Vietnam – a capitalist success story

How do you effectively fight poverty and hunger? Many people believe in development aid, but nothing fundamental has changed in Africa in the past 50 years. On the other hand, what has worked very well in various countries is the introduction of a market economy and private property.

In 1981, before Deng Xiaoping's reforms, 88 percent of the people in China lived in extreme poverty. Thanks to market reforms, it is now less than one percent.

A lesser-known but particularly successful example is Vietnam. Officially, Vietnam calls itself socialist, but there is not much evidence of this in the economic sphere. I met fewer Marxists there than in Germany.

Vietnam is a prime example of what the introduction of private property and pro-market reforms can achieve. With a gross national product per inhabitant of 98 dollars, Vietnam was the poorest country in the world in 1990, behind Somalia (130 dollars) and Sierra Leone (163).

In the days of the socialist planned economy, every bad harvest led to hunger. Vietnam was dependent on support from the World Food Program and dependent on financial support from the Soviet Union and other Eastern Bloc countries. In 1993, 80 percent of the Vietnamese lived in poverty, by 2006 the rate had dropped to 50 percent, and in 2020 it was only five percent. Extreme poverty was practically eliminated.

Today, Vietnam is one of the most dynamic countries in the world, with many opportunities for hardworking people and entrepreneurs. Gross domestic product (calculated in constant dollars) has increased sixfold since the reforms began. From a country that used to be unable to produce enough rice to feed its people, it has grown into one of the world's largest rice exporters -- and a major electronics exporter at that.

However, when I talk to people in this country about Vietnam, I notice that they usually know very little about this country. Many are surprised when I tell them that Vietnam has more inhabitants than any European country. With almost 100 million inhabitants, more people live in Vietnam than in Germany and almost twice as many as in South Korea.

The Vietnam War had destroyed the country. 14 to 15 million tons of bombs and explosives fell on Vietnam - ten times the amount dropped on Germany in World War II. Defeating the Americans made the already proud Vietnamese people even prouder, for they had vanquished the greatest military superpower in history.

But their pride suffered over the next ten years because the introduction of the socialist planned economy also had devastating effects in the south of the country. While other Asian countries that followed the capitalist path - South Korea, Hong Kong, Singapore, but also Thailand - achieved high growth rates and escaped poverty, most people in Vietnam were desperately poor, even ten years after the end of the war.

In 1977/78 the collectivization of agriculture and the nationalization of nearly 30,000 small private traders in Ho Chi Minh City began. The result was a severe crisis that lasted until the early 1980s. The Vietnamese realized they were stuck in an impasse.

The VI Party congress in December 1986 approved the fundamental reforms known as "Doi Moi" (renewal) which have been the basis for all the positive changes that have taken place in Vietnam since then.

At its core, the reforms decided upon at the party congress and intensified in the years that followed were about daring more market and reducing the all-powerful role of the state. This did not mean that one suddenly wanted to switch from the state planned economy to a free market economy.

But hitherto, according to socialist doctrine, everything had been bet on the state economy, and now the official guideline was that the state, cooperative and private sectors should coexist on an equal footing. Private ownership of the means of production was no longer frowned upon, and there was a desire to open up to other capitalist countries.

The agricultural production cooperatives were effectively dissolved, with the farmers largely being given the freedom to plan production, purchase and market their products. In 1987, an investment law was passed that gave a clear signal: Vietnam wanted to open up to foreign investors.

It allowed 100 percent foreign-owned investments, and Vietnam guaranteed that foreign investors' capital and property were safe, meaning they could not be requisitioned, confiscated, or nationalized.

Foreign investments are also important for raising living standards, as wages and working conditions in foreign companies are often better than in Vietnamese ones. Practically every employee in companies owned by foreign investors has an employment contract - in private Vietnamese companies this is only the case for every second employee.

In addition, foreign companies pay around twice as much as domestic ones. One entrepreneur told me: “The image of Americans in Vietnam is very positive, despite the terrible war. There are many reasons for this, but one is that working conditions and wages are better in most American companies.”

Increasing inequality is not a problem for the Vietnamese, but rather a sign of more justice. An essay by Vietnamese social scientists Nguyen Trong Chuan, Nguyen Minh Luan and Le Huu Tang on the topic of inequality in the rural population states: “Households with good opportunities, better experiences, talent for work and agency, and a healthy workforce become richer be. So polarization does not represent injustice, but justice: those who work hard and well earn more, while those who are lazy and work inefficiently and ineffectively earn less.”

The Ipsos MORI institute recently examined the attitudes of people in eleven countries towards the pursuit of wealth. When asked how important it was for them to get rich, an average of 28 percent in European countries and the United States answered that it was important or very important to them. In China it was 50 percent and in Vietnam 76 percent.

The image of the rich is much better in Vietnam than in European countries, and there is much less social envy. In Vietnam, the rich are not scapegoats, but role models. The example of Vietnam proves impressively: capitalism is not the problem, but the solution.

Rainer Zitelmann is a historian and sociologist. His book “The 10 Mistakes of Anti-Capitalists” was recently published.