Vietnam’s transition from collectivism to Crony Capitalism brought a rampant
corruption within its administration.
Jeany Babe S. Soler
Central Mindanao University
A project presented to
Grace Galache
Politics and Governance in Southeast Asia
Department of Social Science
College of Art and Sciences
December 10, 2020
1st Semester
2020-2021
The transition economic of Vietnam from collectivism to Crony capitalism, had
showed a remarkable achievement for the country in the first 20 year of its
economic renovation. Crony capitalism was the result, after the government made
progress in promoting and developing the states relationship with the private
sectors. A hybrid state-private conglomerates that contains elements from the
bureaucracy, the Communist party and from the private sectors, created with the
sole purpose of promoting Vietnam’s development. However, in reality, it act as the
facilitator for the corruption and patronage that continue to cement intra-elite
alliances (Abuza, 2017). The Crony Capitalism becomes the primary form of
corruption in Vietnam. In 2011, the German-based Transparency International
Corruption Perceptions Index, Vietnam was ranked 112 out of 183 countries, the
greater the number the more corruption there is. The government, the elites and
the communist party all have hoarder money from the corruption, flowing in from:
electricity, the mining production, coal production, to public services, tax
administration civil society and resources. Vietnam’s transition from collectivism to
crony capitalism, may have pave the way for them in leading the way for economy
as a socialist state in Southeast Asia, but it also brought a rampant corruption within
its administration.
Vietnams sweeping reform resulted in a rapid economy growth, from a 6.9%
of annual growth of GDP accelerating up to 7.5% in year 2001-2005. According to a
study by Quan Hoang Vuong and Nancy K. Napier in 2012, shows that this fast
growth had consumed huge assets both from capital and from physical. Additionally,
they have also attracted an increasing in the foreign direct investment, which
amounted huge money by the end of 2012. The flood of foreign aid results in rent
seeking activities where the involvement of politicians in power may lead to
misallocation of resources as well as exclusion of other groups from the political
process (Djankov, Montalvo, and Reyal-Querol, 2005). Overtime, Vietnam’s
emerging economy reform appeared inefficient, physical and capital resources
appeared to be wasted as measure shown by the Investment-to-GPD ratio. The
country needs more scarce resources in order to finance growth, as the ration has
risen over three critical phase: 34.9% (1996-2000) to 39.1% (2001-2005) to 43.5%
(2006-2010). The SOEs, for instance, officially borrowed over $60 billion but created
a total market equity value of only $33 billion (Vuong, 2012). Other problems have
also emerged. The problem with regards to the finance growth generated a high
inflation, peaking at 23% in 2008, increases the reliance on credit. Monetary policy
tightened the market rate for credit to as high as 25% (Pham and Riedel, 2012).
Further, from early 2011 to the end of 2012, over Resource Curse or Destructive
Creation in Transition Page 4 100,000 (mostly private) enterprises declared
insolvency or quietly closed operations, accounting for between 15-25% of the
enterprise population (Vuong, 2012). By 2015, as stated by Vu-Thanh in 2017,
State Economic Groups (SEG) dominated by State-Owned enterprises, controlled
99% of fertilizer production, 97% of coal mining, 94% of electricity and gas output,
and 91% of the media. State control also allowed the Vietnamese Communist Party
to establish a state–party–business alliance through the distribution of benefits. SOE
managers formed a significant and influential constituency, as other sections of the
1980s’ administration were dismantled (Painter 2003). Well-connected state-owned
enterprises are allowed to run up massive debts while producing little useful,
dragging down the economy. Corruption, mismanagement and inefficiency at
state-run companies a pillar of the communist country's economy are seen as
fueling longstanding economic woes (Hays, 2014). By the mid-2000s, many
government officials had personal interests in SOEs, using SOE capital to fund their
own “backyard businesses” (Tran et al. 2016).Moreover, as of 2019, an evaluation
based on the data for 2019 and lists 179 countries, shows that Vietnam rank 100th in
the worldwide ranking of corruption.
In Vietnam, corruption occurs in deferent form and level, it may happen in
many areas, in many levels and industries in which, may have similarities and
differences in corruption in other countries. Corruption mainly happens in economic,
but since it’s a widespread phenomenon, it spread to other areas affecting those
that are considered as standards of morality, such as education, health, social
policy’s implementation, humanitarian issues, etc. Hoang Hai Yen added that,
sectors most affected by corruption in Vietnam are public administration; the
judiciary; the police; the health sector; education; environment, natural resources
and extractive industries; and land management.
In the area of management and natural resources such as lands, minerals,
some people are abusing the power and position while on duty. The complexity,
discretion and secrecy in the process of insurance of the land and projects
encourages corrupt behaviors. The abuse of power while in duty commonly
happened in infrastructure projects, as investors resort in bribery to land official in
exchange for privileges and expediting procedures.
In the area of capital construction investment, in which majority of project
end up with financial losses due to rampant corruption and violation of the law. This
usually occurred in early stages of the construction project such as in project
planning, design, cost estimate to bidding, supervision, construction, materials,
testing and finalization. In many cases, companies who commit fraud and lack of
transparency in the bidding use poor quality materials and equipment or use
unreasonable or improper methods and processes to reduce costs, failed to comply
with the capital construction investment.
In the field of banking and finance, many bank official, mainly in commercial
bank connive with outsider through lending’s, financial leasing, investment, loans,
etc.
One major problem of corruption in Vietnam, is in the area of management,
the misused of state funds and assets. A number of officials use public property for a
private purposes or convert state property to private property.
In addition to the above areas, Hoang Hai Yen added that corruption happens
quite commonly in the relationship between State agencies, public officials with
enterprises and individuals, such as with the traffic police, in education, in the health
sector, with tax officials and so on. According to the perceptions of Vietnamese
urban citizens, the police are perceived to be the sector most affected by corruption,
followed by education, public officials, the judiciary and the business sector
(Transparency International 2010)
A politicized or rigged financial system dub as crony capitalism, to
differentiate it from a system of free markets and limited government. It is the
deliberate, systematic use of public policy to rig markets in ways in which benefit
politically connected. Crony capitalism breeds political entrepreneurs and stifles
market entrepreneurs. By killing transparency and competition, it is harmful
to market economy, opportunity, and growth. By substituting special interests for
public interest, which may results in income inequality and therefore the middle-
income trap, the usually observed slowdown in growth that happens once
developing countries reach middle-income levels (Khatri, 2016).
Unless there is a study to the contrary, crony capitalism lower or reduces
corruption in Vietnam, then data as shown and studied as of now, are the only
available variable in the argument and facts. And data’s about Crony Capitalism
may it be in Vietnam or other countries with the same system, only shows Crony
Capitalism as the key to officials corruption, demise private ownership and sank
economy. In the beginning, it emerges as the key to improvement, development
and poverty solution, but the system is flawed, that encourages people with
power through bad behavior. According to the summary of a Transparency
International paper on corruption in Vuong, study in 2014: "In spite of
improvements over the past years, corruption is still considered widespread
throughout the country and Vietnam still lags behind other Asian countries in terms
of control of corruption and most governance indicators. Corruption affects different
sectors such as health, education, construction, land management as well as natural
resources and the extractive industries. The private sector is also affected by
cumbersome legislation, which provides both incentives and opportunities for
corruption.
Vietnam adopted an Anti-Corruption Law in 2005, in which criminalizes
several types of corruption, establishes asset disclosure requirements for
governmental officials, and whistle-blower protection. With institution created with
the aimed of fighting corruption now place , , including the Office of the
Central Steering Committee for Anti-Corruption, the Government
Inspectorate, the People's Procuracy, and the State Audit of Vietnam. The Law
on Anti-Corruption requires that heads or deputies of non-state enterprises be held
liable for corruption activities committed by employees or units/departments under
their management/supervision.9 Decree No. 59 gives each non-state enterprise the
right to regulate appropriate sanctions and disciplinary measures against heads and
deputies who allow corruption to occur within their enterprises (Nyugen & Quach,
2019). However, experts as well as the Vietnam Government, acknowledges that
even with this efforts have not brought the expected results, particularly due to a
large implementation gap and lack of enforcement. Additionally, as civil and
political freedoms are limited, the capacity of media and civil society
organizations to hold government accountable for its actions and decisions is
restricted (Martini, 2012).
Crony Capitalism opted by Vietnam, may have resulted in an economic growth
and development, but it also had cause rampant corruption in the administration.
Studies shows that with its economic growth comes with huge consumption of
capital. Crony Capitalism encourages corruption through its nature of system.
Moreover, since corruption is phenomenon widespread, even when occur mainly in
economy, it affects wide connected areas. Areas such as finance, management,
construction, etc. and even standard living morality are affected. Crony Capitalism
also add as the vehicle for public official for their private interest. The problem is
that Vietnam has gone straight from collectivization to crony capitalism with not
much in between. As recent scandals have shown all too clearly, corruption, vested
interests and waste run deep. It is far from clear that those who have benefited so
richly from the system have any incentive to dismantle it. If they do not, Vietnam’s
economic progress is likely to disappoint (Piling, 2013).
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