Vietnam: really making poverty history

December 15, 2008

     By Duncan Green     

Today is ‘Blog Action Day’ (no, really) and this year’s theme is poverty, so I thought I’d write about a success story. Viet Nam, where I attended a conference last week, is arguably the greatest poverty reduction triumph of recent decades, changing so fast that it is actually visible, even to the casual observer.

Crossing the road for instance. In the four years since I last went there, the streets of Hanoi have been transformed from a mass of pushbikes, dotted with motor bikes and the occasional car, to a cacophony of mopeds, scooters and cars. Only students and old people pedal pushbikes these days. This matters to the visitor because in Hanoi there are no breaks in the traffic: if you want to cross the road, you are advised to walk calmly out into the maelstrom, with ‘no sudden movements’, and trust in the traffic to magically part and flow around you. In the silent swirling sea of pushbikes, there was something quite zen about this bizarre exercise. Today it’s just plain terrifying.

Time for some numbers. According to Dr Nguyen Thang of the Vietnamese Academy of Social Sciences, poverty has fallen from 58% in 1993 to 16% in 2006. Urban poverty is down from 25% to 4%, rural from 66% to 20%. Read those numbers again – astonishing. One of the largest remaining pockets of poverty is Viet Nam’s ethnic minorities, half of whom still live below the poverty line (although even there, that is down from 86%).

Part of the secret is that Viet Nam’s highly effective state has outshone even China in its ability to achieve high levels of growth without increasing levels of inequality (for the techies, the gini coefficient has barely shifted from 0.34 in 1993 to 0.36 in 2006). That means poor people have really shared in the benefits.

Dr Thang did find some things to worry about though. At the extremes (the top and bottom deciles) inequality between the very rich and the very poor is rising sharply and is very visible, prompting a good deal of national debate. He thinks growth is becoming less pro-poor as it runs up against a hard core of chronically poor people who need a different approach, more reliant on state action, e.g. improved social protection, than through market-based growth (an argument mirrored in this year’s Chronic Poverty Report). A social protection-style focus on vulnerability is also needed for the large number of people who live just above the poverty line, and are particularly vulnerable to shocks (one of which is climate change, which could pose serious threats to large parts of the country). More broadly, he believes that as society becomes more complex and heterogeneous, the impacts of any given policy are more varied – ’20 years ago, good policies benefited everyone. No longer.’ Hence the increased importance of compensatory policies and safety nets.

Where next? Dr Thang pointed out that Viet Nam will become a middle income country in the next couple of years, and laid out some typically middle income challenges, such as creating a universal social protection system, extending health insurance to the uncovered 50% of the population (for example the hard-to-reach informal sector), developing the private sector, especially small and medium enterprises (which also need to be persuaded to migrate from the informal to the formal economy), and making tax policy more progressive, for example through a property tax.

Will the global financial meltdown destroy all this? He saw little direct impact – Vietnamese banks have not bought dodgy subprime-based products, and Viet Nam’s low value exports of shoes, garments and electronics should be relatively recession-proof, but he is worried about what he called the ‘psychological impact’ on foreign investors.

When the World Bank did its amazing ‘Voices of the Poor’ exercise in the late 1990s, Viet Nam was the only country out of 23 where people broadly thought their lives were improving. On the admittedly superficial basis of a 3 day visit and Dr Thang’s presentation, that looks likely to continue.


December 15, 2008
Duncan Green