Đổi Mới (pronounced [ɗo᷉i mə̌ːi]; English: Renovation) is the name given to the economic reforms initiated in Vietnam in 1986 with the goal of creating a "socialist-oriented market economy". The term đổi mới itself is a general term with wide use in the Vietnamese language, however the Doi Moi Policy (Chính sách Đổi Mới) refers specifically to these reforms. The communist government in the north, the Democratic Republic of Vietnam (DRV), adopted a centrally planned economy since its inception. Under the command economy, the central government decided output targets and prices, input supplies, domestic wholesale and retail trade, and international trade; the state was aiming at creating a vertically integrated economy where there was no commercial contact among individual production units horizontally.:200 In the agricultural sector, the government formed cooperatives in three stages; production solidarity groups, lower-level cooperatives where land and equipment were shared, and higher-level cooperatives in which a system of workpoints determined distribution of all income. However, the command economy was abolished by the late 1980s following the 6th National Congress of the Communist Party of Vietnam.
Prior to the Doi Moi, Vietnam faced an economic crisis; inflation soared to over 700 per cent, economic growth slowed down, and export revenues covered less than the total value of imports. They resulted in intense debate about past faults under the central planning system and the need to introduce a major change in the run up to the 6th National Congress of the Communist Party of Vietnam.
Moreover, one of the important developments which provoked change was the death of Party Secretary, Lê Duẩn, in July 1986. Long time party leaders including Lê Duẩn, Trường Chinh and Pham Van Dong were deemed attributed to part of the crisis of Vietnamese state socialism. As a result, the Sixth Party Congress elected as Party Secretary more liberal Nguyễn Văn Linh at the Sixth Party Congress in December 1986.
In addition, there were three political movements which urged Viet Nam’s leaders to take reforms. First, there was strong pressure from technocrats and pro-market reformists for a final solution to the DRV model, based upon the political collapse of hard reform socialism after the 1985 debacle. Second, those benefiting from commercial activities thanks to partial reforms were in favour of further reform as reform brought economic benefits. Third, southern liberals supported reform as they wished to return to the pre 1975 system. Fforde elaborated the second point; during the transition period since the early 1980s, state enterprises accessible to cheap resources earned profits by diverting them onto the free market, which were shared among various groups including workers, manager, and higher levels. This profit sharing provided a power basis for reform and commercialization in the party, pushing for a market economy.
While Doi Moi was launched at the 6th National Congress of the Communist Party of Vietnam in 1986, the state had initiated reforms in the early 1980s. When Vietnam faced economic problems insulating the centralized planning system in the late 1970s, early signs of reforms were observed. There were three important groups with different interests which negotiated for reform: those of central authorities depending on the planning system for their power but facing outside economy, those of local authorities and enterprise managers attempting to secure as much surplus as possible from higher levels, and those enjoying little benefits under the planning system as they lacked access to the kinship and party networks. In the late 1970s and the early 1980s, the process of negotiation among those groups began to shift, leading to a number of key reforms which permitted some outside activities. Indeed, provincial governments demanded that they be allowed to export and import, as the state prioritized industrial plant and equipment, not agricultural inputs such as fertilizer, while the central government feared that the permission of horizontal trade would result in losing control over the economy. Moreover, there was endorsement from Ministry of Trade for reform in order to obtain agricultural inputs, spare parts, food and consumer goods. In October and November 1978, cooperative leaders in the north were permitted to rent out fields to members during the winter as long as the latter produced winter crops collectively for required number of days and return the land in time for growing paddy in the spring. Moreover, with the party's Central Executive Committee and the government's Council of Ministers, farmers were able to grow small parts of a cooperative's poorest field for five years. These tiny measures were among the initial steps which contributed to the restoration of agricultural land to private households.
At the Six Party Plenum in August 1979, there was debate starting about decentralization of some decision making and provisions of more incentives for production expansion. In 1980, with Decree 40 issued, provincial governments were permitted to establish trading firms. Since foreign trading constituted the primacy of the planned economy, this was one of areas where the state launched serious reforms. The monopoly of foreign trade by the state in Vietnam was broken by this decision. In 1981, other important measures were issued. One of them was guidelines directive 100 with respect to contracts in the agricultural sector. This new contract system had four main features. First, farmland was distributed to individual working age members. Second, individual worker or group was able to be in charge of several phases of farming under contract with cooperatives. Third, each person or group was obliged to sell part of the output grown in the assigned field. Last, farmers could retain all production beyond the quota. In addition, there was a decision issued by the state, Decree 25-CP allowing state enterprises to produce beyond planned output with the adaptation of the three plan system. According to the system, a single plan was composed of three elements, Plan A, Plan B and Plan C. Once state enterprises produce and sell to the state using inputs supplied, Plan B would allow them to dispose of their products freely. Moreover, state enterprises would be allowed to produce the minor under Plan C. This system was one of the contributors to the recovery in state industrial output of the early 1980s. Following these measures, numerous consumer products were removed from the ration list so as to increase trade at market prices and ease shortages of them within the state trade system.
Facing these economic problems, it was agreed at 6th National Congress of the Communist Party of Vietnam in December 1986 that the centrally management system dependent on state subsides was abolished and a focus was shifted to the creation of a market driven economy with different sectors where competitions between the private sector and the state in non-strategic sectors would exist. In 1987 there were significant reductions in the number of checkpoints set to prevent domestic trade. Markets where private agricultural products were allowed to be sold were rapidly growing.
Privately owned enterprises were permitted in commodity production (and later encouraged) by the Communist Party of Vietnam. The first half of the 1990s observed changes in the legal framework for the private sector. In 1990, Law on Private Enterprises which provided a legal basis to private firms was enacted, while Companies Law acknowledged Joint-stock company and private limited liability company. The constitution established in 1992 officially recognized the role of the private sector.
With respect to reforms in the agricultural sector, Land Law was enacted in 1988, stipulating the recognition of private land use rights by the state. In addition, Central Committee Resolution 10 was issued; according to this resolution, farmers were permitted to use land for long term and sell their products on the free market and not obliged to participate in cooperatives. Households in almost all the cooperatives in the Red River delta were given rights to agricultural fields by late 1988. Their use rights last for less than ten years in the majority of farmland.
One of measures regarding state owned enterprises was Decree 217-HDBT in November 1987. This was a crucial part of Doi Moi as they enjoyed more independence and autonomy with full rights over capital. The Decree would change operations of state enterprises in a number of ways; to introduce an accounting system based on profits, to replace output targets with profit targets for most enterprises, to provide more autonomy to managers in state enterprises in relation to production, human resources and financial decisions making, to eliminate allocation of budgets and inputs to state enterprises, as well as restrictions on selling on the free market, to provide subsidies only in the form of loans by state-owned commercial banks, and to allow for retaining depreciation charges other than large public projects.
Ideology behind reforms
Doi Moi reforms led to the development of what is now referred to as the Socialist-oriented market economy, where the state plays a decisive role in the economy, but private enterprise and cooperatives play a significant role in commodity production. On the one hand, the Communist Party of Vietnam has reaffirmed its commitment to the socialist economic orientation, and that Doi Moi renovations of the economy are intended to strengthen socialism.
On the other hand, Doi Moi was inspired not only by socialist conceptions but also by the example of the newly industrialized countries in East and Southeast Asia. Indeed, in 1987–1989, the withdrawal of Vietnamese troops from Cambodia enabled Hanoi to improve its relations with the various ASEAN countries, and thanks to this rapprochement, the Vietnamese leadership gained substantial insight into the modernization process of these states.
For instance, in November 1987 a Vietnamese economic delegation headed by Deputy Premier Võ Văn Kiệt visited Indonesia with the aim of studying the recent development of the Indonesian economy. The delegation drew the following lessons from Indonesia's experiences. First, they concluded that priority should be given to the development of agriculture, particularly food production. Second, industry should serve and assist agriculture. Third, oil production would stimulate the development of chemical industry and other branches of manufacturing. Fourth, favorable conditions should be provided for foreign direct investment.
Almost overnight the "big bang" economic liberalization transformed a stagnant peasant economy into a vibrant, market-driven, capitalist system. The apparent and sudden swelling of ranks of petty entrepreneurs produced a boom in local markets and the emergence of 'street front capitalism' in urban areas.
Before 1988, there were no private enterprises operating in Vietnam, apart from family firms that did not employ wage labor. With the Company Law in 1990 enacted, the number of private enterprises increased; there were 190 joint stock companies and 8,900 limited liability companies registered by 1996. Private sectors played an important role in the service sector as the share in the retail trade activity increased from 41% to 76% in 1996. Moreover, the enactment of Enterprise Law in 2002 which eliminated 150 business licenses and permits and lowered the time and cost for registration, led to a steady increase in the number of private companies; the number of newly registered private enterprises reached 36,000 in 2004 up from 14,457 in 2000. By June 2004, the total number of firms registered under the Enterprise Law reached to 95,357.
With regard to the impact on state enterprises, initial measures such as a pilot equitisation program did result in little progress in terms of the number of state owned enterprises equitised; they were only 15 state enterprises equitized by 1997. In order to speed up the process, the state established a Central Steering Committee on Equitisation chaired by the Ministry of Finance. Moreover, the state transferred to relevant ministries or provincial leaders decisions on the equitisation of SOEs with a total of VND 10 billion. As a result, state enterprises were constantly equitized between 1998 and 2000; over 100 in 1998, 250 in 1999, and 210 in 2000. Furthermore, the total number of SOEs experiencing equitilization between 2001 and 2005 reached 2,188.
However, the economic liberation has brought negative effects on the Vietnam's society. First, income inequality between urban and rural areas have grown since the adoption of Doi Moi. Beresford suggests that income disparity between industrial and more urbanized provinces and agricultural based provinces widened since 1988. There were two main reasons. First, while industry was restructured following the demise of budget subsidies and liberation of all industrial prices in the late 1980s, centrally managed industries mainly located in small number of cities, were highly protected with special privileges such as access to land. On the other hand, provincially owned state firms were more affected by the restructuring process. Another possible reason for the interprovincial inequality she gave was the concentration of Foreign Direct Investment. With Foreign Investment Law enacted in 1988, foreign investment grew; nevertheless, two third of the capital went to Ho Chin Minh city and three neighboring provinces, and the rest was invested in Hanoi and Haiphong as of 1993. Luong also highlights the concentration of FDI, particularly in terms of sector. Since nearly 90 percent of FDI in 2000 were invested in industries, construction and services, it was urban areas which benefited more.
Another impact of Doi Moi on the society is an increasing number of landless people. Luong explains the impact on people in the Central Highlands in the 1990s. Now, Vietnam is the second largest coffee exporter after Brazil. To achieve the goal, numerous ethinic Vietnamese entrepreneurs established private coffee plantations, encroaching land cultivated by ethnic minorities in the 1990s. The coffee acreage expanded rapidly ten times for ten years from just 44,700 hectares in 1985 up to 516,700 in 2000. Vietnamese coffee exports increased in line with the expansion of the land; there was a significant increase from 12,300 tons in 1985 to 910,000 tons in 2001. It reached 1.26 million tons in 2011. Consequently, ethnic minorities dependent on swidden agriculture moved to more unfavourable mountainous areas. More recently, it was reported that with demand for lands growing, an increasing number of cases have emerged that farmers have had their land seized by local officials without proper compensation; it was far lower than market value. Indeed, there were some fisherman in Haiphong who clashed with the police as they were opposed to eviction by a local official.
Relating to agricultural commodities such as coffee, while growing exports contribute to household income, integration into the global market can have negative effects on local farmers. The Mekong delta and the Central Highlands were highly susceptible to fluctuations in prices of agricultural commodity products determined by the world market. Indeed, export price of robust coffee fall one tenth in the 1990s; it dropped from 4,000 dollars a ton in 1994 to 380 dollars in 2001. This worsened the living condition of farmers in the Central Highlands as it accounted for only a half of the production cost.
Some sources claim that there was already a shadow market of unregulated enterprises operating in Vietnam before Doi Moi. They were often family oriented commercial and peasant enterprises, financiers, currency traders and smugglers.
There were three reasons pointed out for the prolonged existence of the outside economy in Vietnam since the inception of the planned economy. First, due to loosening monetary policies, there was an increase in procumbent prices of rice and in workers’ wage, boosting the demand for food consumption. Second, the party was not capable enough of managing agricultural collectivization. Agriculture cooperative members attempted to produce beyond the so-called ‘5 percent land’ while the state found it hard to punish them by force due to concerns about losing their popular support in the midst of war. Third, the state lacked in experiences of governing the system. Due to poor experiences, SOEs did not follow what they were ordered to do by line ministers, and rather became active about obtaining inputs in order to meet plan targets and amass capital necessary for future unplanned economies.
In the industrial sector, state enterprises could manufacture ‘non-list’ goods outside the plan by utilizing technologies which required little fixed capital. While the state attempted to control the sector to alleviate this outside activities, petty producers resisted the imposition and rather diverted inputs obtained at low prices to the free market.
Looking at the agriculture sector, villagers had their own private fields to grow crops outside the collective lands. It was reported that villagers worked the whole day on their individual household plots; however, they devoted little effort to collective fields. The Government Agriculture Commission reported in 1974 that due to preoccupations with provisions of food to their families, leaders of cooperatives in Hai Hung were able to deploy only 30-40% of the required labour force for collective work. Consequently, the share of average income from collective work for farmers dropped to 30% in 1971 from 38% in the early 1960s, while the state predicted that it would rise 60% by late 1960s. Furthermore, when the state enlarged cooperatives in the wake of the reunification, one of ways to survive was to make earning other than collective farming.
Regarding foreign trade activities, while foreign trade was centrally controlled by the state, consumer goods were sent back home by Vietnamese who worked or studied in the socialist countries in the first stages up to the reunification. The sources of commercial goods diversified since then; these varied from gifts shipped by overseas Vietnamese to their families, to goods left over during the US occupation of the south which were tradable in the Soviet for raising capital. Further, neighboring countries such as Laos and Cambodia provided opportunities to smuggle goods into Vietnam. There were two types of goods smuggling from Cambodia; the first one included those left behind by victims of the Khmer Rouge, while the other were those imported from Thailand. For instance, Thai beer being imposed high duties was usually smuggled by the sea route into Vietnam.
Thus, the informal sector was not spawned by 1986 Doi Moi policy reform, as some observers have assumed. The existing shadow economy helped set the stage for economic reforms by supporting peasant agriculture, fostering the accumulation and productive investment of local capital, creating urban goods and services, maintaining a spirit of entrepreneurship, and proving to the government that an alternative path to national development was possible.
Resistance from farmers
While it is widely believed that top communist leaders initiated reforms since 1986, it is also argued that villagers brought changes in national politics, resulting in the demise of collective farming. Farmers in the north resisted collective farming as the state enlarged it following the reunification. Means by which they were opposed included criticizing leaders in public, stealing grains, and showing laziness about working on collective fields and attempting to earn as much as outside the collective farming with diligent farming and more fertilizer. With cooperative situations worsening, the state conducted investigations; the Communist Party’s Agriculture Committee acknowledged the stagnation of agricultural and livestock production. Moreover, officials working at a research institute of the Ministry of Agriculture and the Committee emphasized that material incentives and more opportunities to do family farming be given to farmers, which was backed by some of high-ranking party and government officials. Changes in the government stance toward collective farming led to the adaptation of Directive 100 (product contract) in January 1981. The product contract arrangement initially brought positive impact on production; nevertheless, villagers continued to express their frustration with the system, particularly high quotas and corruption. Furthermore, cooperatives were not able to conduct assigned work under the product contract arrangement. As family farming increasingly took place of the contract arrangement, National leaders gave up collective farming completely with Land Law in 1987 and resolution 10 in 1988.
- Five-Year Plans of Vietnam
- Economic history of Vietnam
- Socialist commodity economy
- Socialist-oriented market
- Transition economy
- Socialism with Chinese characteristics
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