Facts vs. Gossip: Did Vietnam (According to Filipino MARITESes) Develop from Its Own Treasury Before Opening Up to FDI?
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| Vietnam Youth Union |
Where would it be better to get information on how first-world countries developed?
FROM ISOLATION TO PROSPERITYBy the mid-1980s, the development model Vietnam had borrowed from the former Soviet Union and its East European allies had revealed numerous flaws and was proving outmoded. On the political and diplomatic front, tense relations with China, the heavy burden of Vietnam's troop presence in Cambodia and strict sanctions imposed on it by the US placed Vietnam in a difficult bind. On the one hand, the country was blocked from cultivating new relations with other countries; on the other, it had become ever more dependent on the Soviet Union for political support and economic and military assistance.The turning point came with a dramatic reduction in Soviet economic and military assistance after the mid-1980s and the economic hardship this caused. For the sake of the country's survival, Vietnam's leaders were forced to adopt economic and political reform, or Doi Moi. In essence, Doi Moi in its early stages was focused mainly on the removal of self-imposed barriers to progress and the utilization of various market-oriented measures, including liberalization of the domestic market, encouragement of foreign direct investment, or FDI, and the private sector, and reduction in subsidies to state-owned enterprises (SOEs).These steps quickly brought positive results. From a country faced with perpetual food shortages, Vietnam in 1989 for the first time exported 1.4 million tons of rice. It has since remained a rice exporter. In 2008, it exported 4.7 million tons, becoming the world's second largest rice exporter after Thailand. Indeed, Vietnam's exports were instrumental in stemming the threat of a severe international food crisis in early 2008.What impresses most, however, is the continuous high economic growth rate that Vietnam has recorded in the 20 years since the introduction of Doi Moi. Vietnam recorded average annual economic growth of 6.5 percent over that period, one of the highest rates among developing countries. And with annual per capita income of $1,000 in 2008, Vietnam was removed from the list of the world's least developed countries. The high economic growth rate in turn helped reduce Vietnam's poverty rate from 70 percent in the mid-1980s to 37 percent in 1998 and 19 percent in 2007.
If you read through that, you'd realize that Vietnam didn't wait until all the Vietnamese were already ready for FDI. Instead, Doi Moi did what the 1987 Constitution framers failed to do! It's crazy how the 1987 Constitution of the Philippines was supposed to restore democracy, but failed in economics. Economist Andrew James Masigan wrote the following in the Philippine Star:
I would never undervalue the 1987 Constitution. It dismantled the legal framework of a repressive regime and established the democratic institutions we enjoy today. For this, I am grateful.
The 1987 Constitution was crafted with the best of intentions. It sought to put the Filipino first in all aspects of governance and to level the playing field amongst sectors and peoples. But it is far from perfect. It failed to consider the importance of foreign capital and technologies and the stiff competition we would have to face to obtain them. In short, its economic provisions were short-sighted.
So despite the Constitution’s patriotic bravado, reserving certain industries exclusively for Filipinos (or a Filipino majority) worked to our peril. It deprived the nation of valuable foreign investments, technology transfers, tax revenues, export earnings and jobs.
The Constitution’s restrictive economic provisions stunted our development for 36 years. From 1987 to the close of the century, Singapore, Malaysia and Thailand leapfrogged in development on the back of a deluge of foreign direct investments (FDIs). During that period, the Philippines’ share of regional FDIs lagged at a pitiful 3 percent in good years and 2 percent in normal years.
From the year 2000 up to the present, Vietnam and Indonesia took their fair share of FDIs, leaving the Philippines further behind. The country’s intake of foreign investments is less than half of what Vietnam and Indonesia realize. No surprise, our exports have also been the lowest among our peers. The lack of investments in manufacturing capacities have left us no choice but to export our own people.
Imbedded in the Constitution are industries in which foreigners are precluded. These include agriculture, public utilities, transportation, retail, construction, media, education, among others. Further, the Constitution limits foreigners from owning more than 40 percent equity in corporations. Foreigners are barred from owning land too. These provisions caused us to lose out on many investments which would have generated jobs, exports and taxes. Not too long ago, we lost a multibillion-dollar investment from an American auto manufacturing company that chose to invest in Thailand instead. We lost a multi-billion smartphone plant by Samsung, who located in Vietnam.
Sure, the Public Service, Foreign Investment and Trade Liberalization Acts were recently amended, allowing foreigners to participate in a wider berth of industries with less rigid conditions. But it is still not enough. The Philippines remains the least preferred investment destination among our peers.
Our flawed economic laws are the reason why our agricultural sector has not industrialized and why food security eludes us. It is also why our manufacturing sector has not fully developed. It is why we lost the opportunity to be Asia’s entertainment capital despite our Americanized culture (Netflix located its Asian headquarters in Singapore, Disney in Malaysia, MTV in Hong Kong and Paramount Studios in Taiwan). It is why our education standards are among the lowest in the world. It is why many industries are oligopolies owned by only a handful of families.
As for the form of government, I am willing to give the federal system a chance. Let’s face it, the current presidential system fails to provide the checks and balances for which it was intended. Senators and congressmen still vote according to party lines, albeit in a much slower legislative process. So yes, I am willing to try a new form of government because 36 years of insisting on a flawed system is insanity.
The world has changed since 1987. Our Constitution must keep up with these changes if we are to be competitive. This is why I support Charter change, except in the extension of term limits of public officials.
Those still praising the 1987 Constitution to be the "best in the world" (which is false, because Article XVII definitely gives it room for amendments) need to check the irony that a Communist country actually saw the benefits of an open economy. That's why I even wrote a post that Kabataan Partylist should learn economics from the Ho Chi Minh Communist Youth Union.
Checking Vietnam's FDI investment history
The Braumiller Law Group, PLLC, International Trade Law cites this:
The Formation and Infrastructure of Vietnam’s Manufacturing Sector
During the Doi Moi reform policies, the state implemented development zones within the country to promote economic growth by attracting foreign direct investment that was designed to provide preferential governmental policies and incentives to foreign investors setting up shop in certain geographical regions in Vietnam. During the initial stages in the formation of the development zones, some considered it a social experiment to desperately alleviate Vietnam’s economic crisis at the time. In 1991, the first economic zone was built in Ho Chi Minh City, and by 2019, there were 343 industrial zones and economic zones established in the country. In 2020, Vietnam received $28.53 billion (USD) of inbound foreign direct investment, which was a significant drop of 25 percent from the previous year due to COVID-19. In 2021, the country received $19.74 billion (USD) in foreign direct investment due to the major lockdowns in Vietnam surrounding the pandemic. Three decades later, after the implementation of the Doi Moi reform policies in 1986, and attracting foreign direct investment, the Vietnamese government decided to take a step further to propose and hopefully legitimize their special economic zones (SEZs) plan.
On May 23, 2018, the majority of parliament members agreed upon this draft SEZ law that would allow the establishment of three strategic areas of special administrative and economic units with their own special incentives and fewer restrictions to entice more foreign capital, as well as foster more rapid growth in the economy. Furthermore, there were no significant differences from the already established rules and regulations on the existing development zones, however, there was one important catch on the proposed draft law, and that was allowing foreign investors a 99-year land lease. On June 9, 2018, the National Assembly decided to postpone passing the bill to the National Assembly for a final decision in October 2018, as it needed more time to ensure that this SEZ route would be in the best interest of both legislators and the public. As the meetings were taking place at the National Assembly from June 9 to June 11, 2018, this controversial legal draft caused a stir among the Vietnamese people who adamantly protested claiming that this new plan to establish special economic zones would be dominated by Chinese interest. Perhaps the SEZ would never come to fruition as this was not the first time Vietnam had tried to establish these special economic enclaves.Vietnam had implemented the first SEZ law in 1979 but it was later terminated in 1991 due to its economic ineffectiveness. Furthermore, it had been proposed again in 1994 but it never panned out due to lack of budget and political constraints at the time. In hopes of the third time being a charm, the approval and ratification of the SEZ law had been delayed and was supposed to be implemented in May 2019, but unfortunately, due to its controversial nature, it has been put on the backburner, and as of today, it still has not been passed by the National Assembly.
Currently, the industrial zones and economic zones are regions within the country where the government has designated land for the specific purpose of the production of industrial goods and services. Vietnam’s industrial zones and economic zones established throughout the country are categorized by three administrative regions that include: the Northern (North Key Economic Zone [NKEZ]), Central (Central Key Economic Zone [CKEZ]), and Southern (Southern Key Economic Zone [SKEZ]). Each region has its own characteristics, as well as offering incentives and a barrier-free environment to promote economic growth by attracting foreign investment for export-oriented production. The NKEZ is within close geographic proximity to China and appeals to companies looking to transplant their manufacturing operations from China to Vietnam, especially with the convenience of importing goods when it is known to cost significantly less when shipping by sea routes. The CKEZ includes economic activities relating to light industry projects and food processing, and it is also known for its marine economy. The SKEZ has the most robust economic activities and is home to the first economic zone that was built in the bustling city of Ho Chi Minh. It makes sense that it is considered the leading hub in the industrial development which includes commerce, exports, technology, services, telecommunications, and traditional sectors such as rubber, plastics, textiles, and apparel. It also attracts the highest foreign direct investment compared to its Northern and Central counterparts. Vietnam’s development zones are divided into two categories, industrial zones (IZs) and economic zones (EZs). The IZs are further classified into different types of zones, which are export processing zones, supporting industrial zones, and ecological industrial zones. The EZs are further classified into coastal EZs and border-gate EZs.
These industrial zones and economic zones are specifically reserved to encourage domestic and foreign investment and each zone serves its own agenda with its own special incentives. With all of the new developments in manufacturing in Vietnam in recent years, one key component to the success of an industrial zone or economic zone is having a good infrastructure that makes the moving and trading of goods efficient, as the proximity to key destinations such as airports, borders, major cities, main highways, and seaports are things to consider. In the SKEZ, the government is currently building three more highways, which are scheduled to be completed by 2025, that will make the transporting of goods more efficient between the key industrial areas in the region. Samsung for instance, opened an assembly plant which is the company’s biggest production base in the world located in the Yen Phong Industrial Zone in Bac Ninh Province and Thai Nguyen Province in the Northern region, and helped finance the highway to help workers migrate. Due to the trade war, in 2017, Vietnam invested approximately $11 billion dollars in construction projects towards the development of infrastructure, especially the Hai Phong Port, which happens to be the leading seaport in Northern Vietnam and was initially built in 1874 by the French during the period of French Indochina. Due to its geographical proximity to China, the Hai Phong Port is ideal for importing goods to manufacturers in Vietnam that are dependent on Chinese suppliers. According to the Vietnam Maritime Administration, the country currently has 44 seaports in total with an annual capacity to hold 470-500 million tons. Let us do the math. If a standard 40-foot container can accommodate around 25 to 30 tons; an average cargo ship around 700 feet long can carry approximately 1,000 of these 40-foot containers; that would be a total carrying capacity of about 25,000 tons; therefore, these seaports can accommodate an annual total of 18,800 – 20,000 700 feet long cargo ships. Additionally, that total number of cargo ships does not include the smaller ports that are dispersed throughout the 3,260 km coastline of Vietnam bringing the number of ports in the country to 320 total. In short, the goal of these zones is to provide foreign capitalists a range of special economic and administrative privileges to attract foreign investment, however, these industrial zone and economic zone developments have ultimately fostered the “factory-driven” economic growth indeed, but not necessarily economic development to benefit the country holistically.
Vietnam’s Major Trade Partners
Vietnam has experienced a high rate of economic growth over the last two decades and that trade has been a major contributing factor in the structural transformation and development of the country’s economy. Without the country’s trading partners and foreign direct investment that saw its economic potential, Vietnam would still very much be an underdeveloped agrarian society. During these last two decades, Vietnam has earned its status as a country that has become an important exporter in electronics, with electrical and electronic products being the top exporting goods surpassing coffee, textiles, footwear, and rice. It is a no-brainer that the United States is the leading country of export. Following the United States, the main exporters come from China, Japan, South Korea, Hong Kong, Germany, and the Netherlands. Although the United States may be the top country of export, the United States falls behind other Asian countries such as China, South Korea, Japan, Taiwan, and Thailand as the main country of import, but is still the leading as a Western trading partner beating any other countries in the European Union. In terms of foreign direct investment, several U.S. businesses have invested into Vietnam, showing their commitment, and realizing the country’s potential. Some of the major and noteworthy U.S. companies with manufacturers currently in Vietnam are Williams-Sonoma, Restoration Hardware, West Elm, Nike, Adidas, Puma, Lululemon, Gap, Apple, Intel, and Microsoft. In addition to that list, we will include a few more U.S. companies that have facilitated the United States and Vietnam to become major trading partners and crowning the United States as Vietnam’s top exporter.
Qualcomm is an American multinational corporation that engages in the development, design, and provision of digital telecommunications products such as semiconductors, software, and services related to wireless technology. In 2020, Qualcomm set up a facility in the Northern region in the city of Hanoi due to the trade war with China. This facility is an R&D lab consisting of three different sub-facilities that are used to develop new cellular technologies and provide testing services to domestic manufacturing partners. In 2019, U.S.-based Universal Alloy Corporation (UAC), a manufacturer of aircraft components for aerospace companies such as Boeing and Airbus, as well as supplying components to Embraer, Bombardier, and their associated supply chains, made an investment of $170 million (USD) and established its new facility at the Da Nang Hi-Tech Park. The factory officially opened in 2020 and produces 4,000 of the five million parts used in today’s commercial aircraft with exports mostly to North America and Europe. Additionally, UAC Vietnam also supplies fuselage components for Boeing 787, 777, and 737 aircraft and engine parts to Rolls Royce with an ambitious goal to target exports of $85 million this year and $180 million from 2026 onwards. Hasbro, Inc. is an American multinational toy and board game company, and is one of the largest toy makers in the world and the maker of popular board games such as Monopoly and Scrabble. The majority of its products are manufactured in East Asia, and as of 2020, this includes Vietnam.
Rubber is one of the greatest natural commodities in the world and Vietnam is the third-largest rubber producer in the world and in 2020, the United States was the largest country of export followed by Japan, China, South Korea, and Germany. Historically, Vietnam has always been known for producing rubber especially under the French Indochina period where large rubber plantations existed. It is no surprise that Vietnam is one of the leading countries producing rubber and manufacturing sports shoes since the soles are made from rubber. Vietnam currently manufactures famous American brands such as Nike, Adidas, and Puma. Aleron Vietnam Footwear Co., Ltd. is a footwear manufacturing and processing company based in Thanh Hoa Province located in the Northern region and is among the fastest growing with over 9,000 employees. The company manufactures millions of shoes every year, sports shoes specifically, and their largest customers are Puma, Clarks, and other U.K. and U.S.-based companies. VinFast, a Vietnamese manufacturer producing electric SUVs, has recently announced that it will build a factory in North Carolina this year. Vietnam’s ambition in the automotive sector looks promising and will put the country on the map in the future as a leader in automaking and further strengthening the United States and Vietnam as trade partners.
Currently, Germany is the largest E.U. trading partner with Vietnam and a German multinational automotive corporation, Daimler AG, is one of the world’s leading car and truck manufacturers. Daimler AG currently has a factory in Ho Chi Minh City that assembles various Mercedes-Benz models from CKD kits, and in 1996, the first car assembled by Mercedes-Benz Vietnam was an E-Class. Peugeot is a French brand automotive company and opened a factory in 2019 in the central province of Quang Nam through joint venture with Truong Hai Auto Corporation (THACO). The powerhouse factory was designed with a total capacity to produce 20,000 Peugeot cars per year for domestic use as well as export, and in 2013, also began exporting locally manufactured Mazda cars, accessories and spare parts, semi-trailers and special purpose vehicles to Columbia, South Korea, Malaysia, Russia, Kazakhstan, Laos, Myanmar, and Cambodia. While Germany may be the largest E.U. trading partner, the Netherlands comes second as the largest E.U. trading partner of Vietnam with Dutch companies such as Heineken, Damen Shipyards, Philips, and Friesland Campina that have been investing and doing business in Vietnam for many years.
It is no surprise that China is the biggest trade partner of Vietnam in Asia considering the fact that the country does rely on China for sourcing materials for the manufacturing of garment, footwear, and smartphones. Aside from imports, Vietnam main exports to China include smartphones, computers, machinery, wood, and cotton yarn, as well as Vietnamese fresh fruits and fish as China is the biggest export market of Vietnamese agricultural and seafood products. Due to the Regional Comprehensive Economic Partnership (RCEP), the largest free trade agreement in history among the Asia-Pacific nations that officially took effect on January 1, 2022, eliminating 90% of the tariffs between the signatory countries, Southeast Asia is now one of Vietnam’s largest export markets after the United States, the E.U., and China. The predominate Vietnamese exports to Southeast Asia include agricultural products, mobile phones, electronics, steel, machinery, vehicles, textiles and garments, and crude oil.
As I cite this, nothing in Vietnam's own history would suggest that it developed out of isolation before opening up the economy to FDI. Instead, it pursued national industrialization by accepting FDI. More importantly, the Constitution of Vietnam of 1992 is pretty silent when it comes to economic restrictions. That's a far cry from what the democratic 1987 Constitution of the Philippines did! The 1987 Constitution could've had more advantages than Vietnam if it were both democratic and economically free. Ironically, the more democratic Philippines still holds the idiotic Filipino First Policy to a T. Even stupider, we have people who treat the 1987 Constitution of the Philippines as "inviolate", maybe because some Damaso priest from the Catholic Bishops Conference of the Philippines told them so (read here)? The CBCP has proven to be a huge obstacle to educating Filipinos about progress. I wonder if people like Socrates Villegas (its former president) can see the contradiction when they welcome a foreign priest to their parish, but would object if FDI came to offer jobs to Filipinos, without the 60-40 arrangement.
Vietnam took the advice that the Philippines rejected when it came to economic policies
Now, we need to take a look at how Vietnam was during the isolation period vs. during the opening. It's because I certainly didn't read LKY telling Vanh Linh, "You should enrich Vietnam first before you open to FDI." Singapore didn't do that, and neither did Vietnam. How ironic is it that a country ruled by the CPV in a one-party state (until today) has more brains than the Philippines!
Even more, LKY highlighted his meetings with Do Muoi. On page 315 of From Third World to First, we can read the following:
They were still communist in many ways. Kiet was noncommittal after the discussions we held int he morning and afternoon of the first day. Immediately after these two meetings, I was taken to meet the Communist Party general secretary, Do Muoi, who had been briefed on the contents of the two discussions in the 20 minutes that elpased from my meeting with the prime minister. Kiet must have got the nod after my meeting with Do Muoi because that night, in his dinner speech, he picked up a point I had made, on which he had earlier been noncommittal, that Vietnam should not have too many international airports and seaports, but should concentrate on building one big international airport and one big international seaport so that they could be included in the world network of airports and seaports.
We discussed their loss-incurring state-owned enterprises (SOEs). They wanted to privatize them or sell them off to the workers and others. I explained that this method would not proivide them with what was critical--efficient management. Singapore Airlines was 100 percent government owned, but it was efficient and profitable because it had to compete against international airlines. We did not subsidize it; if it was not profitable, it would have to close down. I recommended that they privatize their SOEs by bringing in foreign corporations to get an injection of management expertise and foreign capital for new technology. A change in the management system was essential. They needed to work with foreigners, to learn on the job. Privatization within the country by selling to their own people could not bring about this result.
LKY never told Do Muoi, "You have to wait until the Vietnamese are ready to be businessmen. You have to enrich Vietnam before you open to FDI or they'll exploit you!" Instead, LKY told them that the CPV had to invite over FDIs, even work with foreigners. Privatization was definitely never enough. There was the need for competition--which would force people to either innovate or perish! LKY spoke from experience when he had to doeal with insolent economists of his day. As LKY wrote on page 57-58 of From Third World to First:
After several years of disheartening trial and error, we concluded that Singapore's best hope lay with the American multinational corporations (MNCs). When the Taiwanese and Hong Kong entrepreneurs came in the 1960s, they brought low technology such as textile and toy manufacturing, labor-intensive but not large-scale. American MNCs brought higher technology in large-scale operations, creating many jobs. They had weight and confidence. They believed that their government was going to stay in Southeast Asia and their businesses were safe from confiscation or war loss.
I gradually crystallized my thoughts and settled on a two-pronged strategy to overcome our disadvantages. The first was to leapfrog the region, as the Israelis had done. This idea sprang from a discussion I had with a UNDP expert who visited Singapore in 1962. In 1964, while on a tour of Africa, I met him again in Malawi. He described to me how the Israelis, faced with a more hostile environment than ours, had found a way around their difficulties by leaping over their Arab neighbors who boycotted them, to trade with Europe and America. Since our neighbors were out to reduce their ties with us, we had to link up with the developed world-America, Europe, and Japan-and attract their manufacturers to produce in Singapore and export their products to the developed countries.
The accepted wisdom of development economists at the time was that MNCs were exploiters of cheap land, labor, and raw materials. This "dependency school" of economists argued that MNCs continued the colonial pattern of exploitation that left the developing countries selling raw materials to and buying consumer goods from the advanced countries. MNCs controlled technology and consumer preferences and formed alliances with their host governments to exploit the people and keep them down. Third World leaders believed this theory of neocolonialist exploitation, but Keng Swee and I were not impressed. We had a real-life problem to solve and could not afford to be conscribed by any theory or dogma. Anyway, Singapore had no natural resources for MNCs to exploit. All it had were hard-working people, good basic infrastructure, and a government that was determined to be honest and competent. Our duty was to create a livelihood for 2 million Singaporeans. If MNCs could give our workers employment and teach them technical and engineering skills and management know-how, we should bring in the MNCs.
This was spoken to Communist Vietnam, by experience! Communist China ironically began to be more open to FDI under the rule of Deng Xiaoping. Despite the Tiananmen Square controversy, Deng was still regarded as a great economist. China stopped trying to do everything on its own and followed a more pragmatic approach. I might even dare say that the reason why the Tiananmen protests failed and the EDSA Revolution succeeded was due to economic power. The Chinese military had become so empowered that there may be no reason to turn against the government.
Meanwhile, the Philippines was practically bankrupt in 1986! Why should the military side with an already bankrupt government? The CPV took the lesson by heart--something that the CPV (and its sympathizers, which also include alleged legal fronts, such as Makayaban Bloc) failed to do! What do you expect from a group of Flor Contempion Crybabies (read here)?
Why I could trust LKY is because the testimony is from Singapore. LKY could talk and talk all he wants but if the results say otherwise, why should I take his word for it? Why should I take the words of Mahathir Mohamad or Kishore Mahbubani if the results don't say it? Malaysia's successful federal-parliamentary implementation speaks volumes against Atty. Hilario G. Davide Jr.'s advice (read here). LKY's advice to Vietnam was well taken. In fact, it's weird, but LKY saw more potential in Communist Vietnam, despite his biography stating he was warring against Communists in his country. Communist Vietnam adopted this approach to attract FDI, even when it was still a poor country, which ultimately led to its economic growth.
This should serve as a heavy lesson
Vietnam is now overtaking the Philippines, despite its status as a Communist country. It's because Vietnam has also given up on achieving "real Communism", which is a moneyless and stateless society. Without money, there would be no purchasing value for purchasing. Without a state, there would be no instructions on how people would live, and we need rules to keep society in order. Karl Marx's fantasies would be overriden by stuff like Vladimir Lenin's New Economic Policy and Doi Moi in Vietnam.
The Philippines can never say, "But we're the first democratic republic in Asia. We restored democracy, and Vietnam is a dictatorship. The Philippines has no gulags and Vietnam has them." Please, why do you think FDIs went to China under Deng's rule? I doubt that Deng got rid of the gulags when he opened China. I doubt Vanh Lin and Do Muoi got rid of the gulags. The real issue is that Vietnam, as mentioned earlier, has zero economic restrictions within the constitution. It means if a wrong economic policy was passed, it can be revoked with another law. Meanwhile, the Philippines must need to have a constitional assembly, even before any economic restriction can be enforced or removed!
It doesn't matter how the Philippines can brag of being a bastion of freedom. Please, relying so much on the EDSA Revolution of 1986 isn't helping! That's why I wrote an article where I mentioned relying on EDSA can make the Philippines end up like Nokia. It doesn't matter how much the Philippines can keep singing the song "Magkaisa" (Let's Unite) if it doesn't do anything about its lousy economic policies.
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