Keynote Address by Helen Clark, UNDP Administrator at the International Conference on Economic Reforms for Inclusive and Sustainable Growth: International Experience and Lessons for Viet Nam

24 Mar 2014

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24 March 2014 - International Conference on Economic Reforms for Inclusive and Sustainable Growth: International Experience and Lessons for Viet Nam.

It is a pleasure for me to deliver this keynote address at the International Conference on Economic Reforms for Inclusive and Sustainable Growth: International Experience and Lessons for Viet Nam. UNDP is pleased to be a co-organizer of the conference with the Government of Viet Nam and the Viet Nam Academy of Social Sciences.

The theme of this conference, Economic Reforms for Inclusive and Sustainable Growth is very pertinent, both for Viet Nam and for the world at large.  

Over the last two decades hundreds of millions of people have been lifted out of extreme poverty, defined as living on under $1.25 per day, and the income levels of countless millions more above that line have been lifted too. Viet Nam has enjoyed its share of this success story.

Nonetheless, an estimated 1.2 billion people in our world still live in extreme poverty, 870 million people are going to bed every night hungry, 1.3 billion people do not have access to electricity, and almost 2.5 billion do not have access to the improved sanitation called for in the Millennium Development Goals.

These numbers convey an important message: despite rapid growth rates in many countries over recent decades, growth has often not been fully inclusive, and the world’s poorest and most vulnerable peoples and countries continue to face significant development challenges.

This conference comes at an important time for Viet Nam. With an average GDP growth rate of 7.3 per cent from 1990 to 2010, Viet Nam was one of the fastest growing economies in the world, with per capita income by the end of those two decades almost five times as high as it was at the beginning. The proportion of the population living in extreme poverty here fell from 63.7 per cent in 1993 to 4.3 per cent in 2010. More than 97 per cent of Vietnamese households now have access to electricity and other modern sources of energy.  Important progress on gender equality, including in education, employment, and health, has also been made.

Viet Nam’s economic and social success has improved the lives of many, but important challenges remain. Even though the level of income inequality has been relatively low in Viet Nam compared to many other emerging economies, income and non-income disparities between areas and population groups have been rising, and so have perceptions of inequality, not least in voice and power. While the female participation rate in the labour market is high, at 72 per cent, Viet Nam is among the few countries in the world in recent years with a widening gender wage gap. Inequalities are also significant between ethnic minorities and other Vietnamese citizens.

Now, facing economic slowdown at home, the Government Viet Nam is looking to shape second-generation economic reforms proactively, to lift economic growth and enable the continuation of the remarkable socio-economic progress of the last two decades. Strategies which promote inclusive growth will be important to the success of these reforms, allowing all the people of Vietnam to benefit. Environmental sustainability too will need to be addressed as an integral part of these strategies. Right now Viet Nam’s energy intensity is high, and its greenhouse gas emissions are growing rapidly.

UNDP’s 2013 Human Development Report, “The Rise of the South: Human Progress in a Diverse World”, recognised Viet Nam as one of a number of high achieving and dynamic countries where progress on human development had been particularly strong. The Report argued, however, that if global human development is to continue to rise, inclusive and sustainable pathways to development must be followed.

In my comments today, I will consider some of the reasons why current development models globally have not been conducive to inclusive and sustainable growth. I will then offer some perspectives on how Viet Nam could address these issues in its reform agenda.

Inclusive and sustainable growth – why does it matter and why have current development models not led to it?

Poverty eradication, reducing inequalities, and promoting environmentally-friendly development are defining challenges of our era – and challenges which need to be tackled in the post-2015 development agenda. Viet Nam was one of the first countries to hold a comprehensive national consultation on post-2015 as part of the global conversation supported and facilitated by the United Nations development system.
 
The findings of that global conversation contain some important messages. The feedback was that people want inequalities addressed, between men and women, rural and urban areas, among different ethnic groups, between rich and poor, and on other dimensions. People also called for better governance which would see services delivered and resources allocated fairly.

A new report by UNDP, “Humanity Divided – Confronting inequality in Developing Countries”, comments on these challenges and notes that great and persistent inequality in the midst of plenty is a paradox of our times. It shows how income inequality at the global level, on average, and in several regions has been rising in the last two decades, even as economies have grown and global poverty levels have fallen.

In Asia, this trend is particularly striking, with the majority of the region’s population living in more unequal societies today than they had two decades ago - despite impressive economic growth.

Inequalities have a negative impact on the well-being of people and the prospects of societies as a whole. Income inequality, for example impedes long-term growth prospects, and dampens the poverty-reducing impact of growth. It is associated with a host of poorer social outcomes, ranging from low health status and educational achievement to higher crime rates. Inequalities can also generate political instability; erode social cohesion and government legitimacy; and undermine capacity for the decision-making necessary for reform.

Yet, the widening of gaps in income and wealth, or on other dimensions of well-being, is not an unavoidable price which must be paid to advance development. UNDP’s new report on inequalities lists many countries which have managed to reduce income and non-income inequality significantly through a combination of progressive economic and social policies. The experiences of Japan and South Korea in this region, for example, have shown that rapid economic growth can go hand-in-hand with low and even falling inequality.

The challenge of environmental sustainability has also featured strongly in the global consultations on post-2015. There is wide-spread awareness of the high cost to ecosystems, including to our climate, of traditional growth and development pathways.

Ultimately, and as highlighted by the UNDP 2011 Human Development Report, “Sustainability and Equity: A Better Future for All”, the pursuit of equity and sustainability are inextricably linked - one will not be achieved without the other.

Key factors which appear to have limited the inclusiveness and sustainability of growth to date include the following:

  1. Growth has been uneven across sectors and locations: between rural and urban sectors, and across provinces, regions, and countries. Roughly three-quarters of the world’s poor live in rural areas, while growth in many countries has been concentrated in urban and/or coastal areas. In Viet Nam, poverty remains overwhelmingly a rural issue, with ninety per cent of the country’s poor, and 94 per cent of the extremely poor, living in rural areas. To a certain extent, this is a by-product of rapid industrialization and urbanization, but ways can be found to secure greater balance and inclusion in development so that no one is left behind.
  2. Jobs and livelihoods are the primary vehicles through which people participate in the economy. Employment growth relative to GDP growth, however, has been low and declining in many countries. Almost 202 million people were unemployed around the world in 2013 - an increase of almost five million over 2012 levels. The bulk of the increase in global unemployment has been in the East and South Asia regions, which together accounted for more than 45 percent of the estimated new jobseekers worldwide in 2013. Growing capital intensity in economies does impact on jobs, but the challenge is to move economies up the value chain and create more and better jobs and livelihoods.
  3. Large disparities in asset holdings, including land, and unequal access to quality goods and services, such as education, health, credit, infrastructure, and social protection, have prevented the poor from fully participating in and benefiting from growth, thereby aggravating existing income inequalities.
    Public spending on education and health is low in Asia compared to other regions. In Viet Nam, spending in these areas as a percentage of GDP is higher than for a number of other countries in the region, but the efficiency of this spending remains an issue. Coverage of social protection systems overall in Asia is low, compared to that of emerging regions like Latin America and Eastern Europe. Access to formal financial services is often lacking for many too.
  4. The nature of globalization and shifting global value chains is also a factor in limiting inclusiveness. While factors such as trade competitiveness, foreign direct investment, and new technologies present opportunities for countries like Viet Nam, they often favour capital deepening and increase the demand for skilled workers whose wages then grow at a faster rate than do those of the unskilled. This, particularly when combined with labour market policies which weaken the bargaining position of less skilled workers, can exacerbate existing income inequalities.
  5. Current growth models have also thrived on unsustainable patterns of consumption and production, which are pushing our planet’s environmental boundaries in a number of areas.

Greenhouse gas emissions, biodiversity loss, and ocean acidification, for example, are reaching alarming levels. Indeed, by some estimates, more than sixty per cent of the ecosystems and their associated services upon which humanity relies are degraded, overexploited, or already lost.

Two decades ago, tackling climate change was not a major element of development thinking. Today it is a high priority on the global agenda, not least because the world has witnessed so many disastrous climatic events which have set back development progress.  Viet Nam itself is highly vulnerable to climatic extremes and the impact of climate change, and has felt the enormous human and economic costs of increasingly severe natural disasters. Recent estimates show that economic damage caused by natural disasters in Viet Nam from 2008-2012 amounted to 1.5 per cent of GDP, up from one per cent in the previous four years.

A new global deal on climate is critical, and it should include support for adaptation to climate change by developing countries like Viet Nam. That deal needs to be part of a far-reaching global commitment to sustainable development pathways which will change the way in which we produce goods and services; use our land, seas, and fresh water; generate and consume energy; and plan our cities and communities. Growing our economies first and cleaning up later is a bleak scenario, which our world cannot afford.

Looking ahead - how could Viet Nam further promote inclusive and sustainable development?

Viet Nam’s progress since the introduction of Doi Moi (‘renovation’) economic reforms in 1986 has been remarkable. Growth rates now, however, are lower than they were.

The impact of the global crisis has lingered for many countries, but here weaker productivity growth and competitiveness, underpinned by institutional weaknesses, appear to be significant factors in limiting growth. Viet Nam’s development model has therefore been under review, and important steps have already been taken:

  • In February last year, the Government approved a master plan to restructure state owned enterprises (SOEs) and overhaul the financial system during the period 2013–20.
  • In recent months Vietnam has made significant progress on macroeconomic stabilization and on containing vulnerabilities in the banking sector.

Now, Viet Nam is embarking on its next generation of structural and institutional reforms to ensure its continued development progress and strengthen its ability to integrate further into the global economy.

UNDP suggests that the following critical areas could be considered in the reform process to promote inclusive and sustainable growth in Viet Nam:

  1. Adopting measures to improve the productivity and quality of production in agriculture and aquaculture as an integral part of the country’s wider growth strategy. This is important for creating an inclusive economy, as the majority of the poor continue to live and work in rural areas. Viet Nam’s strong egalitarian and poverty-alleviating growth in the last two decades owed a lot to land reforms, an improvement in agriculture’s terms of trade, and an increase in public investment in the rural economy in the late 1980s and early 1990s. Now attention needs to be given to adding more value to agricultural and aquaculture production so that it can command higher prices. Farmers and the economy would benefit from more systematic provision of agricultural extension services, better quality assurance and certification, and better branding strategies for Vietnamese produce.
  2. A progressive upgrading of the economy towards higher value sectors overall is needed for Viet Nam to establish new comparative advantage in the regional and global economy and to create more decent work.  This calls for the development of modern and tailored industrial policies which support improvements in skills, the availability of finance, technology transfer, a smart trade policy, and in the quality of research and development. Creating an enabling environment for the SME-dominated domestic private sector, which, while small, is the major source of employment, must also be part of this process.
    Continuing efforts toward regional economic integration are important as well. The formation of an ASEAN Economic Community in 2015 represents a major opportunity for Viet Nam to increase its competitiveness, upgrade its production processes, and open new markets, especially given the fast growth of the region’s middle class.
  3. Expanding opportunities through access to quality and relevant education is critical. Countries like Japan and South Korea moved ahead fast at earlier stages of their development by investing in quality education at all levels, and they focused on innovation and the adoption of new technologies. These steps became the foundations of their transition to knowledge-based economies. For middle income countries like Viet Nam, the challenge is no longer just access to education, but rather the provision of quality and relevant education for all, including at the tertiary and vocational education levels.
  4. A modern social protection system is also essential as part of the reform menu. For the first time ever in 2005, more citizens of Viet Nam were over the age of sixty than under the age of five. The sixty plus age group is projected to double in size from nine per cent in 2010 to eighteen per cent in 2030. Viet Nam’s economy has been slowing down precisely at the time when it needs to begin to make greater provision for a larger older generation.
    Access to quality services here is perceived to be increasingly contingent on household’s ability to pay. That is contributing to the development of a stratified system of service provision and to an intensification of existing inequalities. Reform of Viet Nam’s social insurance and assistance systems is therefore important at this time, and could include a review of financing and governance arrangements and delivery models. Streamlined social protection can also drive the eradication of extreme poverty in all its dimensions.
  5. Given Viet Nam’s high exposure to climate disaster, investment in disaster risk reduction and climate change adaptation will be an essential part of inclusive and sustainable growth strategies. A dollar invested in disaster risk reduction today can save four or more dollars in the future cost of relief and rehabilitation, and save communities and countries from experiencing huge development setbacks. Modern social protection systems also help build resilience to disaster and facilitate early recovery by ensuring that there is income and other support readily available when disaster strikes.
    On environmental sustainability, the Government has taken a number of steps including Climate Change and Green Growth strategies, and legal frameworks on environmental protection. The decision taken to phase out subsidies for fossil fuels is important and implementation needs to be accelerated. It is worth noting that the acceptance of phase-outs elsewhere has been dependent on mitigation measures for low income households.
    Policies which promote low-emissions growth and climate-resilience will put the economy on to a more inclusive and sustainable path.  
  6. More transparent and accountable public resource allocation and management are critical for maximizing the development impact of a country’s resources. Combating corruption and engaging citizens in development processes are among the documented best international practices in promoting inclusive and sustainable development.
    UNDP is pleased to be associated with an innovative performance monitoring system which is contributing to improvements in services in Viet Nam. Since 2011, this Viet Nam Provincial Governance and Public Administration Performance Index (PAPI) has been tracking Vietnamese citizens’ experiences with governance and public administration. According to the survey, the poor face disparities in access to services, and citizens are increasingly demanding improvements in the quality of services.

Conclusion

Viet Nam has many strengths, including its relatively young and competitive labour force, its abundant natural resources, and its geographic location at the heart of a dynamic region. With smart policy choices, Viet Nam’s future is bright.

In considering its next generation of reforms, Viet Nam can opt for an inclusive and sustainable development pathway. At UNDP, we are committed to supporting Viet Nam on its reform journey, guided by the country’s own priorities and by our mandate to advance human and sustainable development.

I hope that this conference will be useful in exploring the reform options for Viet Nam as it strategizes on how to build on its past impressive development achievements, eradicate poverty, and advance human development.