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After reading chapter-2 from the attached screen shot and from the attached journal articles. Explain about the research topic ‘Market Economy’.

Answer should be based on the attached three journal articles and text book.

Please answer in own words and as thorough as possible. APA format is must and strictly no plagiarism.

APA Formatno cheatingNo Plagiarism

Understanding Financial Participation across

Market Economies

Elaine Farndale1,2 , J. Ryan Lamare3, Maja Vidovi�c4 and Amar S. Chauhan5

1Associate Professor, School of Labor and Employment Relations, Pennsylvania State
University, University Park, PA, USA

2Department of Human Resource Studies, Tilburg University, Tilburg,
The Netherlands

3Associate Professor, School of Labor and Employment Relations, University of
Illinois at Urbana-Champaign, Champaign, IL, USA

4Instructor, Rochester Institute of Technology Croatia, Zagreb, Croatia

5Ph.D. Candidate, Political Science at Washington University, St. Louis, MO, USA

Abstract

: Organizations implement a range of financial participation plans to help create a stron-
ger linkage between corporate and individual goals. Although seemingly an organizational-level
choice as to what plans are adopted, we argue that institutional constraints at the market econ-
omy level of analysis that directly affect worker-firm relationships play a significant role in this
choice. Based on organization-level data from nineteen countries, comparisons of the level of
profit-sharing and equity-ownership plan use are explained through varieties of capitalism theo-
rizing. The findings indicate the usefulness of this level of analysis in explaining corporate prac-
tice in financial participation.

Keywords: financial participation; varieties of capitalism; institutions; profit sharing;
equity ownership

INTRODUCTION

Financial participation is typically viewed as an instrument that motivates employees to work
towards the same goals as those of the organization’s shareholders, thus alleviating the moral
hazard agency problem of firms (Dalton et al. 2007). It has also been looked upon as a form
of communication between shareholders and workers (Guery 2013), and can therefore be
viewed as an effort to introduce legitimacy about capital (Croucher et al. 2010). In this study,
we focus on two forms of financial participation that integrate employer and employee (long-

Address correspondence to Elaine Farndale, Associate Professor, School of Labor and Employment Relations,
Pennsylvania State University, University Park, PA, 16802, USA. E-mail: euf3@psu.edu

International Studies of Management & Organization, 49: 402–421, 2019
# 2019 Taylor & Francis Group, LLC
ISSN: 0020-8825 print/1558-0911 online
DOI: 10.1080/00208825.2019.1646489

http://crossmark.crossref.org/dialog/?doi=10.1080/00208825.2019.1646489&domain=pdf&date_stamp=2019-09-26

http://orcid.org/0000-0001-5871-5840

http://www.tandfonline.com

and short-term) interests—equity-ownership and profit-sharing. Such plans are widely used by
organizations worldwide, and therefore, rather than adopting an individual organizational-level
of analysis, we explore here the broader institutional factors that may lead firms to adopt
such practices.

Equity-ownership refers to the size of the share in the firm’s equity over which the
employee has rights, and is implemented through stock option and employee share plans.
Such plans are indirectly related to the present value or future profitability of the firm
(Poutsma 2001), and imply a long-term relationship with the firm (Braam and Poutsma
2015). Profit-sharing, in contrast, refers to structured plans that give employees a reward that
is variable based directly on a firm’s result or profitability, which involves allocating a speci-
fied percentage of annual profits that is usually dependent on an employee’s position in the
firm or length of service. Such financial participation plans focus on a shorter-term relation-
ship between employee-employer (Braam and Poutsma 2015). Equity ownership plans incur
greater risk for employees due to the uncertain nature of the performance of the firm on the
stock markets, whereas profit sharing incurs less risk as there is a more direct relationship
with the employee’s contribution to the firm (although not unaffected by variables beyond
the control of the employee, e.g., rising material costs, fluctuating consumer demand, increas-
ing numbers of profit-sharing participants) (Estrin et al., 1987, 1997).

Financial participation plans are implemented in firms on either a broad-based or
restricted basis. Broad-based financial participation plans covering a wide range of employ-
ees can facilitate direct participation of workers in the firm (Croucher et al. 2010; Cin, Han,
and Smith 2002), yet many profit-sharing and equity-ownership plans are restricted to man-
agement-level participation. There are, therefore, choices that firms make in determining
whether or not to offer equity-ownership and profit-sharing plans, and to which employees
these plans will be offered. However, we argue that such rational choices are constrained by
institutional factors that vary across market economies.

Based in varieties of capitalism theorizing (Hall and Soskice 2001), countries can be cate-
gorized into different market economies according to patterns of institutional arrangements.
Two ideal types of market economy—Liberal Market Economies (LMEs) and Coordinated
Market Economies (CMEs)—are most commonly distinguished. While LMEs have a greater
focus on corporate autonomy, shareholder wealth, and liberal employment frameworks,
CMEs have greater regulation and a focus on a broader group of stakeholders with interests
in the firm. In each market economy, business systems theory (Whitley 1999), supported by
neo-institutional theory (DiMaggio and Powell 1983), suggest that firms need to achieve
legitimacy and they do so by aligning their strategies according to the context (Poutsma,
Blasi, and Kruse 2012). As Farndale, Brewster, and Poutsma (2008) demonstrate, significant
differences exist in Human Resource Management (HRM) practices, including financial par-
ticipation, both between firms in LMEs and CMEs, as well as between countries within each
type of market economy group.

This LME/CME dichotomy is perhaps, however, too narrow to incorporate the diversity
of business systems at a national level. Amable (2003) introduced a more nuanced classifica-
tion of market economies that includes Continental European (CE), State-Influenced
Mediterranean (SIM), Scandinavian Social Democrat (SSD), Asian, and LMEs, based on

FINANCIAL PARTICIPATION ACROSS MARKET ECONOMIES 403

combinations of institutional factors. Our study contributes to this comparative capitalisms
literature by applying Amable’s (2003) institutional dimensions per market economy to
explore how the different combinations of institutions are associated with the adoption of
financial participation plans. Our primary goal is to explore the extent to which the financial
participation plans adopted within the firm relate to the market economy institutional con-
straints on the firm’s behavior.

We start with a review of extant literature in which we theorize anticipated relationships
between institutional factors and financial participation plan use. Based on these relation-
ships, we hypothesize the relative extent of use of profit-sharing and equity-ownership plans
across the different market economies. These hypotheses are tested using the extensive
Cranet HRM policies and practices survey data from 2009/10 including 4,253 organization
responses from nineteen countries. The detailed findings contribute to the broad varieties of
capitalism literature, emphasizing the relevance of this level of analysis for exploring man-
agement practice in firms. They also indicate the usefulness of taking an institutional
approach to theorizing the adoption of financial participation plans across different market
economy contexts, based on the isomorphic effects within market economies (Jackson and
Deeg 2008). Building on these findings, ideas for future research in this field are discussed.

FINANCIAL PARTICIPATION

The rationale behind employee financial participation concerns how employees can have
active participation in economic aspects of society. In 1958, American lawyer and investment
banker, Louis Kelso, proposed a solution to creating employee financial participation oppor-
tunities, whereby owners would not be deprived of their property, but non-owners could be
incorporated as shareowners (Lowitzsch 2009). Since then, two primary types of financial
participation plans for employees have emerged (Poutsma 2001). First, Participation through
profit-sharing, structured plans that give employees a reward that is variable based on a
firm’s results or profitability. Second, Participation through equity-ownership a form of
financial participation that is not directly linked with profits but indirectly related to the pre-
sent value of future profitability. These plans can take the form of equity shares or employee
stock options. Usually companies issue these shares from a prescribed quota reserved specif-
ically for employees at a discounted price.

Profit-sharing and equity-ownership plans vary in the risks they carry and how they
deliver returns to employees. If an increase in employee productivity results in higher profits,
the transfer of benefits to the employees will depend upon whether the company can afford
to pay a higher contribution in the profit-sharing plan the following year. Conversely, under
equity-ownership, the rise in profits is generally transferred to the employee automatically
through a related increase in the firm’s stock value, but this increase is only realized when
employees sell their equity and when stock markets remain stable. Empirical studies have
demonstrated positive links between financial participation and employee productivity (e.g.,
Kruse and Blasi 1997; McCarthy and Palcic 2012).

404 E. FARNDALE ET AL.

Much of the extant financial participation research has focused on studying market econ-
omy institutional effects either unilaterally or classifying two broad types of capitalism:
LMEs and CMEs (Croucher et al. 2010). Such studies have demonstrated that the use of
employee financial participation plans varies less in LME contexts than in CME contexts, as
well as there being differences in the use of these plans between foreign-owned multinational
enterprises (MNEs), domestic-owned MNEs, and domestic organizations (Farndale,
Brewster, and Poutsma 2008). Although useful, this LME/CME dichotomy does not suffi-
ciently reveal the potential differences in institutional drivers within each of these market
economies. It is therefore important to develop more nuanced approaches to exploring the
use of financial participation plans related to market economy contexts.

Market Economies

Every country has its own set of political-economic institutions that collectively creates the
market (or non-market) mechanisms of the country (Ostrom 1986; H€opner 2005). The vari-
eties of capitalism approach, pioneered by Hall and Soskice (2001) and extended further by
Amable (2003), is a framework for describing comparative political economies on the basis
of strategic interactions between the different institutional players in the economy. Hall and
Soskice (2001) classified the developed economies into LMEs and CMEs, the primary differ-
ence being whether the economy is guided by market-based mechanisms, such as the LME
free market economy of the United States, or a CME non-market coordination mechanism in
which different institutions in their markets affect the equilibrium choices (Hall and Soskice
2001; Amable 2003).

There are, however, many markets, such as Italy or Sweden, that are situated in between
these two paradigms (Amable 2003). Therefore, to analyze how a firm’s financial participa-
tion behavior might be affected by its market environment, it is more appropriate to parse the
varieties of capitalism into relevant institutional and structural combinations for each charac-
teristic of the economy. Such is the classification of Amable (2003), creating five groupings
of economies on the basis of five broad institutional dimensions: product markets, financial
markets, Labor markets, social protection, and education systems. We focus here on the first
three of these institutions, as these market forces are expected to have the greatest influence
on the prevalence of financial participation plans in firms due to their direct effect on
worker-firm relationships, as we now describe.

Product markets are the markets in which firms sell their products or services, and vary in
the extent to which they can be classified as competitive free-markets, versus regulated mar-
kets over which governments exert control (Amable, Ledezma, and Robin 2016). Related to
financial participation, product market competition has been found to enhance performance-
related pay, stock options (Cu~nat and Guadalupe 2004), and incentive-based compensation
plans (Beiner, Schmid, and Wanzenried 2011; Funk and Wanzenried 2003): “With greater
competition due to increased product substitutability or a larger market, firms provide stron-
ger incentives to their managers to reduce costs, even though profits become more volatile”
(Raith 2003, 1432). Shedding more light on this relationship, Beiner, Schmid, and

FINANCIAL PARTICIPATION ACROSS MARKET ECONOMIES 405

Wanzenried (2011) found a convex relationship between product market competition and
managerial incentive pay: if competition intensity is low, managerial incentive pay will
decrease, but under sufficiently high intensity product markets, managerial incentive pay will
increase. We therefore propose that competitive markets are likely to show high use of
equity-ownership and profit-sharing plans, and that increasing levels of regulation and control
will decrease the likelihood of their use.

Financial markets are the markets for the exchange of funds, classified either as market
(investor)-based or bank-based (Levine 2002). Financial participation plans have been found
to be affected by the dominant financial market structure. For example, a greater proportion
of institutional investors (market-based) increases the degree of variable pay for managers
while reducing the basic level of compensation (Hartzell and Starks 2003). Stock options
also have the “highest sensitivity to a firms’ capital structure” (Ortiz-Molina 2007, 21). In
LMEs, the financial markets result in short-term pressures from institutional investors for
results (Poutsma et al. 2012). We therefore argue that more market-based investment struc-
tures (rather than institutionalized financing through banking institutions) will be associated
with higher levels of use of equity-ownership and profit-sharing plans. In contrast, where
financial markets are less developed, this type of risk is less desirable, resulting in lower use
of share ownership and stock options (Jones, Kalmi, and M€akinen 2006). Long-term financ-
ing relationships between firms and banks also indicate low use of stock options (Uchida
2006). As an alternative form of variable pay, we anticipate that profit-sharing plans will
also be more prevalent in more investor-focused financial markets.

Labor markets are distinguished by the extent to which employee rights are protected, and
workers are represented within firms. High levels of protection and representation are
referred to as coordinated labor markets, while liberal labor markets are less regulated to
encourage greater competition (Hall and Soskice 2001). With regard to financial participa-
tion, high indirect participation has been directly correlated with greater use of profit-sharing
(Poutsma, Hendrickx, and Huijgen 2003). Highly regulated labor markets also increase
enforced governance and reduce agency cost, thereby allowing companies to spend less on
incentive-based pay (Dicks 2012), and wanting to take less risk, avoiding equity ownership
plans (Jones, Kalmi, and M€akinen 2006). Low levels of indirect employee representation, in
contrast, are associated with greater use of stock options and share ownership (Poutsma,
Kalmi, and Pendleton 2006). Our proposition is therefore that, in more competitive, liberal
labor markets with low levels of employee representation, there is greater use of equity-
ownership but less use of profit-sharing plans, compared with more regulated labor markets
with high levels of employee representation.

Although we do not focus on social protection and education systems in great detail here,
as these institutions are expected to have less of a direct effect specifically on financial par-
ticipation schemes than the three institutions described above, we briefly outline their role in
distinguishing market economies. Social protection or national welfare systems evolve from
country-specific politics in terms of the extent to which the government allocates social
expenditure as a percentage of the gross domestic product (GDP) (Amable 2003). Those
countries in which there is a lack of social welfare for workers tend to belong to societies
with a greater focus on a free-market economy. With regard to education systems, these can

406 E. FARNDALE ET AL.

differ based on the extent to which they are differentiated (such as in the United States) or
standardized (such as in Germany) (Amable 2003). This determines the extent to which “job-
ready” talent is available to employers in any given country.

Critically, Amable (2003) highlights the importance of considering the interaction between
these different market institutions, rather than observing any one of them in isolation. Each insti-
tution has a different effect on firm-level variables depending on the context formed by its com-
bination with the other institutions (Ostrom 1986; H€opner 2005). For example, the structure of
education in a country, and hence the related need for organizations to offer training, should be
considered along with a firm’s relationship with banks, because there may be interaction effects
on levels of investment in training: Popov’s (2014) survey of 8,265 firms found that availability
of bank credit affects a firm’s investment in on-the-job training, with a 15 percent drop in the
probability of training being provided by a firm that is credit constrained.

Amable (2003) further explains how one institution can affect the working of another. For
instance, a company’s relationship with its creditors can promote long-term investment,
thereby providing the opportunity to stimulate stable labor relations. Furthermore, studying a
firm’s response strategy in light of a single institution, while holding others constant, may not
help in understanding clearly the effect of that institution on the firm’s actions. For example,
it has previously been assumed that centralized bargaining would lead to higher wages, but
research has demonstrated an inverted U-shaped relationship whereby totally market-based or
totally coordinated structures will both put constraints on wages (Calmfors et al. 1988).

As a result of combining these institutional dimensions in different country groupings,
Amable (2003) identified five different market economies. We explore each of these market
economies and their institutions in turn to uncover the usefulness of the varieties of capital-
ism level of analysis in explaining corporate practice in financial participation.

LINKING FINANCIAL PARTICIPATION PLANS WITH MARKET ECONOMIES

Taking each market economy in turn, we develop arguments based on institutional reasoning
regarding the prevalence of profit-sharing and equity-ownership financial participation plans.
We conclude this section stating two hypotheses designed to test the overall use of these two
forms of financial participation across different market economies, i.e. identifying the market
economies in which we expect each form to be most or least prevalent. Table 1 summarizes
this argumentation, matching the three institutional dimensions to the five market economies,
and indicating anticipated levels of use of profit-sharing and equity-ownership plans.

Continental Europe

This market economy includes Germany, France, Austria, Belgium, Norway, The
Netherlands, and Switzerland (Amable 2003). Product markets are regulated to an average
extent according to the Organisation for Economic Co-operation and Development (OECD)
norms, except for in the Netherlands where they are somewhat more competitive (OECD

FINANCIAL PARTICIPATION ACROSS MARKET ECONOMIES 407

2015). Financial markets are dominated by banks that have major stakes in corporations with
long-term credit-based relationships with firms. Yet at the same time, stock markets are
highly developed, also creating market-based demands (Amable 2003). Although the labor
markets are competitive with skilled and organized workforces (Poutsma, Hendrickx, and
Huijgen 2003), there is substantial coordination and protection provided in the workplace
through a high degree of indirect employee representation and protection. Employees have
leverage through strong trade union influence in bargaining, which is usually organized at
the industry level with some room for flexibility at the company level (Amable 2003; Hall
and Soskice 2001). Industrial relations are based on cooperation rather than conflict, with an
emphasis on a stakeholder approach to corporate governance (Almond, Edwards, and
Clark 2003).

Based on these institutional characteristics, we anticipate greater use of profit-sharing
plans than equity-ownership plans due to average levels of product market regulation, the
mix of bank-based and market-based financing, and a dominance of indirect representation
and wage bargaining structures. Legislation and tax incentives to promote profit-sharing are
also dominant in one country in this market economy: France (Estrin et al. 1997). As the
financial market relationship between firms and banks is generally more long-term rather
than demanding quick returns, firms will be less in favor of taking risks such as those associ-
ated with share ownership and stock options. Equity-ownership use is nevertheless antici-
pated to be at a medium (average) level relative to the other market economies, as there are
highly developed stock markets.

State-Influenced Mediterranean

This market economy includes Spain, Portugal, Greece, and Italy (Amable 2003). These
countries are characterized by increasingly high regulation of product markets, with Greece
having one of the highest levels of administrative market regulation (OECD 2015). The

TABLE 1
Core Institutional Characteristics of Five Market Economies Linked to the Use of Financial

Participation Plans

Continental
European

State-Influenced
Mediterranean

Scandinavian
Social Democrat

Asian

Liberal
Market Economy

Product markets Medium regulation High
regulation

Medium to
low regulation

Very high regulation Competitive

Financial markets Bank/market-based Bank-based Bank-based Bank-based Market-based
Labor markets Coordinated (some

competition)
Coordinated

(emphasis on role
of government)

Coordinated
(emphasis on role
of trade unions)

Coordinated
(emphasis on
long-term welfare
of employees)

Liberal/competitive

Hypothesized use of
equity-
ownership plans

Medium
3rd Most
prevalent

Low
Least prevalent

Medium-low
4th Most
prevalent

Medium-high
2nd Most
prevalent

High
Most prevalent

Hypothesized use of
profit-
sharing plans

Medium-high
Joint most
prevalent

Low
Least prevalent

Medium
Joint 2nd
most prevalent

Medium-high
Joint most
prevalent
Medium
Joint 2nd
most prevalent

408 E. FARNDALE ET AL.

economies’ financial markets depend minimally on market-based mechanisms, and have low
percentages of institutional investors compared to banks, pension funds, and insurance com-
panies (Amable 2003). The OECD ranked these economies as having the strictest regulation
of employment protection within the European Union (OECD 2009), with strong government
influence on employment regulations (Schmidt 2007). The relationship between management
and worker representation is typically conflict-based (Romo 2005).

In this market economy, we expect to see the lowest levels of market-based plans in the
financial participation portfolio. As product markets are increasingly regulated and financial
markets remain underdeveloped as a result of state intervention, financial participation plans
are anticipated to be less related to market-based risk, resulting in low use of equity-ownership
plans. Although there is high indirect participation (normally directly correlated with profit-
sharing), there has been substantive evidence for a decrease in performance-based pay incen-
tives under high government regulation (Perry and Zenner 2001). We therefore expect the
lowest levels of both profit-sharing and equity-ownership plans in this market economy rela-
tive to the other market economies.

Scandinavian Social Democrat

Sweden, Denmark, and Finland are the countries that form this market economy (Amable,
2003). A notable feature of these market economies is the close to average but lower degree of
regulation of product markets compared to the CE and SIM models (Amable 2003). Financial
markets are dominated by companies having access to patient capital through banks, meaning
that credit availability is not always tied to profits (Hall and Soskice 2001). These three econo-
mies follow a social democratic structure in the labor market, evidenced by high trade union
membership levels and highly centralized collective bargaining coverage (ETUI 2015). The
result is highly coordinated labor markets, in which trade unions play a significant role.

Based on the medium-to-low regulation of product markets, bank-based financing, and
high indirect participation and coordination of the labor market, we expect to see medium
(average) levels of financial participation based on both profit-sharing and equity-ownership
plans, relative to the other market economies. Specifically, due to the lower regulation of
product markets than in CE, we might expect higher use of equity-ownership in SSD, yet the
financial markets are more purely bank-focused than in CE, indicating less use of equity-
ownership. Combined with the greater level of labor market coordination than CE, overall,
we expect lower levels overall in SSD of equity-ownership than in CE.

Asian

Japan and South Korea combine to form this Asian market economy (Amable 2003). Product
markets are distinct from CE, SIM, or SSD economies, in that they are very strongly regu-
lated (Amable 2003). Economic policy is adopted to balance state intervention and free mar-
ket demands, with the state being more inclined to protect successful domestic firms from
foreign competition (Cerny 2005). South Korea is cited as a marked example of economic
success that implemented this model, which notably failed in India (Chibber 2003). The

FINANCIAL PARTICIPATION ACROSS MARKET ECONOMIES 409

financial market’s relationship with the firm is credit-based and has a long-term objective,
with firms predominantly being financed through banking institutions (Uchida 2006). These
countries have highly coordinated labor markets where a top priority is protection of employ-
ment (Amable 2003). A further distinction of this model, especially in Japan, is an inbuilt
lack of social security and indirect dependence on companies (Cho 1996), whereby care for
the long-term welfare of employees is an important institutional feature.

These institutional factors (very highly regulated product markets, bank-based financial
markets, and highly coordinated labor markets) lead us to believe that the regulated product
markets will somewhat constrain the use of stock options. Given also the long-term financing
relationship between firms and banks, this would also indicate low use of stock options.
Since the Asian financial crisis in the late 1990s, however, dynamics are said to have
changed, with firms increasingly inclined to use stock options to align with North American
“best practice” in financial participation (Ahmadijan 2001). We therefore anticipate a
medium (average) to high use of equity-ownership plans relative to the other market econo-
mies. Given the highly regulated labor market context and systems of indirect worker partici-
pation, we also expect to see medium (average) to high use of profit-sharing plans.

Liberal Market Economies

This final market economy includes the Anglo-Saxon countries of the USA, UK, Australia
and Canada (Amable 2003). LMEs are characterized by competitive product markets with
very limited levels of regulation (Amable 2003; OECD 2015). Financial markets are well
developed, and the importance of institutional investors is realized. Firms seek to maximize
shareholder value in the wake of a threat of takeover if they do not follow that objective
(Grant 2010). Relationships between investors and firms are built on short-term profits (Hall
and Soskice 2001), encouraging the use of incentive plans to motivate employee perform-
ance. Labor market policies are very liberal, allowing firm autonomy (Farndale, Brewster,
and Poutsma 2008). This results in a competitive labor market that is less influenced by
third-parties and more open to free-market forces. Indirect employee representation is less
common than in other models of capitalism (Almond, Edwards, and Clark 2003).

Based on these institutional factors, we expect the highest use of stock options and share own-
ership, encouraged by low levels of indirect employee representation and labor market regula-
tion. Given that product markets are competitive, there are highly developed financial markets
with investor-firm relationships leveraged on short-term profits, and there is the highest emphasis
on maximizing shareholder value, equity-ownership plans are expected to be used more com-
monly than in any of the other market economies discussed here. With the indirect participation
rate being lower, however, we expect to see a medium (average) use of profit-sharing plans.

Hypotheses

As summarized in Table 1, although it is expected that both equity-ownership and profit-
sharing financial participation plans will be used in all five market economies, based on the
preceding theorizing, we offer the following two hypotheses:

410 E. FARNDALE ET AL.

H1: Financial participation plans based on equity-ownership will be most prevalent in LMEs,
followed first by Asian, then by CE, and then by SSD market economies, and least prevalent in
SIM market economies.

H2: Financial participation plans based on profit-sharing will be most prevalent in both CE and
Asian market economies, followed first by SSD and LMEs, and least prevalent in SIM
market economies.

METHODOLOGY

The hypotheses are tested using 2009/10 Cranet data from nineteen countries representing the
five market economy models (n¼ 4,253) (see Table 2). The Cranet survey aims to draw repre-
sentative national samples across multiple countries. Data are collected from full population
surveys in many countries and from representative random samples in the larger countries. The
questionnaire is designed by an international team in English and then translated and back-
translated (Brislin 1976) into the language or languages of each country. The survey is targeted
at senior-level managers responsible for HRM. These managers are selected as key informants
as they are likely to be well-versed in the firm’s financial participation plans. In the survey,
HR managers were asked to respond to “yes/no” questions as to whether they used employee
share schemes and/or stock options (equity-based plans), and profit- sharing plans, separately
for four employee levels—management, technical/professional, clerical, and manual.

TABLE 2
Respondents

Market economy Number of respondents Respondents per country

Continental European 1,333 Austria ¼ 203
Belgium ¼ 240
France ¼ 157
Germany ¼ 420
Netherlands ¼ 116
Norway ¼ 98
Switzerland ¼ 99

State-Influenced Mediterranean 371 Greece ¼ 214
Italy ¼ 157

Scandinavian Social Democrat 780 Denmark ¼ 362
Finland ¼ 136
Sweden ¼ 282

Asian Model 389 Japan ¼ 389
Liberal Market Economy 1,380 UK ¼ 218

USA ¼ 1,052
Australia ¼ 110

Total 4,253

Data was not available from Spain and Portugal (SIM), South Korea (Asian), and
Canada (LME).

FINANCIAL PARTICIPATION ACROSS MARKET ECONOMIES 411

Control Variables

Several control variables are applied to accommodate for different organizational determi-
nants in addition to the effect of market economy based on extant literature. First, firms are
likely to use financial participation schemes when they are expected to have a positive impact
on their profit-seeking activities. For example, Kalmi, Pendleton, and Poutsma’s (2005) study
of 209 listed firms from the UK, Netherlands, Germany, and Finland found that equity-based
ownership is positively related to productivity, while profit-sharing does not have a similar
effect or any complementary relationship with other forms of participation. This is contradict-
ory to the normally-held belief that financial participation works best with other forms of par-
ticipation. They attribute the reason for this to the fact that firms in their study were publicly
listed, whereby a sense of ownership is less important and any financial participation
schemes are seen as “supplementary” rewards. We measure this control by including two
variables: a dummy variable for whether the firm is publicly listed (62.5% of firms did not
report being publicly listed); and dummy variables for whether the firm was reporting its
profit over the previous three years as being high, modest, enough to break even, insufficient
to cover costs, or leading to large losses (12.1% of firms fell into the top two categories, and
33.8% into the bottom two).

Second, the extent to which a firm has formal mechanisms of employee representation
may determine its use of financial participation plans. Our reasoning lies in the difference
between stakeholder and shareholder models of corporate governance, whereby the former is
known for its greater employee representation. While shareholder firms aim to maximize
equity value, stakeholder firms have broader objectives that consider added value to all par-
ties who have a stake in the organization (Jones et al. 2012; Tirole 2001). Research shows
that the recent trend towards the shareholder approach in countries such as Finland has con-
tributed to increased use of participation schemes (Jones et al. 2012; Poutsma and De Nijs
2003). However, it is also argued that because stakeholder firms have less pressure to maxi-
mize short-term profit, they can therefore share rewards with their workers (Blair 1995;
Levine 1995). In order to measure the extent of stakeholder (rather than shareholder) influ-
ence, we include two proxy variables typically evident in stakeholder model firms: the level
of influence of trade unions (scaled 1–5, where 1¼ no union influence at all, and 5¼ a very
great extent of union influence); and the presence of work councils (66.6% of firms reported
having a works council).

Third, a firm’s age and size have been found to be significant predictors of financial par-
ticipation plan use (Lavelle et al. 2012). For example, new firms need to expend more effort
in aligning the long-term interests of employees with their own than established firms. They
are also expected to have equity-based plans rather than profit-sharing, as early year profits
are less likely (Lavelle et al. 2012; Pendleton et al. 2001). The link between firm size and
financial participation is less predictable but nevertheless evident, dependent to some extent
on the anticipated benefits of using financial participation to counter the effects of power
inequalities as firms increase in size (Lavelle et al. 2012). Firm age and the number of
employees are therefore included in the analysis.

412 E. FARNDALE ET AL.

Finally, the level of capital intensity of a firm has been found to be related to plan use,
whereby high intensity is associated with the highest need for firms to align the interests of man-
agers and workers with corporate objectives (Lavelle et al. 2012). We use a proxy measure of
capital intensity based on whether the firm is in the manufacturing sector (indicating high capital
intensity) rather than the services sector (64.9% of firms reported being in manufacturing).

In summary, these firm characteristics (public listing, profitability, trade union influence,
works council presence, firm age, number of employees, capital intensity) are included in the
analyses as control variables to consider other potential explanations for variance in financial
participation plan use.

RESULTS

To analyze financial participation plan use, we calculate the plan incidence for each
employee type within a firm. This helps explore the effects of market economy and types of
employees using a logit regression model incorporating company fixed-effects as each unit
of observation is repeated for each type of employee. In other words, for each firm the
dependent variable is whether the scheme, which is being regressed on the explanatory varia-
bles, is offered (coded as 1) or not (coded as 0). For each scheme, it is recorded whether or
not the scheme is offered to each of the four employees levels: management, professional/
technical, clerical, and manual.

Table 3 presents the percentage of firms reporting the use of financial participation
plans by employee level. It shows that all plans are used across employee levels, although
with decreasing frequency as the level decreases (as expected). It is noteworthy that there
is a particularly noticeable decrease in use from managers to the lower levels for
stock options.

The independent variable in the analysis is market economy, designated as CE, SSD,
SIM, Asian, or LME. We fit the following model to our data, where Yi is a binary measure
of each of the three financial participation plans (share schemes, stock options, and profit-
sharing):

Yi ¼ b0 þ b1Market Economy þ b2Employee Type þ b3Controls
þ b4Firm Fixed Effects þ ei:

TABLE 3
Percentage of Firms using Financial Participation Plans by Employee Level

Management Professional/Technical Clerical Manual

Employee share scheme 21.9 14.9 13.8 10.9
Stock options 18.3 7.8 5.2 3.0
Profit sharing scheme 28.8 23.5 20.1 14.4

FINANCIAL PARTICIPATION ACROSS MARKET ECONOMIES 413

TABLE 4
Logit Regression Coefficients for Financial Participation Plan Use

Dependent variable Employee share scheme Stock options Profit sharing

Scandinavian Social Democrat �0.08 �1.34� �3.64��
(0.72) (0.65) (0.56)

State-Influenced Mediterranean �0.82 1.81�� 6.18��
(0.72) (0.56) (0.62)

Liberal Market Economy 1.24� 2.41�� 1.74��
(0.68) (0.59) (0.54)

Asian 7.54�� 0.41 �5.92��
(0.29) (0.60) (0.65)

Professional/Technical �3.14�� 3.30�� 1.13��
(0.29) (0.27) (0.15)

Clerical �3.48�� 4.81�� 1.87��
(0.31) (0.36) (0.17)

Manual �4.95�� 6.11�� 3.68��
(0.40) (0.46) (0.22)

Number of employees 0.00 �0.00 0.00�
(0.00) (0.00) (0.00)

Union influence (small) 0.31 �0.89�� 0.49
(0.57) (0.92) (0.50)

Union influence (moderate) 0.06 �0.17 1.15�
(0.62) (0.78) (0.52)

Union influence (great) �0.62 �1.03� 0.91
(0.85) (0.60) (0.63)

Union influence (very great) �2.67 0.22 �0.07
(1.64) (0.43) (1.37)

Works council presence 1.46�� 1.02� �0.23
(0.5) (0.46) (0.43)

Public listing 5.01�� 4.82�� 0.24
(0.47) (0.50) (0.35)

Capital intensity (manufacturing) �0.44 0.19 �1.20��
(0.42) (0.38) (0.35)

Firm age �0.00 0.00 0.00
(0.00) (0.00) (0.00)

Profit (modest profit) �1.04 1.99� 1.13
(1.53) (0.86) (.90)

Profit (breakeven) 2.02 0.00 0.91
(1.32) (0.70) (0.77)

Profit (costs not covered) �3.04�� 0.283 �0.25
(1.03) (0.54) (0.57)

Profit (large losses) 1.85�� 0.19 �0.11
(0.66) (0.38) (0.38)

AIC 2,897.8 2,572.0 4,168.2
BIC 3,046.1 2,720.3 4,316.5
Log Likelihood �1,426.9 �1,264.0 �2,062.1
No. of observations 6,253 6,225 6,263
No. of groups: Firm 1,596 1,598 1,601
Variance: Firm (Intercept) 30.97 22.5 27.43
Residual 1.00 1.00 1.00

Standard error in parentheses.
��p< 0.001, ��p< 0.01, �p< 0.05.

414 E. FARNDALE ET AL.

In each model, the reference category (for categorical variables) is the CE market
economy as this is the largest group, and the management employee level as this repre-
sents the group most likely to be included. Table 4 shows the results of the
logit regression.

For employee share schemes, supporting our initial descriptive results, employee share
schemes are used most for management and least for manual employees (b¼�4.95;
se¼ 0.40; p< 0.001). The presence of work councils, publicly listed firms, and firms operat- ing with low profitability are also significantly (p< 0.01) and positively related to the use of employee share schemes. Testing hypothesis 1, we found that SSD (b¼�0.08; se¼ 0.72) and SIM (b¼�0.82; se¼ 0.72) firms do not differ from the CE reference category, but LME (b¼ 1.24; se¼ 0.78; p< 0.05) and Asian (b¼ 7.54; se¼ 0.29; p< 0.001) firms are signifi- cantly more likely to provide these schemes. We also tested for the significance of the coeffi- cient differences across the market economies (rather than the reference group). For this, we used a simultaneous test within a general linear hypothesis. Since this is a multiple hypoth- esis, we therefore avoid the multiple comparison problem by using the Bonferroni correction. The results of this test show that only the Asian market economy has a significantly different coefficient from the other four market economies. This second test largely confirms the ini- tial findings, with the only point of difference being the ranking of LME firms.

For stock options, stock options are least likely to be offered to manual employees
(b¼�6.11; se¼ 0.46; p< 0.001) and most likely for management employees. Finally, being publicly listed (p< 0.001) and making modest profits (p< 0.05) are significantly positively associated with stock option use. Testing hypothesis 1 further, stock options are more likely to be used in LME (b¼ 2.41; se¼ 0.59; p< 0.001) and SIM (b¼ 1.81; se¼ 0.56; p< 0.01) market economies relative to the CE reference category, while they are less likely to occur in SSD (b¼�1.34; se¼ 0.65; p< 0.05) firms. There is no significant difference between Asian firms (b¼�0.41; se¼ 0.60) and the CE reference category. When testing for the significance of the coefficient differences across the market economies, the effect of CE firms is not dif- ferent from SSD and Asia firms, nor is the effect of SIM firms different from that of LME firms. Again, the second test largely confirms the first, with only SSD firms being classified differently.

Overall with regard to hypothesis 1, for both employee share schemes and stock options
(equity ownership), we anticipated these to be used most in LME, followed by Asian, then
CE, and then SSD firms, and least in SIM firms. For share schemes, this is partially sup-
ported as LME and Asian firms were found to use this practice most, while CE, SSD, and
SIM firms use share schemes least. For stock options, the pattern is slightly different: LME
and (unexpectedly) SIM show the most common use, whereas the lowest use is in CE, SSD,
and (unexpectedly) Asia firms.

For profit-sharing, again confirming the descriptive findings, these schemes are least com-
mon for manual employees (b¼�3.68; se¼ 0.22; p< 0.001) and most common for manage- ment. Finally, high capital intensity firms are significantly (p< 0.001) less likely to use profit-sharing, while firms with moderate union influence are significantly (p< 0.05) more likely to use this practice. Testing hypothesis 2, we find that SIM (b¼�6.18; se¼ 0.62; p< 0.001), Asian (b¼�5.92; se¼ 0.65; p< 0.001), SSD (b¼�3.64; se¼ 0.56; p< 0.001),

FINANCIAL PARTICIPATION ACROSS MARKET ECONOMIES 415

and LME (b¼�1.74; se¼ 0.54; p< 0.01) firms are all significantly different from the CE reference group, with each region being less likely to offer profit sharing than firms from CE. When testing for the significance of the coefficient differences across the market econo- mies, however, the effects of SIM and Asian firms are not statistically different from each other (though they do differ relative to CE firms). Similarly, the effects of LME firms are not significantly different from CE or SSD market economies.

With regard to hypothesis 2, we anticipated profit-sharing would be used most in CE
and Asian firms, followed by SSD, and LME firms, and least in SIM firms. There is
again partial support, as CE firms do show the highest level of use and SIM firms the
lowest level of use. However, Asian firms show a low level of use rather than high
as expected.

DISCUSSION

Financial participation plans represent a set of management practices that firms can largely
choose to implement (other than where this is mandated by law, e.g., in France; Estrin et al.
1997), with the expectation that they will help to motivate employees to improve the bottom-
line performance of the firm (Dalton et al. 2007). The extent to which such plans are put in
place has previously been found to be associated with such characteristics as firm size, age
and capital intensity (Lavelle et al. 2012), whether a firm is publicly listed (Kalmi,
Pendleton, and Poutsma 2005), and the extent of the firm’s stakeholder rather than share-
holder corporate governance model (Jones et al. 2012). The study presented here has
expanded upon this organization-level of analysis, exploring the extent to which institutional
factors at market economy level can be applied as explanatory variables for financial partici-
pation use.

Taking employee share schemes and stock options as examples of long-term equity-based
financial participation plans, these are contrasted with the shorter-term profit-sharing plans
(Braam and Poutsma 2015). Based on Amable’s (2003) classification of countries into five
market economies (CE, SIM, SSD, Asian, and LME), their typical product, financial, and
labor market characteristics were used to characterize each market economy, proposing how
these factors might influence short and long-term financial participation plan use. As Table 1
summarized, it was proposed that high regulation of product markets and strong control of
financial markets were likely to combine to reduce the incidence of both equity-based and
profit-sharing plans due to their inherent levels of risk (Jones et al. 2006; Raith 2003). In
contrast, strong coordination of labor markets was likely to increase the use of profit-sharing
but decrease the incidence of equity-based plans based on patterns of employee representa-
tion (Poutsma, Hendrickx, and Huijgen 2003).

This institutional reasoning was applied to the five market economies, developing two
hypotheses comparing anticipated levels of use of the different financial participation plans.
These hypotheses received some support, highlighting how market economies differ signifi-
cantly in their use of financial participation plans. For example, while SIM firms were found
to show low use of employee share schemes and profit-sharing, LME firms were high in the

416 E. FARNDALE ET AL.

use of equity-based plans but lower in the use of profit-sharing. We consider the implications
of these findings further here.

In LME countries, the competitive, market-based product, and financial markets, com-
bined with a relatively low level of labor market regulation mean that financial participation
might be used to motivate employees to work towards the same goals as those of the firm’s
shareholders. In contrast, in SIM, the combination of highly regulated product markets and
underdeveloped competitive financial markets, combined with an unwillingness to take risk
mean that the context is not conducive for the use of financial participation plans. The only
unexpected finding here was the relatively high use of stock options in SIM firms, which
does not fit the institutional profile. Despite evidence of a decline in the use of performance-
based pay incentives under high government regulation (Perry and Zenner 2001), stock
options appear to be of interest to firms in these countries. Future qualitative research could
be interesting to undertake in exploring why.

The CE countries hold a middle position between the SIM and LME contexts, with
moderate levels of product market regulation, a balance between market-based and bank-
dominated financial markets, and labor markets that are largely coordinated but with competi-
tive elements. Their use of equity-based financial participation plans was also around the
mid-level comparing across the market economies, while the use of profit-sharing was rela-
tively high, as expected. Balancing the levels of regulation with free-market forces results in
greater use of employee share ownership and profit-sharing plans than in SIM countries, though
somewhat less than in the much freer markets of LME. A similar situation was observed in the
SSD countries, but with slightly lower use of equity-based and profit-sharing compared to CE
countries. Lower levels of product market regulation appear to be balanced against a less free-
market approach to finance to result in mid-levels of financial participation plans.

There were, however, other unanticipated results. The discrepancy between anticipated
and observed use of financial participation plans was primarily evident for the Asian firms
(for stock options and profit-sharing). One reason for this finding may be that the Asian mar-
ket economy in the analysis only included firms in Japan as the data were not available for
South Korea. South Korea has been identified as a strong example of balancing state inter-
vention and free-market demands (Chibber 2003), whereas Japan places greater emphasis on
companies to support long-term employee welfare due to its lack of social security (Cho
1996). This greater reliance on the corporate world may mean that the product, financial, and
labor markets operate differently from those in South Korea, leading to the observed lower
use of profit-sharing and stock options than anticipated. Further research on specific country-
level institutional factors that affect worker-firm relationships could help to clarify
this finding.

Overall, the findings indicate that product, financial, and labor market factors can be con-
sidered as institutional constraints to corporate agency in selecting whether or not to imple-
ment financial participation plans. By adopting Amable’s (2003) distinction between five
different types of market economy, this level of analysis enabled us to contribute to our
understanding of financial participation use. We have demonstrated that such plans are a
product of economic, regulatory, and market factors operating in the macro context of firms,
influencing management practice. As such, these findings provide further evidence of

FINANCIAL PARTICIPATION ACROSS MARKET ECONOMIES 417

isomorphism within market economies: Different market economies are expected to have dif-
ferent patterns of management practice adoption and diffusion based on “systematically inter-
dependent configurations” (Jackson and Deeg 2008, 545). Future research can continue to
benefit from the relevance market economy level of analysis in investigating financial partici-
pation plan use.

CONCLUSIONS

This study has explored whether a firm’s financial participation practices are related to the
institutional configurations of the market economy in which it operates. Based on institu-
tional theorizing, we anticipated a certain ranking in the use of both equity-ownership and
profit-sharing financial participation plans. The study’s findings largely support the antici-
pated associations between institutional factors and the use of financial participation plans.
The differences between market economies in the use of equity-based and profit-sharing
plans have been highlighted. Future research can now explore further how these differences
manifest themselves in creating systems of employee financial participation.

Despite these interesting findings, the study is, of course, subject to certain limitations, the
first of which is that the data only record whether or not the various financial participation
plans are offered to employees, rather than exploring the extent to which they are taken up
by employees. As noted, a further limitation of this study is that limited data were available,
with not all countries being represented in each market economy, with for example, Japan
being the sole representative of the Asian model. The addition of further countries in future
research would be a valuable contribution to knowledge in this field.

On the basis of this study, it is clear that the market economy level of analysis is an
important variable in explaining financial participation plan use across market economies, in
addition to extant organizational and country-level studies. For practice, this means that
MNEs operating across market economies should consider these institutional constraints
(product, financial, and labor markets) when implementing financial participation practices.
We look forward to observing how future research might extend the findings presented here
both to additional forms of financial participation, and to an even broader range of market
economy countries.

ORCID

Elaine Farndale http://orcid.org/0000-0001-5871-5840

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From ‘Constructing Socialism’ to a ‘Socialist-
oriented Market Economy’ in Contemporary

Vietnam: A Critique of Ideologies

ADAM FFORDE

Abstract

In power, the Vietnamese Communist Party has experienced three ‘moments’ of growth, each with some
differences of detail and of meanings: ‘traditional communism’; the transition from a planned to a market
economy in the 1980s; and, since 1992, a ‘socialist-oriented market economy’. For each, the article
discusses the ideologically defined nature of change; intentionality—‘how growth was to happen’; and the
quantitative data used. It suggests that critiques throughout the period have engaged with the intentionality
issue: in the first moment, by isolating the socialist relations of production within socialist construction as
the cause of difficulties; more recently, by engaging with the lack of effective policy despite contemporary
ideology’s unreliable belief in policy as key to growth.

WHAT IS THE OBJECT OF CRITIQUE? HOW CAN CRITICAL ANALYSIS engage with ideological
doctrine, and what do such doctrines have to say about reality? Mitchell (1991) has argued
that ‘the state’ is not something in itself but epiphenomenal: if the term is used, it refers to
the effects of other more profound processes and activities. Later, Mitchell extended this
argument to the economy, arguing that it too was ‘an effect’ (Mitchell 2014). He uses the
term ‘economentality’ to refer to practices, including economic ideas, that despite this,
treat ‘the economy’ as a well-bounded entity governed by knowable laws.

Such language can be confusing, especially if it is assumed that policy, guided by
economic research, models and influences an economy as though it were, for example, a
clock. Much of Mitchell’s argument originally relied upon two points: first, the somewhat
positivist one that the boundaries of ‘states’ are blurred (1991, p. 78); and second, the
political one, that the ‘ability to have an internal distinction appear as though it were the
external boundary between separate objects is the distinctive technique of the modern
political order’ (1991, p. 78). When applying a similar framing to his discussion of ‘the
economy’, he writes ‘by an effect, I mean the product of an iterative process of reference.

https://doi.org/10.1080/09668136.2019.1597018

This article is a revised version of a paper presented at the 5th International ADI Conference Growth: Critical
Perspectives from Asia, University of Copenhagen, 13–14 June 2013, and grateful thanks are owed to
commentators on earlier drafts.

EUROPE-ASIA STUDIES, 2019
Vol. 71, No. 4, May 2019, 671–697

http://www.tandfonline.com

The iteration was repetitive enough to create an appearance of permanence, but in its
repetition it is also open to instability’ (Mitchell 2014, p. 484).

It appears through relevant data, such as GDP, that ‘an economy’ exists, as we possess
measurements integrated into accounts, theories and their application. And, as we shall
see, for each of the three Vietnamese historical ‘moments’,1 we find very different data
integrated into very different accounts, yet all referring, usually, to changes in some ‘total’
that can be related to propositions, for example, about success, failure, performance and
comparisons. The three moments are: first, the Vietnamese interpretation of post-Stalinist
Soviet ideas and practices in the North from the late 1950s and in the reunited country
after 1975 until the late 1970s; second, the largely indigenous ideas and practices that
emerged and developed with the 1980s transition from planned to market economy; and
third, the blend of the ruling Vietnamese Communist Party (VCP) ideas with Western
market-oriented economics that emerged from the early and mid-1990s. In the current
‘moment’, discussions are about economic growth, understood to mean changes in GDP,
as part of a ‘socialist-oriented market economy’, but in the earlier moments, they were
about the Soviet-style construction of socialism, and in the 1980s, increasingly about the
transition from a planned to a market economy.

Though these are very different, two things may be missed here: first, the specific and
contextual nature of a discussion that presents itself as general and natural—‘we all know
what economic growth is’. And second, just because measurements exist does not mean
that what they appear to refer to exists of itself: an average is a statistic, an abstraction,
not what it refers to. Whether a number is taken to refer to something depends upon how
meaning is given to it: there has to be some ‘observation theory’ (Lakatos 1970;
McCloskey 1985), and how meanings are constructed depends upon which observation
theory is used, and this of course can vary. Thus, for each of the three ‘moments’ there are
tables labelled ‘industrial production’, but this does not necessarily mean that they refer to
the same thing, and therefore can be compared without risk of anachronism. This comes
down to a debate about whether we are comparing like with like, or not, and this is
confused by assertions, such as that by Mitchell, that things deemed to be ‘economies’ are
simply the effects of other things, with no ontological stability.2 If we were to agree with
Mitchell, we should believe that what we see as economies are simply the consequence of
how we frame phenomena: that is, that economies are to be tracked through the ideologies
that give their data meaning: in shorthand, through the ideas of their economists rather
than the economy itself. This goes too far, but is useful, especially when the prevailing
ideas and related data differ, as in the three ‘moments’ here.

Shonfield stressed how the expansion of peacetime state activities in richer countries in the
early post-World War II period could be understood as an attempt to tame capitalism, with

1I use the term ‘moment’ rather than potential alternatives such as ‘period’ because the latter requires clear
stipulation of starting and end points, which is not only not needed but confusing. The article argues that ideas
and practices change as processes, not as discrete events, at least in the Vietnamese context.

2It must be noted that Mitchell sidesteps his 1991 position in his 2014 paper. Compare: ‘the statist approach
always begins from the assumption that the state is a distinct entity’ (Mitchell 1991, p. 89) with ‘the term social
construction gets us caught in ontological and historical claims and counterclaims about what existed before the
economy. It is easier to talk about the economy as an effect’ (Mitchell 2014, p. 484).

672 ADAM FFORDE

economists in increasing demand to analyse and articulate policy rationalities that sought,
through such devices as formal modelling, to treat policy as, essentially, something that
generated known causes that would create, ex ante and ex post, predictively known effects
(Shonfield 1976; Fforde 2017a). Such an approach encourages the view that powerful
rulers characteristically have the authority and power to deploy policy. This may or may
not be a reasonable belief, and for contemporary Vietnam there is a strong argument that it
is not: the Party may rule, but it does not govern. Given Vietnam’s rapid economic
growth, this article argues that those who nowadays wish to provide a critique of the
situation in Vietnam must confront the powerful mainstream ideology that policy is the
core growth-driver. Leung (2015) argues that the issue is one of lack of political will to
deploy correct policy.

These two approaches—epitomised here by Mitchell and Shonfield—are contradictory.
The former denies ontological stability to anything that could be pointed to as ‘the
economy’, a separate thing with clear boundaries, whilst the latter assumes that ‘the
economy exists’ as a knowable and modellable black box: policy acts upon the economy,
and so exists outside it, conceptually. Shonfield’s approach is currently (and in the West)
the mainstream conventional position, focussing upon how governments ‘get policy right’
as the main driver of growth. This becomes confusing if rapid growth is not accompanied
by a convincing causative narrative. This, I argue, is the case in Vietnam.

Intriguingly, this is probably not just the case for Vietnam alone, but as a general issue.
Assumptions of ontological and epistemological stability across varying contexts (Kenny
& Williams 2001), if projected into a search for stable relations between policy and
economic growth outcomes globally in post-World War II datasets, lead to a lack of
convergence amongst studies and no evidence of robust relationships, in a technical sense
(Levine & Zervos 1993). This does not suggest, though, that economies do not exist as
well-bounded entities, simply that the data associated with them do not exhibit hoped-for
regularities. Further evidence suggests that the classic policy rationalities that Shonfield
describes led to a situation where beliefs were strong. Again, though, this suggests that the
issue was not whether economies exist as stable rule-governed entities, simply that beliefs
about them are strong, and probably mistaken.

Before World War II what we now call ‘economists’were extremely rare in public service
in Western societies. The US New Deal boosted their recruitment. Mitchell (2014) discusses
this as a part of his ‘economentality’. In his framing, critique will have to engage with such
fundamental positions, and his critique can also be seen in this way. At the same time,
however, during the 1930s, in the United States the parallel creation of data analysis
techniques and data itself, the analysis of which could underpin quantitative research to
buttress policy advice and policy parameter choice, led to a sharp debate between
neoclassical (still technically reliant upon graphical methods) and institutional
economists, with the latter seeking a re-examination of theory as it confronted evidence,
and the former resisting it (Yonay 1998). Both approaches, Yonay argues, were eclipsed
after World War II by the mathematicisation of economics that owed much to the work of
Paul Samuelson (Samuelson 1947). Yonay gives us considerable insight into how the
internal logics of schools of economic analysis manage the confrontation with, and the
creation of, data.

CRITIQUING IDEOLOGIES IN CONTEMPORARY VIETNAM 673

Such considerations suggest that what is meant by economics, how economists (if they
exist) see things and how this relates to local leaders’ perceptions of success are not only
unstable over time but also seem often over-confident. Put differently, a critique can
engage by exposing such over-confidence. The analytical question is how important
ideology actually is. If it is judged important then by implication historical accounts
should stress ideological change and so discontinuity; for example, the importance of
the introduction of renovation—doi moi—at the Sixth VCP Congress in 1986. What this
article argues, however, is that the evidence suggests the contrary: that there is more
continuity, amounting, I argue, to a tradition of critique that has had now twice to address
issues of: data in each of the three ‘moments’ considered here were often re-interpreted and
challenged, as critiques have exposed mismatches between ideology—mainstream beliefs—
and evidence. This then shifts our research focus to how one ‘moment’ replaced another. I
think that critiques show a shared but evolving interest in all three moments in possible
changes in material and spiritual welfare, suggesting that, to the extent that Vietnamese
critical economists have been sharing a field of enquiry this is it.

My core argument is that the mainstream ideology of the first moment did not entail the idea
that ‘an economy’ existed independently, acted upon through policy—rather, the ‘construction
of socialism’ treated intentionality as interior to the change process. What ‘fine-tuning’ took
place was intended to be of a secondary conceptual order. However, a radical challenge to
this arose, centred essentially upon the developing view that institutions—‘socialist relations
of production’—were, far from encouraging progressive change, but inhibiting it. This
entailed a rethinking of the causality issue, and prepared the ground for a positioning of
policy as something that could act upon an economy. Luckily, such reflections provided
much to consider when Chinese and Western aid cuts of the late 1970s saw state-owned
enterprises (SOEs) autonomously set about their own commercialisation by ‘jumping
fences’,3 and replacing the plan relationship by markets. In the early 1980s, Soviet-bloc aid
largely replaced that lost in the late 1970s and Soviet technical assistance naturally asserted
the value of Soviet institutions.4 Nevertheless, from early 1981 all Vietnamese SOEs had
secured legality for their non-plan activities (Fforde 2007).

In the second moment, the 1980s transition, whilst ‘the economy’ was increasingly
conceptualised as having an independent existence and operating according to knowable
‘laws’ (quy luat) to which VCP rule and policy were exterior, the core historical task of
transition was to allow the plan to retreat and allow these laws to operate and to sanction
the expansion of the market. Increasingly, policy supported and legitimised processes that,
rather than ‘getting prices right’, ‘made prices matter’. The policy stance was, however,
more reactive than proactive. This is a nice contradiction: the emerging policy rationality
largely explains not policy but a reality that the VCP needed to accept.

In the third moment, once political stability and the interests of dominant groups
appeared secure following the fall of the Soviet Union, as I will discuss below, policy
ceased to be an important influence on the change process. Even so, policy rhetoric, with

3A term, so far as I know, coined by two Vietnamese economists, Dam and Le (1981).
4We know too little about Soviet-bloc advice in terms of such issues as the Kosygin reforms and the use of

market forces in SOEs. See Fforde and Mazyrin (2018).

674 ADAM FFORDE

economists increasingly trained and primed to act on ‘the economy’, prevailed. Rhetorically,
the issue was not to ‘make policy matter’, but to ‘get policy right’—state capacity in a policy
sense was assumed. The VCP’s core ideological slogan was ‘modernisation and
industrialisation’ as part of the ‘socialist-oriented market economy’ (Fforde 2016).
Becoming part of the theatre of political conflicts, policy statements once again became
more interior to the change process than external to it, and so Western-trained economists
lacked the political prerequisites required for them to do what they had been trained to
do. This stood in sharp contrast to the assumptions of the mainstream where, for
example, donor beliefs often aligned with the VCP’s ideological positioning and stressed
the conventional view that change was driven by policy (the World Bank is a good
example). This perpetuated the ‘myth of the 1986 VIth Congress’ (Fforde 2018),
attributing major changes to a programme of reform introduced then. Yet, like their
predecessors, trained in Soviet doctrines, tensions caused by ideology and doctrine would
lead Vietnamese to develop a critique of what they were experiencing.

Such observations, I think, are crucial to securing better understanding of the intellectual
environment within which Vietnamese politics and government has been happening; for
example, the changing nature of ideas, and so suggestions, about what should be done
before 1975 and reunification, and the way in which the Party coped with the massive
transition from plan to market in the 1980s; the renewed commitment to industrialisation as
a strategic target in the early 1990s and the apparent lack of political concern over the fact
that the main structural change of the Vietnamese ‘economic miracle’ was not a shift from
farming to industry, as the slogan had it, but a shift to a service economy (Fforde 2016). It
was not just the VCP but many donors who supported the idea that industrialisation was a
necessary part of development, a common belief to this day.5

Vietnam’s changing economy—some facts

After the defeat of the French at Dien Bien Phu in 1954, in North Vietnam, the VCP (then called
the Vietnamese Workers’ Party) ruled the Democratic Republic of Vietnam (DRV) and initiated
social change, labelled by the local communist rulers ‘socialist construction’, that benefited
from large material and technical support from the Soviet bloc. Chinese aid continued
separately after the Sino–Soviet split. After the defeat of the regime in South Vietnam (the
Republic of Vietnam) in 1975 and the establishment of the Socialist Republic of Vietnam
(SRV), the VCP appeared to attempt a similar project of ‘socialist construction’ until the late
1970s and very early 1980s, when the spontaneous commercialisation of the state sector, in
part due to the loss of Chinese and almost all Western aid as a result of the Cambodia crisis,
was legalised in various ways. In 1986 the Sixth Party Congress gained much international
publicity through its commitment to ‘renovation’ (doi moi). As the Soviet Union, and thus
its aid programme, collapsed in the late 1980s, something like a market economy emerged.

In 1954 North Vietnam was very poor. The division of the country into two during the period
1954–1975 meant that the VCP then ruled the north and north-centre fromHanoi, losing thus the
Mekong Delta and the Central Highlands, areas from which agricultural commodities had been

5For further discussion, see Fforde (2017c).

CRITIQUING IDEOLOGIES IN CONTEMPORARY VIETNAM 675

produced for export to global markets. A lack of actual and potential agrarian economic vitality
in the area ruled by the VCP through DRV political structures until national reunification in
1975–1976 appears important to much of what was to follow (Fforde & Paine 1987).

Three moments

Central to this summary are, clearly, three changing interrelated aspects of the puzzle. For each
moment we can ask the same questions. First, how is change defined conceptually by the
ideology of the time? This fundamental issue then links in turn to the following two
questions. Second, what, ideologically, is success and what is failure, and how is this linked
to intentionality? Third, what data were conventionally used to measure economic indicators?
Ideological positions in all three moments were recorded. Authoritative positions can thus be
found, as well, for the first and last, in foreign-language texts produced by aid donors.

First moment: ‘socialist construction’

The early 1960s saw the first Five Year Plan (FYP) (1961–1965) in North Vietnam. The large
Soviet and Chinese aid programmes supported the construction of socialism through the use of
Soviet institutions (Fforde & Paine 1987). Trade was largely replaced by administrative controls
that allowed planners to physically ‘balance’ inputs and outputs for SOEs, though large parts of
production and distribution remained unplanned. Farmers were generally pressured to join
producer cooperatives. As accumulation pressures mounted in the middle of the first FYP,
Soviet-bloc aid shifted to consumer goods and so eased pressures to secure rice from the
rural areas through high and forced procurement (Fforde & Paine 1987; Fforde & Mazyrin
2018). Indeed, in the DRV the reality of central planning’s capacity to move resources out of
consumption and into investment seems to have been relatively benign; by the early 1970s
local accounts reported severe problems in industrial organisation (Nguyen 1972).

Part of this aid programme was technical support to a data-creating apparatus that produced
statistics similar to those in other regions using Soviet techniques, which stressed the
importance of physical output. In following a clear and holistic model, various patterns of
change and their meanings initially emerged. The core structural disaggregation of data—
how data were organised and broken down—reflected how growth was conceptualised:
focussing first upon output and then upon the sites of output as, first, sectors such as
industry and agriculture, and, second, forms of property—state, collective and private, with
the first seen as the most socialist and therefore advanced, and the second in an intermediate
position. Data were tabulated under these headings. Higher output and a higher share of the
state sector both meant positive change. The Western system of National Income
Accounting (NIA) and the Soviet system of macroeconomic measurement were based upon
very different underlying views of the correct way to define the core structural division in
the economy. The NIA system structurally divides the economy on the distinction between
factors of production (labour and capital) so that national income is the sum of rewards to
them. Industrial output is then the sum or factor incomes generated in industry in a given
time period. This could be called a division based upon class. By comparison, the Soviet
system focussed instead on property-forms—state, collective and private—so that industrial
output data are divided under those headings.

676 ADAM FFORDE

The ideological conceptualisation of change: what was ‘socialist construction’?

For definitions of socialist construction, as the VCP sought to define it, it is useful to consider
key textbooks.6 For example, according to Nguyen and Ho, the Party stipulated that the
country had the necessary conditions ‘for advancing to socialism… and the only way to
do this was through a path of socialist industrialisation… in order to construct the material
and technical basis of socialism’. Socialist construction took place, they maintain, and
attained clear results first in the period of economic reconstruction (1954–1957), and then
in ‘the period of economic reformation (cai tao)7 and development (1958–1960)’, which
witnessed ‘the construction of many state enterprises… ’ (Nguyen & Ho 1979, pp. 26–7).
Socialist industry, they argue, ‘has characteristics that show its total superiority over other
earlier forms of industry’, principally since it ‘is constructed on the basis of socialist
production relations… realises the new style of social division of labour… rapidly uses
the results of scientific and technological advance… and possesses an advanced
management organisation that is ceaselessly perfected… ’ (Nguyen & Ho 1979, pp. 51–2).

This shows two things: first, the view that socialist industry, and by extension Vietnam’s
socialist system, is viewed essentially, as a totality, necessarily accompanying rapid and
progressive change. Socialist production relations, within which the student using the
textbook themselves are likely to sit—the system of SOEs, planning—stem from the
foundational choice of the Party to choose ‘that path’, and embody both cause and effect.
Consequently, no more than fine-tuning is required.

This appears often puzzling to analysts whose framework is dominated by the distinction
between exogenous and endogenous variables that treats the economy as a modellable and
separate entity. Consider the following:

From a social point of view, waterworks are a defining factor in reinforcing socialist relations of
production in agriculture. This is because, in reality, the problem of waterworks in our country
can only be fundamentally solved through large-scale projects. The construction of a rational
water system requires the contributions of a large number of workers, and the organisation of a
large-scale agricultural production unit. Both the construction and use of waterworks projects
requires a high degree of socialisation. An integrated waterworks project constructed through the
efforts of members of cooperatives… equipped with modern machines and equipment,
constructed by the state, serving fields that have been improved and reorganised for intensive
cultivation, will truly become a factor binding farmers to their cooperatives, binding agriculture to
industry, and binding the collective economy to the state economy. (Nguyen 1983, pp. 276–77)

In Mitchell’s world of ‘economentality’, Nguyen Huy confuses cause and effect; yet in the
VCP ideology of the ‘first moment’, it does not. Conceptually, there is no bounded entity

6Variation in these over time is interesting but not dealt with here. The copies in my possession were used at
a number of teaching institutions, especially the Economics and Planning University, which eventually became
the National Economics University, Hanoi. From the way they read, I doubt very much if they are translations,
and there is a valuable piece of research to be done on the extent to which they map changing Soviet advice. For
example, Tran (1968) is the third edition (the other two being for 1960 and 1965), and differences between
these deserve research. By contrast, many documents from the third moment (such as, sectoral master plans)
are often far less ‘Vietnamese’ in their content, perhaps as they were prepared with foreign consultants.

7The term is political and was also used to refer to the ‘reformation’ of southern officers and other elements
viewed with hostility by the Party after 1975.

CRITIQUING IDEOLOGIES IN CONTEMPORARY VIETNAM 677

upon which policy operates. This situation can be understood in terms of the political origins
of ‘socialist production relations’, and their function in permitting the ‘direct leading role’ of
the Party. SOEs, planning and agricultural cooperatives arguably allow for increases in
material production to be associated with social change without the emergence of groups
hostile to Party rule, as they are directly controlled by the Party.8 Whether they actually
allow for output gains is a separate matter.

What is success and what is failure

At its simplest, according to the ideology, success was guaranteed simply by the Party’s
decision to commit to socialist construction. This, then, was definitionally progressive, and
would accompany advances in material and spiritual welfare as both cause and effect. The
extent to which this success was apparent can be seen, Vietnamese analyses point out, in
both higher output levels and the consolation and refinement of socialist relations of
production: as in the quote above, cause and effect are both interior to the change process.
However, debates arose about the extent to which production might increase if ‘lower’
forms of socialist production relations were accepted; for example, a softer attitude to
farmers’ private plots or to the collectivisation of small-scale industrial workers (artisans).
But because of the view of the change process these could always be met by arguments
that more socialist construction would come from a hard-line approach, pushing socialist
relations of production. These could be met by arguments that a softer approach would
work better, improving incentives: the classic hard-line/soft-line, voluntarist/pragmatic
divisions of ruling communist parties.

Although such debates were fine-tuning, not providing a critique of the basic ideological
position, there is a natural logic to how critique emerged: by stressing material production
over the socialist relations of production. Here one should recall the deep poverty of the
north, its aid dependency, and the passions involved in anti-colonial and anti-imperialist
fighting. Critique can be found in studies such as Nguyen (1972) on state industry and
Dinh (1977) on collectivised agriculture. This focus on material production started to
create a critique of socialist construction that treated socialist relations of production, the
political foundation of Party rule, as what would now be called ‘growth drivers’,
separating out conceptually something upon which they operated and were starting to
build a platform for an attack upon them.9

8Thus Bray (1983) argues that rice production, unlike wheat, usually lacked the returns to scale that
agricultural cooperatives sought to exploit—scale without landlords.

9This was gradual and evidently cautious: ‘on the basis of our discussions with Vietnamese who were
involved in the reform process it is perhaps possible to identify two sets of principles on which their
understanding of the traditional socialist model was based. One of these we could call definitional, the other
operational. The first and most fundamental set, related to the traditional definition of socialism, comprised
three principles: public ownership of the means of production, operational central planning, and distribution
according to labour productivity. The second set was of secondary importance and comprised essentially
principles’ (Beresford & Fforde 1997, p. 112). The discussions reported by Beresford and Fforde (1997)
appear to ignore the political implications—Mitchell’s ‘distinctive technique of the modern political order’
surely requires policy to matter, and in the third moment, for the VCP to govern through policy, framed in
terms of economentality, rather than just ruling.

678 ADAM FFORDE

Quantitative data; how growth happened

Data were created to show how, in reality, socialist construction was happening. Mainly, this
followed standard Soviet principles and practices, taught to Vietnamese as part of Soviet-bloc
technical assistance.10 These data allowed local knowledge to identify and explain evident
difficulties in implementing Soviet norms. Beside (and within) the textbooks mentioned,
we therefore start to find analyses that, within the overall ideological framing, offer a
range of explanations for problems. On the one hand, textbooks offered images of socialist
construction; on the other, studies and reports grappled with apparent departures from
socialist norms (Vu & Dinh 1960; Doan 1965; To 1969; Ngo 1972; Nguyen 1972; Vu &
Vu 1974; Vu 1985).

Growth slowed abruptly in 1963, before the onset of US bombing (see Figure 1).

Discussion

Let us reconsider the three questions and the answers to them: how change happened; how
intentionality was manifest; and how change was measured. I frame this within the
contemporary analyses mentioned already. Few of these were produced by researchers
fully trained before the departure of the French, and the arguments often read as an
internal critique. These analyses are in sum a profound questioning of ‘socialist
production relations’ (through which the VCP ruled) pointing to constraints upon
improvements in material and spiritual welfare. Some asserted that this was because
the socialist relations of production were not properly realised in DRV conditions,
others that they were essentially problematic—though this was risky. For example,
Nguyen Manh Huan (1980) mounted a strong critique of a ‘model cooperative’,

FIGURE 1. INDUSTRIAL OUTPUT GROWTH IN THE DRV—NORTH VIETNAM, 1960–1975
Source: Fforde and Paine (1987, Table 30, p. 157).

10See Fforde and Paine (1987). The standard collections are the yearly So lieu Thong ke (statistical data), for
example, GSO (1991).

CRITIQUING IDEOLOGIES IN CONTEMPORARY VIETNAM 679

attacking the socialist relations of production by arguing that success had relied upon
preferential resource supplies.11

The textbook—ideological—image of socialist construction focussed upon industrial
SOEs, with the proviso that since autarkic development was impossible, aid was essential.
Growth was to be achieved by following the socialist model. In this ideology there was
little intentionality in terms of economentality—as Mitchell puts it, a conceptual distinction
and empirical boundary around ‘the economy’ as an object of policy. Soviet norms, thus,
offered ‘answers for everything’: limiting, conditioning and defining intentionality within
the formal system. This was well explained by Zdenek Mlynar, a Czechoslovakian
Communist Party member who studied in the Soviet Union in the early 1950s:

… Soviet law schools produced qualified bureaucrats. In the five years it took me to become a ‘legal
specialist’, that is, a qualified, Soviet-style bureaucrat, [the experience provided me] with a concrete
idea of how Soviet bureaucracy administers society.

…

Everything was relatively well thought-out and, above all, regulated in great detail. Many of the
questions I brought with me to Moscow—about how, practically speaking, this or that problem in
everyday life would be dealt with under socialism, how the work process, and other processes,
would be regulated (things that neither Lenin nor Stalin ever write concretely about)—seemed to
receive answers here. (Mlynar 1980, pp. 18–9)

This was a complete model, within which growth was simply and definitionally an inherent
part of socialist construction, albeit to happen under local conditions.

As the first FYP proceeded, prices on the free market rose, exerting pressure for diversion
of goods and services to the free market. As shown in Figure 1, in 1963 growth slowed
sharply. The direction fine-tuning took, however, meant that this was tolerated, on the
whole. There is evidence that SOEs ‘ran to the market’—that is, avoided producing for the
plan in favour of buying and selling on markets; that food supplies on the free market
rose; and the balance between consumer goods (and inputs to factories making consumer
goods) and capital equipment in the aid programme shifted towards consumer goods
(Fforde & Paine 1987; Fforde & Mazyrin 2018). Thus the Party’s slogan was adapted,
becoming ‘priority development of heavy industry in a rational way’.12 At the time this
situation had two basic interpretations.

The radical one was that there was an essential problem. The search to isolate and identify
causes of slow output growth ended up in a discussion of socialist production relations. Two
influential texts already mentioned show the positions being taken by specialists. The first, a
study of SOEs, reported conflict and chaos caused by methods of organisation—the socialist
relations of production (Nguyen 1972). The second, the article by the historian Dinh Thu

11The author, real name Nguyen Dinh Huan, as a young researcher had the vivid experience of presenting
the results directly to the top VCP leadership (personal communication).

12‘Đường lối công nghiệp hóa của Đảng Cộng sản Việt Nam’, inĐường lối cách mạng của Đảng Cộng sản
Việt Nam, available at: https://tusach.thuvienkhoahoc.com/wiki/%C4%90%C6%B0%E1%BB%9Dng_l%E1%
BB%91i_c%C3%B4ng_nghi%E1%BB%87p_h%C3%B3a_c%E1%BB%A7a_%C4%90%E1%BA%A3ng_C
%E1%BB%99ng_s%E1%BA%A3n_Vi%E1%BB%87t_Nam, accessed 23 November 2018.

680 ADAM FFORDE

https://tusach.thuvienkhoahoc.com/wiki/%C4%90%C6%B0%E1%BB%9Dng_l%E1%BB%91i_c%C3%B4ng_nghi%E1%BB%87p_h%C3%B3a_c%E1%BB%A7a_%C4%90%E1%BA%A3ng_C%E1%BB%99ng_s%E1%BA%A3n_Vi%E1%BB%87t_Nam

Cuc, reported a large decline in the cultivated rice area in a collectivised area—the Red River
Delta (Dinh 1977). These two studies pointed to emerging ‘economentality’ and a division of
the totalistic vision of socialist construction into ‘cause’ and ‘effect’ that would end up, not
surprisingly, blaming socialist relations of production—the political basis of the VCP.

The shared point of both these studies is the focus upon production: agricultural
cooperatives and SOEs were, as we have seen, core parts of what was called the socialist
relations of production, and central to the alleged capacity to construct socialism.
Focussing upon production meant that the socialist relations of production could be
assigned causality, separating them out from the totality and making them subject to
analysis and critique. Something could then be constructed, conceptually and empirically,
as the bounded entity upon which intentionality operated.

The conservative interpretation was that, as was also taught in Party schools, such
deviations were not indications of anything essential; rather, they were, perhaps as evil for
a Christian theologian, ever-present and an inherent part of socialist construction.

Official data offered insights into these tensions. Data on cooperative farmers’ income
showed that this increasingly came from the free market, from the quite legal ‘private
plots’; data on state workers’ spending showed how they also increasingly relied on the
free market; data on industrial output showed how, despite wartime bombing, growth
continued as aid propped up SOEs (Fforde & Paine 1987). The meanings of growth were
thus reflected in tensions between the premises behind official data (‘socialist
construction’) and ‘reality’.

Second moment: from plan to market

Basics

In the late 1970s Chinese andWestern aid was almost completely cut, as Vietnam came to ally
itself closely with the USSR, occupied Cambodia and suffered Chinese attacks on its northern
borders (de Vylder & Fforde 1996). Out of the turmoil, came a quite new pattern of growth.
Soviet-bloc aid rapidly replaced lost Chinese and Western aid. As seen in Figure 2, in the
early 1980s, data showed significant growth.

What was this transition?

Whilst at the overall ideological level much has been made of the Sixth VCP Congress in
1986, which announced doi moi (renovation),13 two key documents of early 1981 (Decree
25-CP and Order CT-100, see below) show just how far internal thinking had come since
the early 1960s. Both greatly extended the legitimate scope of market relations, and both
applied to fundamental elements of the socialist relations of production: they were about
agricultural cooperatives and SOEs. Both drew upon the political position taken at the

13This Congress is the subject of a wide range of cribs and sources of information for Vietnamese students,
see for example: ‘Đại hội Đảng toàn quốc lần thứ sáu’, Vietnam Youth Union, Historical Events, available at:
https://thanhnien.vn/thoi-su/dai-hoi-dang-toan-quoc-lan-thu-sau-498588.html, accessed 23 November 2018.

CRITIQUING IDEOLOGIES IN CONTEMPORARY VIETNAM 681

https://thanhnien.vn/thoi-su/dai-hoi-dang-toan-quoc-lan-thu-sau-498588.html

Sixth Plenum of the VCP held in 1979, which had declared that the response to the crisis was
not to be a hard-line reinforcement of the basis of VCP rule—the socialist relations of
production—but in doing whatever it took to secure major output increases. We see here a
structural equivalent to Mitchell’s economentality, for these measures were, from their
own internal logic, designed to act upon something. Gone were the attempts to exhort
greater alignment with the norms of Soviet institutions, with cause and effect muddled; in
their stead we find policy, and an economentality, creating as a social construct an
economy upon which policy would and should operate to cement policy as the core
growth-driver.

Decree 25-CP

This decree was technically a legal instrument, passed by the Government Council in
January 1981 (HDCP 1981). It offered the rhetorical master stroke of defining
commercial activities by SOEs as planned—by them, and so introduced measures to
create flexible and ‘motorised’ (cơ động) conditions needed for SOEs to be able to
stimulate production and profitable business (HDCP 1981, p. 1). Though the decree
expresses respect for the plan, it refers to the Sixth Plenum (focussed upon production),
the Ninth Plenum and Politburo Resolution No. 26 that ‘sought a powerful development
of the autonomy of SOEs regarding production and business, and finance’ (HDCP 1981,
p. 1). I read this as an ‘economentality’, with the cognitive establishment of a notion of
a bounded ‘economy’ vis-à-vis ‘policy’ reinforced by the attention paid to SOE
autonomy. It is worth noting that it applied to all SOEs, allowing them to sell ‘list’
goods (those they were to deliver to the plan) on the free market if they had directly—
rather than through the plan—acquired them. This predates in scope and extent anything
visible at the time in China.

FIGURE 2. INDUSTRIAL OUTPUT GROWTH IN THE SRV, 1977–1993
Sources: GSO (1981, Table 55 (for years 1976–1980, at 1970 prices), 1990, Table 56 (for years 1980–1985, at 1982

prices), 1997, Table 69 (for years 1986–1993, at 1989 prices)).

14For a more detailed discussion of these two documents, see Fforde (2017b).

682 ADAM FFORDE

Order #100

The second key document, Order #100, was a Party instrument, issued by the VCP Secretariat
(BBT 1981). It is firmly based upon actual practice:

Because of the need to stimulate production, guarantee livelihoods (doi song) and raise economic
efficiency, recently many cooperatives (including advanced and outstanding ones) have used the
form of ‘output contracts with groups of workers and individual workers’ with many different
crops (including rice), for livestock and other lines of production. This new form of
contracting has led to an initial step forward that is positive. However, because there is
no united leadership (chi dao) and direction, some cooperatives have made mistakes
in implementation.

The Ninth Plenum of the Central Committee (December 1980) decided to ‘expand implementation
and improvement of output contracting forms in agriculture’. (BBT 1981, p. 1)

The decree in fact seems to have reined in the spontaneous dissolution of the cooperatives
and in this vein we can appreciate its focus on use of such contracts within cooperatives. The
decree maintains the view that socialist relations of production are superior, part of the
construction of socialism, but can readily be interpreted as arguing that the point was to
get more output through less socialism.

What is success and what is failure?

In this second ‘moment’, with its powerful transition, we see two parallel ways of answering
this question. Those arguing in terms of the emerging economentality argued that policy, by
its very nature, should operate as a cause of better economic performance—that is,
production. A wide range of articles in the VCP press pursued this argument, showing
how increased commercial activities benefited SOE workers through improved real
incomes, as well as consumers and other producers with better and cheaper inputs
obtained from SOEs. Others showed how they violated socialist norms. In general, the
former position won the intellectual debate as it deployed more powerful arguments; it
won the political battle in part through bribes.15

Quantitative data: how growth happened

Official statistics continued to follow the same norms as before, focussing upon output and
the division of the economy according to property forms. However, alongside these official
data, new data based on surveys and their interpretation gained validity as new economic
thinking (de Vylder & Fforde 1996, p. 213). Central was a view of growth as including
commercialisation as SOEs engaged in additional activities besides those of the plan. This
view generated data to suit, such as on the degree of self-balancing by SOEs—that is, the
extent to which they did not ‘balance inputs and outputs—of the inputs required to
produce given planned outputs’ not through the planning system, but through markets or

15For further details of these articles in the VCP press, see Fforde (2007).

CRITIQUING IDEOLOGIES IN CONTEMPORARY VIETNAM 683

market-like relationships, which by the late 1980s had reached very high levels (de Vylder &
Fforde 1996).

This new economic thinking gained authority and coherence as the decade progressed.
There are many particularly interesting studies, such as those by Phan Van Tiem (1990,
1992, nd), whose approach clearly articulated a thought-through informal modelling of the
transitional Vietnamese mixed plan-market economy with particular attention to monetary
phenomena.

As far as this growth was concerned, primacy was now increasingly given to these new
economic ideas, at root a process that saw planners, placed under socialist construction in
opposition to markets, move back from this opposition in ways that saw space arise for
commerce and economic activity aimed at trade. Intentionality thus conceptually
shifted from the ‘we are but part of the model’ characteristic of socialist construction
ideology, to viewing change and growth as highly dependent upon acts of policy:
policy geared towards the commercialisation of SOEs, the participation of members of
cooperatives in markets and the ‘cooperativisation’ of agriculture. At this time the VCP
retained considerable political authority and cohesiveness, not least because until the
late 1990s, respected wartime leaders remained in office.

This growth, like that in the first moment, includes a considerable ‘policy history’, such as
decrees about SOEs and cooperatives published and disseminated in the Official Gazette
(Cong Bao). As such, an economic logic is deployed to validate laws emerging in parallel
with the development of policy suited to economentality. Development now exhibits, thus,
a strongly economic flavour, with references to socialist relations of production as a
necessary part of development downplayed: ‘the economy’, as counterpoint to ‘policy’,
starts to emerge.

Discussion: core meanings of growth during the transitional moment

I now consider the questions of how this growth was achieved, how intentionality was
manifested, and how it was regulated and moderated.

The main aspect of this growth was contestation over various aspects of the
commercialisation of the economy. A good and central example of this was policy towards
SOEs (Fforde 2007, 2014). We can track this through policy documents, numbered and
formally passed by apparently authoritative bodies. After the January 1981 Decree 25-CP
already mentioned, two decrees then attempted to rein in these activities before, in early
1986, a so-called ‘draft’ text or document of Party decree (BBT-306) reverted to a policy
of encouraging market activity. This happened before the Sixth Party Congress of
December 1986, which announced the policy of doi moi, and was followed by other
decrees of similar tone before the effective extinction of central planning in 1989–1991 as
the Soviet-bloc aid programme collapsed. Notably, there is no formal policy document I
know of that terminated central planning.

A qualitatively different rationality of rule, entailing a conceptualisation of the economy
and a new and associated policy rationality thus arose through the 1980s that explained and
justified policy that supported the commercialisation of the state sector, amongst other things
(Fforde 2009b). Thus ‘socialist construction’ as a concept was abandoned, even if surviving

684 ADAM FFORDE

in propaganda terms. Moreover, there is little evidence that this policy was an imported
foreign model; it appears a local construction.16

The growth of this second moment thus appears as transitional, in two very different
senses. First, it showed the crucial emergence of policy as a category for describing how a
national agency, here the VCP, acted upon the economy, construed implicitly as an
independent entity changing according to patterns knowable through ‘policy logic’ or
rationality. The political implications of this were not thought through. This was reflected
in the emergence of new forms of data, besides the official statistics, that measured
the extent of commercialisation, expressed as the degree and nature of ‘self-
balancing’—‘autonomous’ activities, especially of SOEs.17

Such processes, most clear in the emergence of new terms and new measurements, such as
the extent to which SOEs paid workers from funds they secured from their market rather than
their plan activities, which arguably entail a reconfiguration of relations between rulers and
ruled that transform ideas and thus practices of national agency, or ‘domestic sovereignty’,
seem to point towards political change. However, with political authority not really an
issue because the VCP was exercising a series of tactical retreats, political change lagged
behind, failing to create the political prerequisites for policy, that is, the protection and
reinforcement of domestic sovereignty. Social change and growth thus had a peculiarly
economic twist: the economy, conceptually, seemed more prominent whilst the political
prerequisites for its regulation and management through some equivalent to Mitchell’s
economentality were hazy.

This second moment appeared transitional in the sense that the situation where plan and
market relations co-existed, if subject to commercialisation processes, could not continue
forever: at some point, growth of the market had to end up in a market economy of
some sort. This happened at the end of the 1980s and early 1990s as Soviet-bloc aid was
lost. As can be seen from Figure 3, growth accelerated from 1992 and initiated a
Vietnamese ‘economic miracle’; from around 2009 the country entered ‘middle income’
status.18

Third moment: market economy with a socialist orientation

This third moment is ongoing. Compared with the first moment, it seems that it has taken
longer for a critique of it to appear. This is likely to be for three reasons. First, despite the
apparent absence of a clear narrative linking policy to outcomes,19 growth has been rapid
and poverty reduction impressive, an apparent success. Second, the ideological position of
the Party and its fears for regime survival after the fall of the Soviet Union, and the strong

16Thus, Dam and Le (1981) so far as I know are the first in print to refer to ‘fence-breaking’—a term that has
become rather widely-used to refer to SOEs’ behaviour in getting around prohibitions on direct market-based
relationships with other SOEs as well as various sources of supplies and market outlets.

17A good example can be found in the table in de Vylder and Fforde (1996, p. 213).
18See, for example, ‘Vietnam: Achieving Success as a Middle-income Country’, World Bank, 12 April

2013, available at: http://www.worldbank.org/en/results/2013/04/12/vietnam-achieving-success-as-a-middle-
income-country, accessed 23 November 2018.

19See the above-mentioned studies by Pham et al. (2008) and Giesecke and Tran (2008) in which
quantitative work shows little policy influence.

CRITIQUING IDEOLOGIES IN CONTEMPORARY VIETNAM 685

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beliefs underpinning Western economics training, make it hard to develop a critical analysis.
Third, and related to the second point, the diminishing but initially very great monetary
importance of donors in financing research has served to inhibit the development of a
critical perspective.

Some donors who aligned closely with evolving VCP ideology,20 relying on a reform
narrative that asserted the historical break in 1986 at the Sixth Congress, saw policy as the
cause of change. This was ultimately rooted in the belief in doi moi, and thus in the Party,
as the author of change, a belief supported in a wide range of texts by Vietnamese local
researchers and foreign consultants, and again Gencer et al. (2011) is revealing as, because
this is a sectoral ‘lower-level’ report, it shows accepted beliefs deployed ‘lower down’:

The Doi Moi, a programme of economic renovation, was launched by the Government of Vietnam in
1986. The reform program involved a set of measures to gradually move from central planning to
market mechanisms and an opening up of the economy to trade and foreign investment. (Gencer
et al. 2011, p. 9).

Thus:

Comprehensive policy reforms introduced over the past decade have succeeded in strengthening
Vietnam’s public financial management and encouraging the participation of private firms in most
sectors. (Gencer et al. 2011, p. 2)

Agricultural sector reform under Doi Moi, coupled with policies supporting trade, led to a boom in
farm exports and a dramatic reduction in rural poverty. (Gencer et al. 2011, p. 8)

FIGURE 3. GDP GROWTH, VIETNAM, 1985–2015 (CONSTANT PRICES)
Sources: GSO (2000 (for years 1985–1999, at 1994 prices), 2008 (for years 2000–2007, at 1994 prices), 2011 (for

years, 2008–2010, at 1994 prices), 2016 (for years, 2010–2016, at 2010 prices)).

20See, for example, the World Bank and other bilateral donors’ support for the Comprehensive Poverty
Reduction and Growth Strategy put together in the late 1990s. The Final report is available at: http://
siteresources.worldbank.org/INTVIETNAM/Overview/20270134/cprgs_finalreport_Nov03 , accessed 23
November 2018.

686 ADAM FFORDE

http://siteresources.worldbank.org/INTVIETNAM/Overview/20270134/cprgs_finalreport_Nov03

These statements are clearly not simply mistakes, though their fragility can be seen from
beliefs driving sources such as Gencer et al. (2011). De Vylder and Fforde (1988), as already
mentioned, was available to donors as they briefed themselves for a return to the country in
the late 1980s and early 1990s. These statements are also consistent with Mitchell’s
‘distinctive technique of the modern political order’: attributing change causally to policy.
Donors believed their own ideology, not surprisingly, which allowed them to validate and
give meaning to their activities.

Donor counterparts here and elsewhere were VCP-controlled bodies—but what was
meant by control?21 Arguably, as we find in the analysis of Gainsborough, political
conflicts did not have that much to do with differences in policy, but depended upon other
mechanisms, such as the purchase through bribes of what had been nomenklatura
positions (Gainsborough 2007). Consider the following, from a report to the National
Assembly (clearly driven by a critical perspective):

The division of tasks and responsibilities that realise the rights and duties of the state as owner,
regarding Groups and General Companies,22 are scattered and divided. This leads to a situation
where there is no organisation that bears principal responsibility for the management of capital
and assets… . Ministries and People’s Committees do not adequately grasp information on the
activities of these units. The Ministry of Finance carries out state financial management but only
participates indirectly in the management of capital and assets via the reports of the Ministries
and People’s Committees and of the units themselves.23

If there are no reliable data it is problematic to treat the situation as one where the economy
has clear knowable boundaries and policy is the main driver of change. Yet, this was what we
find driving donor strategy. For example, the Comprehensive Poverty Reduction and Growth
Strategy (CPRGS) (GoV 2002), prepared with substantial Vietnamese and foreign consultant
inputs, supported a Government of Vietnam-donor agreement (including many bilateral
agreements) to a large World Bank lending programme, and public agreement between the
Bank and the VCP on development strategy. Preparation for this was premised on VCP
positions developed after the fall of the Soviet Union, which articulated the ‘socialist-
oriented market economy’ as the core ideological slogan of this moment, expressed as
‘modernisation and industrialisation’. Thus, in a statement from the Party’s newspaper
Nhan Dan on its application to university education dated 19 August 2015,24 we find
(after a statement about the slogan’s alleged universal meaning):

In Vietnam, the 7th Plenum of the VIIth Party Central Committee (7/1994) approved the line of
industrialising and modernising the country. Our Party laid down: in the process of development

21Some INGOs also aligned with this strategy. The view of a leading INGO Vietnam country director, that
formal structures—state as well as mass organisations such as the Women’s Union—were the correct
development partners for INGOs in Vietnam is reflected in McCall (1998).

22These were bodies that grouped individual SOEs in various ways.
23Bao cao ket qua giam sat ‘Viec thuc hien chinh sach… tai cac tap doan, tong cong ty nha nuoc’ (Hanoi,

National Assembly, 2009, p. 20).
24‘Công nghiệp hóa, hiện đại hóa và yêu cầu đối với giáo dục đại học hiện nay’, Nhan Dan Dien Tu, 2015,

available at: http://www.nhandan.com.vn/giaoduc/dien-dan/item/27199202-cong-nghiep-hoa-hien-dai-hoa-va-
yeu-cau-doi-voi-giao-duc-dai-hoc-hien-nay.html , accessed 9 March 2016.

CRITIQUING IDEOLOGIES IN CONTEMPORARY VIETNAM 687

http://www.nhandan.com.vn/giaoduc/dien-dan/item/27199202-cong-nghiep-hoa-hien-dai-hoa-va-yeu-cau-doi-voi-giao-duc-dai-hoc-hien-nay.html

of our country in accordance with a socialist direction, industrialisation and modernisation are means
and formula to attain the goal of a prosperous life that is daily better and better, for the liberation and
all-round popular development. [Section 1]25

Following the same line of research, what is clearly an online crib for examinations replies to
the question ‘what is the theory (ly luan) of industrialisation and modernisation’ as follows:

The success of industrialisation and modernisation of the national economy is the definitive factor in
the success of the road to socialism that the Party and our people have chosen. Mainly because of
this, industrialisation and modernisation of the national economy is viewed as the central task of
the entire period of transition to socialism in our country…

So what is industrialisation and modernisation?

The 7th plenum of the VIIth Central Committee issued the conception: ‘Industrialisation and
modernisation is a process of fundamental and all-rounded change of production, business,
services and social and economic management from the predominant use of artisanal labour to a
predominant use of labour power with technology, methods and ways of working that are
advanced, modern and rely upon the development of industry and scientific–technical progress to
create high labour productivity’.

So from a theoretical and practical view industrialisation and modernisation are a necessary historical
process that Vietnam must go through change our country into an industrial country… .26

The World Bank and the CPRGS aligned with this. To quote the CPRGS:

The overall objective of Vietnam for the 2001–2010 period is to bring about a significant
improvement in the people’s material, cultural and spiritual life, lay the foundations for the
country’s industrialisation and modernisation, build a prosperous people, strong country and a
just, equal, democratic and civilised society, and establish the institutions of a socialist-oriented
market economy, protect and preserve the country’s natural resources and national culture for
future generations. (GoV 2002, p. 6)

However, the hoped-for industrialisation of the economy did not happen: industrial output
grew fast, but services grew faster. Structural change was quite different from that
envisaged by the VCP slogan of ‘modernisation and industrialisation’. Rather:

[the] services GDP share rose, from 38% in 1992 to 43% in 2013. In addition, whilst the share of the
broad category ‘industry’ over the same period rose from 23% to 29%, this growth was largely due to
increased mining output. In 2013 mining—included in the industry statistical definition—was 12%
of GDP yet under 5% in the early 1990s, so that the non-mining ‘industry’ share of GDP fell from

25‘Công nghiệp hóa, hiện đại hóa và yêu cầu đối với giáo dục đại học hiện nay’, Nhan Dan Dien Tu, 2015,
available at: http://www.nhandan.com.vn/giaoduc/dien-dan/item/27199202-cong-nghiep-hoa-hien-dai-hoa-va-
yeu-cau-doi-voi-giao-duc-dai-hoc-hien-nay.html, accessed 9 March 2016.

26‘Lý luận về công nghiệp hóa, hiện đại hóa… gắn với kinh tế trí thức’,Wattpad, p. 1, available at: https://
www.wattpad.com/2927500-l%C3%BD-lu%E1%BA%ADn-v%E1%BB%81-c%C3%B4ng-nghi%E1%BB%
87p-h%C3%B3a-hi%E1%BB%87n-%C4%91%E1%BA%A1i-h%C3%B3a-g%E1%BA%AFn-v%E1%BB%
9Bi, accessed 9 March 2016.

688 ADAM FFORDE

http://www.nhandan.com.vn/giaoduc/dien-dan/item/27199202-cong-nghiep-hoa-hien-dai-hoa-va-yeu-cau-doi-voi-giao-duc-dai-hoc-hien-nay.html

https://www.wattpad.com/2927500-l%C3%BD-lu%E1%BA%ADn-v%E1%BB%81-c%C3%B4ng-nghi%E1%BB%87p-h%C3%B3a-hi%E1%BB%87n-%C4%91%E1%BA%A1i-h%C3%B3a-g%E1%BA%AFn-v%E1%BB%9Bi

around 18% in the early 1990s to around 17% in 2013 (GSO 1993 Table 18 and GSO 2014 Tables 66
and 68). If one cares not to believe this data then the point to bear in mind is that it is the public face of
quantified economic change. If a speech is made in terms of successful ‘industrialisation’ implying
that this was the core, central driver of change, then it has either to argue that the fall in agriculture’s
share and the rise of services’ share were dependent upon industry, likely avoiding the issue that
industry only grows as a share of GDP if you include mining, or find some other way to argue
the point. (Fforde 2016, p. 12)

The view that change was brought about by policy developed and implemented effectively
by the Party and the ‘myth of the Sixth Congress’ as setting off the transformational process
of marketisation, was and remains central to mainstream ideology and accounts of the
Vietnamese ‘economic miracle’.27 It clearly aligns with the view that attributes causality to
policy, and usually ignores evidence (like that discussed above) to the contrary. The
literature takes an uncritical approach to this myth, managing anomalies by ignoring them.
It also implies that Vietnamese researchers either kept quiet or were ignored.28 I conclude
therefore that the basic ideological position was that the VCP, through policy, was the
author of the rapid economic growth that was occurring, and donors such as the World
Bank were co-authors.

Quantitative data; how growth happened

Through the 1990s Vietnamese economic data shifted from Soviet to Western norms as NIA
was adopted (see Figures 3 and 4). It is not too hard to argue that the new NIA system and the
old Soviet system, so long as GDP was largely viewed as an output concept rather than
inflation-adjusted factor incomes,29 are not so far apart. However, this is problematic as
GDP is not actually an output measure. Unlike the Soviet statistics, themselves embedded
in the notion of ‘socialist construction’, the basis for NIA is not production or property-
forms, but rewards paid for factors of production—labour and capital—which is why it is
called National Income. GDP rises and falls as these rise or fall, no matter what happens
to actual inputs of land, labour and capital. However, it is normal to finesse this by (as all
contemporary economists know) assuming some distributional arrangement linked to real
factor productivity so as to treat GDP conceptually as an output measure. This is then
easily coupled with the concept of the Incremental Capital Output Ratio (measuring the
ratio between investment—conceptualised as the increase in the stock of capital available—
and increases in GDP) to permit discussion of the efficiency of an economic growth.

Conceptualising growth as increases in GDP that come about through increases in factor
inputs, used in more or less efficient ways to secure increases in GDP, is coherent. However,
arguments about causality are problematic. The rhetorical refocussing demonstrated above—
the ideology of this moment—assumes state capacity to govern and thereby policy
effectiveness, and comes down in many ways to the deployment of policy to improve the

27Compare Kornai (1985).
28Zink (2013) is a valuable study of the realities of research activities in Vietnam.
29National Income Accounting, the basis of GDP, sums incomes of labour and capital (‘factor incomes’) to

produce a measure of national income, which is therefore not a measure of ‘output’.

CRITIQUING IDEOLOGIES IN CONTEMPORARY VIETNAM 689

efficiency of input use. The role of policy is then to support the development of institutions
and policy settings that will act on the economy to maintain and improve efficiency. This is
underpinned by the microeconomics premise that, in the absence of market failure, markets
will allocate resources efficiently to competing ends. Policy should then seek to remove
obstacles to the free operation of markets when there is no market failure, and deal with
market failures as they arise. This quite coherent picture is premised on state capacity to
formulate and enact policy and undertake policy analysis with predictive power, so that
policy can measurably do what it is meant to do. Whilst it can be argued that policy
analysis is not actually designed to produce predictive knowledge (its procedures usually
contain no such criterion) (Fforde 2017a), the argument about Vietnam is the prior one,
that state capacity was absent—the VCP ruled, investing heavily, for example, in its
domestic security services, but it did not govern.

A prerequisite of this view of how growth is achieved is therefore that policy actually and
normally matters: that is, political conditions are such that technical arguments about, for
example, market failures lead to policy recommendations that lead to changes in reality.
There is a need for reformists: for those in power to implement good policy based upon
good policy advice. Whilst the donor-supported ideology echoed Mitchell’s position,
arguments were from the start present that implied that this prerequisite was absent, not
least the position that the 1986 Sixth Congress was not the starting point of a reform
process but part of the 1980s transition.

Discussion: core meanings of growth—metaphors

If we consider ideological answers to the three questions—how this economic growth was
brought about, how intentionality was manifested, and how growth was to be regulated
and moderated—much of the new ideology was and is clearly a façade, hiding important
historical forces (such as the commercial power of SOEs that had grown so much in the
1980s, especially before the Sixth Congress of 1986. Preservation of this façade had to

FIGURE 4. INDUSTRIAL OUTPUT GROWTH, GDP BASIS, VIETNAM, 1985–2015
Sources: GSO (2000 (for years 1985–1999, at 1994 prices), 2008 (for years 2000–2007, at 1994 prices), 2011 (for

years, 2008–2010, at 1994 prices), 2016 (for years, 2010–2016, at 2010 prices)).

690 ADAM FFORDE

ignore much contemporary history. Donors and the VCP developed a public position based
on the assertion that policy was the key growth driver. The keystone of this edifice was the
idea that the VCP ‘did policy’, and so change was at root driven by reform.

Causality, as in the first ‘moment’, was once again central to critique. As noted above, the
two quantitative studies already mentioned found no links between policy and change
(Giesecke & Tran 2008; Pham et al. 2008).These are studies at a high level of technical
competence. It is likely that econometricians and others close to the emerging Vietnamese
data (and there are a large number of surveys for them to analyse) realised early that
whilst causality could be reported through the usual techniques of data-mining, there was
no robust story of policy-driven growth, reminiscent of the lack of robust regularities in
global datasets reported by Levine and Zervos (1993) and discussed in Fforde (2005). The
‘nettle’ that needed to be grasped, for critique to develop, was clearly the nature of the
Vietnamese political community, the SRV state and the nature of the VCP, and how this
could be fitted into some economentality. Whilst as politically risky as the earlier critique
of socialist production relations, rapid growth and a far more open society changed the
stakes: critique was safer, and mattered less.

Emergence of critique

The issue of corruption and the nature of VCP rule was clear to many very early, but a
seminal critical work was produced by Huy (2012)—an ‘insider’ as an ex-army officer
and well-connected journalist—who talked of the ‘theft’ of the local state after the fall
of the Saigon regime, and offered a wide range of information about political conflicts
within the VCP.30 This was followed by Tran (2013) who provided a history of the
gathering disenchantment of workers in the 2000s as they learnt that policies would not
be reliably implemented, and Greenfield (1994) who reported rampant manager
appropriation of SOEs.31 These sorts of accounts reflect the realities that millions of
Vietnamese lived through.

These were followed by two critical breakthrough works, one arguing that policy was
largely irrelevant as such to political behaviour, the second arguing that endemic
corruption was, in effect, a reflection of the very broad—and perhaps unique to Vietnam—
ownership rights of officials. In a nice contradiction, this meant that whilst the dominant
ideology, shared by donors and the VCP, was that policy was driving change, critique of it
would have to argue that state actions themselves fundamentally reflected not a pro-
change policy logic but the structured interests of those occupying Party and state
positions. Most donor reports, placing policy and the VCP as authors of the change
process, which they identified as ‘reform’, thus created, like the VCP ideology of a Party-
led process of modernisation and industrialisation, an ideology that sought to offer a
persuasive account of an application of Mitchell’s ‘distinctive technique of the modern
political’, where change was driven by policy.

30Huy’s book (2012) was only published overseas but the e-book and pdf copies were easily available in
Viet Nam.

31Fluent in Vietnamese and half-Vietnamese, Greenfield had unprecedented access to the political economy
of the state in the very early 1990s.

CRITIQUING IDEOLOGIES IN CONTEMPORARY VIETNAM 691

The first breakthrough work was the seminal paper by Gainsborough (2007), which was
based upon close ‘quasi-participatory observation’ in the run-up to the VCP Congress. A
Vietnamese-speaking foreigner, Gainsborough argued that political activity was focussed
on harvesting spoils rather than developing and implementing effective policy. Thus,
policy was not as such important to political activities.

Far more significantly, a second seminal paper emerged a decade later, with profound
implications for the nature of VCP rule. The issue here was the nature of corruption. Nguyen
et al. (2016) reported that Vietnamese SMEs made ‘informal’32 payments equivalent in value
to their recorded profits. For businesses, such payments confer the right to do business, and
have very little effect, that right having been bought, upon how well a business performs:

From 2009 to 2011, each firm in the sample paid on average from 460 to 600 million VND in informal
costs per year (between USD 20,000 to USD 30,000), yet still made 512 to 646 million VND in profit
before tax each year (between USD 24,000 and 30,000). The informal payments were equivalent to
78%–107% of the firm’s PBT (Profits Before Tax)… to make 100,000 VND in profit, a firm has to
pay between 70,000 and 100,000 VND in informal cost. (Nguyen et al. 2016, p. 9)

In such volumes, simple economic analysis would suggest the following questions: first,
treated as a flow, over time such payments must lead to a considerable stock of assets, of
the same order of magnitude as the value of the SME sector. How are these assets held?
Second, given their order of magnitude, arguments about transaction costs would suggest
that collection of such payments would have to be organised, but if so, how was this
done? Third, through what intermediation channels do the funds find profitable investments?

Informal discussion with Vietnamese colleagues in Ho Chi Minh City shortly after the article
was published suggested that officials indeed usually formed ‘funds’ (quy) to manage collection,
that the intermediation channels were primarily the banks, and that these funds were often
reinvested in SMEs. To put this in another register, and to take the example of the World
Bank rural electrification study by Gencer et al. (2011), it suggests that officials are not
widely viewed as part of a policy logic; rather, they are part of structures that, in effect, are
50% owners of SMEs, who are organised to channel their profit shares through banks. Such
structures are therefore not best seen as sources of ‘efforts [that]… addressed a wide array of
challenges along the way and successfully balanced the sometimes-competing interests of
local, provincial, and central governments’ (Gencer et al. 2011, p. xi).

Nguyen et al. (2016) puts forward two conclusions: first, that the ruling VCP and the SRV
state are not best seen as a source of policy-making, as the dominant ideology would suggest;
second, that Vietnam’s rapid growth should be understood through an appreciation of how
business ownership actually happens. Furthermore, the latter requires acceptance of the
former. It remains to make the point that the Vietnamese have enjoyed an economic
miracle and are reportedly very happy with their market economy.33

32It is not easy analytically to find a suitable term, because whilst they appear in part simply as bribes, they
are also, arguably, and because they are so large, a reflection of some form of informal ownership right.

33Or they were happy just over a decade ago. Goertzel (2006) reports, based upon the Pew Global Attitudes
Project, that 95.4% of Vietnamese agreed that ‘most people are better off in a free market economy, even though
some people are rich and some are poor’, compared for example to 72.1% in the United States (Goertzel 2006,
pp. 4–5).

692 ADAM FFORDE

Conclusions

Change was—as a concept with an empirical basis—socially constructed in very different
ways. These ways entailed use of different quantitative data to measure growth; different
accounts of ‘how growth happened’; and different core meanings of growth. These
differences are related to different political, social and cultural contexts. This suggests that
an examination of the different ways in which economic growth is socially constructed
means an examination of how economics is treated as part of ways of explaining social
change, and its problems as therefore having wider significance, especially political, at
root to do with the intentionality issue. This appears as the core of the problem and
opportunity facing a critique of the ideologies discussed above: it is not just about economics.

More can be made of this point, and how we address different socially constructed
economic growth, by returning to Mitchell’s starting point—the state. To quote Dunn:

Each of these two conceptions (the state as sociological fact and the state as normative political
proposal) must relate in some way to most of the entities which we now call states, but neither
makes quite clear how to apply it in practice. (Dunn 2000, p. 69)

If we try to clarify what is going on, and examine the idea that an economy may be both
fact and normative proposition, what has become apparent during the third moment, and is
quite clear from the literature, is the centrality of the causality issue. On the one hand, as
epitomised by the extended quotes from Gencer et al. (2011) above, which fit perfectly
with Shonfield’s account of the ‘taming of capitalism’ after World War II, Mitchell is right
in that the ‘distinctive technique of the modern political order’ is a technique that is
grounded on deployment of policy. Equally, as Gainsborough (2007) and Nguyen et al.
(2016) suggest, such views are subject to a critique arguing that policy does not matter,
but that it needs to. Leung (2015), stressing political will, poses a similar question, but
assumes that if that will is present, powers can be deployed to devise and implement
policy. Growth is then usefully seen as a concept that is both ‘sociological fact and…
normative political proposal’ (Dunn 2000, p. 69). As we have seen, each of the moments
entailed meaning-giving that included normative aspects, and which were contested
through critique. What is striking, if we follow Gainsborough, is that, as is logically quite
possible, meaning-giving can fail to happen.

As already mentioned, attributing too much weight to the social construction of change
can go too far. Thus, examination of the data, for all that they refer to different things and
use different ‘observation theories’, points up various facts that are often ignored. First, in
the DRV we see rather rapid change in the early 1960s, 1969–1971 and then 1973–1975
(see Figure 1). Whilst the first period was one of relative peace and high levels of foreign
aid, the second and third were during wartime, and perhaps show, like the first, that the
DRV was an area of rapid industrial output growth: it was not ‘bombed back to the Stone
Age’, and so we find the debates on how to improve welfare. There are many texts of the
period that are about far more than wartime issues.

Second, after 1975, the reductions in industrial output in 1978–1979 can be taken to show
just how great dependence on aid was, for this is when Chinese and most Western aid was cut.
Had aid not been shifted to consumer goods in the middle of the first FYP and rice production

CRITIQUING IDEOLOGIES IN CONTEMPORARY VIETNAM 693

forced out of the cooperatives, perhaps the DRV and then the SRV would have been far less
aid-dependent. After that, change occurred rather rapidly in the early 1980s, as Soviet-bloc aid
replaced what had been lost, and then again in 1986–1987. There is no simple picture of
stagnation and then response to policy changes in 1986 (with the Sixth Party Congress—
the doi moi Congress) (see Figure 2). Finally, looking at the pattern of GDP growth (see
Figure 3), growth was rapid from about 1992, and dipped in 1997 (the Asian Financial
Crisis) and 2008 (the Global Financial Crisis).

The Vietnamese experience, in the three moments studied, suggests that knowledge
productions associated with different change processes are conceptually provocative:
whilst all were scientific (part of structured knowledge production processes), what that
means varies. They seem to require political notions and state capacities to deal with ‘the
economy’, yet study of the economy alone actually gives very little guidance as to how
that might happen. Scientific procedure does not guide decisions about who wins the
argument, but simply says which arguments are valid (Fforde 2017a). This suggests, as I
think all economists close to policy debates know, that what economists who are
historically relevant actually do to secure influence over policy and politicians is about far
more than economics. As Kuhn puts it, ‘if an anomaly is to evoke crisis, it must usually
be more than just an anomaly’ (Kuhn 1970, p. 82). And for this, a tradition of critique
may be very useful.

ADAM FFORDE, Victoria Institute of Strategic Economic Studies, Victoria University,
Melbourne, Victoria, Australia. Email: adam@aduki.com.au http://orcid.org/0000-0001-
6088-8310

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Vietnam’s changing economy—some facts

Three moments
First moment: ‘socialist construction’
The ideological conceptualisation of change: what was ‘socialist construction’?
What is success and what is failure
Quantitative data; how growth happened
Discussion
Second moment: from plan to market
Basics
What was this transition?
Decree 25-CP
Order #100
What is success and what is failure?
Quantitative data: how growth happened
Discussion: core meanings of growth during the transitional moment
Third moment: market economy with a socialist orientation
Quantitative data; how growth happened
Discussion: core meanings of growth—metaphors
Emergence of critique
Conclusions
References

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