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OF VIETNAM Proposed paper for the 2007 HDCA Conference IDEAS CHANGING HISTORY 16-20 September - The New School New York City Dao, Mai Thi Hoang Vietnam Institute of Economics Vietnamese Academy of Social Sciences. PhD Student at the University of Versailles, France. firstname.lastname@example.org
INTRODUCTION Vietnam is in the period of transition from a central-planned economy into a marketoriented economy. Replacing the former system of self-subsidized production by a new economic system driven by the market is the key reform in the course of agriculture and rural development. Some studies showed that 60% of households in the North and 40% of households in the South of Vietnam do not have access to the market (Dao The Tuan 1995, Jesus F. & Bourgeois R. 2003). The majority of these households are poor farmers. Clearly, poor farmers face difficulties in participating in the market. Although developing the market is necessary, sufficient conditions for bringing those market opportunities fully into play are that the poor should gain enough capabilities. Capabilities that would result from sufficient forms of capital, appropriate technologies and/or information, knowledge and so on… These are still seriously absent, especially among the poor. Hence, it is quite obvious that in order to attack poverty completely, both the empowerment of the poor and the access to adequate means should be considered first and foremost. According to the capability approach formulated by A. Sen (1981), the essential cause of poverty is the lack of capability. Of which, “the capability represents the various combinations of functioning (beings and doings) that a person can achieve. The capability is, therefore, a set of vectors of functioning, which expresses to what extent an individual is able to live a way of life or another.” The capability approach connects freedom to the capacity and power of doing and being.
The key question is therefore how to empower the poor farmers? This paper argues that collective action could play an important role in the access of the farmers (and poor farmers in particular) to the market by encourage their empowerment (through their capability and agency). Indeed, poor farmers are often disadvantaged in all negotiations because of their lack of power. Therefore, this matter might be solved by encouraging the farmers to unite on specific objectives. This is at the basis of the idea of generating a collective capability through collective action. DEFINITION AND IMPORTANCE OF COLLECTIVE ACTION What is collective action? Collective action is defined as the “coordination of agents sharing a goal or a common set of goals. Organizations are economic units formed by collective action” (Ménard, 1990). The objective of collective action is to obtain the common interests of majority members of the group and the provision of public goods (and other collective consumption) through the collaboration of different individuals. Of which, public or collective goods are goods from which it is impossible or highly costly to exclude members of consumption even if they do not pay for it. We can quote some examples of public goods, such as roads, education, healthcare, and collective goods, such as irrigations, insurances, and reputations for quality. Why is the collective action necessary for poor farmers? This paper argues that collective action has influences in changing collective capability. Although at the beginning, Sen’s Capability Approach is concerned mainly with individual capability; in the literature of his successors, we find more often the notion of collective capability. While individuals need social relationships within the society, and their agency rely on structures, individual agency is not brought by individuals acting alone, but also by their collective action (Deneulin and Stewart, 2001). The act of choosing (a functioning) may have value in instantiating friendship, exercising sociability or consolidating a sense of community, and cooperation among group (Alkire, 2002). Due to their lack of education, their limited access to political institutions, social networks, financial resources, information and markets, the poor can best enhance their living conditions collectively. The potential benefits of collective action for individual and collective capability are undeniable (Solava, 2006). The role of collective action is to guide the people and to make them more strong and competitive in their economic (e.g. access to resources, markets, insurance...), social (e.g. education, leisure...) or political (e.g. lobbying...) activities.
In general, collective action can create economies of scale by pooling resources and generate collective or public goods. So, through collective action, transaction costs or market imperfections can be reduced (e.g., the risks that linked with production and marketing have no private insurance mechanisms). Collective action makes meet the needs of all individual in the community, so that it is useful to produce the cooperative outcomes (Anand, 2007). There is also a closed linkage between collective action and value chain. Value chain refers to a full range of activities that are required to bring a product (or a service) from conception, through the different phases of production, to deliver to final consumers and disposal after use (Kaplinsky, 1999). In a more strict sense, it relates to the chain of participants’ financial returns in relation with their investments, innovations and power relationships. A successful participation in value chain also requires collective action between the farmers to expand the scale of the operation and increase their bargaining power. Research is yet still lacking of practical examples of successful participation of the poor into value chain through the recourse to human capital and specific coordination mechanisms. Naturally, the collective structure of capability for the whole chain is related to the structures of capability of each level within this chain. In fact, we have a double structure of capability. At the first stage, each firm or actor has his own structure. At the second stage, the combination of the individual structures constitutes an integrated whole, which forms the chain’s collective structure. At the horizontal level, collective action between farmers enables and increases the scale of operation and the bargaining power of the poor in the value chain. At the vertical level, collective action between farmers and purchasers of their products (traders, processors, consumers) enables poor farmers to have more security in the sale of outputs and access to inputs (interlinked transactions, contractual arrangements).
In the case of smallholders and poor farmers, it seems that the only effective way for them to become actively involved in an increasingly commercialized value chain for their products is to become organized and coordinated, increasing the attractiveness of their products in terms of the “3 As” : affordability, access and availability (Lazonick, O’Sullivan, 2000). Affordability: Collective action is a potential way that poor producers can overcome the disadvantages of poor economies of scale and low-quality infrastructure. By working together,
rather than individually, productivity gains can be made and unit costs can be reduced for both inputs and outputs. Access: Poor farmers produce relatively low quality goods and services for a number of reasons, including lack of knowledge of quality standards, lack of adequate incentives to upgrade quality, and lack of credit to purchase improved inputs and means of production. Additionally, even if poor farmers are able to produce quality goods and services, they are often unable to access the means to certify this quality, or to promote their goods and services to a wider audience. Availability: Increased scale of production, through collective action, and increased certainty of demand, through effectively functioning contract systems, are two possible methods of increasing the availability of goods and services sold to and bought from the poor, and increasing their involvement in value chain. Collective action may not improve all the capabilities of each individual, because individual and collective capabilities are not always the same. But according to participatory approaches, even if there is no best choice, with collectivity and discussion, one may reach anyway the better from worse choices (Alkire, 2002). In integrating at the market, the requirements in collective action still increase. It is clear that the organizations for farmers are not out of the rural society. The organizations constitute an interface between the local society and the economic environment. Their objectives are to improve the conditions of the insertion of farmers at the market and the global society. Their roles are often to defend the interests of farmers and to organize the agriculture services. Admittedly, the collective action cannot mobilize all individuals: there is often a minority voluntary at the beginning, with an open possibility for people to join in order to improve the capacity of negotiation. Collective action and economic freedom In order to make a successful collective action, voluntary of the member is the first principle to respect. Collective action must base on the values of self-help, self-responsibility, democracy, equality, equity, and solidarity. Olson (2000) call the “right-to-work” is that comes from those who are most ardent in support of a system based on the profit motive. He argues that a rational worker will not voluntarily contribute to a union providing collective benefit if his-own benefit is not the same or
if he can get benefit without the support of the union. Hence, the same profit motive is the best linkage between members of an organization. The development of collective bargaining for large groups must normally restrict economic freedom in that it implies that those who do not join the union must be deprived of the right to work. On the other hand, there is meaning to the idea of freedom of choice in the disposal of one’s income, and also the freedom from any coercive control, such as the political implications or political arrangements. According to the capability approach, the freedom is a key argument. The development is nothing other than a process of expanding the real freedoms that people enjoy (Sen, 1999). The economic freedom generates income for the poor while widening their social opportunities, enhancing their bargaining powers and also helping them to arrange the unequal relations in their communities. Co-operatives in Vietnam: Lessons from History In Vietnam, since the market-oriented reforms, known locally as doi moi (renovation), formally introduced in 1986, the economy has completely changed. While all economic activities were planned by the government in the collective system of economy, in the market-oriented economy, the enterprise can decide of its own activities but competition is an important criterion to evaluate these economic activities. Before, the co-operative was considered as the core component of the economy, and a majority of the farmers was member of co-operatives. Nowadays, the farmers are warned against the co-operative. This change in the farmers’ attitude is the result of the history of co-operative creation in the past. The collective system of the economy was officially established when the North of Vietnam liberated from French colonial regime in 1954. It was widely expanded to the whole country after the reunification in 1975. From 1954 to 1957, many groups of labor exchange and some co-operatives appeared and the first positive results were observed. New co-operatives were created in 1958. The planning objective given by the Government was to reach 234 co-operatives but, in reality, 4,723 cooperatives were created at this time.
The 16th Central Meeting (2nd session) of the Party in 1959 marked an important date for the collectivization process, by adopting the decision that co-operatives were a key element of the socialist reform. After that, in the 3rd National Congress of the Party in 1960, the leaders confirmed that North Vietnam has to build a “socialist economy, based on public and collective ownership”. After this decision, the creation of co-operatives became a mass activity. At local level, the authorities did everything to put all farmer households into co-operatives. In some cases, the achievement of the local authorities was evaluated by counting the number of co-operatives created. It is the reason why so many co-operatives were created day after day. Under such high pressure to join the co-operative movement, the households that were still hesitating, faced the risk of being excluded from their community. Therefore, by the end of 1960, about 86% of farmer households have become members of co-operatives. In 1962, the 5th Central Meeting (3rd session) judged that “the collectivization was mainly fulfilled”. At that time, nearly all the farmer households of North of Vietnam were included in cooperatives. The few remainders were in other forms of collective institutions, such as the statemanaged farms. Table 1: The collectivization process in the North of Vietnam Number of cooperatives 1955 1956 1957 1958 1959 1960 1965 18 37 45 4,823 27,831 40,422 31,651 % of co-operative members/ total farmer households Number of farmer households/ co-operative 13 14 16 26 45 68 85
17.7 45.4 85.8 90.1
Source: Statistical Data of Vietnam At the time of Reunification of Vietnam in spring 1975, there were about 16,872 cooperatives in the North. From these, the collectivization process continued to expand in the whole country. The co-operative installation in the South became a hasty process too. At the end of 1975, 12,246 corporations (another form of co-operative with lower level of collectivity) were
created. But more than 4,000 of which were collapsed just in the year after. In 1980, there were 1,518 co-operatives and 9,350 corporations. At that time, 35.6% of farmer households in the South were collectivized. Hence, since the beginning of this co-operative establishing process, both in the Northern and Southern part of Vietnam, the principles of freedom and democracy were not respected. By rushing into the installation of co-operatives, policy makers forgot that they couldn’t be successful without the voluntary participation of the farmers. Many farmers agreed to join the cooperative because they were obliged to, but they did not really wanted to. There are many examples that can be found everywhere showing that some farmers sold their equipment and assets before they had to be collectivized. As a logical result, a few years later in 1980s, the co-operative model fall into crisis. As farmers have no motivations in working for co-operatives, each tried to cheat on their cooperatives’ leaders. Therefore productivity of co-operative decreased even though it had received lots of support from the Government. The Resolution No10 in 1988 “released” the farmers from the co-operative. With this decision, some forms of private ownership were recognized. The Government gave to the farmers the right of cultivating their own field so that they have more motivation to work. Due to this reform, the number of co-operatives decreased strongly in the period. But this collapse of the co-operatives caused, once again, a serious shock for the agriculture and the farmers. A part of the farmers became poor, due to their difficulty to adjust to the market economy. In 1996, the Law of Co-operative was approved. Up to this date, there were a total of 13,782 co-operatives but once the Law issued, 6,853 co-operatives disintegrated in the whole country. The remainders were changed to adapt to the Law. In 2005, there were still 8,086 co-operatives all over the country. In which, 25% were in debt. Due to this collapse of the co-operatives, the co-operative model of development has been much criticized. Many farmers thought that this model is wrong and must not be applied again. Co-operatives were considered as one of reasons, which lead Vietnamese economy to the economic crisis. However, this paper argues that the problem is not to be found in the model itself, but rather in the way it was carried out, and, therefore, it emphasizes the idea that freedom
and democracy may be part of certain forms of collective spirit. These reasons are key issues to decide on the success of collective action. In addition, the level of collectivization also influences the farmers motivation. As before, private ownership was completely denied, the participation of the farmers into the co-operative system became unwillingly. On the other hand, while each farmer has only a too small part of land to cultivate, the cooperative may provide a lot of services that the household can not easily cover, such as irrigation, plough and technical equipment, seeds, … These are among the reasons that explain why the cooperative idea still remain available after such incidences. Traditionally, even before the massive collectivization process, various forms of labor exchange activities were existed in Vietnam. In fact, the co-operative model was unsuccessful because of its too impatient implementation. COLLECTIVE ACTION, SOCIAL CAPITAL AND INSTITUTIONS The question that remains now is how can the farmers be encouraged in participating on a voluntary basis into collective action? In practice, all members have to pay for the cost of provisioning the collective goods. Because in large groups, an individual member gets a low proportion of the benefits of collective action, if they do not pay, it can be unnoticed. Hence, they have low incentives to contribute to the operation of the group. Can poor farmers pay the member participative cost? One often worries that capital requirements can exclude the poor from collective action. In reality, we observed some examples of organization known as pro-poor, but without the poor. But in some cases, contributions can be made, not only in monetary, but also in other forms, such as social capital. Defined generally as a set of social relations, the social capital plays the role of connecting people in the society. To some extents, social capital may facilitate the affiliation of poor farmers into collective action. Solava (2006) shows that social capital is a lubricant for collective capabilities for many reasons, which are namely: it nurtures the trust and reciprocity among the poor; it helps the poor to have their voices in collective decisions; it allows information sharing and coordination of activities, etc… In the case of Vietnam, we argue, through this paper, that social capital is, at first, the needed condition for the participation of the poor in collective action.
In fact, Vietnam has a long tradition of social capital based on trust. In general, the social capital has a special role in the Confucius societies of Asia. Mayfair Mei-hui Yang (1994), used an example of Chinese society, described what one calls “the art of relationships” in political and economic lives. One can get relationships through different activities of the community. Even that relation is vertical or horizontal, one still can benefit from it. Thanks to a rather large relationship network, people can exchange favors with one another. In addition, the children can get benefits from their parents’ positions and relationships. They also use them to enrich themselves. The relationships are not simple as a connection between two individuals, but rather a network with many levels. You ask a friend for a favor. If he cannot do it, he will ask someone else. In this way, the connection may be made not only in one level, but also between different levels. Therefore, for those who want to join a collective action, social capital is useful; and while taking part in a collective action, one’s social capital can be improved. As relationships may bring favors without a financial cost, it can be a solution for the poor. Finally, in addition to social capital, an adequate institutional structure is also needed to support the realization of collective action. Institutions are structures with rules and constraints defining which actions are required, prohibited or permitted (North, 1990). While many institutions are organizations, many organizations are not institutions (de Janvry and al, 1993). Institutions may be official (e.g. the Union of Farmers), unofficial (e.g. Association for Consumer Protection), marketed (e.g. Association of Litchi Producers), or non-marketed (e.g. Association for Education Promotion). Since official institutions are often organized as large groups, they need more times to create, to change, or to improve. Unofficial institutions, with small sizes and simple structures, may be more suitable in the role of supporting the poor in collective action. Moreover, in Vietnam, official institutions assume too many purposes, such as propaganda, and poverty reduction represents only one of its purposes. In the context of developing a market-oriented economy in Vietnam, most economic policies focus on state and marketed institutions. Policy makers thought that a “perfect” market and state intervention could bring opportunities and then, capabilities for all people. But it may not enough. People, poor people in particular, always need the helps from social institutions. In fact, the problem of inequality due to the economic growth will never be solved by state and marketed institutions, but rather by social institutions. In emphasizing the importance of social capital for collective action and collective capabilities, this paper also stress the role of social institutions in poverty and inequality reduction.
EXAMPLE FROM VEGETABLE VALUE CHAINS IN MOC CHAU ∗ Currently, Vietnam is facing the problem of fresh vegetable quality. In the market, there are two kinds of vegetables: ordinary and organic (or “safe”) vegetables. The later represents more or less 10% of total quantity and are sold in organic vegetable shops or supermarkets. Being not sure of the quality of ordinary vegetable, consumers accept to pay more (sometimes in double price) for organic vegetable. What is the role of collective action? To become “safe,” the vegetable must respect a process of production, certified by a specialized institution. Of course, this institution cannot send their staffs to control producers at all times. So, they give certificates rather to collective productions, while producers can establish self-control and inter-control systems. As an individual production, there are two risks: For consumer: product, which is sold, as “safe” vegetable may not always respect the safety process, because the control is not regular. For producer: a product without certificate cannot be sold as “safe” vegetable price, even if it respected the safety process. In this case, the producer is the disadvantaged, because in comparison to ordinary vegetable production, a safety production is more costly. Hence, collective action plays two roles: Consumer protection: control the safety and quality of the product. Producer protection: all products can be sold at right prices.
Collective productions are often organized in form of co-operative. In this case, the collective action is not for helping the poor. Certainly, it is not a question of charity groups. It has a precise economic purpose. However, it is also opened for the poor if they have a closed relationship. Moc Chau, in the Northern highlands of Vietnam, is an area where the nature condition is suitable for vegetable productions. Due to its cool climate (the average temperature is 280C); Moc Chau has a clear comparative advantage in the possibility of supplying off-season vegetables
Thanks to P. Moustier and MALICA, I got this example through my participation in the survey of the project “Assessing the participation of the poor in off-season vegetable value chains” in Hanoi and Moc Chau.
(from April to October) to Hanoi. In 2003, from July to August, Moc Chau was supplying 1320% of the tomatoes in Hanoi (almost the rest of the supply in this season originated from China). Indeed, vegetable productions are the main activity for the livelihood of the people in Moc Chau. From the producer to the market, there are 2 types of channel: Co-operative-driven chain: Producer → Agricultural Service Co-operative → Safe Vegetable Co-operative ↓ Supermarket / Retailer Market-driven chain: Producer → Collector → Wholesaler → Retailer
Of which, in the first chain, there are less category of vegetables (only safe vegetables) and the main market to sell is Hanoi (safe vegetable shops and supermarkets). Whereas, there are all kind of vegetables (safe and ordinary) in the second chain and these products are to sell in both of local and Hanoi market. The distribution of costs, prices and profits between actors along the 2 chains is not the same: see example of the tomato chains in Table 2. Table 2: Distribution of costs, prices and profits for the 2 tomato chains (VND/kg) Co-operative-driven chain Producer Total costs Net profit margin Farm-gate price Collector Total costs Net profit margin Collector’s sale price Agricultural Service Co-operative Total costs Net profit margin Co-operative’s sale price 317 143 1660 251 949 1200 Market-driven chain 303 881 1184 581 319 2084
Safe Vegetable Co-operative Total costs Net profit margin Co-operative’s sale price Wholesaler Total costs Net profit margin Wholesaler’s price Retailer Total costs Net profit margin Retailer’s price Supermarket Net profit margin Retail price Source: VASI survey, MALICA/M4P, 2004.
525 695 2880 71 379 2534 261 359 3500 700 4200 182 784 3500
Agricultural Service Co-operative in Moc Chau was re-created in 2000, based on some members of the old Agricultural Co-operative that was collapsed in the time of economic reforms. This co-operative collects the products from members and contracted farmers and resells to Hanoi safe vegetable shops or supermarkets, through the Safe Vegetable Co-operative. Each year, Moc Chau co-operative supplies approximately 500 tons of vegetables. In which, tomato, cabbage and green beans account for 50% of total. The function of the co-operative is: transportation, wholesale and quality control. The relationships between members (and contracted farmers included) are based in the neighborhood. The trust is an important key to joint to co-operative activities. How poor producers can participate to the co-operative? And which advantage for the poor? Members have to share the investment in cash or in land. At the beginning, there is no possibility for the poor to be member of the co-operative, because of both capital and material facilities. (According to the 2005 official poverty rate, the income of a poor people in rural areas is 270,000 VND/month). See the followed table.
Table 3: Conditions for producers to participate in the 2 chains Co-operative-driven chain Operation Capital Relation Experience Other conditions 2-3 million VND Having relation with Agricultural Service Co-operative Having experience in agricultural production* - Large area (up to 5 sao) for vegetable growing (1 sao = 360m2) - Having trust of Agricultural Service Co-operative Market-driven chain 1.7-2.5 million VND Be acquainted with the collector Having experience in vegetable production - Having experience in selling product at local market. - Growing many categories of vegetables at the same time
* The farmer in Moc Chau involved in the supply of the Agricultural Service Cooperative, either in the form of employees, or in the form of contracted farmers, was previously involved in rice and maize production for self-consumption. Source: VASI survey, MALICA/M4P, 2004. But the poor can become hired laborers or contracted farmers. Between them, hired laborers are poorer. 90% of hired laborers are farmers. They are hired to work in the cooperative’s land (to produce vegetables, fruits and maize) and earn about 500,000 VND/month. Whereas, contracted farmers may be poor, but they have their own land to produce. The contracts between co-operative and farmers stipulate the following for one season: Input supply by co-operative (seeds, fertilizers, pesticides). Technical advice by co-operative, which allows co-operative to exert control on production protocols. Purchase of all output by co-operative Stable prices for one season (with some possible changes) Risk sharing: co-operative participates in the risk of production by not asking for input credit refunding in the case of product losses. Payment at the end of the season: the co-operative balances the cost of seeds and other inputs provided at credit for the producers at the beginning of the crop and the vegetable value they collect from these farmers.
Poor farmers present advantages for the participation in the co-operative. The commitment of the co-operative can endorse the risks in case of production losses. Also, the purchase of all the outputs is guaranteed by the co-operative. Through the involvement in value chain, they may get out of poverty. Some contracted farmers of Moc Chau Agricultural Service Co-operative belong to the Thai ethnic group. Before, these households were only growing one rice crop a year. The rest of time, they let the land lay fallow or grew sweet potatoes. Growing vegetables was using local traditional cultivating habits for self-consumption. Thanks to the support of the co-operative in terms of training for vegetable planting, providing breeds and materials on credit, and marketing their product, they are now active people with experience in farming production, especially in commercial vegetable production. They have a fairly good economic condition in comparison with other farm households in the village. Signs of moving out from poverty include the extension and improvement of their house and investment (TV, motorbike, etc.). In brief, the contractual arrangements with small-scale farmers developed by the Moc Chau Agricultural Service Co-operative are innovative institutional arrangements that are worth promoting. CONCLUSION Collective action is necessary for farmers in general and for poor farmers in particular to reach common objectives that neither the market nor the state can achieve. By using capability approach, collective action is seen as a key element to strengthen the collective capabilities. In Vietnam, the traditional collective action of such as groups of labor exchange, tontines, and professional guilds… already existed. Therefore, we can take advantage of this tradition for the development of new forms of collective action such as marketing producer groups, micro credit groups, industrial and agricultural clusters, value chain management, etc. Within this framework, we must diversify the forms of collective action to enrich institutionally the fabric of the society. The capability approach can help us build the corresponding conceptual and analytical framework, once it integrates within its human development vision the issue of collective capability and its relation to collective action.
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