the status quo.In light of these changes,
 In Search of the Dragon’s Trail 
is today perhaps more valuable to historiansthan to policymakers.
3
 This paper provides a new framework for setting priorities and making strategic decisions, one that istailored to the realities of the Vietnamese and global economies of the early 21
st
century. The paper argues that from a development perspective, East Asia—defined here as Korea, Japan, Taiwan, HongKong and Singapore—has on the whole been more successful than Southeast Asia, defined here asThailand, Indonesia, Malaysia, and the Philippines. This paper views China as a special case: itsgeographic location, cultural traditions, extremely rapid economic growth, and the high quality of itselite institutions of higher learning are decidedly East Asian, yet today China suffers from many of theweaknesses that derailed Southeast Asian countries. For Vietnam, whose development strategy issimilar to China’s in many respects, the implications of this analysis are significant. Vietnam mustfollow an East Asian development trajectory but does not have recourse to many of the policy
2
This study, which is based on a paper by David Dapice, incorporates research by Dwight Perkins, NguyenXuan Thanh, Vu Thanh Tu Anh, Huynh The Du, Jonathan Pincus, and Tony Saich, all of whom also contributedto the text, which was edited by Ben Wilkinson. Research funding was provided by the United Nations inVietnam
3
 
 In the Dragon’s Trail 
relied primarily on comparative experience; its primary authors were internationalexperts who, with some exceptions, were not Vietnam specialists. Since this work was published, Harvard hasdeveloped a far more sophisticated and nuanced research capacity consisting of Vietnamese experts workingclosely with international colleagues. The center of Harvard’s Vietnam-based activities is the Fulbright Schoolin Ho Chi Minh City, which provides economics and public policy training to Vietnamese officials. Moreinformation is available athttp://www.fetp.edu.vn.
 
Choosing SuccessHarvard Vietnam ProgramJanuary 2008Page 3 of 56
instruments deployed by these countries during their rapid industrialization. Unfortunately inimportant ways Vietnam appears to be repeating the mistakes of Southeast Asia, East Asian, andChina. Some will argue that by attempting to distill thirty years of development into a few core principals this paper is guilty of excessive oversimplification. To be sure, every country follows aunique development path that is a product of specific historical, cultural, and political circumstances.However, at a strategic level, the experiences of other Asian countries offer important lessons thatVietnam ignores at its peril.One of this paper’s central themes is that key government decisions taken now and in the near futurewill set the country on a path that will become increasingly difficult to reverse, and will shapeVietnam’s political economy for years to come. Most crucially, Vietnam’s future growth potentialwill depend to a great extent on the capacity of the state to construct a firewall between economic and political power. The defining characteristic of the East Asian development model—in particular in itsKorean, Taiwanese and Singaporean forms—was the government’s ability to discipline economicinterests opposed to efficient capital accumulation, rapid industrialization and national economiccompetitiveness. Access to state favors was linked to performance rather than political connections.Even politically powerful groups and individuals were routinely denied government contracts, bank credits and other facilities if their plans were not feasible or socially beneficial or if past projects had been poorly implemented. The “crony capitalism” of Southeast Asia is in fact the failure of the stateto achieve a clear separation of economic from political power.We are not alone in this assessment. The Economist Intelligence Unit (EIU) forecasts a sharpslowdown in Vietnam’s economic growth rate beginning in 2010. According to EIU, “vested politicalinterests may impede reform, thereby preventing the necessary restructuring of some SOEs, whichwill hamper overall improvements in competitiveness and will constrain Vietnam’s growth performance.”
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EIU sees growth slowing to 5.1 percent per annum for the period 2011-2020. Thisassessment may come as a surprise to Vietnamese officials who have grown accustomed to the high praise lavished on the government by donor organizations like the World Bank, many investment banks, and by the international media.Vietnam must act decisively to prevent the slowdown predicted by neutral observers like EIU. Thequality of public investment will be a key indicator of the government’s success in achieving reform.The state, like any investor, cannot allow its investment program to be diverted from the centralobjective of generating the highest possible returns. If it does, and allows powerful people to build personal fortunes from the misallocation of public resources, massive costs will be imposed on theeconomy. It is undeniable that Vietnam’s public investment program is riddled with corruption andwaste. Infrastructure projects are routinely subject to cost overruns and delays. The selection of  projects is not based on clear economic criteria. For example Vietnam is investing in a string of deepsea ports in central Vietnam while the infrastructure in Ho Chi Minh City, Dong Nai, Binh Duong,and Ba Ria Vung Tau (which together are absorbing 60 percent of Vietnam’s population and jobgrowth) is stretched to the breaking point. The planned $40 billion high speed rail line would make asmall contribution to growth while imposing a massive foreign currency debt on the public purse.Politically powerful Vietnamese are transforming public property into personal wealth through murkyland deals and an equitization process that leaves insiders in control of state companies and their assets. In Vietnam, where the average per capita income is approximately $800 per year, land prices
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Economist Intelligence Unit,
Vietnam: Country Forecast 
, September 2007, p. 36.

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