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Knowledge Co-Creation - Profiles of researchers

Thinking on the Development of Vietnam from Research on East Asian Dynamism

Tran Van Tho
Professor, Faculty of Social Sciences, Waseda University

Settling down in Japan to study economics

The first turning point in my life was in 1968 when, after graduating from high school in Vietnam, I came to Japan on a Japanese government scholarship. Having enjoyed literature through high school, it was assumed that I go on to study literature at university, but after coming to Japan I decided to study economics. The Vietnam War was still going on at the time and I realized that postwar economic recovery would be needed soon. Japan was in the middle of its high growth era and had just become the second largest economy in the world, so it seemed meaningful to study Japan’s experience of economic development.

The second turning point came after I completed my doctoral program in 1978. The Vietnam War had ended and the country reunited, and Marxist-Leninist ideas and a socialist economic system were imposed by the Communist government. Vietnamese studying overseas did not, or effectively could not, return to Vietnam which had become a country with almost no freedom, and of course I would have been unwelcome there having specialized in modern economics in capitalist Japan, so I faced the choice of remaining in Japan or migrating to a country where foreigners are more readily accepted, such as the USA. One after another, most of my friends moved to the USA, Canada, Australia and so on, but upon reflection I decided to stay in Japan. I worked for a consulting firm for a few years before becoming a researcher at the Japan Center for Economic Research and launching myself into the study of East Asian economics.

Looking back, I think I made the correct decision. In Asia in around 1980, South Korea, Taiwan, Hong Kong and Singapore were growing, followed in turn by China and the ASEAN countries. This had not been forecasted. At the time, my former teachers at Hitotsubashi University, Kiyoshi Kojima and Ippei Yamazawa, attracted much attention as they had taken up the theories of the late Kaname Akamatsu and were studying his view of Japanese industrial growth, called the flying geese paradigm. As a successor model to this paradigm, they described the process by which industrialization spread from Japan to South Korea and Taiwan, and then to Malaysia, Thailand and so on.

My research was in the same vein, but it focused more on the transfer of capital and technology and analyzed the roles of capital and technology in the industrial growth of latecomer countries. In 1992, I put together my academic results in a book, Industrial Development and Multinational Corporations: The Dynamics of Asian Pacific Region [Sangyo Hatten to Takokuseki Kigyo: Ajia-Taiheiyo no Dainamizumu no Jissho Kenkyu], which received the Asia Pacific Prize the following year.

Winner of the 1993 Asia-Pacific Prize, which recognizes the best publications concerning the Asia-Pacific region, for Industrial Development and Multinational Corporations: The Dynamics of Asian Pacific Region [Sangyo Hatten to Takokuseki Kigyo: Ajia-Taiheiyo no Dainamizumu no Jissho Kenkyu]

27 years after the Doi Moi policy

With its post-war socialist system, Vietnam was isolated from East Asian dynamism until the late 1980s. Eventually, at the end of 1986, it revised this socialist system and introduced the Doi Moi (Reform) Policy that promoted the transition from planned economy to market economy. It was a huge transformation from a commitment to Marxist economics to a position of accepting foreign investment and the ideas of modern economists. In 1993, I was appointed to the Advisory Group on Economic and Administrative Reforms, set up by then Prime Minister Vo Van Kiet.

Structural Changes in the East Asian Economy and Vietnam’s Industrialization Strategy

Vietnamese Industrialization in the Asia-Pacific Era

Fortunately, Doi Moi ushered in an era in which I was able to make some contribution to my home country, and since 1993, while traveling back and forth between Japan and Vietnam frequently, I have made recommendations on Vietnamese industrialization strategy, economic policy, and system reform, always keeping in mind the experiences of Japan, South Korea, Thailand and others. In 1997, I published Vietnamese Industrialization in the Era of Asia and the Pacific in Vietnamese, and presented it to Vietnamese leaders. In 2005, I published Structural Changes in the East Asian Economy and Vietnam’s Industrialization Strategy, also in Vietnamese, which proposed a new development strategy for Vietnam considering the changes occurring in East Asia such as the rise of China, free trade agreements, and so on.

About 25 years after the introduction of the reforms, Vietnam escaped the status of one of the world’s poorest nations. Following the reform of production systems, the liberalization of import of capital, and the opening up of markets to the world, agricultural and industrial production increased sharply. New business knowledge and ideas were introduced from overseas, and the latent potential of the economy, which had until then been suppressed, suddenly turned to growth. In the late 2000s, however, concerns arose about a serious slump in the pace of reform. Factors such as a decline in quality of administration, rampant corruption, cozy ties between interest groups and bureaucrats, and excessively preferential treatment for state-owned firms led to inefficient resource allocation, which became a matter of concern. Despite having achieved good economic growth for a developing country during the 25-plus years since Doi Moi, Vietnam may be unable to reach the next level and instead fall into stagnation.

Vietnam and the Middle Income Trap

The phenomenon of a low income developing country growing economically into a middle-income country but then lapsing into stagnation without reaching higher-income status is widely seen around the world. South American countries such as Argentina and Chile, for example, saw great economic growth in the 19th century but even now have yet to become advanced nations. With the exception of the city-state of Singapore, the only Asian economies to have joined the ranks of developed nations are Japan, South Korea and Taiwan. So what will happen to other developing countries? When I participated in the Asian Development Bank’s 2030 ASEAN research project several years ago, I prepared a report (in English) titled “The Middle Income Trap: Issues for Members of the Association of Southeast Asian Nations”, which addressed the question of what structural problems need to be solved for future development of the middle-income ASEAN nations.

On the whole, the level of income of most ASEAN countries has been steadily rising. The problem is what happens next. The upper middle-income countries of Malaysia and Thailand are in a difficult situation, feeling pressure from above due to the gap in managerial and technical strength between them and the advanced nations, and from below where the lower-income countries are catching up. The report stated the need for upper middle-income countries to study and implement the following three keys of development in order to become advanced nations: (1) improve the quality of human resources, (2) strengthen private companies to make them innovation-oriented, dynamic and flexible, and (3) build high-quality infrastructure.

So what about the lower-ranking middle-income countries of Vietnam, the Philippines and Indonesia? If they continue to follow the upper middle-income countries for the time being, will their incomes smoothly rise to higher levels? Should they think about the possibility of an early appearance of the middle-income trap? I studied these points in depth, focusing on the Vietnamese economy. In the course of my analysis, I found that even among middle-income countries there were structural differences between the upper and lower-ranking countries, and that there was a risk of a trap preventing lower middle-income countries from moving to a higher level.

Annual Vietnam visits by the Tran Seminar (special class for undergraduate students). Photos taken in autumn 2013. Left: Vietnam-Japan student exchange; Right: Factory visit in Vietnam

Applying Japan’s experience to Asia

In lower middle-income countries, complex administrative machinery and cozy ties of bureaucrats with state-owned firms and established interests distort factor markets and hamper the speed of development. These institutional defects suppress the desire of domestic private sector and overseas companies to invest, thereby lowering international competitiveness. This is indeed a dangerous trap facing today’s Vietnam. Moreover, it will lose in competition with industrial products from other countries, especially China’s, further blocking the progress of industrialization. If Vietnam proceeds with the liberalization of trade and investment, through TPP membership for instance, without fundamentally reforming its systems, its current comparative advantage structure will become handicapped, making further economic development more difficult. I call this phenomenon the “free trade trap.” That is why lower middle-income countries must be careful not to back away from reforms to improve the capital and land factor markets and build up efficient public infrastructure and administration.

From now on, I intend to continue my longtime mission of studying the experience of Japan’s economic development. By analyzing the connection between social capacity and development, especially during the Meiji Restoration and post-war period of rapid growth, I believe I can offer some insight on the present challenges facing ASEAN nations.

Development and Transition in the Vietnamese Economy: The Middle Income Trap and the New Doi Moi [Betonamu Keizai Hattenron: Chushotokukoku no Wana to Aratana Doimoi] (Keiso Shobo, 2010), which is a compilation of a series of the author’s studies

Structural Changes in the East Asian Economy and Vietnam’s Industrialization Strategy received the 2012 Vietnam Outstanding Book Award (Economics). This prize is awarded to the best books in various fields in order to promote general cultural advancement and reading activity in Vietnamese society. Photo: Award ceremony in Vietnam

Tran Van Tho
Professor, Faculty of Social Sciences, Waseda University

The author was born in Vietnam in 1949. After graduating from high school, he came to Japan in 1968 on a Japanese government scholarship. He graduated from Faculty of Economics, Hitotsubashi University in 1973 and received his PhD (Economics) in 1993 from the same university. He served as Economist and Senior Economist at the Japan Center for Economic Research, and as Assistant Professor and Professor of Economics at J. F. Oberlin University’s School of International Studies before taking his current position in 2000. In Vietnam, he was a member of the prime minister’s Advisory Group on Economic and Administrative Reforms from 1993 to 1997, and the Policy Research Group from 1997 to 2006. In 2008 he was a visiting researcher at Harvard University. He currently serves as Chairman of the Vietnam Asia-Pacific Economic Center (VAPEC), Director of Waseda University’s Vietnam Research Institute, and member of the Policy Council of the Japan Forum on International Relations. He received the 1993 Asia-Pacific Special Prize and the 2012 Vietnam Outstanding Book Award (Economics).

His major published works include: Industrial Development and Multinational Corporations: The Dynamics of Asian Pacific Region [Sangyo Hatten to Takokuseki Kigyo: Ajia-Taiheiyo no Dainamizumu no Jissho Kenkyu]; New Development of Vietnam’s Economy - Launching the Era of Industrialization [Betonamu Keizai no Shintenkai – Kogoka Jidai no Shido]; Asian Economy and Japan – A Vision of Cooperation for the New Century) [Saishin Ajia Keizai to Nihon – Shinseiki no Kyoryoku Bijon] (co-writer); Development of the Vietnamese Economy: The Middle Income Trap and the New Doi Moi (Betonamu Keizai Hattenron: Chushotokukoku no Wana to Aratana Doimoi)