Channeling Matt Yyglesias: housing is the cause of all problems. It is hard to overstate how insanely expensive housing is in any capital city. Which is obviously going to affect urbanization. You have to get pretty far out in the suburbs to get anything reasonably priced but the infrastructure isn't there to support those kind of commutes. It's honestly a bit of a mystery to me because Vietnam lacks the usual culprits of zoning and NIMBYs that plague housing in the West. But there's a massive, massive shortfall in affordable housing.
Education might look good on paper but the reality often falls short. Classrooms are woefully understaffed -- 40 students is common. Teachers are underpaid -- they often offer "mandatory" tutoring on the weekends to make extra money. And the education system is very much geared towards memorization and obedience, which might make good factory workers but isn't great for the 21st century knowledge economy. I've hired a lot of uni graduates and a Vietnamese university graduate is generally less competent than an Australian university junior doing an internship.
Corruption and fraud continue to be very widespread. There's a current crackdown on corruption, which is needed. But it has a side effect of every government official being terrified of actually DOING anything right now, with even more projects than normal being mired with no progress.
The entire economic system has rife with fraud -- the FLC chairman was recently arrested for stock market manipulation, the Vin Thinh Phat chairwoman was arrested for fraud, 40,000 customers of banks were fraudulently sold bonds of Tan Hoang Minh Group...and that's just from the past few weeks. FDI is down 10% from 2021 due to reduced investor confidence.
Demographics are a challenge. Vietnam is aging quickly but doesn't have the social safety net to weather it well. Migrant workers are often locked out of subsidised childcare due to Vietnam's version of China's "hukou" household registration system. Traditional marriage has tons of downsides for women, so more and more are opting out.
There's still a fair amount of regional factionalism between north and south. No southerner has ever been General Secretary of the Party and only 2 of 12 Prime Ministers have been from the south. A constant complaint from the Ho Chi Minh City government is that a lot of the revenue they generate is distributed to other provinces rather than reinvested back into the city.
Then on top of all these challenges add the problems facing the Mekong. Upstream dams (Chinese built), salinity-issues, land sinking, rising sea levels. It feeds half the country.
All of these challenges are surmountable but as Tomas VdB says, decision making is amazingly poor for such a (theoretically) centralized political system, apparently riven by endless backdoor factionalisim that only insiders have any real clue about. One very common example, for instance, is that some development project -- a new bridge, for instance -- is delayed for years because one government department (usually the army or navy) refused to hand over the land to another government department so the construction can proceed. The Thu Thiem Bridge 2 was officially commenced in 2015, scheduled for completion in 2018, but didn't actually open 2022. And that's in the heart of Ho Chi Minh City and was a major contributor to traffic woes for over half a decade.
Despite how it might sound, I'm actually very bullish on Vietnam. Despite all those issues it is clearly better positioned than other places in Asia. Yes, it has bad demographics. But China, South Korea, Singapore, and Japan are worse. Yes, it's low-lying nature makes it vulnerable to rising sea levels. (Take a look at projections of how much of Ho Chi Minh City will be under seawater by 2050!) But those issues, and others, aren't insoluble.
But it means Vietnam can't coast on easy wins like it has for the past 50 years. France was almost comically bad at running colonies (not just in Vietnam), so a lot of economic gain was just "catch up" from doing bare minimum stuff like increasing literacy from 5% to 99% and land reform.
On a side note, there's been a notable increase in the number of Filipinos coming to Vietnam for work. Who would have predicted that even just 5 years ago?
Having lived in VN for over 2 years (2019-2022) and witnessed government policy making first hand, I must say I am a lot less positive about Vietnam’s future than I was before.
The main reason is that decision making at all government levels seems virtually non existent. Unlike China, which has a very strong central leadership, Vietnam’s government is very fractious , with an enormous amount of infighting and score-settling all the time.
This means no one want to be accountable for decisions in case they will be used against them at a later stage.
There is also an enormous amount of rent seeking, where one group may oppose very sensible policies or development projects just in order to extract financial gain. For a communist country, Vietnamese are extraordinarily obsessed with money, and rent seeking is the quickest way for (local) officials to get rich.
Combine this with all the other factors, such as the poor education and lack of political vision, and you have a country that’s heading for a grinding halt.
Yes, some big manufacturers are still settling up factories, and these are hailed as big victories, but these are just riding on past policies. “Changing direction” is not something I think Vietnam is able to do.
The former Singaporean PM Lee Kuan Yew, already described Vietnam’s problems in his memoirs, and they haven’t been fixed. If anything they’ve gotten worse because there is so much more richness up for grabs.
FDI isn't a kiss of death. Taiwan and Korea avoided foreign direct investment, but China, like Vietnam, relied heavily on FDI.
Quoting Kroeber in _China's Economy_:
"From 1993 to 2002, new FDI inflows accounted for about 10 percent of all fixed investment in China, although this figure has since fallen to under 3 percent. One of the enduring impacts of this is that, even today, over 40 percent of all Chinese exports are produced by foreign firms. This state of affairs is utterly different from that of the other East Asian countries, whose exports are virtually all recorded by domestic firms."
Kroeber suggests that China needed FDI because it wasn't a US ally and so needed extra incentive to win foreign cooperation. Vietnam may have had a similar hurdle.
I'm curious: how would you compare Vietnam's growth story thus far to China?
Speaking of cars and exports, the VinFast EVs are just starting to ship to the US and the pics and specs look very good. Will be interesting to see if that becomes a high value line of manufacturing for them. Definitely an area where we need more non-CN options.
The Hanoi elite are Soviet-trained apparatchiks who might as well be living in Novgorod '72. The South are a nation of shopkeepers lacking the ambition and imagination to compete at scale, never mind internationally. The most successful private company was built by expat Indians. Strivers head overseas and send back remittances. It's an inward-looking culture with poor education and command of English. They are too proud and rigid to do tourism nearly as well as the Thais. I won't complain about corruption--it's the only way around all the red tape. A beautiful country, but after 20 years doing business in Vietnam off and on I have no investments there.
I see you understand the Vietnamese economy but in moderation. Vietnam's economy is rightly dependent on FDI for export, there is no clear industrial policy and more importantly, there is no export discipline as you say. But at the root of all of that is the issue of human capital. Vietnam's civilization is based on wet rice, they tend to find peace instead of great challenges, leading the region and the world. This is the biggest difference between other East Asian countries like China and Korea. That is also the reason why Vietnam's undergraduate and graduate education is quite low, as long as they earn a lot of money through small wholesale, they are willing to choose this path instead of continuing to study to receive a low salary.
Viet Nam's demographics, specifically total fertility rate projections as given by the UN, look good compared to the more famous countries you list. (Although the UN might be assuming continued low urbanisation rates.) It's not going to experience as intense a "demographic dividend" as SK is experiencing, but it won't have the following hangover either.
Provided it sorts out the education, infrastructure, and institutional things you list, it should do relatively well.
Viet Nam doesn't have superb wind or solar resources, just OK ones, and fairly good but not great hydro power potential, so it needs industries with relatively low energy intensity. The exports chart confirms this, but it also offers little inspiration for areas in which Viet Nam can move up the value chain. Maybe it can offer medical services or something like that, if it sorts out education.
Nice stuff. I went back and read (skimmed) the Cherif-Hasanov paper you cite to better follow your assumptions. It's very useful, as a way of making sense (to me) of the Canadian (where I live) dilemma about industrial policy. Proximity to the US is mostly a positive, but it does create some issues about growth in TFP: we can export abundant primary items and maintain a semblance of advanced. Too difficult for government to steer the market away from oil & gas, even under the merits of climate change.
Brazil, where I was born, is to me the real inexplicable story of a country endowed with every conceivable advantage, and yet unable to put together a winning strategy. I hope you will do that analysis at some point.
There's been a 200-year movement of urban intellectuals dumping on peasants, of which this post is a prime example. It's not clear to me why any peasant with two acres and a rice paddy would want to give that up to become urban chum in Saigon.
I've been working with Vietnam a fair amount in recent years and traveled there again in September. One of Vietnam's challenges as you point out is an infrastructure deficit. Unfortunately the solution is not merely spending more money. Like the United States, it takes a long time and is overly expensive to build infrastructure in Vietnam. In the south where I spend most of my time it is taking forever to build roads, airports and rail lines. I am not an expert on this but I gather part of the problem is corruption. It would be interesting to have Yuen Yuen Ang's analysis of the type of corruption in Vietnam in this regards. In addition even these many years later I gather the central government still favors the north over the south for infrastructure (and other benefits). You might check out Michael Tatarski's Vietnam Weekly Substack who writes about this issue on occasion: https://vietnamweekly.substack.com/
Thanks for the interesting and helpful post on Vietnam's development.
Good read, thank you. It's not just that each Vietnamese owns their own restaurant but one short street can have three little houses making bricks independently. It's historical, I think, much of Vietnam's industries are still all clustered together in one location - Silver Street still has all the silversmiths, etc. I asked a local why it's still this way (instead of having silver shops all over the city) and he said it's easier for the businesses to collude on price when they are next to each other! I see similar in Latin America - car parts dealers will all be on the same street, for example. And, yes, they are all colluding.
If you haven't written about the Philippines yet, I'd love to see it. Check out Jolibee Foods. Their restaurants cover practically every corner of city and town. Jolibee (Like McDonald's), Greenwich Pizza, Mang Insal (Chicken), Chow King ("Chinese"), Red Ribbon (cakes). You generally don't have another place to sit and eat if it's not a large mall. They don't have to collude with anyone one price. It's very difficult to have an independent business with the rampant corruption. Jolibee colludes in the labor market - most manager positions available to most in the country are for a Jolibee company, at around $12/day. Still I've seen small towns undergo very rapid changes in the last few years.
The Philippines economy largely depends on remittance from overseas. I would love to see a breakdown of how much that remittance is from Filipino vs non-Filipino. Overseas Filipino Workers (OFWs) are an international story - Singapore and Hong Kong women wouldn't be able to work without their domestic help - but I don't think they make enough to send back as much in the remittances as the numbers portray. Maybe more a human story than an economics story but the stranglehold a few with power hold over the country is so tight that most want to leave the country to support their families - which is nuts especially for a country so family-oriented.
The low percentage of Tertiary education level has a lot to do with the low number of Universities, as training personnel and building Universities take time and capital more than a lack of willingness to attain higher education. As one reply mentioned, the issue of class size is also due to the time gap between training adequate numbers of teachers and the period population boom period.
Some assorted notes from Vietnam:
Channeling Matt Yyglesias: housing is the cause of all problems. It is hard to overstate how insanely expensive housing is in any capital city. Which is obviously going to affect urbanization. You have to get pretty far out in the suburbs to get anything reasonably priced but the infrastructure isn't there to support those kind of commutes. It's honestly a bit of a mystery to me because Vietnam lacks the usual culprits of zoning and NIMBYs that plague housing in the West. But there's a massive, massive shortfall in affordable housing.
Education might look good on paper but the reality often falls short. Classrooms are woefully understaffed -- 40 students is common. Teachers are underpaid -- they often offer "mandatory" tutoring on the weekends to make extra money. And the education system is very much geared towards memorization and obedience, which might make good factory workers but isn't great for the 21st century knowledge economy. I've hired a lot of uni graduates and a Vietnamese university graduate is generally less competent than an Australian university junior doing an internship.
Corruption and fraud continue to be very widespread. There's a current crackdown on corruption, which is needed. But it has a side effect of every government official being terrified of actually DOING anything right now, with even more projects than normal being mired with no progress.
The entire economic system has rife with fraud -- the FLC chairman was recently arrested for stock market manipulation, the Vin Thinh Phat chairwoman was arrested for fraud, 40,000 customers of banks were fraudulently sold bonds of Tan Hoang Minh Group...and that's just from the past few weeks. FDI is down 10% from 2021 due to reduced investor confidence.
Demographics are a challenge. Vietnam is aging quickly but doesn't have the social safety net to weather it well. Migrant workers are often locked out of subsidised childcare due to Vietnam's version of China's "hukou" household registration system. Traditional marriage has tons of downsides for women, so more and more are opting out.
There's still a fair amount of regional factionalism between north and south. No southerner has ever been General Secretary of the Party and only 2 of 12 Prime Ministers have been from the south. A constant complaint from the Ho Chi Minh City government is that a lot of the revenue they generate is distributed to other provinces rather than reinvested back into the city.
Then on top of all these challenges add the problems facing the Mekong. Upstream dams (Chinese built), salinity-issues, land sinking, rising sea levels. It feeds half the country.
All of these challenges are surmountable but as Tomas VdB says, decision making is amazingly poor for such a (theoretically) centralized political system, apparently riven by endless backdoor factionalisim that only insiders have any real clue about. One very common example, for instance, is that some development project -- a new bridge, for instance -- is delayed for years because one government department (usually the army or navy) refused to hand over the land to another government department so the construction can proceed. The Thu Thiem Bridge 2 was officially commenced in 2015, scheduled for completion in 2018, but didn't actually open 2022. And that's in the heart of Ho Chi Minh City and was a major contributor to traffic woes for over half a decade.
Despite how it might sound, I'm actually very bullish on Vietnam. Despite all those issues it is clearly better positioned than other places in Asia. Yes, it has bad demographics. But China, South Korea, Singapore, and Japan are worse. Yes, it's low-lying nature makes it vulnerable to rising sea levels. (Take a look at projections of how much of Ho Chi Minh City will be under seawater by 2050!) But those issues, and others, aren't insoluble.
But it means Vietnam can't coast on easy wins like it has for the past 50 years. France was almost comically bad at running colonies (not just in Vietnam), so a lot of economic gain was just "catch up" from doing bare minimum stuff like increasing literacy from 5% to 99% and land reform.
On a side note, there's been a notable increase in the number of Filipinos coming to Vietnam for work. Who would have predicted that even just 5 years ago?
Having lived in VN for over 2 years (2019-2022) and witnessed government policy making first hand, I must say I am a lot less positive about Vietnam’s future than I was before.
The main reason is that decision making at all government levels seems virtually non existent. Unlike China, which has a very strong central leadership, Vietnam’s government is very fractious , with an enormous amount of infighting and score-settling all the time.
This means no one want to be accountable for decisions in case they will be used against them at a later stage.
There is also an enormous amount of rent seeking, where one group may oppose very sensible policies or development projects just in order to extract financial gain. For a communist country, Vietnamese are extraordinarily obsessed with money, and rent seeking is the quickest way for (local) officials to get rich.
Combine this with all the other factors, such as the poor education and lack of political vision, and you have a country that’s heading for a grinding halt.
Yes, some big manufacturers are still settling up factories, and these are hailed as big victories, but these are just riding on past policies. “Changing direction” is not something I think Vietnam is able to do.
The former Singaporean PM Lee Kuan Yew, already described Vietnam’s problems in his memoirs, and they haven’t been fixed. If anything they’ve gotten worse because there is so much more richness up for grabs.
FDI isn't a kiss of death. Taiwan and Korea avoided foreign direct investment, but China, like Vietnam, relied heavily on FDI.
Quoting Kroeber in _China's Economy_:
"From 1993 to 2002, new FDI inflows accounted for about 10 percent of all fixed investment in China, although this figure has since fallen to under 3 percent. One of the enduring impacts of this is that, even today, over 40 percent of all Chinese exports are produced by foreign firms. This state of affairs is utterly different from that of the other East Asian countries, whose exports are virtually all recorded by domestic firms."
Kroeber suggests that China needed FDI because it wasn't a US ally and so needed extra incentive to win foreign cooperation. Vietnam may have had a similar hurdle.
I'm curious: how would you compare Vietnam's growth story thus far to China?
Speaking of cars and exports, the VinFast EVs are just starting to ship to the US and the pics and specs look very good. Will be interesting to see if that becomes a high value line of manufacturing for them. Definitely an area where we need more non-CN options.
The Hanoi elite are Soviet-trained apparatchiks who might as well be living in Novgorod '72. The South are a nation of shopkeepers lacking the ambition and imagination to compete at scale, never mind internationally. The most successful private company was built by expat Indians. Strivers head overseas and send back remittances. It's an inward-looking culture with poor education and command of English. They are too proud and rigid to do tourism nearly as well as the Thais. I won't complain about corruption--it's the only way around all the red tape. A beautiful country, but after 20 years doing business in Vietnam off and on I have no investments there.
Are there any plans to improve the horrible sanitation infrastructure? i would think this would inhibit both greater urbanization and SEZs.
I see you understand the Vietnamese economy but in moderation. Vietnam's economy is rightly dependent on FDI for export, there is no clear industrial policy and more importantly, there is no export discipline as you say. But at the root of all of that is the issue of human capital. Vietnam's civilization is based on wet rice, they tend to find peace instead of great challenges, leading the region and the world. This is the biggest difference between other East Asian countries like China and Korea. That is also the reason why Vietnam's undergraduate and graduate education is quite low, as long as they earn a lot of money through small wholesale, they are willing to choose this path instead of continuing to study to receive a low salary.
Viet Nam's demographics, specifically total fertility rate projections as given by the UN, look good compared to the more famous countries you list. (Although the UN might be assuming continued low urbanisation rates.) It's not going to experience as intense a "demographic dividend" as SK is experiencing, but it won't have the following hangover either.
Provided it sorts out the education, infrastructure, and institutional things you list, it should do relatively well.
Viet Nam doesn't have superb wind or solar resources, just OK ones, and fairly good but not great hydro power potential, so it needs industries with relatively low energy intensity. The exports chart confirms this, but it also offers little inspiration for areas in which Viet Nam can move up the value chain. Maybe it can offer medical services or something like that, if it sorts out education.
Nice stuff. I went back and read (skimmed) the Cherif-Hasanov paper you cite to better follow your assumptions. It's very useful, as a way of making sense (to me) of the Canadian (where I live) dilemma about industrial policy. Proximity to the US is mostly a positive, but it does create some issues about growth in TFP: we can export abundant primary items and maintain a semblance of advanced. Too difficult for government to steer the market away from oil & gas, even under the merits of climate change.
Brazil, where I was born, is to me the real inexplicable story of a country endowed with every conceivable advantage, and yet unable to put together a winning strategy. I hope you will do that analysis at some point.
Is there any public, disaggregated data on TFP growth in agriculture?
WARNING: if Noah finds this data I will write a comment about cashews
Thank you for writing an article about my country. But 99.99% Vietnamese officials don't know how to read English and this article.
There's been a 200-year movement of urban intellectuals dumping on peasants, of which this post is a prime example. It's not clear to me why any peasant with two acres and a rice paddy would want to give that up to become urban chum in Saigon.
I've been working with Vietnam a fair amount in recent years and traveled there again in September. One of Vietnam's challenges as you point out is an infrastructure deficit. Unfortunately the solution is not merely spending more money. Like the United States, it takes a long time and is overly expensive to build infrastructure in Vietnam. In the south where I spend most of my time it is taking forever to build roads, airports and rail lines. I am not an expert on this but I gather part of the problem is corruption. It would be interesting to have Yuen Yuen Ang's analysis of the type of corruption in Vietnam in this regards. In addition even these many years later I gather the central government still favors the north over the south for infrastructure (and other benefits). You might check out Michael Tatarski's Vietnam Weekly Substack who writes about this issue on occasion: https://vietnamweekly.substack.com/
Thanks for the interesting and helpful post on Vietnam's development.
Good read, thank you. It's not just that each Vietnamese owns their own restaurant but one short street can have three little houses making bricks independently. It's historical, I think, much of Vietnam's industries are still all clustered together in one location - Silver Street still has all the silversmiths, etc. I asked a local why it's still this way (instead of having silver shops all over the city) and he said it's easier for the businesses to collude on price when they are next to each other! I see similar in Latin America - car parts dealers will all be on the same street, for example. And, yes, they are all colluding.
If you haven't written about the Philippines yet, I'd love to see it. Check out Jolibee Foods. Their restaurants cover practically every corner of city and town. Jolibee (Like McDonald's), Greenwich Pizza, Mang Insal (Chicken), Chow King ("Chinese"), Red Ribbon (cakes). You generally don't have another place to sit and eat if it's not a large mall. They don't have to collude with anyone one price. It's very difficult to have an independent business with the rampant corruption. Jolibee colludes in the labor market - most manager positions available to most in the country are for a Jolibee company, at around $12/day. Still I've seen small towns undergo very rapid changes in the last few years.
The Philippines economy largely depends on remittance from overseas. I would love to see a breakdown of how much that remittance is from Filipino vs non-Filipino. Overseas Filipino Workers (OFWs) are an international story - Singapore and Hong Kong women wouldn't be able to work without their domestic help - but I don't think they make enough to send back as much in the remittances as the numbers portray. Maybe more a human story than an economics story but the stranglehold a few with power hold over the country is so tight that most want to leave the country to support their families - which is nuts especially for a country so family-oriented.
Thanks again.
The low percentage of Tertiary education level has a lot to do with the low number of Universities, as training personnel and building Universities take time and capital more than a lack of willingness to attain higher education. As one reply mentioned, the issue of class size is also due to the time gap between training adequate numbers of teachers and the period population boom period.
This is such a great insight and review.
Would you have one for Indonesia.