Comment on “Challenges in Searching for Vietnam's Growth Drivers Through 2030”

Abstract

Can and Dang (2024) argue that Vietnam's traditional growth drivers no longer work or face diminishing returns, and the country requires a new set of growth drivers to avoid a middle-income trap. The need for a policy phase shift has been recognized widely in Vietnam, and Can and Dang reinforce this shared vision. Concerns are covered broadly while no new evidence is offered. Facts and data are cited from the existing literature. Therefore, to assess this study, we must ask if Can and Dang state Vietnam's challenges and solutions in a balanced, concrete, and convincing way to inform and guide policymakers.

Can and Dang list four drivers of past growth: (i) economic liberalization; (ii) knowledge diffusion from trade and foreign direct investment (FDI); (iii) the robust performance of manufacturing; and (iv) young and low-cost labor. This selection is mostly acceptable though quibbles may be raised regarding details.

In particular, Vietnam's knowledge absorption from the foreign sector was not very fast. It took Korea only several years to learn steelmaking, shipbuilding, automobile, and electronics from Japan and attain global competitiveness. Vietnam, like most other economies in the Association of Southeast Asian Nations (ASEAN), has learned more slowly and produced fewer global giants. It surely learned how to sew T-shirts and operate machines at the bottom of the Smile Curve but learning on the value-creating segments of the Smile Curve such as product design, the supply of reliable components, and global marketing was limited. We must see if Vinfast will succeed in conquering the global electric vehicle (EV) market. Technology spillovers do not occur spontaneously but require proper conditions on the recipient side.

Global digital transformation is presented as an advantage but it is also regarded as a risk for Vietnam as discussed in later sections of Can and Dang. For every developing country, digital technology poses both an opportunity and a challenge. Digital leapfrogging is possible for some but digital delays and divides are realities for countries without the necessary conditions. These conditions include the fostering of digital engineers, incentives and opportunities to retain and mobilize these engineers in the home country, excellent Internet infrastructure, and effective policy support for startups and innovators. As Can and Dang admit, Vietnam's track record so far is not very encouraging.

Can and Dang point to five disadvantages for Vietnam. They are: (i) trade risks; (ii) unskilled and aging labor; (iii) infrastructure shortage; (iv) low-quality institutions; and (v) premature deindustrialization. Regarding (i), it must be noted that Vietnam is in a relatively good position to gain from the China-US trade war as well as a thick network of free trade agreements (FTAs) and regional agreements it has concluded with its major trading partners. [Correction added on 27 May 2024, after first online publication: the word “decentralization” has been changed to “deindustrialization” and last sentence of this paragraph has been deleted in this version.]

Can and Dang propose five new growth drivers: (i) “active” integration (with more value generation and quality FDI); (ii) labor productivity with higher digital capability, labor mobility, and training; (iii) innovation and research and development (R&D); (iv) high-value services; and (v) green growth. Overall, these apply equally to all middle-income economies, not just Vietnam. Thailand conducted a radical reform of its FDI policy from quantity to quality in 2015. India has a competitive information technology (IT) industry. The Philippines provides business process outsourcing (BPO) services to the world such as tele-marketing, data analysis, accounting, market research, and programming. Vietnam recognizes the need for new drivers but it has not produced visible actions.

Tran (2023) distinguishes two types of middle-income traps: the lower middle income trap where defective policies and institutions block private enterprises; and the upper middle income trap where private dynamism is insufficient despite favorable policies and business climate. He asserts that Vietnam is in the first trap. It is also clear from Can and Dang (2024) that Vietnam's growth problem mainly comes from government action or inaction rather than the lack of responses from the private sector.

This leads to the realization that the issue is not so much with finding what needs to be done but with how required policies, which are already well known, can be executed. Since the mid-1990s, Vietnamese officials and researchers have debated similar problems again and again at conferences and in policy documents without proceeding to the action stage. This is a matter of mindset, politics, incentives, and state capacity. The quality of the national leadership and technocrats must be addressed. This situation poses a difficulty for economic researchers who must produce intellectual value-added instead of repetition. Economics alone is not valid unless multidisciplinary concerns are also properly analyzed.