Is Vietnam a good model?

Posted in economics, politics, Rights by jrahman on October 8, 2010

This assessment of a Morgan Stanley fund manager has led to a bit of a chatter:

I don’t know how to embed the video — apologies.  Essentially, the interviewee is saying that Bangladesh is a better place for rich westerners to invest their money in than Vietnam.  After a bit of triumphalism, our pundits seem to be slightly at a loss — wasn’t Vietnam doing better than us, what’s going on here?

Vietnam has been a supposed role model for the Deshi left for as long as I can remember.  Didn’t they have a far more glorious liberation struggle than ours (which was hijacked by those Indians)?  Haven’t they been so much truer to their revolutionary spirits than us?  More recently, the right has also become enamoured with Vietnam — none of this flaffing about that democracy brings, those guys have stability, and stability is good for growth.  Meanwhile, the civil society types visit Hanoi and think ‘this is so much cleaner than Dhaka, traffic is so much better, inequality is less grotesque’.

Well, is Vietnam really a good model for Bangladesh?

Start with the simplest measure — GDP per capita.  According to the IMF, in PPP terms, both countries had a per capita income of around $300 in 1980.  By 2010, Bangladesh’s per capita income had risen over five-fold.  In the same period, Vietnam’s had risen over ten-fold.  The average Vietnamese is twice as rich as the average Bangladeshi. 

End of the story? 

No, not quite.

Here is something that may surprise many left-leaning fans of Vietnam.  Vietnam is a more unequal country.  Yes, you read that right.  A standard measure of inequality is Gini co-efficient.  A co-efficient closer to zero means a more equal distribution, while closer to 1 signifies inequality.  According to the World Bank, Vietnam’s co-efficient was 0.38 in 2006, compared with our 0.31 in 2005.

Let’s dig a bit deeper.  The average Bangladeshi lived to about 47 in 1980, 10 years less than the average Vietnamese.  Life expectancy in Bangladesh is now 66, compared with 74 in Vietnam.  We have been more than keeping pace despite having half their per capita income. 

To be sure, on a number of metrics such as infant mortality rate of female literacy, Vietnam is still far ahead of us.  But we had a weaker starting point, and we have kept pace (if not done better) on most social indicators. 

To summarise then: Vietnam has grown much faster than us over the past generation, but we have used the additional income more equitably, and kept pace with human development. 

Still, doesn’t trickle down theory say rising tide will eventually lift all boats, that neoliberal pursuit of growth is all that really should matter? 

No.  Growth isn’t all that matters, even if we confine the analysis to narrow macroeconomic terms.  Prices matter too.  Growth coupled with high inflation or asset price bubbles is unsustainable. 

Check out the charts below.  On the left hand side, CPI of both countries are indexed to January 2007.  On the right hand side, Dhaka and Ho Chi Minh city stock indices are indexed to January 2005.

As much as we complain about high inflation or fret about our stock market, our problems are smaller than Vietnam’s.  So a hard headed businessman shouldn’t try to emulate Vietnam any more than an old fashioned socialist should. 

And not just the old fashioned socialists and the hard headed capitalists, but also the self-styled progressive human rights activist types should also discard Vietnam as a role model.  If you worry about the our garments workers, then think about the conditions in Vietnam.  It is, after all, a one party state with stiff penalty for dissent of any kind.  As Berkely’s Brad De Long, one of the best teachers of economic history around, provocatively asks:  the Communist Party of Vietnam–what is it but a gang labor boss for unfree labor deployed to produce shoes for Nike?

Is Vietnam a good model for Bangladesh? 

No, it isn’t.


2 Responses

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  1. Diganta said, on October 10, 2010 at 2:09 pm

    Somehow I don’t believe in this “role-model” concept at all because all countries have different problems and different strengths. However, the way you articulated the topic was really great …

    • jrahman said, on October 17, 2010 at 12:53 pm

      Yes, the ‘role-model’ concept itself is tricky — often it’s nothing more than lazy intellectualism.

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