Widening wealth gap threatens Vietnam’s stability

Widening wealth gap threatens Vietnam’s stability

A joint report issued earlier this month by the Vietnam General Statistics Office and the World Bank has drawn attention to a growing wealth gap in the Southeast Asian nation. The gap is both economic and geographical, with the majority of the rural community growing increasingly poor in contrast to a wealthier urban populace. If the government does not respond to this growing disparity, political instability could be on the horizon in Vietnam.

The Vietnamese economy has achieved impressive growth in the last two decades, undeniably benefitting large areas of the population with some 30 million people being lifted out of poverty. Today the poverty rate stands at 7.8 percent compared with nearly 58 percent in 1993. This growth, however, has to a certain extent masked the fact that a proportion of the population are being left behind – namely the rural poor and ethnic minorities.

A new joint report by the Vietnam General Statistics Office (GSO) and the World Bank shows that although the country’s net household incomes have increased substantially in the last few years, the rate of increase has been faster among the wealthy. Vietnam’s poorest now earn an average 512,000 dong (US $24) per month, an increase of 38.5 percent since 2010 but the figures for the wealthier citizens are around 4.8mn dong ($227), a corresponding increase of 40 percent.

As the income gap widens, the rural poor and minority people become harder to reach, falling behind in terms of education, job access and healthcare, and making it more challenging to reduce the disparity. Those at the lower end of the economic spectrum are also generally subject to poor working conditions.

At the same time as this trend is developing, overall national economic growth is slowing substantially. In 2013, the country experienced its lowest rate of GDP growth in 13 years (5.03 percent), as a result of macro-economic instability and external shocks. As this happens, the challenges generated by the income gap are likely to get worse.

Potentially these challenges include rising crime rates; certainly they include industrial unrest and political instability, as well as the economic damage these are likely to entail.

The Gini coefficient, used to measure inequality, posits a correlation between increased criminality and countries with a high Gini coefficient. Although it is still unclear whether this will prove true in Vietnam, high-level corruption is on the rise as government monetary policy and the commercial interests of the wealthy elite become more closely intertwined.

For example, in November 2013 the government announced a 30 trillion dong bailout of the real estate market. It was billed as a project to promote housing relief for the poorest but in actuality only addressed the development of housing, not the restrictions preventing the poorest from purchasing houses developed under the scheme.

The problem underlying the disparate wealth growth is that particular groups of people are increasingly able to gain control over public assets, often at the expense of larger, less socio-economically powerful groups in the political sphere.

The Vietnamese government has recognized that addressing the wealth gap is imperative to political stability. Nguyen Phu Trong, the Vietnamese Communist Party’s chief, warned against economic disparity in the Party Central Committee meeting on October 9, 2013. In a nominally socialist political system (and a socialist-oriented market economy), economic growth based on limited groups accruing most profits presents a serious threat to the legitimacy of the ruling party.

The number of strikes in Vietnam rose from 400 in 2006 to 978 in 2011, highlighting the growing unwillingness of people to accept the disproportionate benefits of national economic growth. Legally, strikes in Vietnam are banned unless they have first been approved by the Vietnam General Confederation of Labour (VGCL), which has never in its history  supported a single strike.

There are measures the Vietnamese government could take to address the wealth gap and thus strengthen the regime’s legitimacy. These include investment in providing  free education, health care and basic utilities for the poorest in society, improving rural infrastructure and promoting schemes to address specific needs areas such as property ownership. Nevertheless, the leadership have been publicly acknowledging the problem for several years and yet allowed the situation to deteriorate.

The Party Committee faces a paradox. On the one hand, the longer it waits to institute changes that reduce the wealth disparity, the more they risk serious political unrest from the ‘bottom-up’. On the other hand, interest-based economic policies have become entrenched, and thus they also risk serious opposition from the wealthy business elite who benefit from those policies, but whose support the government requires to introduce equality initiatives.

If Vietnam’s income disparity continues to expand unabated, the political and economic stability of the country could seriously decline. Although unlikely in the short-term, in the long-term it could mean that Vietnam loses its appeal to foreign businesses.

Categories: Asia Pacific, Economics

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