Wednesday, June 27, 2007

Madame Nguyen on the Economy

I’ve only ever heard Desaix call two people “dazzling”—Hilary Clinton, and Madame Nguyen. As of yesterday morning, I’ve now heard both speak. Madame Nguyen walked into our room and cast an aura over the class. In her early sixties, she carries herself with grace and speaks impeccable English with an elegant French accent.

She gave an interesting talk about the South Vietnamese resistance movement and she was well qualified to explain the subject since she was a member of the Vietcong. Not that she spent years in the jungles setting booby-traps for Americans. She came from one of Saigon’s elite families and studied at French universities. But she rankled at the corruption of the Saigon regime and the foreign domination of her country, so she dropped out of college to secretly join the Vietcong. In Saigon she used her family’s intimacy with top Vietnamese generals to provide the resistance with important intelligence.

Unlike many pro-government Vietnamese, her parents stayed in Vietnam after the regime fell in 1975 and it was only then that they learned of their daughter’s involvement with the Vietcong. Madame Nguyen went on to have a brilliant career in the government. She’s the Vice-Chair of the National Assembly, the rough equivalent of the Senate Majority Whip, and she’s led the Assembly’s Foreign Relation Committee. She’s the top female figure in the Vietnamese government and is privy to most of its decisions.

Several of us took the opportunity to probe her on the Vietnamese economy, and we were rewarded with a profile of a fast-growing economy from the perspective of a nominally Communist regime concerned with stability.

Madame Nguyen attributed the stunning growth of the Vietnamese economy to market reforms and good “governance”. The government could claim a record of good governance, she argued, because it had succeeded in reducing red tape, discouraging corruption, and attracting investment from abroad, especially from the Vietnamese Diaspora, much of which was once strongly opposed to the Hanoi regime. Despite these successes, she cautioned, the country faces “management” challenges, which she differentiated from “governance” issues.

Madame Nguyen is concerned because there is a growing divide between the urban and rural economy. Market reforms have greatly increased incomes in the cities, but the rural rice-growers who make up a huge section of the population have only barely felt the effects of liberalization. In fact, some rural inhabitants were actually better off during the days of the command economy, when the government heavily subsidized daily necessities. The government’s decision to reduce subsidies jumpstarted urban commerce but reduced the purchasing power of poor farmers. This trend disturbs Madame Nguyen and the Communist Party leadership. “Of course these are economic issues,” she diplomatically conceded, “but if you let the economic differential grow too large people become resentful and then it becomes a political issue.” And for a party looking to stay in power, negative political issues must be kept to a minimum.

According to Madame Nguyen, her government is attempting to channel growth into the countryside. In a recent symbolic gesture, the Ministry of Agriculture changed its name to the Ministry of Agriculture and Rural Development. The government is giving out cheap credit to farmers to finance farm improvements and technological investment. There’s plenty of room for improvement. As I drove through the fertile province below Hanoi I saw very few tractors or reapers. Work is still mostly done by hand and water buffalos provide the most common form of plough-strength.

The mechanization of Vietnamese farms is an attempt to raise productions and incomes in the countryside. By improving the lot of rural inhabitants, the government hopes to prevent rural disaffection, which could mount a serious challenge to the regime and its market-oriented policies. But the government also hopes to avoid the massive rural-urban migrations that are so common in developing countries. So far, Nguyen claims, Vietnam has been spared by mass movements of millions of poor farmers who come to cities in search of jobs. I agree with her. On the ride into Hanoi from the airport, I had expected to see ghastly slums like the shantytowns found in India or Latin America, but there was nothing of the sort. Still, Madame Nguyen is concerned that the widening divide between urban and rural Vietnamese will eventually drive millions of farmers into the cities, creating slums filled with poor, dislocated people.

For this reason, Madame Nguyen concluded that, “To avoid urban slums, you have to bring jobs to the countryside—you need to encourage investors to build factories outside of the two or three big cities. She cited example of several plants far removed from Hanoi or Ho Chi Minh City which strongly boosted the distant provincial economies, and, in her opinion, reduced rural pressure to migrate to the cities.

The problem is that most companies don’t want to build plants in the middle of nowhere. They prefer Hanoi and Ho Chi Minh City because these areas have concentrations of industry, infrastructure and easy access to deep water ports. Therefore the government has to coerce companies to build outside the traditional industrial centers.

Unlike so many government officials explaining a controversial policy, she gave a specific example of government intervention in industrial expansion, citing the case of the new Dung Quoc oil refinery. Total, the French oil giant, wanted to build the new refinery near Ho Chi Minh City, which, she admitted, made the most sense economically because it’s located near the offshore oil pumps. But the government leaned on Total to place the refinery in a less developed central province, and Madame Nguyen defended the decision because the region needed jobs.

To me, Madame Nguyen’s discussion offered interesting insight into how poor, rural countries have to make difficult choices on their path to development. Economic liberalization is now widely accepted as the primary source of the global economic growth and the reduction of poverty levels, which have fallen in Vietnam from 60% in 1990 to 15% today. But as incomes shoot up in parts of the big cities, rural laborers become increasingly dissatisfied with their relative poverty and if tensions boil over they can demand the overhaul of the whole system. We’ve seen this type of tension recently in Bolivia, Ukraine and elsewhere. The Vietnamese Communist Party, it seems, is trying its best not to rock the boat, even as global markets create waves of change.