Vietnam inequality challenges - next generation of Doi Moi?

Babeth Lefur, Country Director at Oxfam in Vietnam, discusses the importance of addressing inequality in the country

Inequality in Vietnam is on the rise

Editor’s note: Babeth Lefur, Country Director at Oxfam in Vietnam, discusses the importance of addressing inequality in the country in this article exclusive to Tuoi Tre News.

After 30 years of the Doi Moi reform, Vietnam has recorded significant achievements in socio-economic development, lifting nearly 30 million people out of poverty.

However, increasing income and wealth inequality is threatening the progress made in decades. Oxfam in Vietnam’s Briefing Paper, “Even it Up, How to tackle Inequality in Vietnam”, calls for urgent action – through the implementation of progressive policies on governance, taxation, public spending, public services, labor rights and civic engagement – to address inequality in the country.

The paper, which will be launched to coincide with next month’s gathering of many of the superrich at the annual World Economic Forum in Davos, asserts that unless inequality is addressed, Vietnam may not achieve Socio Economic Development Plan 2016-2020, SDG goals, and may become trapped into a middle income country status.

The problem of inequality in Vietnam is taking place in the context of unprecedented inequality crisis across the globe.

In 2015, just 62 people had as much wealth as the poorest half of humanity, and the richest one percent owned more wealth than the rest of the world combined.

The same is true in Asia, where the income of poorest 70 percent has decreased, while the richest 10 percent has seen significant gains.

Asian Development Bank research estimated that 240 million more people in the region could have been lifted out of extreme poverty in the past 20 years, had inequality not increased.

The case in Vietnam

Inequality in Vietnam is on the rise. Although the country’s net household incomes have increased in the last few years, the rate of increase has been faster and greater among the wealthy.

The number of extremely wealthy has skyrocketed. In 2014, while 12.3 million people were living in poverty, there were 210 superrich individuals (those with more than US$ 30 million) in Vietnam, and their combined wealth was around US$20 billion; equivalent to 12 percent of the country’s GDP. These 210 superrich earn more than enough in one year to lift 3.2 million people out of poverty and end extreme poverty in Vietnam.

Knight Frank estimates there will be a considerable increase in the number of these super-rich individuals in Vietnam; rising to 403 by 2025.

Oxfam research (2016) in Lao Cai, Nghe An and Dak Nong- three provinces with populous ethnic minorities- shows that income disparity between 20 percent richest households and 20 percent poorest households is 21 times. Nationwide, ethnic minorities comprise only 15 percent of the Vietnamese population, but account 70 percent of its poorest.

Experts tout Vietnam as a success story in alleviating poverty; they have repeatedly urged the country not to rest on its laurels.

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.

Income inequality is only one side of the coin. Inequality in voice and opportunities is the other serious challenge in Vietnam. Research from World Bank and Oxfam shows that inequalities in opportunities are seen as the most worrisome form of inequality in Vietnam, particularly among rural and poorer people.

Among 15 millions migrants, many are excluded from accessing basic services (education, health), employment and social protection. Girls, ethnic minorities and the poorest are disproportionately excluded and underserved.

Women are disadvantaged in their ability to access education and to advance their capacity and development opportunities.

Despite their huge numbers, female workers are mostly unskilled and untrained, working in labor-intensive sectors such as footwear and textiles (78.5 percent), food manufacturing and processing (66.8 percent), porcelain and glass (59.2 percent).

Children from the poorest households have seen little to no improvement in educational outcomes in the last 20 years. The following story shows how poor people have to struggle with difficulties in education:

Uyen is a 16-year-old Muong girl who stopped her studies after finishing eighth grade. Her mother had thought hard about which child to keep in school, and had pulled Uyen’s older sister out of school at ninth grade in order to save money for Uyen to continue her studies. However, Uyen’s sister proved to be a strong role model for Uyen, who later decided that she would also stay home to help her mother in the house.

Uyen’s story is a reflection of public services’ weakness. While national budget for education is high, fees continue to act as a great barrier to the poor accessing quality education.

A 2013 survey identified 15 major groups of fees, and estimated that 30 percent of education spending is paid for by families through out-of-pocket payments. In health care, while health insurance coverage has rapidly increased, a large proportion of total health spending – nearly 50 percent – is still paid out of pocket, consequently pushing millions people back into poverty (above 400,000 households in 2012).

Rising inequality is bad for everyone.  It may hinder the ability of lower-income children to reach their potential. This means not only a lower level of social mobility, but also a slower rate of future growth for the overall economy.

Inequality is a barrier to poverty reduction but it can also lead to social unrest. In China the crime rate is found to be positively correlated with intra-provincial regional inequality; and an increase in income inequality has a big and robust effect of increasing crime rates. Vietnam may not be immune from such trend. Crime rates have shown no sign of abating, and crime rate is increasing among young people. This highlights the growing unwillingness of people to accept the disproportionate benefits of national economic growth.

Rising inequality goes together with rising corruption which tends to make the poor poorer and the rich richer. The benefits from corruption are likely to accrue more to the better-connected individuals in society, who belong mostly to the high income groups. It is the poor in society that are often the hardest hit by the effects of corruption. In 2014, Vietnam ranked 119th globally in Transparency International's annual survey of perceived corruption (China was 100th and Russia 136).

Inequality concerns all people including leaders worldwide. In a speech in 2013, President Obama described rising income inequality as the "defining challenge of our time."  Chinese leader Xi Jinping has stated multiple times that closing the inequality gap must sit alongside the goal to raise GDP. In the wrap-up speech at a regular meeting of the Vietnam Party Central Committee, Party Chief Nguyen Phu Trong stated that wealth gap is only widening and poses the most worrying threat to the survival of the political regime, and he added "The rich-poor divide" [only] shows signs of getting worse”.

In September 2015, the United Nations adopted the 2030 Agenda with 17 global Sustainable Development Goals (SDGs). Reducing inequality, for the first time, is among the global goals (Goal 10).

Vietnam’s then-President Truong Tan Sang attended the conference and confirmed that the Vietnamese State is committed to mobilize all resources, all ministries, localities, institutions, communities and people to successfully implement the 2030 Agenda and the SDGs.

In order to ensure that the next 30 years sees continued improvement in the lives of the poorest people, the government must take all forms of inequality into account – income, opportunity and voice inequality.

The government should also analyze its policies to understand their impact on inequality and commit to a new program of action, and progressive policies.

This means improved governance and accountability, as well as ambitious commitments on fairer taxation, public spending, public services, and improved labor policies.

This will not be possible without improving the voice of disadvantaged groups through participatory structures and improved forms of accountability. The right combination can fight poverty and inequality for the next generation.

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