Globalisation, commonly adduced to describe the process of surging global interdependence alongside the enmeshment of various forms of capital such as values, ideas, money and people across national boundaries (Hurrell and Woods, 1995, p. 447). It has been acknowledged for successfully integrating product and financial markets across the globe through capital flows and trade (Zhang and Zhang, 2003, p. 47). This process has seen itself to be eminently beneficial to Asia, allowing countries such as Singapore, Japan and Hong Kong to reap lasting rewards in forms of investment flows, exchange of knowledge and rapid economic growth. Hence drawing from the liberal interpretation of globalisation, economic globalisation is the endorsement of international trade by opening up national trade boundaries and expounding on foreign direct investments to flourish the country’s economy (Hurrell and Woods, 1995, p. 448).
Looking beyond its perquisites on the holistic state economy, one of the central debates arising from the intensifying phenomenon of economic globalisation is its notable impact on income distribution and its persisting poverty at present (Zhang and Zhang, 2003, p. 47). Standing on polarised ends, liberals assert that globalisation ameliorates inequalities, claiming that the ongoing waves of globalisation since the 1980s has fostered economic equality and been triumphant in reducing poverty (Dollar and Kraay, 2002, p. 219). Meanwhile, critics of economic globalisation argue that the widening gap between the ‘haves and have-nots’ was and is caused by this sweeping phenomenon (Mazur, 2000, p. 79). Leaning on this understanding, I seek to strike a middle ground, bringing both understandings to a consensus. One proposing that economic globalisation will first benefit then bring detriment to economic inequalities and entrenched poverty cycles if proper infrastructures are not cast in stone.
In line with the aforementioned, this paper posits that economic globalisation is not the best strategy for reducing poverty and inequality. Following this trajectory, I will discuss in specifics, the effects of Vietnam’s economic reforms, specifically ??i M?i, on its economic landscape. With these reforms still taking place today, I will thus attempt to employ this paper as a platform to anticipate Vietnam’s future inequality and poverty as it propels itself towards an industrialised state by 2020 (World Bank, 2018). An example of Singapore’s expeditious integration into the first world globalised economy will be utilised as a reflection of Vietnam’s prognosticated industrialised nation, reinstating that economic globalisation will only benefit the poor and close gaps of inequality if protectionist policies are mounted to ensure the foremost wellbeing of its domestic markets.
??i M?i
??i M?i, which translates to ‘revolution’, was promulgated in 1986 and remained active till the late 1990s. This economic policy transpired from the sudden reversal of the Communist Party socialist policies to reform the central planning economy into a market economy (Freeman, 1996, p. 179). The transition predominantly sought to evince a ‘civilised and equitable’ society. Thus, its ideology crystallised itself in the form of trade liberalisation –– proactively engaging in the expansion of the private sector, removal of export restrictions, organisation of export processing zones, removal of export taxes and non-tariff barriers (Jenkins, 2004, p. 14).
Trade liberalisation, in essence, sought the increment of foreign direct investments to boost economic growth, convened as a method to sequentially improve productivity levels and raise living standards (Kimura, 1993, p. 51). We also witnessed power transfers, the state-owned enterprises who held a crucial role in the garment and textile output were brought to the spotlight. An adoption of a market-oriented economy hence empowered state-owned enterprises (SOEs) by enacting them as the nucleus of its network and economy, marking the start of Vietnam’s transition from a central planning to a market economy (Beresford, 2008, p. 225).
Result of ??i M?i
Attraction of Foreign Direct Investments. ??i M?i was the driving force of Vietnam’s rapid integration into the global market, seeing its share of exports rise from 24.9 per cent in 1994 to 47.5 per cent of its GDP in 2002 (World Bank Vietnam, 2003). Current export of goods and services (percentage of GDP) stand reported at 101.6 per cent in 2017, juxtaposed by 80.2 per cent in 2010 and 36 per cent in 1990. Inflation that helmed at 42.1 per cent in 1990 took massive turns and fell to 12.1 per cent in 2010, finding itself at 4.1 per cent in 2017 (World Bank, 2018). FDI inflow into following the ??i M?i soared from US$0.32 billion in 1988 to an estimated US$4.0 billion in 2005, revealing one of the world’s fastest annual growth rate of 28 per cent (Thoburn, 2004, p. 129). Eventually passing the tenth billion to achieve 14.1 billion in 2017 from its last reported date of 9.579 billion in 2008 (General Statistics Office, 2007; World Bank, 2018).
By looking at the numbers and focusing on the FDI, significant FDI was attracted from the entry of foreign firms that reverberated increased competition and diversified markets in Vietnam. The opening of barriers and markets introduced a redistribution of resources from ground-up that further enabled the state-owned enterprises to operate thus promoted development in both the rural and urban areas –– providing jobs to landless peasants and the urban underclass (Hainsworth, 1993, p. 190). The introduction of ??i M?i ushered FDI into the country that did not only inject the needed capital but entitled the expansion of private sectors. Economic growth, in this sense, can hence be highly determined by its FDI. However, these FDIs did not altogether benefit the country entirely and even more so in the long run.
The Dark Side of ??i M?i. Before explicating the negative effects of foreign direct investments on poverty and inequality, I would like to draw an explicit focus on Vietnam’s textiles and garments industry and its SOEs. Delineating an understanding by using its case to underline ramifications that can be illustrated as a cyclical chain of events. As a gauge of its industry size and involvement of institutions, SOEs produced 48.5 per cent of Vietnam’s total textile output, the foreign investor taking up 28.2 per cent, and the domestic household production producing 23.3 per cent (Nadvi & Thoburn, 2004b, p. 254). ??i M?i had presented itself as an opportunity for SOEs to successfully engage themselves in the textile and garment value chains of leading global buyers from around the world, including Europe, America and Japan. Widespread views propose that workers in this chain order are often exploited. Contradictory to that belief, researchers state that they instead benefit due to the strengthened ability to acquire basic assets such as sewing machines, bicycles and motorcycles that in turn enhance the quality of life and income earning potentials (Thoburn, Sutherland and Hoa, 2007, p. 361).
This is a simplistic view that postulate material gain corresponded to improved quality of life and equated to viewing such enterprising as beneficial towards poverty and inequality. We could in other sense, see that gaining materially was seen as a way of self-sustenance. On the flip side, if we speak of inequality in this context, these material goods are basic and easily acquired by the upper strata congregated in urban areas. If acquiring bicycles and sewing machines are the very bare minimum for the upper strata yet it is almost considered an achievement and luxury for these workers, do we not see the inequality as a result?
This hauls immense similarities to Frank’s theorised understanding of the ‘development of the underdeveloped’ in Brazil. The development of a free market economy in Brazil was only postulated to only cause dependency from the Global North, which exploited the underdeveloped and therefore failing to alleviate poverty (Frank, 1966, p. 30). International markets are put at the forefront to aid in FDIs for the generic economy, benefitting largely urban areas. The lack of infrastructure leaves the domestic and rural stakeholders without ample skills to promote self-sustenance. The textile industry presents itself as a vulnerable market prone to exploitation and dependency with its low production costs and low wages. FDI will not reap returns that benefit low waged workers. Increases seen in wages are directly proportionate to that of the high-waged workers. Hence, from an emic perspective, income gaps are not narrowed but poverty is ‘eradicated’ because the line is not redrawn according to economic movements in the country. Stepping back, we see that this fundamentally evokes the rise of modern poverty in the country.
A Case of Comparison: Singapore (300 words)
Even with these policies that garnered stark growths, Vietnam is unable to take full advantage of these foreign direct investments. Hence, we parallel Singapore as the perfect case study considering that Singapore has successfully transitioned from third-world to first through large extents of economic globalisation that heavily capitalised on FDI and trade within the parameters of heavily state-guided operations. Having globalised and immensely reaped its economic rewards, poverty and inequality have still not been eliminated (Toh ; Tat, 2012, p. 67).
The turning point in Singapore’s economic development was the adoption in the mid- to late-1960s of an export-oriented industrialisation (EOI) programme (Rodan, 1992, p. 370). Singapore’s economy unfolded into a new international division of labour in manufactures. Production was organised on a global basis to take advantage of differing costs, principally labour costs across national economies (Rodan, 1992, p. 371). This caused a massive influx of foreign investments for export production in Singapore. The manufacturing sector’s contribution to GDP that stood at 17.6 per cent in 1960 and dropped further within that decade, climbed to nearly 30 per cent by 1980 (Department of Statistics, 2018).
Notwithstanding the extent of economic globalisation, Singapore has the highest gini coefficient and has been ranked in the bottom ten worldwide in mediating inequality in the country. Without proper infrastructure and safety nets in place for its domestic markets, Vietnam in light of seeking rapid industrialisation may see themselves in the same plight as Singapore in the long run (Channel NewsAsia, 2018). Within Asia, Singapore is the second-most unequal economy in the developed world behind Hong Kong. Years of unevenly distributed growth in a neoliberal growth regime has led to the emergence of a class of working and non-working poor who face insurmountable challenges in uplifting themselves from a cycle of poverty (Ng, 2015, p. 1).
Rapid integration and economic progression leave the poor behind and as Singapore describes social mobility to be an upward escalator. The capitalistic intentions have led to the tendency to neglect those at the bottom. About 110,000 to 140,000 families in Singapore—between 10% to 12% of total resident households comprising citizens and permanent residents—earn less than 1,250 Singapore dollars a month (US$1,000) and struggle to meet their basic needs in the form of clothing, food, shelter and other essential expenditures (Lien Centre, 2011).
My point is to prove that poverty lines should be readjusted proportionately to the economic progress in the country. Though the level of destitution in Singapore may not match to that experience in developing countries, this does not mean inequality and poverty do not exist or is nullified.
The changes concomitant to global economic integration clearly do have distributional consequences –– there are gainers and losers from globalisation. How do we mitigate its consequences from state implemented policies as safety nets to better the lives and compromise the longitudinal effects of economic globalisation? It is important for us to question Vietnam’s continued integration and industrialisation. How does Vietnam sustain this performance if the state did not provide the crucial investment support to SOEs whilst considering the implications of export development for poverty? Is the push for rapid development compatible with the goal of a more equitable income distribution? Is growing inequality something that is inevitable in the process of growth? Is poverty ever eradicated or inexistent in any form of governance and social order?
Vietnam can be seen mirrored as Singapore’s beginning years. Economic globalisation is not the sole solution to alleviating poverty and inequality. Often involving market capitalistic motivations that translate as policies that favour the rich and insufficiently enables the poor. More dedication and efforts by the top-down local state institutions should be involved rather than simply allowing foreign firms to fully exploit the domestic market. Without appropriate policies put in place domestically to bolster the forthcoming effects of globalisation, continually opening up the economy through trade reform may only prove itself to be counterproductive (Rodrik, 1998, p. 84). The constant exploitation of capitalism by the state for economic growth to remain viable or to meet the needs of its upper societal strata yet at the same time disengaging with the reconfiguration of poverty the developed world will eventually cause the middle-class to be left stranded, falling out of the eligibility criteria of the policies.
Given globalisation’s prompt amassed rendering of border porosity and accumulation of multiple local markets into a global capitalist network, there is no absolute ‘how-to’ manual when accomplishing tackling issues entailing equity. What is quintessential in strategising is to recognise that globalisation requires rooted and innovative institutions at its base. Where such institutions are absent, globalisation is likely to proselytise social conflicts that are not solely detrimental in their own right but also to economic growth in the long run.