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Vietnam Inequality Report 2005: Assessment and Policy Choices

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Vietnam Inequality Report 2005: Assessment and Policy Choices Vietnam Inequality Report 2005: Assessment and Policy Choices Mekong Economics Ltd. Synthesis Paper of the “DFID Drivers of Inequality in Vietnam” Project Third draft – September 18, 2005 http://www.mekongeconomics.com i This paper presents the results of a team of researchers including Scott Fritzen (team leader), Caroline Brassard, Bui Thi Minh Tam, Ngo Duc Huy, Nguyen Phuong Nam, Nguyen Minh Tuan, Adam McCarty and Vu Bich Thuy. The paper was written by Scott Fritzen and Caroline Brassard with background papers or written commentaries submitted by all team members (for a complete list of background papers, see Annex A of this report). A research Steering Committee, comprising Le Dang Doanh (Government Advisor), Jonathan Pincus (UNDP), Carrie Turk (World Bank) and Gita Sabharwal (DFID), played an active part guiding the team’s work, commenting on outlines and drafts, sharing works in progress and contributing data analysis. Excellent research assistance was provided by Hoang Thanh Huong, Nguyen Quynh Hoa and Zheng Ling. The team’s appreciation extends to the Steering Committee and to British DFID for funding this timely and provocative policy study. The opinions expressed in this paper are those of the authors; they do not imply endorsement by the sponsors of the research. ii Table of Contents Acronyms and Abbreviations ....................................................................................................................iv List of Tables ..................................................................................................................................................v List of Figures.................................................................................................................................................v EXECUTIVE SUMMARY........................................................................................................................vi The historical record and the state of inequality in Vietnam ...................................................vi Drivers of inequality in Vietnam.....................................................................................................vii What can be done?...........................................................................................................................viii Introduction...............................................................................................................................................1 Part I. A profile of rising inequality......................................................................................................2 Part II. Drivers of Inequality and Policy Choices............................................................................ 10 Driver # 1: Urban bias..................................................................................................................... 11 Driver # 2: State-sector bias.......................................................................................................... 17 Driver # 3: Unequal access to quality education at all levels................................................. 20 Driver # 4: Limited access to safety nets.................................................................................... 24 Driver # 5: Gender Bias.................................................................................................................. 27 Driver # 6: Multiple, reinforcing vulnerabilities of ethnic minorities ................................... 29 Driver # 7: Corruption and weak accountability mechanisms .............................................. 32 Conclusions............................................................................................................................................. 35 Annex A: Thematic Background Papers........................................................................................... 39 Annex B: Data Gathering for Policy-Making and Areas for Future Research......................... 40 I. Current Data Limitations ............................................................................................................ 40 II. Making Better use of existing data ........................................................................................... 41 III. Areas for Future Research Related to Inequality ................................................................ 43 References ................................................................................................................................................... 45 iii Acronyms and Abbreviations ABE Alternative Basic Education BMI Body-Mass Index CIEM Central Institute for Economic Management CPV Communist Party of Vietnam DFID Department for International Development DPI Department of Planning and Investment FAO Food and Agriculture Organization FDI Foreign Direct Investment FES Friedrich Ebert Stiftungking GDP Gross Domestic Product GSO General Statistics Office ICT Information Communication Technology ILO International Labor Organization IMF International Monetary Fund IPM Integrated Pest Management LSMS Living Standard Measurement Survey MoLISA Ministry of Labor, Invalids and Social Affairs NCFAW National Committee for the Advancement of Women NCSSH National Centre for Social Sciences and Humanities MDG Millennium Development Goal SIDA Swedish International Development Agency SOE State-Owned Enterprise UNDP United National Development Program VBSP Vietnam Bank for Social Policies VHLSS Vietnam Household Living Standard Survey VLSS Vietnam Living Standard Survey WTO World Trade Organization iv List of Tables Table 1. Poverty reduction, growth and inequality in Vietnam 1993-2003 ...................................3 Table 2. Net Enrolment Rates 1993-2002 ........................................................................................... 21 Table 3. Average annual out-of-pocket school expenditure per child as % of household annual non-food consumption expenditure, by expenditure quintile................................................... 22 Table 4. Access to Targeted Benefits in 2002..................................................................................... 25 List of Figures Figure 1. Gini Coefficient and GDP per capita over time, selected countries..............................4 Figure 2. Theil decompositions of inequality by region (panel a) and rural/urban (panel b).......6 Figure 3. Expenditure quintile as predictor of the access to prenatal care (Panel A) and malnourished children (Panel B) (1998)..........................................................................................................7 Figure 4. Per capita expenditure of top 1% and top/bottom 10% of households, 1993-2002 ..8 Figure 5. Poverty gap for ethnic Kinh and minorities, 1993-2002....................................................9 Figure 6. Provincial poverty rate (Panel A) and Public Investment Program expenditure per capita by province (1996-2000) (Panel B).................................................................................................... 13 Figure 7. The minority poverty trap: Selected figures ..................................................................... 30 v EXECUTIVE SUMMARY We are not afraid of shortage, only of distributing what we have unequally. President Ho Chi Minh This paper explores the tensions and opportunities surrounding Vietnam’s attempt to reach the goals of rapid economic growth while also being a Socialist “fair society.” It does so by looking at the phenomenon of inequality in the process of economic transition and development. The ultimate goal of this paper is to inform government policy choices – to examine how the actions of the government can have an impact, in a market economy context, on the achievement of equitable, balanced development. The historical record and the state of inequality in Vietnam There is inequality in every society, just as there is corruption in every society, and the policy challenge is how to minimize these negative phenomena whilst also maximizing economic development and modernization. The development experience of East Asia in recent decades has shown that this is possible. South Korea, Taiwan and even Indonesia have experienced rapid growth without a significant rise in social and economic inequalities. Yet inequality is high in the Philippines and has risen rapidly in China in recent years. Which way will Vietnam go? It is difficult to predict trends in inequality. The historical record shows that there is no ‘natural’ or necessary tendency for aggregate economic inequality to increase rapidly for countries at Vietnam’s level of development. Inequality is not strongly correlated across the globe to rates of economic growth or to levels of per capita wealth. There are, for example, rich countries with relative economic equality, and others with high inequality. The current level of aggregate economic inequality in Vietnam is moderate is one uses international comparisons. Decollectivization in the early phase of doi moi had an important positive impact on broadly based growth and equity. Vietnam’s most recent Gini coefficient (the most common measure of income inequality) places it 51 st out of 123 countries for which Gini coefficients are reported by the World Bank. Inequality is, however, rising, and the speed of the increase is as yet difficult to predict. But current levels and rates of increase of inequality are consistent with those experienced by China in the early 1990s, at the beginning of a period of
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