Vietnam’s ‘cheapness’ is hurting future generations

By Nguyen Dang Anh Thi   February 3, 2019 | 08:27 pm PT
Cheap labor and resources may attract foreign investors, but the nation and its people benefit little.
Nguyen Dang Anh Thi

Nguyen Dang Anh Thi

Among many comments made at and media coverage of last year’s World Economic Forum in Davos, one was striking for me: that Vietnam is attracting a lot more companies that want to leave China than the other seven emerging Asian economies because of its "cheap" labor and electricity.

Contributing to growth, paying taxes and creating jobs have been considered the achievements of FDI over the years in Vietnam. They were possible thanks to the "cheapness advantage" that Vietnam has long been promoting everywhere to attract investment.

But in reality there is something wrong with this narrative. And it's time to stop thinking that being cheap is the nation's advantage.

Three years ago I surveyed a Russian salmon processing factory in Long An Province in Vietnam’s Mekong Delta. Its business model was simple: import fresh salmon from Russia, process them into fillet, package and freeze the produce, and export all to Europe.

On average, to process a ton of salmon, they need 20 cubic meters of clean water and the processing generates about 800 kilograms of easily fermented solid wastes prone to rotting such as viscera, bones, fins, and scales, emissions and a fishy odor.

Looking at hundreds of workers covered from head to toe except for their eyes and doing manual works for hours in a freezing cold environment, I felt perturbed in that Russian factory. I didn’t even dare to talk to any of them for fear of breaking the stringent, robotic order that did not seem to tolerate human language.

"Why aren’t you processing in Russia or Europe to directly serve your market and instead work so far away like this?" The owner told me, "[Setting] up factories in Vietnam still generates higher profits because production costs, especially labor costs, are quite low."

Despite appreciating his honesty, we decided not to support this business because we did not want to enable similar businesses to enter Vietnam. Manual processing hardly creates any added value and there are zero opportunities for Vietnamese entities to partner these kinds of businesses in the supply chain.

There are thousands of similar businesses operating in Vietnam, and they are hailed as an FDI attraction. They are considered a machine running with cheap resources – cheap labor, cheap energy, cheap water, cheap air, and cheap land.

The "cheap" factor, as many surveys around the globe indicate, often comes with wasteful use and inefficiency and leads to degradation and depletion of resources. They also leave Vietnam with an environmental burden with wastes in various forms (e.g. solid, liquid, gas, etc.) that may not be adequately treated even as the country suffers a rapid depletion of clean water sources and a lack of skilled workers.

Laborers work at a Singapore-owned garment factory outside Hanoi, Vietnam. Photo by Reuters/Kham

Laborers work at a Singapore-owned garment factory outside Hanoi, Vietnam. Photo by Reuters/Kham

After juxtaposing the economic benefits and the invisible environmental and societal losses over a business’ 50-year investment cycle, would any national leader dare to assert that cheapness is a sustainable model?

The United Nations World Commission for Environment and Development (WCED) says: "Sustainable development is a development that meets current needs without compromising the ability to meet the needs of the future generation." This concept has long been regarded as a guideline for countries on the path to prosperity by formulating a combination of three legs: economic development, social development and environmental protection.

In addition, there is a clear similarity between the growth models based on raw resource exports and "cheap cost advantages" - two characteristics of Vietnam's economy - and they "compromise the ability to meet the needs of future generations."

Vietnam has had to import coal for the past few years after more than 120 years of exporting it. The old mines are showing signs of exhaustion. Forest resources and biodiversity continue to go down the hill. The mountains of garbage are growing higher and higher. The quality of water and air is getting worse and worse. Is any leader wondering what are we leaving future generations?

The cheap labourers cannot afford to have savings. You can visit workers’ housing near industrial parks to see the real meaning of the phrase "creating jobs" simply ends at meeting the most basic needs of people: meals for their belly and clothes to cover themselves.

Cultural, educational, health, and entertainment options for low-paid manual workers and their families, including future generations, are still a luxury. With the very low standard of living their parents are "benefiting from," how do we provide future generations with better education than their parents got?

At Davos, the "Global Competitiveness Index 4.0" report ranked Vietnam 77th out of 140 economies. Among the 10 Southeast Asian countries, Vietnam only surpasses Cambodia (110th) and Laos (112), and is 15 places lower than Brunei and 75 lower than Singapore. Singapore, the leading economy in Southeast Asia, ranks second globally.

The ranking is based on 12 criteria: institutions, infrastructure, application of information technology, macroeconomic stability, health of people, workers' skills, product market, labor market, financial system, market size, business dynamics, and innovation capacity.

It does not have any criteria related to "cheapness."

To improve national competitiveness, simply take a look at Singapore's successful model. They do not welcome salmon processing companies for export there and do not have cheap workers.

I still hear many leaders speak eloquently about "sustainable development for future generations" but it seems little more than memorized rhetoric.

Contemplating the reality of the economy, it seems that we are not doing that caring-for-the-future job.

*Nguyen Dang Anh Thi is an energy and environment specialist. The opinions expressed are his own.

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