Economy of Vietnam

Viet Nam was a country ruled by colonists, divided, or at war for most of the 20th century. Unification of the country in 1976 was followed by the invasion of Cambodia in 1978, and a subsequent brief but violent war with the People’s Republic of China. This legacy had profound consequences for economic development in general and for attempts to impose central planning in particular. Central planning was introduced in North Viet Nam in the 1950s, and in South Viet Nam after 1976, but less extensively. The implementation of central planning was therefore relatively brief and incomplete. Viet Nam’s economic transition, which is typically identified as having been initiated in 1986, was a relatively smooth period of structural adjustment and stabilization—at least for the first decade. The state sector was never large in Viet Nam, where 80% of the population lived in rural areas and were mostly engaged in the cultivation of rice. Furthermore, by 1986 the planned part of the economy was thoroughly undermined. The collapse of trading relations with the Council for Mutual Economic Assistance (CMEA—which Viet Nam joined as a full member in 1978) forced a restructuring of the modest state-owned enterprise sector, which disposed of almost one- quarter of its labour force during 1988–92. Institutional reforms also, however, generated growth in the urban household services economy, which offset the increase in the numbers of unemployed. The shift to markets was relatively easy without the burden of a large military-industrial complex, and goods hitherto exported to the CMEA found new Western markets without difficulty. During the 1990s the economy of Viet Nam underwent a transformation. Structural changes occurred during 1987–91, but changes in institutions were slower to occur, and the legacy of administrative control continued. Furthermore, important services, such as accounting, banking and the legal system, remained highly rudimentary. In some regards, therefore, ‘transition’ involves a generational process.