2. Embryonically-renovated thinking of administration in dilemmatic situation (1981- 1985)
2.2 The “groping” economic policies
The legacies of underdevelopment, foreign occupation, wartime destruction, foreign aid dependency, and high expectations were not seen any longer the only problems facing the postwar Vietnam. Instead, the most serious problem was the counter-productive economic policies (Marr, 1988). The initial renewal of economic policies was hence put forth in the 1981-1985 Third Five-Year Plan.
2.2.1 Contracts in agriculture
In macro-economic management, readjustment of the investment structure in the national economy shifted from “giving priority to heavy industry development” to “taking agriculture as the foremost front” (Pham et al., 2000). Being faced with an impasse in the reorganization of agricultural cooperatives in the north, the impediments in the campaign for agricultural collectivization in the south, and the failure to attain a large number of objectives of the 1976-1980 Five-year Plan, the state decided to readjust some key socio-economic development policies. Various solutions related to several urgent socio-economic problems were set forward, including: recognizing the existence of a multiple-sector economy with multiple-ownership forms, lessening the centralized management mechanism in agricultural cooperatives, allowing member households to borrow cooperative land for production, regulating agricultural product procurement prices, abolishing the ratio-based food distribution, recognizing the member household economy as an integrated element of the socialist economy, etc.
The cooperatives were encouraged to contract out land not directly used or left fallow between harvests. But in practice they tended to contract out even the farming land. The initial trial was attempted in Doan Xa cooperative of Do Son district, Hai Phong. Due to the upgrade to the high-level cooperative, the rice yield achieved only 60 kilograms per sao or
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360m2. There were 7,000 heads in the cooperative with the harvested outcome of only 160 tons of rice, equivalent to only one-sixth of the ordinary outcome. Nevertheless, it was the cooperative’s obligation to deliver 100 tons of rice to the state. The rest of 60 tons was distributed to 7,000 mouths, thus per capita outcome was less than one kilogram for 6 months. The crops in 1977 were a complete failure because of drought. So people did whatever they could to feed themselves, even went begging. It was impossible for the production teams to mobilize the workforce any longer. The cooperative management board therefore decided to allot each family half a sao or 180m2 in order to be able to cultivate the main season rice. The results went beyond all expectations: people worked with unusual zeal, staying in the fields from dawn till dusk; the crops were carefully looked after; and the deliveries to the cooperative met all quotas and were over schedule. On the basis of this success, the loaned area doubled in 1978 and increased fourfold in 1979. In order to avoid the criticism that lending land to the peasants would lead to the destruction of the cooperative, important tasks such as land tilling and preparation, water control, fertilizer distribution, and measures to control insect/pest damage remained the responsibility of the cooperative.
However, Doan Xa’s secret to success turned out to be contrary to the tenets of socialism:
Doan Xa was secretly applying “blanket contracting” – a form of land leasing to the peasants, a measure which had been severely condemned a decade ago as harmful to the position of the cooperatives and to socialism in the countryside. At first it was kept in secret, but then it was revealed that the cooperative had loaned about one hundred hectares of farming land to the peasants. In 1980, the entire cultivated area was loaned to the peasants. Real output reached 1,210 tons as compared with 740 tons in 1977, and the value of agricultural and handicraft produce shot up from 424,000 dong to 1,100,000 dong. Per capita rice ration went up from 6.4 kilograms to 15 kilograms (Tetsusaburo, 1984).
In 1980, most of the cooperatives in Hai Phong adopted the new contract system and the average yield of the winter rice reached 2,300 kilograms per hectare, compared with 1,880 kilograms per hectare over the northern provinces. The annual gross food product increased by 6.3 percent compared with 1979, and the obligation of food delivery to the state reached beyond the planned target by 299 tons (Truong, 1999). In Do Son district alone, 82 tons of rice was added to the welfare after obligation (Vo, 1981).
Thus, the secretly conducted contract developed and became semi-opened. The government then legalized the “household contract” to non-rice farming. But not being pleased with the household contract for non-rice farming, the cooperatives in some places tried a secret household contract for rice farming. In January 1981, the Party Secretariat released Directive 100, known as “Contract 100,” on contracting products to laborers, which allowed the household contract for rice production. Directive 100 clearly pointed out the purpose of relating the end product to the peasants, which included developing production and enhancing economic efficiency, stimulating labor productivity, utilizing production materials, applying technical progress, economizing production costs, improving the income and living standards of the peasants, increasing accumulation for cooperatives, and delivering more agricultural products to the state (Truong, 1999). Turning from leading a centralized management and unified equilibrium distribution to allowing the cooperative members to invest directly in their production and enjoying a part of their outcome represented a significant change.
Contract 100 in agriculture was seen as the initial breakthrough into the collectivization model, ushering in a new modality of work with peasant participation in various stages of production and management of the cooperatives. Instead of collective labor
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under teams or brigades, household labor became involved in certain stages of agricultural production for the targeted outcome product commensurate with the fixed costs of fertilizer, seedlings, and labor work. The driving force of Contract 100 was that the peasant households were given back the right to control some of the stages in the farm production process, especially those related to the end product (Pham et al., 2000). With this contract system, rice production was divided into eight areas of work. In principle, only the three work areas of the individual household were to be under the contract system, but in practice all the eight areas have been contracted out, due to the cooperatives’ unresponsive and bad services.
With the product contract system being put into effect, cooperatives made contracts not only for land but for the required amount of produce to be delivered during fixed three- year to five-year terms. As an impetus of development, Contract 100 encouraged the farmer households intensively to invest capital and labor force in agricultural production on collective land in order to enjoy the product portion beyond the contracted terms. In 1981- 1985, a sum of 4.9 billion dong was invested by the farmer households for this purpose. The food outcome of the winter-spring crop in 1981 in the north increased averagely 15 percent, and 25-30 percent or even 40 percent in some places. The labor force in production increased more than 10 percent, and the labor time increased 25-30 percent (Vo, 2002).
Contract 100 was seen as the golden key to opening a new development period in the rural areas (Nguyen, 2001). Although the state investment in agriculture in 1981-1985 consisted of only 41.5 percent, and material supply to agricultural production represented only 58 percent of those in 1976-1980, agricultural production still had increased remarkably.
The gross agricultural product increased by 6 percent, and national income in agriculture increased by 5.6 percent. The paddy equivalent food product increased by 27 percent, and rice yield increased by 23.8 percent per annum. Food per capita increased steadily: from 273 kilograms in 1981, to 299 kilograms in 1982, then 296 kilograms in 1983, 303 kilograms in 1984, and 304 kilograms in 1985. A report from the General Statistics Office showed that 92 percent of peasant households overcame the contracted target for the 1984-1985 winter- spring crop. The actual yield increased from 5 to 20 percent compared with the contracted yield (Nguyen, 1995). In the 1981-1985 Five-Year Plan, the food production averaged 16.9 million tons per year compared to 13.4 million tons during 1976-1980.
During this time, a series of government directives and decisions were put out with the intention to inspire more production from various economic units and greater desire to work, especially amongst the farmers. Important among these were a directive in February 1980 by the government to promote and strengthen the two-way contract system, and a decision in October 1980 for the stabilization of grain delivery obligation.
At the macro level, the state shifted from a focus on procurement as the priority to a focus on raising production. The state introduced a form of grain-fertilizer barter system in which those who sold to the state and met quotas received preferential access to inputs. But the effectiveness of this depended on fertilizer availability, which was constrained by domestic production and an extreme foreign exchange shortage. As these directives fixed tax payment and quotas on agricultural deliveries for the five years, peasants, especially the southern ones that remained largely independent, began to feel a new sense of security, which inspired them to redouble their production efforts. The important point to note is the government’s decision to allow agricultural cooperatives and enterprises processing agricultural goods to draw up directly between themselves two-way contracts for the purchase of agricultural goods as well as for the supply of foodstuffs, fertilizers, insecticides,
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and manufactured goods. This two-way contract system was also to be extended to transactions the state had with agricultural cooperatives and with individual farmers. The noteworthy feature of this contract system was that after fulfilling their fixed quotas to the state, cooperatives and farmers would be free to dispose of their remaining surplus as they liked. The state would no longer be able to appropriate indiscriminately their agricultural products. The state trading organizations also brought their purchasing prices closer to those of the market in order better to compete with the private operating merchants. Transactions between the state and the producers for surplus production became negotiated price dealings which in effect meant the going market rates.
2.2.2. From the “fence-breaking” in commodity circulation to the official price reforms In terms of the price system, criticism was that the State Price Committee was quite wrong in fixing the prices, without taking into account the market situation, the shortcomings of the state’s input materials provisions, and the increased needs of the cooperative farmers.
The purchasing price of the agricultural products needed to be raised for the agricultural reproduction and industrial development. Vo Van Kiet, before being the Prime Minister, had known as a renewed think-tank. He daringly allowed the South Food Company to “break the fence” in supplying rice for Ho Chi Minh city. At that time, the “directive” price of the State Price Committee was 0.52 dong per kilogram of rice which was too low compared with the cost price, thus inducing the failure in the procurement. There was no rice for sale, but it was abundant in the farmers’ barns. He then decided to allow the company to purchase rice at the negotiated prices in order to resell in the city. As a result of this “fence breaking,” the food procurement increased obviously. In An Giang province, for example, only 50,000 tons of food per year (half of the planned amount) was purchased at the “directive” prices; but 162,000 tons of food (in excess of 62,000 tons) was purchased in 1980 at the negotiated prices.
The first price reform was officially implemented with the release of various government’s texts: Decision on May 29th 1981 on a new retail price system, according to which the prices of most of the commodities were raised by 10 times, i.e. closer to the national or international market prices; Decision on July 5th 1981 on the new wholesale price system of the raw materials; Decision on September 26th 1981 on a new price policy for agricultural product procurement. Besides, the government’s Decision 28 QD/CP in September 1982 totally abolished the obligation of pork selling to the state. At the same time, the government raised the prices at which it sold equipments, fertilizer, and agricultural chemicals to the peasants. Prior to that, there appeared a different situation when the government’s purchase and selling prices were exceedingly low and the purchase methods were strictly coercive. The followings are some of the examples of these price distortions: the government sold urea fertilizer for the agricultural production for 0.5 dong per kilogram while it was 10 dong per kilogram in the market. Soybean was sold for 10 dong per kilogram in the market, but the state bought it for 2 dong. As a result, between 1976 and 1980, the state was able to buy up averagely only 2 million tons of rice and other grains annually. During those 5 years, the government had to import from 1.5 to 2 million tons of grain annually to make up for the domestic shortfall (Nguyen, 2003).
From 1981, the state began a two-tiered price mechanism for the purchase of agricultural goods from the peasants: at the lower level were the fixed prices for the obligatory quotas of goods that had to be delivered to the state; at the upper level were the prices negotiated between the state and the producers on the surplus goods produced in excess of the quotas. These latter prices stayed closer to the free market level. Listed below
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are examples of the new price increases that the government set for paddy rice that had to be delivered to the state.
Table 2: Wholesale Prices of Raw Materials
Items Unit price Pre-adjusted price rate
Post-adjusted price rate
Increase rate (times) Gasoline A72-76
Diesel Coal
Electric power Cement Cotton fibre Steel (d = 6) Urea fertilizer
dong/ton dong/ton dong/ton dong/KWh dong/ton dong/ton dong/ton dong/ton
875 45 53 100 166 630 950 520
6,500 5,000 400 1,000 1,800 4,000 5,250 7,500
7.42 11.1 7.5 10 10.8 6.3 5.52 14.4 Source: Phan (1992)
Table 3: The Obligated Prices of Rice Purchase in Two-way Economic Contract (dong/kg)
Region Pre-adjusted price rate
Post-adjusted price rate
Increase rate (times) Red River Delta
Mountainous regions Mid-land
Central plain
Mekong River Delta
0.52-0.56 0.65-0.72 0.56-0.60 0.60-0.65 0.50-0.56
2.50-2.75 3.30-3.50 2.75-3.00 3.00-3.50
2.50
4.9 5.0 5.1 5.3 4.4 Source: Phan (1992)
2.2.3. “Untying” state enterprises and recognition of their autonomy in business and production
The previous economic development model was actually a non-economic model. So the ideas of “untying” in production was known as one of the most significant breakthroughs in economic administration thinking which was interpreted as an acceptance of the market laws, the multi-sector economy, and the adjustment of the price system and the price management. It was obvious that “opening”, “bursting out”, or “untying” were not leading to the loss of socialism, but on the contrary, saved the national economy and the people’s lives.
It was also mistaken to hastily rush to put an end to the transitional period and quickly enter the socialist development, thus leading to neglect the law of value, to reject the natural existence of the commodity-market relationships, to abolish as soon as possible all the non- socialist economic sectors whereas the foundation of their existence was still available. The most important thinking to be renewed in this time was the turning from monitoring the economy by means of administrative orders to monitoring the economy corresponding to the natural laws (Tran, 2002) and the recognition of the laws and the operations of commodity production (Nguyen, 2008). It was remarked by an open-minded leading economist and administrator: “Fence breaking or untying is in fact like to thrust a small hole through the fence or the wall. When a small hole is accepted, it is then enlarged to make a window. When
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the window is accepted, it is further enlarged to make a door. This is the process of reform in Vietnam” (Tran, 1995).
Attacking on the backbone of the socialist economic regime, i.e. the central planning, in January 1981, the government’s Decision 25/CP was enacted that acknowledged the three- plan system of the state enterprises. This three-plan program included the plan for the state – known as Plan 1, the plan for the joint venture with other business partners – known as Plan 2, and the plan for the market – known as Plan 3. With this decision, the joint ventures and associated affairs previously known as colluded have now been legalized. Especially with Plan 3, the state enterprises were, for the first time, permitted to produce commodities to serve the free market. Thus, planning was not seen as the unique method of economic development; rather the plans were seen as to closely relate to the market; the planned market was seen as to coordinate with the unplanned market; the private economy was seen to be more positive; the optimal norm of the policy measurement was seen to be whether or not the labor productivity had been raised, the production had been developed, and the people’s living had been improved. As a result, the increased outcome value in industry was remarkable.
Table 4: Increased Outcome Value in Industry
Year 1980 1981 1982 1984 1985
Outcome value 100 101 109.8 140.4 157.4
Source: GSO (1985)
In terms of import and export, in February 1980, the government released Resolution 40/CP to authorize the local units to exercise import and export. Thus, the state has officially recognized the previously-styled illegal right of the local institutions to this exclusive privilege. The result was remarkable with the strongly increased export turnover: 320 million USD in 1979; 338.6 million USD in 1980; 401.2 million USD in 1981; 526.6 million USD in 1982; 616.5 million USD in 1983; 649.6 million USD in 1984; and 698.5 million USD in 1985. Previously, the main external trading was through protocol execution among the socialist countries via 37 state general companies. Consequently, the export turnover was low, the average per capita of which was under 10 USD (MPI, 2008).
The changes in this respect were also marked with the total abolishment of the state subsidy. Therefore, a project of internal trade reform was designed to abolish all the subsidized prices of commodities which would be sold at the market prices with the compensation in cash for the government officers. As a result, 33 out of 42 subsidized commodities were abolished; the rest of 9 essential commodities, including rice, cloth, meat, sugar, fuel, etc… were remained under a ratio-based supply. Furthermore, on June 1st 1981, the government made a decision to give an allowance of 100 percent of the basic salary for the government officers.
3. Nation-wide renovation or doi moi and the market economy from 1986