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SAP 2.74/WP.128
Agrarian transition in Viet Nam
Viet Nam's agrarian reforms started in 1980 with a shift of responsibility for cultivation to farming households. Although the shift was only partial -- important aspects of agricultural production and distribution remained in collective hands and farmers had only limited control over the allocation of resources -- still, these reforms helped to unleash peasant energies, and output and efficiency responded for a while, only for the inefficiencies of the dual system to soon emerge. The 1988-89 reforms swept away the ambiguities: land and other production goods were returned to private ownership, production and distribution were liberalized, price controls abolished, and cooperatives effectively dissolved. Liberalization of external trade and devaluation of the currency opened the economy to the world market. The effects of this second round of reforms are continuing to be felt up to today.
The reforms -- "doi moi" and earlier -- led to a more efficient use of the scarcest production factor in Viet Nam: land. Yields per hectare increased, first with the 1980 reforms, and then again after 1988 with the more definitive "doi moi" reforms. Along with the yields, total output also increased. The analysis has shown that the sources of growth have changed. While during the 1980s most growth came from the more efficient use of resources, during the 1990s it came from a more extensive use of inputs.
With the rapid growth of output, agricultural incomes have increased and rural poverty fallen. But rural incomes did not increase as fast as urban, partly due to government policies which continued to aim at extracting a surplus from the agricultural sector. Intra-rural disparities increased, as the regions with better land and more water cashed in on the reforms compared to the drier mountainous regions.
The policy implications of the analysis concentrate in three areas -- the slowing of agricultural productivity growth in recent years, growing income disparities, and persistent poverty. To a large extent these problems are interconnected, given that most of the poor live on farms and in backward areas. However, the overlap is not complete since the better-off regions also contain significant pockets of poverty.
The stagnation of productivity growth observed recently has various reasons. The rapid growth of the labour force and its absorption in the rural areas has resulted in a pool of underemployed workers in the agricultural sector, with clear implications for productivity growth. Opportunities still exist for increasing yields through the use of better seeds and fertilizer, which currently are not being utilized optimally. Better information and more intensive extension services are necessary to improve that situation. Apart from the technical inefficiencies identified above, government policies also keep rural incomes low, through unfavourable relative prices and exchange rate and poor marketing arrangements, particularly in the case of rice.
In the long run there is no doubt that the problem of raising productivity in agriculture will require siphoning off more and more of the agricultural labour force into non-agricultural activities. The best prospects for this are provided in the rural areas. Such rural-based activities could have organic linkages with the agricultural sector by processing agricultural outputs and manufacturing inputs to be used on the farms.
The growing dispartities are between regions and income groups. The richer regions have experienced much faster growth compared to the poorer ones and within each region the larger farmers have benefited the most because of their superior endowments. At the macro level, wages in general have lagged behind growth in the national income and this too has translated into growing disparities, although to a lesser extent than would be true in pure market economies since the Government is appropriating the surplus and using it according to its goals for national development. These goals however at the moment greatly favour urban industrial activities as the salvation for economic development. The manifestation of this is in the form of a concentration of investment on the industrial sector which ultimately comes at the expense of the agricultural sector. The consequences of course are growing disparities and persistent poverty, since the main avenue for poverty eradication in such a scenario becomes migration to the urban areas. The limits to this are given by the limited capacity of the urban areas for absorbing new labour.
Sustained reduction in poverty, as in every other developing country, will require a two-pronged approach -- the productive use of poor people's labour, their most abundant and sometimes only asset, and the provision of social services. Market incentives should be harnessed to ensure the former, but these have to be supplemented with the provision of basic inputs and infrastructure to enable the poor to benefit from the more favourable incentives. Since the bulk of the poor are farmers, poverty reduction would require remunerative prices for their crops, supplemented by the provision of irrigation, extension services, and marketing facilities. Such basic supplements would be particularly important for farmers living in the more remote regions. Clearly they do suffer from a lack of fertile land but equally important is also their limited access to inputs and basic infrastructure to get their produce to the market.
But as we had shown, farmers are not the only groups in poverty. Self-employed workers in the informal sector and wage-earners also figure among the poor people. The informal sector in Viet Nam is a recent development with the liberalization of the economy and the newly sanctioned role that liberalization accorded to private enterprise. The sector has shown a great degree of dynamism, absorbing the bulk of the retrenchees from the public sector pursuant upon the reforms. However there are indications that this may well have been at the expense of growing underemployment and perhaps even poverty. Thus the sector needs to be carefully nurtured to ensure that it plays a productive role in the development of the country and is not simply a sponge for mopping up the new workers coming on to the job market. Proactive policies in favour of the informal sector are called for in place of the present policy which could only be characterized as "benign neglect". Such proactive policies should include easier access to credit. Also critical would be training programmes geared to the needs of the enterprise operators and workers in the informal sector.
Easy and more widespread availability of social services -- health education, safe drinking-water, nutrition -- should be the other plank of a poverty-reduction strategy for Viet Nam. Social services have been recognized in all countries to play a crucial role in poverty reduction because of the contribution they make to human capital development. This is amply confirmed in Viet Nam by the Living Standards Survey, which showed a strong correlation between incomes and level of education and access to health facilities. Regrettably, the provision of these services has fallen into some disarray at the moment as a result of the fundamental restructuring of the economy. But even at their best, the poor groups had less access to such services because of their location in the rural areas; this was particularly true for those living in remoter areas, a majority of them being ethnic minorities. The situation may have even worsened because of the reorientation of the economy. There is thus a need to create alterative institutions to fill the gap left by the cooperatives which used to provide these services and to ensure a more equitable outreach of these services. Developing the human potential of the poverty groups -- even more than investing directly on their other assets, land prominently -- could be the most efficacious way of improving their earning potential, whether as farmers, or, as most likely, wage workers.
The interconnections among the three problems identified above -- stagnating productivity, increasing inequality, and persistent poverty -- makes concerted action possible and the best possibility lies in direct government support for the backward regions through investment in rural infrastructure, more intensive extension services, and better access to social services.
The Viet Nam Government has been very successful in reorienting its economy away from the previous dirigiste model, with the accrual of much gain in terms of economic growth. The lead sector has been industry, but time may have come to reinstate agriculture as a national priority because of its vital role in the development of the country, particularly from the point of view of employment creation and poverty eradication.