Đổi Mới facts for kids

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Đổi Mới is a Vietnamese term that means "renovation" or "innovation." It refers to a big set of economic changes that started in Vietnam in 1986. The main goal of these changes was to create a "socialist-oriented market economy." This means Vietnam wanted to keep some socialist ideas while also using parts of a market economy, like allowing private businesses and competition.

The Communist Party of Vietnam started these important reforms in 1986. This happened during their 6th National Congress, which is a major meeting for the party. The Đổi Mới reforms allowed market forces to play a bigger role in how businesses and government agencies worked together. They also made it possible for people to own small private businesses. A stock exchange was even created for both state-owned and private companies.

Why Vietnam Needed Changes
- Early Steps Towards Reform
Creating a Market Economy
- Changes in the 1990s
  - Successes of Đổi Mới
  - Challenges and Limitations
What Đổi Mới Means
See also

Why Vietnam Needed Changes

After Vietnam became one country again in 1976, its economy faced many problems. There were difficulties in making enough goods, and it was hard to get products to people who needed them. Prices were rising very fast, and the country had a lot of debt.

In 1984, Vietnam's total economic output (GDP) was about $18.1 billion. The average income per person was only about $200 to $300 per year. Several things caused these economic troubles. Bad weather hurt farm crops, and the government's management was not always efficient. Also, there was less encouragement for people to start businesses. Vietnam's military actions in Cambodia also led to a loss of important international aid.

From 1978 to 1991, Vietnam was part of a group called Comecon. This meant Vietnam relied heavily on trade with the Soviet Union and its allies. When Comecon broke up, Vietnam lost its main trading partners. This forced the country to open up its trade, make its money worth less to boost exports, and start new economic development plans.

Before the Đổi Mới reforms, Vietnam was in an economic crisis. Prices were going up by over 700 percent, and economic growth was very slow. The money Vietnam earned from exports was less than what it spent on imports. Also, help from the Soviet Union decreased. This made Vietnam feel more isolated from other countries. These problems led to big discussions within the Communist Party. They debated whether the old command economy system was working and if reforms were needed. This debate happened right before the 6th National Congress in December 1986.

An important event that helped bring about change was the death of Party General Secretary Lê Duẩn in July 1986. In December 1986, the Sixth Party Congress chose Nguyễn Văn Linh as the new Party Secretary. He was a reformist and supported more liberal ideas.

Early Steps Towards Reform

Even though Đổi Mới officially started in 1986, Vietnam had already begun some smaller changes in the early 1980s. For example, in late 1978, leaders of farming cooperatives in the north were allowed to rent out fields to farmers during winter. Farmers could grow winter crops together and then return the land for spring planting.

In August 1979, the Party allowed local areas to make more economic decisions about farming. They also offered more rewards to encourage farmers to produce more. In 1980, local governments could set up their own trading companies. This broke the central government's complete control over foreign trade. In 1981, new farming rules were introduced. Farmland could be given to individual workers, and farmers could keep all the crops they grew beyond a certain amount. These farming changes helped industrial production recover. After these steps, price controls were removed from many everyday products. This helped increase trade at real market prices and eased shortages in the state-run shops.

Creating a Market Economy

Changes in the 1990s

The 6th National Congress of the Communist Party of Vietnam took place from December 15 to 18, 1986. The Congress confirmed its plan for reforms and announced five main points:

Work hard to make more food, consumer goods, and items for export.
Keep trying to control small traders and capitalists, but also accept that a mixed economy (with both state and private businesses) is needed.
Improve the planning system and make economic management more efficient. This meant allowing local areas to make more independent decisions.
Make clear the powers of the Council of Ministers and reorganize government management to be more effective.
Improve the Party's organization, leadership, and training for its members.

Võ Văn Kiệt, who was a Deputy Chairman of the Council of Ministers, gave the Economic Report at the Congress. He and other leaders strongly supported the idea of Đổi Mới (Renovation). Võ Văn Kiệt said that there would be "renovation in economic policies and the management system." He also stressed that farming, not heavy industry, would be most important for the next five-year plan. He said heavy industry should support farming and light industry. Võ Văn Kiệt emphasized exports and making more grain, food, and consumer goods to help Vietnam's economy. The main goal for 1990 was to produce 22–30 million tons of grain. To reach this goal, they would use rewards and contracts based on what farmers produced.

The old central management system was removed. The economy then focused on creating a market-driven system with different types of businesses. There would be competition between private and state-owned businesses in areas that were not critical to the country. In 1987, inspection stations on national highways were removed. This allowed goods and services to move more easily between different cities. Markets where private farm products could be sold grew quickly.

Later, the National Assembly passed the 1987 Foreign Investment Law. This law aimed to attract money from other countries for local development. It even allowed foreign companies to fully own businesses in Vietnam and promised not to take them over.

The Communist Party of Vietnam also allowed private businesses to produce goods, and later even encouraged them. In the early 1990s, laws for the private sector changed. In 1990, the Law on Private Enterprises gave legal support to private companies. The Companies Law also recognized joint-stock companies and private limited liability companies. The Party also started talking about possibly selling off some state-owned businesses. In 1992, the new Constitution officially recognized the role of the private sector.

In farming, the Land Law was passed in 1988. This law recognized that people could have private rights to use land. Also, a new rule (Resolution 10) said that farmers did not have to join cooperatives. They were allowed to sell their products freely in the market. This rule also gave land-use rights back to private households, seeing them as independent economic units. As a result, farming and the rural economy started to change. Instead of just growing food for themselves, regions began to produce what they were best at for the market. In this new system, the government took a step back and mainly regulated things, while the market decided the prices of goods and services.

In the early 1990s, Vietnam accepted some advice from the World Bank to open up its markets. However, it refused programs that would force it to sell off state-owned businesses. With these reforms, the number of private businesses grew. By 1996, there were 190 joint-stock companies and 8,900 limited liability companies. Private businesses became very important in the service industry. Their share in retail trade activity increased from 41% to 76% by 1996.

During this time, the National Assembly also reduced various company and income taxes. This was done to encourage both local and foreign investment. For rural areas, the government changed the economy away from just farming. It encouraged small craft villages and trained people for factory jobs.

Even though foreign trade was controlled by the state, the government started to loosen its grip. Vietnamese people who worked or studied in socialist countries would send consumer goods home. Over time, the sources of goods became more varied. These included gifts from Vietnamese people living abroad and goods left over from the US occupation in the south. These goods could be traded with the Soviet Union to get money. Also, neighboring countries like Laos and Cambodia offered ways to smuggle goods into Vietnam. For example, Thai beer, which had high taxes, was often smuggled into Vietnam by sea.

Successes of Đổi Mới

The fast growth of Ho Chi Minh City shows how successful Đổi Mới has been.

Because of these big economic changes, Vietnam's economy grew amazingly in the 1990s. In the early years of reform (1986–1990), the economy grew by about 4.4 percent each year. This growth sped up to about 6.5 percent per year from 1990 until the Asian Financial Crisis of 1997.

Vietnam's total economic output (GDP) grew almost five times. It went from $6.472 billion in 1990 to $31.173 billion in 2000. The income per person also increased from $95 in 1990 to $390 in 2000. This shows that both production and living standards improved during this time.

Unlike many other fast-growing economies, the Vietnamese government used tax money from the growing economy to invest in poor areas. They made sure these areas received enough money for roads, schools, and other important services. As a result, poverty rates dropped a lot in most provinces. Incomes also grew significantly in big cities and provinces that received a lot of investment.

As the overall business environment improved, about $18.3 billion in foreign investment flowed into Vietnam. This money was much needed for economic growth. It also created jobs for workers in rural provinces and brought new technologies. For example, in provinces with high foreign investment, like Vinh Phuc or Binh Duong, unemployment rates dropped more than the national average. Their local income per person also grew significantly.

For local businesses, more foreign investment created chances to work with foreign companies through joint ventures. They could also supply parts and services for foreign firms. This allowed local businesses to benefit from new technologies. Over time, these local businesses could develop their own production skills and even become important partners for foreign investors.

Challenges and Limitations

Even with high economic growth, Vietnam's economy still had many problems as it entered the new century. Since Vietnam was new to managing a market economy, issues like income inequality and negative effects on the environment and society were big threats. This was especially true as the country aimed to join the global economy.

State-owned businesses, which still made up a large part of the economy, were not very efficient and had problems with corruption. When it came to reducing poverty, even though the national poverty rate dropped a lot, extreme poverty was still common in mountain provinces and along the central coast. Also, the gap between rich and poor, and between city and rural incomes, continued to grow. In big cities, there was a lack of affordable housing. This made it harder for people who moved from rural areas to cities to improve their living standards.

Even though a lot of foreign investment came in, most of it focused on using Vietnam's cheap labor and less strict environmental rules. This made it harder for Vietnam to achieve sustainable growth. When it came to new technology, many local companies still could not fully benefit from the increased foreign investment. In many high-value industries, especially retail, foreign companies grew to control the local market. This pushed out local private investors. Also, profits made by foreign investments often went back to their home countries. They were not reinvested in the local economy as profits from local companies would be. In terms of technology, the country's use of automation and the number of highly skilled workers remained low. The working environment was also not very efficient and not always welcoming to further reforms. This has led to a "brain drain," where many skilled people leave the country.

What Đổi Mới Means

The Communist Party of Vietnam believes that the socialist-oriented market economy fits with the ideas of Marxist economic development. This idea says that socialism can only happen when a country's economy is strong enough to support socialist ways of life. The socialist-oriented market model is seen as a key step to achieve the necessary economic growth and modernization. It also allows Vietnam to be part of the modern global market economy and benefit from global trade. The Communist Party of Vietnam has confirmed its dedication to developing a socialist economy through its Đổi Mới reforms.