The Socialist Market Economy in China, Vietnam and Laos: A development model to embrace?

By Jo Inge Bekkevold, Arve Hansen and Kristen Nordhaug

China, Vietnam and Laos have for three decades been among the fastest growing economies in the world. In other words, three of the best growth performers in global capitalism are authoritarian states led by communist parties with socialism as the official development goal. This fact has received surprisingly little attention, especially when considering their strong performance on a wide range of development indicators. Many claim China and Vietnam indeed represent some of the most impressive “development success stories” the world has seen in recent decades. The three countries claim to have found their own model of development combining a market economy with socialism – ‘the socialist market economy’. According to official definitions, this is not capitalism, but a more sustainable and socially just way of making a market economy work for national development and the improvement of living standards. In The Socialist Market Economy in Asia: Development in China, Vietnam and Laos, an edited volume newly published by Palgrave Macmillan, we engage with the coherence, achievements and failures of this particular development model.

Development success stories?

Extreme levels of growth over four decades has seen China emerge as a global economic superpower, but all three countries have achieved astounding growth rates. During the three decades of 1989-2018 China had an average annual GDP per capita growth of 8.4 percent (Figure 1). This was the third fastest growth of the countries listed by the World Bank. Vietnam ranked as number five with 5.4 percent average growth, and Laos ranked as number six with 5.1 percent average growth.[1]

Figure 1: Annual GDP per capita growth: China 1978-2017, Laos/Vietnam: 1985-2017

Source: data.worldbank.org

While the three countries have seen relatively similar growth trends, they differ significantly on other development indicators. Take poverty reduction, where China and Vietnam represent a kind of uncrowned world champions. China’s success story is now estimated to have lifted 850 million people out of poverty since the market reforms began, while Vietnam’s development has seen more than 45 million people escape poverty in the first two decades of the 2000s alone. Laos has halved poverty over the last 20 years, but are still lagging behind its socialist neighbours.

That said, even though China and Vietnam are more obvious “success stories” than Laos, all three perform better than countries at similar level of income per capita on a wide range of social and material development indicators (table 1). In fact, China, Vietnam and Laos were all among the top ten fastest climbers upwards on the UN Human Development Index over the 1990-2015 period.

Table 1: Measuring development in the socialist market economy

 China 1990China 2017Vietnam 1990Vietnam 2017Laos  1990Laos 2017
GDP/capita/PPP (current international $)98716,8079396,7751,1037,023
Absolute poverty (% of pop below 1.90 USD)66.60.7 (2015)52.9 (1992)2 (2016)32.2 (1992)22.7 (2012)
Human development index0.5020.7520.4750.6940.4000.601
Infant mortality (per 1000 live births)42.183716.7106.148.6
Maternal mortality (per 100,000 live births) 2015 numbers972713954905197
Literacy (adult total, ages 15 and above)77.895 (2010)87.6 (1989)93.5 (2009)60 (1995)58 (2011)
Access to electricity (% of pop, 2016)92.210074.110015.387.1

Sources: World Development Indicators and Human Development Index

With a definition of developmental success focusing on economic growth, poverty reduction and increased living standards, China and Vietnam represent development success stories, and Laos does to some extent. If we factor in political freedom and environmental sustainability, the three cases are obviously less successful. Rapid economic growth has taken a heavy toll on natural resources and the environment in all three countries and climate change and natural disasters threaten to undermine development. And while many have long waited for a softening of the grip of the regimes alongside increasing affluence, a growing number of reports argue that particularly China – but also Vietnam and Laos — has rather become more rigidly suppressive in recent years.

Furthermore, inequality has increased in all three countries during the reform period. In China, the average Gini coefficient for the 2010-15 period at 42.2 was slightly higher than that of the United States, which has the highest inequality of the OECD countries. While income is distributed more evenly in Vietnam and Laos, their performances are also wanting. The elites in all three countries have accumulated significant amounts of wealth and power. Moreover, there are obvious and stark inequalities between ethnic majority and minority populations, and ethnic minorities are grossly overrepresented in poverty statistics in all three countries.

A distinct and coherent development model?

The ‘socialist market economy’ is a distinct development model, in the sense that it represents communist regimes introducing market reforms. China, Vietnam and Laos all share a communist legacy of economic planning, collectivization of agriculture, and dominant state-owned enterprises. All three countries introduced market reforms in the 1980s, with Gaige kaifang (‘Reform and opening up’, 1978/79), Doi moi (‘Renovation’, 1986) and Chin Thanakaan Mai (‘New Thinking’ or ‘New Economic Mechanism’, 1986) representing the official starts of economic transformations respectively in China, Vietnam and Laos.

The state continues to play central roles in all three countries. Large and politically favoured state-owned enterprises are testimony to their socialist legacy, although the role of these enterprises has diminished. Many have compared the socialist market economy, and particularly China and Vietnam, to the Asian developmental states. Others have located processes of neoliberalisation, some even claiming these three communist regimes are now neoliberal. We regard it as more accurate to see these three regimes as combining elements from (neo)liberal and statist development strategies. They are far too statist for the neoliberals and too liberal in economic terms for the developmental state proponents.

What about social policies? Again, the story is mixed and complex. On the one hand, the socialist ideals seem as far away as ever as public services are privatized and inequality increasing. On the other hand, these three countries have achieved a development path that is more inclusive, broadly understood, than most other comparable countries.

The model does seem to have an increasingly strong urban bias. From its peasant roots, and despite very large parts of the population in all three countries residing in rural areas[2], it seems the ‘modern and civilized’ societies now envisaged by the communist regimes is of a more urban character. Indeed, the ‘New Socialist Man’ of contemporary China, Vietnam and Laos appears to have changed, and perhaps been replaced by an urban, middle-class, ‘socialist consumer’.

Even though the ‘socialist market economy’ is distinct, it is coherent only to a certain degree, with significant variations between, and within, the three countries. For instance, China, Vietnam and Laos have to different extents been able to take advantage of their latecomer position. China attracted large foreign investment, especially in its export industry sector, but it has also managed to develop a strong domestic industry sector and is moving towards high-tech. Vietnam has faced a ‘stalled transition’ and has mainly been able to develop a FDI-led labour-intensive industry sector, which to a large extent depends on foreign technology. Laos is in this regard the odd one out. It remains a largely agrarian and resource-exporting economy without significant industrial development.

A model to embrace?

With Xi Jinping at the 19th Party Congress in 2017 claiming that China is ready to take on the role as model for other countries, it is now more relevant than ever to take a closer analytical look at the socialist market economy construct. During the global financial crisis in 2007-2009, Beijing refrained from engaging in the debate about whether the so-called China Model was more sustainable and development friendly than the market-liberal Washington Consensus. The leadership of Xi Jinping is less modest. On several occasions, Xi has suggested that other developing countries can adopt China’s growth model. In a world in dire need of new role models, can the Asian ‘socialist market economies’ provide a realistic alternative for other developing countries? If Beijing is now willing to put money and resources into ‘exporting’ its development model as part of an expanded south-south dialogue, the socialist market economy model must be taken seriously.

The model holds important ‘lessons-to-be-learned’ for other states, but due to its distinct characteristics as well as the local variations between China, Vietnam and Laos, the socialist market economy does not represent a model easily transferred and copied to other states. Moreover, the socialist market economy is a product of a unique period, representing communist states shaped by the Cold War, adapting to the forces of globalization and the liberalisation of trade and capital flows. Nonetheless, China, Vietnam and Laos are excellent illustrations of the growth potential of the combination of global and regional economic integration and a state geared towards development through pragmatic reforms. At the same time, they are also illustrations of the human and environmental cost embedded in both capitalist production systems and authoritarian Leninism.

Jo Inge Bekkevold is senior adviser at the Norwegian Institute for Defence Studies. He is a former diplomat with postings to China and Vietnam.

Arve Hansen is a Postdoctoral Fellow at Centre for Development and the Environment, University of Oslo. @HansenArve

Kristen Nordhaug is professor of development studies at the Department of International Studies and Interpreting, Oslo Metropolitan University.


Notes

[1] Calculated based on data.worldbank.org. Equatorial Guinea had the highest average growth (13.0 percent), Bosnia and Herzegovinia the second highest growth (8.4 percent) and Myanmar the fourth highest growth (7.4 percent).

[2] In 2019, according to World Bank Data, the rural share of the total population was 39,7% in China, 63,3% in Vietnam and 64,3% in Laos.

Photo by Dirk Spijkers/Unsplash

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