Vietnam’s rise and Thailand’s inequality problem

The article “Richer, Faster—But for Whom? Vietnam’s rise and Thailand’s inequality problem” examines the divergent economic development paths of Vietnam and Thailand, focusing on the concept of “Pro-Poor Growth” from an institutional economics perspective. It highlights a noticeable shift in Thai public sentiment, from urgency to resignation or even encouragement, regarding Vietnam’s economic progress and its potential to surpass Thailand.

The core argument is that institutions—rules, norms, and governance structures—are crucial in determining who benefits from economic growth, and Gross Domestic Product (GDP) alone is insufficient to measure improvements in quality of life for all segments of society. Pro-Poor Growth is defined as economic growth that disproportionately benefits the poor or significantly reduces poverty.

Vietnam’s Experience: Growth with Redistribution

Vietnam’s success in sustained poverty reduction post-1986 Doi Moi reforms, which transitioned it from a centrally planned to a market-oriented economy, is attributed to its “Growth with Redistribution” strategy. Key factors include:

• Land Reform and Human Capital: Dismantling collective farming and restoring land-use rights to households, alongside significant investment in human capital through the “Education for All” program to prepare unskilled labor for foreign direct investment (FDI).
• Structural Economic Shift: A systematic move from agriculture to manufacturing and services, with a strong emphasis on generating employment for unskilled labor and gradual skill upgrading.
• Spatial Development: Heavy investment in infrastructure, such as achieving 99.9% rural electricity coverage by 2018, and fiscal/administrative decentralization to empower local governments. This approach resulted in average growth rates of 5–7% over decades and continuous poverty reduction, despite global crises, increasing per capita income eighteenfold. However, Vietnam still faces the risk of the middle-income trap, leading to the launch of Doi Moi 2.0 aimed at achieving high-income status by 2045.

Thailand’s Path: Growth without Redistribution

In contrast, Thailand, despite rapid economic expansion in the 1980s, followed a trickle-down economics model, believing wealth would eventually benefit the broader population. This approach has led to low growth and high inequality, explained by several institutional weaknesses:

• Disconnected Policies: Economic growth policies are often formulated separately from poverty reduction and redistribution measures, leaving structural problems unaddressed.
• Middle-Income State Characteristics: Reliance on foreign labor and capital, coupled with limited coordination for domestic technological and innovation development, indicating a lack of institutional upgrading.
• Concentrated State-Business Relations: Particularly after 2014, close cooperation with large conglomerates created a “big brother–small brother” dynamic, concentrating resources and disadvantaging smaller enterprises.
• Policy Inconsistency: Frequent government changes undermine policy continuity, resulting in short-term poverty relief measures (e.g., cash transfers) driven by immediate political demands rather than fundamental structural reforms.

Rethinking Development: Lessons and Recommendations

While Thailand should not merely emulate Vietnam, its experience offers crucial lessons. Escaping the middle-income trap and addressing inequality requires integrating redistribution into the growth strategy from the outset. The article’s central policy argument is that inclusive development must place those at the bottom of the socioeconomic pyramid at the core of economic policymaking, simultaneously pursuing economic expansion and income redistribution. Examples include designing digital economy and infrastructure investments to provide targeted social protection for the poor and using decentralization to spread prosperity and create local employment.

Vietnam’s success is attributed to policy continuity and institutional design that explicitly integrates the poor into its growth strategy, learning from China and East Asian “miracle” economies that demonstrated sustainable, equitable growth is possible in market economies with outward orientation, macroeconomic stability, and human capital investment. Thailand, therefore, needs to rethink its economic policy design—shifting from treating growth and poverty reduction as separate objectives to creating institutional rules that ensure the benefits of development are broadly and sustainably shared, especially with the poor, while upholding democratic principles.

Source : Richer, Faster—But for Whom? Vietnam’s rise and Thailand’s inequality problem

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