For the state, letting cash cows go a difficult ask

By Nguyen Khac Giang   November 4, 2018 | 05:50 pm PT
Unless Vietnamese officialdom changes its eighties way of thinking, an effective market economy will stay beyond our reach.
Nguyen Khac Giang, a researcher

Nguyen Khac Giang, researcher

My parents used to work in a sugar factory subsidized by the government. Life was tough back then, even for workers employed by the government.

Businesses were not doing so well either. The factory sometimes had to pay its employees with its own products, like in a barter system. I remember how my parents used to bring tons of candy back home instead of a paycheck. Both of them had side jobs: selling things, welding things... whatever it took to help our family get by. But, sometimes, it still wasn’t enough.

In a desperate effort to help workers get enough money to survive, the factory invested a large sum of money to build an alcohol distillation tower that would use the byproducts of sugar making. It was felt that this would make the factory more competitive in Vietnam’s nascent market economy.

Unfortunately, the project messed up at some point, and the distillation tower became a useless piece of scrap. The factory shut down not long after. The whole factory area with its rusting structures became the favorite place for our neighborhood children to hang out. The tower was recently demolished to make way for a new road.

Earlier this year, the media was abuzz with news about how Sabeco, Vietnam’s leading government-funded beer maker was bought out by foreign investors. Habeco, another big shot in the industry, was also in negotiations to divest its state-owned equity. These firms were doing well without government inputs in terms of funding and management. A similar trend could be seen in other industries: sweets, milks, and even films.

The fact that the government was no longer interfering so much certainly helped firms expand their markets and made our businesses more competitive. There was also relief for the state budget. The state no longer had to worry about how well those businesses were doing, or about paying employees’ salaries, or expending resources to investigate misdeeds by the firms.

As obvious as these perks are, one cannot ignore how many of our policies don’t take societal cost-benefits into account. Over 10 years ago, the government created 12 government-funded corporations, hoping they would kick-start Vietnam’s economy. 

Dubbed the economy’s "iron fists," they only shot themselves in the foot, unfortunately, getting entangled in numerous scandals involving corruption, loans and bankruptcies brought to light in recent years.

At the same time, the privatization agenda was persisted with, even more intensely under former Prime Minister Phan Van Khai’s leadership from 1997 to 2006. 

An employee works in a cement factory in the northern province of Hai Duong, Vietnam. Photo by Shutterstock/Thi

A welder at a cement factory in the northern province of Hai Duong, Vietnam. Photo by Shutterstock/Thi

Right now, Vietnam has over 500 state-owned companies.

But there’s this, too. Companies may say they are equitized or privatized, but when over 90 percent of their shares belong to the government, what’s the difference?

Those behind these firms, including ministries and local administrations, just don’t want to give up their cash cows. An example would be the lottery industry, which generates a lot of money. It can’t be said that these are very good for social welfare or that private firms have no interest in them. 

But the existence of these firms not only constitute a conflict of interests, but also blurs the line between public and private businesses. 

Last year, residents of the southern province of Tien Giang voiced their disapproval over how local officials used money from the local, government-backed lottery firm to "study abroad."

It’s understandable that cash cows like lottery firms are hard to give up, but if we truly want an effective, functional market economy, with a strong base of private businesses, the Vietnamese government needs to look to the future instead of clinging to the past.

Furthermore, hastening privatization or tightening the law are only temporary solutions as long as our administration sticks to their eighties mode of thinking. 

Until this perspective changes, other towers will rise and be abandoned. 

*Nguyen Khac Giang is a Vietnamese researcher at the Vietnam Institute for Economic and Policy Research. The opinions expressed are his own.

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