The Vietnam Model: North Korea’s Next Step?

The ending of the second Trump-Kim Summit was as spectacular as the fact that the two leaders have agreed to meet twice over the course of the year. The result was more within the imagination of the 21st century political climate. Similar to the negotiation of the Iran Deal, the main issue of friction was sanctions, highlighting the ongoing distrust between President Trump and Kim Jong-un.

However, a saving grace that might come out of the talk is a suggestion from the US to follow a Vietnam’s path: the idea that a communist regime can pursue market-oriented policies without sacrificing the legitimacy of the government. In truth, this model of economic development is far and few in today’s world; other than China, the remaining Communist states, Vietnam, Laos, and Cuba, show nowhere near the same economic prowess.

Therefore, Vietnam’s economic standing at the moment is a topic worthy of consideration. Vietnam’s GDP per capita PPP stands at around 6,450USD, not very far below India (7,060USD) but definitely lackluster behind some other ASEAN counterparts such as Thailand (17,090USD) or Malaysia (28,650USD). The proponents for a Vietnam-like model might point more to its growth rate: Vietnamese growth rate has remained fairly stable since opening up its economy in 1986 with the Doi Moi program. Such growth is also comparably less volatile than those from Thailand or Malaysia; both were losers from the 1990s Asian financial crisis and the 2008 global financial crisis (See figure 1).

(Figure 1: GDP growth 1986-2017, Source: World Bank)

Two other favorable indicators are the rate of unemployment (see Figure 2) and income equality (GINI index) (See figure 3), both of which Vietnam has maintained with a decent amount of stability, mostly attributed to a large public sector which provided job security for a substantial proportion of labor. These impacts are critical because it suggests a generally egalitarian state, which would not undermine the prominent Communist ideology in North Korea.

(Figure 2: Rate of Unemployment 1986-2017, Source: World Bank)

(Figure 3: GINI coefficient 1986-2017, Source: World Bank)

However, thinking purely about results would undermine the difficulty of the path to get there. The literature surrounding this potential “Vietnam Model” focuses on three key aspects: privatization, trade and investment, and financial stabilization, all of which were virtually non-existent in present-day North Korea. More importantly to the case of North Korea, Vietnam underwent these changes without any significant alterations in political institutions, barring some minor modifications in the Constitution in 1992.

Without getting too much into the technicality of development, there are certain qualifications for the “Vietnam Model.” First, the time frame would exceed one generation. Despite opening up in 1986, it was not until 2007 that Vietnam joined the WTO, an important hallmark for the path towards international trade. However, after 2007, the path of Vietnamese development has definitely become more encouraging with various Trade agreements between ASEAN and other economic powerhouses such as India, Japan, and the EU. Most notably, in 2018, Vietnam joined the CPTPP, a re-negotiated agreement of the TPP after the US had pulled out. Second, the demographic will pose a constraining factor. Vietnam’s population growth rate has gradually decreased from 2.28% in 1986 to 1.02% in 2017. This changing population demographic might quickly force Vietnam to focus on more social programs and other types of safety nets. The World Bank estimated North Korea’s population growth rate to be at 0.48%, suggesting a potential lack of labor to carry out the economic changes in the future. Third, infrastructure upgrading, while essential to economic growth, is not straightforward. The increase rate of urbanization creates immense pressure on urban infrastructure to facilitate the necessary economic capacity. A government report in 2016 estimated that the capital city Hanoi lost around 1.7 million dollar worth of productivity a day due to traffic congestion. According to the World Development Indicators Database in 2015, the productivity of Thailand and Indonesia remained around three times higher than that of Vietnam.  

These cautions are essential for the North Korean economic tale. While there were substantial proponents for a “Vietnam Model” in North Korea preceding the historic meeting between President Trump and Kim Jong-un in Hanoi, the path to the economic growth of North Korea needs to address its obstacles.