what were the major obstacles in the way of economic growth in Vietnam
Answers
What are major obstacles for fast economic growth in Vietnam?
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The major obstacle to faster economic growth in Vietnams is the absence of government understanding of Shimomuran-Wernerian Macroeconomics. Let’s consider that in a bit of detail:
1 Background
Vietnam has a population of 95.3 million people (15th largest in the world) living on 310,000 sq km of land - 35% agricultural [consisting of arable land, 20.6%, crops, 12.1% and pasture 2.1%), and 45% forest The country has a high population density - average 307 people per sq kilometre. China for example is at about 143 people per sq km (1,373m people living in a country with 9,596,960sq km).
Vietnamese GDP is at about $695m at PPP, the 37th the biggest in the world and the income per head is $6,400, (rank 161 in the world) which is well below the world average of $16,300 in 2016. Vietnam has an immense headroom for very rapid economic growth.
The real Vietnamese GDP growth rate was 6.1% in 2016, 6.7% in 2015, and 6% in 2014 and the savings and investment rate hovers around 30% (28-32% during three recent years).
The Vietnamese people appear to be unusual because they are almost obeying Spike Milligan's jocular command that "contraceptives should be worn on every conceivable occasion". The CIA report that the use of contraceptives in Vietnam was 78.1% in 2011 (how do they know?) and the population growth rate is 0.95% pa.
2 Calculations and Policy Recommendations
The Vietnamese capital-output ratio is about 5 (equal to annual investment rate divided by GDP growth=30/6)
A Shimomuran-Wernerian policy of no-cost investment credit creation could occur if the Government understood it. That would involve the State Bank Of Vietnam creating no-cost investment credit at 10% to 15% of GDP annually. (That's the level Dr Osamu Shimomura recommended)
Additional government income due to the increase in the tax take from previous year investments is about 3% to 5% of previous year GDP.
3 The increase of Economic Growth
Economic growth then is likely to increase by 2% to 3% pa, up from 6% pa to at least 8% or 9% pa.
The most likely outcome for 50/50 (fresh SME/major company) distributed investment would involve a capital-output ratio of 3 or 4.
Economic growth could go to 2.5% to 5% higher - to 8.5% to 11% a year for about 20 years. Vietnam's Dongs would be dinging as the country became the fifth or sixth Asian Miracle economy (I think Singapore is maybe half way there).
4 BUT THERE WOULD NEED TO BE CHANGES
The existing first purpose of the State Bank of Vietnam (SBoV) is to
"1. Promote monetary stability and formulate monetary policies" so it is at present following a Washington Consensus set of policies.
That’s an obstacle! That main objective would need to be changed to
"1. Assist the economic development of all the eight Regions of Vietnam
2 Establish regional offices of the SBoV and Regional Economic Planning Groups in each of the eight regions of Vietnam"
5 A Vietnamese Economic Panning Agency
The absence of one of these is also an obstacle.
The Office of the Prime Minister should establish an Economic Planning Agency to assist the development of the country and produce an annual analysis of economic progress and major developments to produce a feedback document containing "Knowledge of Results". All 58 provinces and 5 municipalities of Vietnam should be party to that process. A business organisation in the form of a Vietnamese Ministry of Industry and Innovation should also be created.
Growth should be "green" to avoid contributing to further sea level rises.
6 Conclusions
That all worked in China, and there is no reason why it would not work in Vietnam, which could become a member of the Tokyo Consensus Zone in its economic understandings and its real economic growth achievements.
Vietnam should also consider implementing a "Vietnamese Dream" of constructing or modernising 30 cities of about 750,000 people each to provide better facilties for the inevitable drift from the countryside to the cities as industrialisation booms at about twice the GDP growth rate. And it should improve its education system further, and all of its communications, transport, health and electricity and water processing infrastructure.
7 Overarching Conclusion
The Vietnamese people could certainly deliver another Asian economy miracle if their Government decided to change their policies in order to help produce one. The only obstacles are a lack of economic understanding and of “how to do it” but I’ve outlined the need for change above.
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