What is the most effective way to fight poverty and hunger? Many people would say development aid, despite the fact this has not delivered effective or lasting change in Africa at any point over the past 50 years. However, what has worked very well in various countries is the introduction of features of the market economy and private property rights. In China in 1981, before Deng Xiaoping’s reforms, 88% of the population was living in extreme poverty. Thanks to China’s market economy reforms, that figure is now considerably lower.
A less well-known but particularly successful example is Vietnam. Vietnam still calls itself socialist, but in the economic sphere, there is hardly a trace of socialism. In fact, I met fewer Marxists and more staunch supporters of capitalism in Vietnam than in Europe.
Vietnam is a prime example of what private property rights and free-market reforms can achieve. With per capita gross domestic product of $98, Vietnam was one of the poorest countries in the world in 1990, behind only Somalia ($130) and Sierra Leone ($163). Under the socialist planned economy, crop failure led to hunger and Vietnam was dependent on support from the World Food Program and financial assistance from the Soviet Union and other Eastern Bloc countries. As late as 1993, 79.7% of the Vietnamese population was trapped in poverty. By 2006, that had fallen to 50.6%, and by 2020, it was just 5% — extreme poverty had been virtually eliminated.
MEET VIETNAM, AMERICA’S MOST UNDERVALUED PARTNER IN THE INDO-PACIFIC
Vietnam is now one of the world’s most dynamic emerging countries and offers countless opportunities for hardworking people and entrepreneurs. Gross domestic product (in constant U.S. dollars) has increased sixfold since the launch of the reforms!
From a country that could not produce enough rice to feed its own people, Vietnam has become one of the world’s largest rice producers and a major exporter of electronic goods.
The country had been devastated by the Vietnam War. Some 14 million to 15 million tons of bombs and explosives were dropped on Vietnam — ten times the ordnance that fell on Germany during World War II. What the war had not destroyed, the socialist planned economy did: In 1977–78, the collectivization of agriculture and the nationalization of nearly 30,000 privately owned small businesses began in Ho Chi Minh City, resulting in a severe crisis that lasted until the early 1980s.
The Vietnamese realized that they had reached an impasse. The Sixth National Congress of the Communist Party of Vietnam in December 1986 adopted the far-reaching reforms known as “Doi Moi” (“Renewal”), which laid the foundations for the positive change that was achieved in Vietnam in the years that followed. In essence, the reforms adopted at the party congress and subsequently intensified were designed to increase the freedom of the market progressively and push back the all-powerful role of the state. Private ownership of the means of production was no longer frowned upon, and the aim was to open up to capitalist foreign countries. This also involved the effective dissolution of the country’s agricultural production cooperatives.
In 1987, a new investment law was passed: Vietnam wanted to open up to foreign investors. For the first time, Vietnam allowed investments that were 100% owned by foreign capital and guaranteed that foreign investors’ capital and property would be safe. Foreign investment played a key role in raising living standards because wages and working conditions are often better in foreign than in Vietnamese companies.
Rising inequality is not a problem for the people of Vietnam because everyone is better off, and the rich in Vietnam, unlike in many Western societies, are regarded as role models rather than scapegoats. I commissioned Ipsos MORI to conduct a survey in 11 countries to explore popular attitudes toward wealth. When asked how important it was for them personally to be or become rich, an average of 28% of respondents in European countries and the United States said it was either important or very important. In China, the figure was 50%, and in Vietnam, it was 76%.
Capitalism, then, is provably delivering for the people of Vietnam.
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Rainer Zitelmann is a historian, sociologist, and author of The Power of Capitalism.
