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Dec 3, 2022·edited Dec 3, 2022Liked by Noah Smith

Some assorted notes from Vietnam:

Channeling Matt Yyglesias: housing is the cause of all problems. It is hard to overstate how insanely expensive housing is in any capital city. Which is obviously going to affect urbanization. You have to get pretty far out in the suburbs to get anything reasonably priced but the infrastructure isn't there to support those kind of commutes. It's honestly a bit of a mystery to me because Vietnam lacks the usual culprits of zoning and NIMBYs that plague housing in the West. But there's a massive, massive shortfall in affordable housing.

Education might look good on paper but the reality often falls short. Classrooms are woefully understaffed -- 40 students is common. Teachers are underpaid -- they often offer "mandatory" tutoring on the weekends to make extra money. And the education system is very much geared towards memorization and obedience, which might make good factory workers but isn't great for the 21st century knowledge economy. I've hired a lot of uni graduates and a Vietnamese university graduate is generally less competent than an Australian university junior doing an internship.

Corruption and fraud continue to be very widespread. There's a current crackdown on corruption, which is needed. But it has a side effect of every government official being terrified of actually DOING anything right now, with even more projects than normal being mired with no progress.

The entire economic system has rife with fraud -- the FLC chairman was recently arrested for stock market manipulation, the Vin Thinh Phat chairwoman was arrested for fraud, 40,000 customers of banks were fraudulently sold bonds of Tan Hoang Minh Group...and that's just from the past few weeks. FDI is down 10% from 2021 due to reduced investor confidence.

Demographics are a challenge. Vietnam is aging quickly but doesn't have the social safety net to weather it well. Migrant workers are often locked out of subsidised childcare due to Vietnam's version of China's "hukou" household registration system. Traditional marriage has tons of downsides for women, so more and more are opting out.

There's still a fair amount of regional factionalism between north and south. No southerner has ever been General Secretary of the Party and only 2 of 12 Prime Ministers have been from the south. A constant complaint from the Ho Chi Minh City government is that a lot of the revenue they generate is distributed to other provinces rather than reinvested back into the city.

Then on top of all these challenges add the problems facing the Mekong. Upstream dams (Chinese built), salinity-issues, land sinking, rising sea levels. It feeds half the country.

All of these challenges are surmountable but as Tomas VdB says, decision making is amazingly poor for such a (theoretically) centralized political system, apparently riven by endless backdoor factionalisim that only insiders have any real clue about. One very common example, for instance, is that some development project -- a new bridge, for instance -- is delayed for years because one government department (usually the army or navy) refused to hand over the land to another government department so the construction can proceed. The Thu Thiem Bridge 2 was officially commenced in 2015, scheduled for completion in 2018, but didn't actually open 2022. And that's in the heart of Ho Chi Minh City and was a major contributor to traffic woes for over half a decade.

Despite how it might sound, I'm actually very bullish on Vietnam. Despite all those issues it is clearly better positioned than other places in Asia. Yes, it has bad demographics. But China, South Korea, Singapore, and Japan are worse. Yes, it's low-lying nature makes it vulnerable to rising sea levels. (Take a look at projections of how much of Ho Chi Minh City will be under seawater by 2050!) But those issues, and others, aren't insoluble.

But it means Vietnam can't coast on easy wins like it has for the past 50 years. France was almost comically bad at running colonies (not just in Vietnam), so a lot of economic gain was just "catch up" from doing bare minimum stuff like increasing literacy from 5% to 99% and land reform.

On a side note, there's been a notable increase in the number of Filipinos coming to Vietnam for work. Who would have predicted that even just 5 years ago?

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Jan 7, 2023·edited Jan 7, 2023

My Vietnamese friends told me that their 'fantastic' PISA score (which was recently delisted allegedly due to serious statistical inconsistency) was basically a fraud. One of these folks (majored in International Politics and travelled throughout ASEAN countries during her study) swore that their average pedagogical quality is supposedly no better than the rest of Southeast Asia based on the class size and various indices. Even worse, the authoritarian government makes it hard to hold the data accountable.

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I lived in Vietnam over a decade ago and did headhunting there. A good salary in Hanoi was $2k a month which does not explain who was buying all the real estate up there. Southerners did NOT want to go north for jobs not matter the offer but northerners were always going south or willing to... And then there was the corruption (worst in some sectors than others...) as Vietnamese are, let's just say, very "entrepreneurial" or "transaction" orientated - I still hear lots of stories from other expats concerning that...

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You should freeze everything you knew about VN at exactly where it was: over a decade ago. Northerners, including both blue and white collared ones, stopped heading southbound for a decade and the northern economy is now neck to neck to that of the southeast. The reason why this "fragmented, score settling" government channels investment to the north is that they did the same to the south in the 1990s, and it's time for rebalancing before you have a very Italian mezzogiorno prolem. Next time if you wanna show off like a Vietnam expert, make sure you are informed and impartial, which I'm not quite sure about lots of ppl here.

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Dec 3, 2022·edited Dec 3, 2022Liked by Noah Smith

Having lived in VN for over 2 years (2019-2022) and witnessed government policy making first hand, I must say I am a lot less positive about Vietnam’s future than I was before.

The main reason is that decision making at all government levels seems virtually non existent. Unlike China, which has a very strong central leadership, Vietnam’s government is very fractious , with an enormous amount of infighting and score-settling all the time.

This means no one want to be accountable for decisions in case they will be used against them at a later stage.

There is also an enormous amount of rent seeking, where one group may oppose very sensible policies or development projects just in order to extract financial gain. For a communist country, Vietnamese are extraordinarily obsessed with money, and rent seeking is the quickest way for (local) officials to get rich.

Combine this with all the other factors, such as the poor education and lack of political vision, and you have a country that’s heading for a grinding halt.

Yes, some big manufacturers are still settling up factories, and these are hailed as big victories, but these are just riding on past policies. “Changing direction” is not something I think Vietnam is able to do.

The former Singaporean PM Lee Kuan Yew, already described Vietnam’s problems in his memoirs, and they haven’t been fixed. If anything they’ve gotten worse because there is so much more richness up for grabs.

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That's interesting. But I think we have a lot of examples of countries where the need to sustain rapid growth really concentrated thinking and effort among a diffuse elite.

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I really do hope so, cause I love the country and want it to do well.

But wealth in Vietnam is highly concentrated and those families are all internationally mobile. I doubt they would stay and try to fix things if growth stalls. Even a government minister was found to have acquired (bought) Maltese citizenship for his family.

I think a serious shock is needed for the system to change, although this could happen sooner than later. Young urban Vietnamese are very disillusioned with the government but similar to China, there’s the quiet understanding that as long as people make money, they’ll accept poor government.

The Covid crisis has (and still does) rattled the economy though, and in my (unqualified) personal opinion, I think the financial system is a house of cards waiting to fall.

I think if Vietnam reforms, it’s because it will be forced to by grassroots pressure, just like China quickly loosened Covid restrictions this past week in response to mass anger.

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Hmm! Still, no one likes a growth slowdown...

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FWIW, Vietnam may be on the cusp of a growth slowdown. The past few weeks have seen an unprecedented slowdown in manufacturing orders (I haven't seen any good reporting on WHY this seems to have rather suddenly happened).

"According to the Vietnam General Confederation of Labor, the ongoing order shortage has affected more than 630,000 workers [n.b. that's only documented workers so the true number is almost certainly higher] in 28 provinces and cities from September-November.

"With over 30 years of experience in the garment industry, Pham Xuan Hong, chairman of the Ho Chi Minh City Textile and Apparel-Embroidery Association and Chairman of the Saigon No. 3 Garment JSC, said that this was the first time he has witnessed workers underemployed and factories lacking orders on this scale.

"The situation is more difficult now than when Covid-19 broke out, he said."

https://e.vnexpress.net/news/economy/layoff-wave-sweeps-vietnams-manufacturing-hub-as-export-orders-dwindle-4540019.html

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Seems like demand driven decline in orders. Western retailers ordered too much this year, have large overstock, which now they are trying to clear and are cutting back on next years' orders? Anticipating recession and weak consumer spending in US in 2023?

See here:

Nike and adidas Expected to Reduce Production by 30-40 Percent

The footwear industry is gearing up for turbulent times.

https://hypebeast.com/2022/11/nike-adidas-reduce-production-2023-expectation-info

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So is the glass half full or half empty? There's no question that decision making is more diffuse, less centralized and decisive than in China or Lee Kuan Yew's Singapore. It's more rule by committee, factional; if not exactly democratic, then at least open to influence from various pressure groups and constituencies. Yes, this makes it less speedy, more inefficient and possibly wasteful than one man rule. But one could argue that one man rule tends to be brittle, inflexible, and fragile in the end? Definitely risks, problems and rent seeking all exist. But it's hard to argue with the fact that VN has done a much better job handling the COVID crisis than China?

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What Vietnam did really well was providing vaccines to all its citizens. That’s one of the benefits of having local party committees at neighborhood level.

But beyond that, there wasn’t much management of Covid. The first response when Covid finally got out of hand, was massive and total lockdowns. I myself was locked in my building for nearly three months.. food was supposed to be delivered by the army but as you can imagine in a city of 13m people like Ho Chi Minh City, it was a disaster. Social media, less controlled than in China was full of complaints, videos of rotten food, chaos at isolation centers,.. Food deliveries were allowed again quickly and as public anger and disobedience grew, the lockdowns ended or fizzled out.

The Vietnamese people don’t have the level of fear and/or respect for their government as the Chinese and I think the one thing the Vietnamese government fears the most is mass popular unrest.

Unfortunately there isn’t much of a middle class to demand systemic policy improvements, so I think we’ll just see more populist protectionism in the near future.

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Wow Vietnam basically sounds like India

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True having food delivered by the military was a major fail. No doubt about it. But after about a month they pivoted and opened up as vaccine distribution reached critical mass. (they're not perfect but they are pragmatic) Contrast this with China, zero covid and the lockdowns happening there now, STILL, more than a year later...

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I lived in Vietnam over a decade ago and did headhunting there. One story I heard more recently though was from an Asian who was a country manager there for a non-western pharma company. He commented how the gov't, like any gov't in a "democratic" country with "elections", would surprisingly do alot of PR stunts or political posturing for a non-democratic country w/o elections e.g. his company suddenly started getting attacked by state media and next thing he knew, he was being hauled before a press conference with state run media and told to sign something. He had no idea what was going on or what he was signing but when the show was done, he asked if all was good b/w his company and them and they said yea - it was just a political PR stunt or kabuki theatre (like what American politicians and their media friends do but ALOT less destructive for the targeted business!) 😂

Another friend wanted to set up a [LEGIT....] expat financial advisory company and just went around in circles with the govt on getting proper licenses-work permits (unlike the other expat advisors who were floating around, who did not have any proper licenses-work permits, and sometimes had to leave in the middle of the night............) who seemed to not understand or have any legal framework for such a business. He apparently had to get some sort of an insurance license instead...

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Dec 3, 2022Liked by Noah Smith

FDI isn't a kiss of death. Taiwan and Korea avoided foreign direct investment, but China, like Vietnam, relied heavily on FDI.

Quoting Kroeber in _China's Economy_:

"From 1993 to 2002, new FDI inflows accounted for about 10 percent of all fixed investment in China, although this figure has since fallen to under 3 percent. One of the enduring impacts of this is that, even today, over 40 percent of all Chinese exports are produced by foreign firms. This state of affairs is utterly different from that of the other East Asian countries, whose exports are virtually all recorded by domestic firms."

Kroeber suggests that China needed FDI because it wasn't a US ally and so needed extra incentive to win foreign cooperation. Vietnam may have had a similar hurdle.

I'm curious: how would you compare Vietnam's growth story thus far to China?

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Yep, I disagree with Chang on this one. This is going to be the next topic of my development post.

Compared to China, Vietnam has done much less encouragement of heavy industry, and much less attempt to import foreign technology.

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Dec 3, 2022·edited Dec 3, 2022Liked by Noah Smith

In scorning FDI, Chang might've been thinking of failed earlier "Westernization" efforts.

In the early 1900s, Egypt and India and many other countries had folk who brought in cutting-edge, turnkey equipment setups from Europe or USA. The result? No beneficial spillovers. Often they didn't even learn how to maintain the fancy imported textile machines.

Maybe Chang suspected FDI was the latter-day equivalent. If your new business doesn't have enough local interaction, it won't give you the beneficial externalities you want.

And I wouldn't be surprised if you told me FDI has failed in many countries that aren't China or Vietnam. But I'd guess the issue isn't the FDI: it's creating a national commitment to raising gross exports.

Arguably the true riddle these days isn't: "What policies let the East Asian countries grow?"

Instead, we should ask: "Why is it politically hard for other poor countries to imitate the East Asian growth policies?"

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One hypothesis is that maybe it's just clustering. East Asia is the world's electronics supercluster, so maybe it's just easy for countries in that region to get in that supply chain and grow that way. Another point is that countries in Latin America and the Middle East are not poor; they're middle-income resource exporters, for the most part, so they can't really do labor-intensive manufacturing. As for South Asia, it's now showing some pretty robust growth, except for Pakistan.

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FDI is a kiss of death IF the government cannot manage it in smart way

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Speaking of cars and exports, the VinFast EVs are just starting to ship to the US and the pics and specs look very good. Will be interesting to see if that becomes a high value line of manufacturing for them. Definitely an area where we need more non-CN options.

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Vinfast only started producing cars 3-4 years ago and “pivoted” from combustion engines to EV’s this year. It’s a great story on PowerPoint slides , but the economics just don’t work out. They reportedly only sold less than 30k cars in 2021. Unless their unit costs are *really* low, there’s just no way they can reach profitability.

Vinfast, and its parent company vingroup are actually the reason I expect a major economic crash in VN in the near future. It is presented as a national champion, but its books are pretty opaque and all the major banks in VN are exposed to it. If it unravels, it will probably be too big to bail out.

Also of interest that if you criticize vingroup publicly in Vietnam, you can expect the police to show up at your door.

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Dec 5, 2022·edited Dec 5, 2022

Is it something similar to Daewoo in South Korea about 20 years ago? It too pushed into the US car market quickly and the company went bankrupt. GM bought the car plant and produced Chevy Aveos in Korea, but Daewoo still apparently makes electronics and appliances.

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I got to ride in one at the Los Angeles Auto Show, which concluded last week. Vinfast is aiming for the Tesla buying market. The models are built on BMW chassis and designed by Italy's Pininfarina. It did look like an Alfa Romeo. A rep said 1,000 people put down deposits over the course of the 10-day show.

Vinfast has a shot if it makes a generational commitment to automaking. The arc of other Asian automakers has been to get a cheap but lousy car to get a toehold in the market, and then after about 20 years or so develop a reputation for reliability. The early Japanese imports were pretty bad, but by the 1980s had become leaders in reliability. Korean cars Hyundai and Kia (owned by the same conglomerate) were going through that process in the 1980s and 1990s. By the 2000s, they've also become peers of the Japanese builders.

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The Hanoi elite are Soviet-trained apparatchiks who might as well be living in Novgorod '72. The South are a nation of shopkeepers lacking the ambition and imagination to compete at scale, never mind internationally. The most successful private company was built by expat Indians. Strivers head overseas and send back remittances. It's an inward-looking culture with poor education and command of English. They are too proud and rigid to do tourism nearly as well as the Thais. I won't complain about corruption--it's the only way around all the red tape. A beautiful country, but after 20 years doing business in Vietnam off and on I have no investments there.

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Dec 3, 2022Liked by Noah Smith

Are there any plans to improve the horrible sanitation infrastructure? i would think this would inhibit both greater urbanization and SEZs.

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Dec 3, 2022Liked by Noah Smith

I see you understand the Vietnamese economy but in moderation. Vietnam's economy is rightly dependent on FDI for export, there is no clear industrial policy and more importantly, there is no export discipline as you say. But at the root of all of that is the issue of human capital. Vietnam's civilization is based on wet rice, they tend to find peace instead of great challenges, leading the region and the world. This is the biggest difference between other East Asian countries like China and Korea. That is also the reason why Vietnam's undergraduate and graduate education is quite low, as long as they earn a lot of money through small wholesale, they are willing to choose this path instead of continuing to study to receive a low salary.

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What about Malaysia? Malaysia has a per capita GDP about three times Vietnam's...why are they more ambitious? 🙂

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Prior to VN. I lived in Malaysia for 5 years, and the difference is vast. Without going into the debate about english vs french colonial administration, there might be a root cause of the difference in development. Malaysia also had the fortune of having oil, and kuala lumpur is truly a great city.

i think Malaysia has also benefitted from being a culturally diverse country, with sizable chinese snd indian minorities. Even though till recently Malay parties had full political control, a lot if the economic power was/is in the hands of ethnic chinese. And i must say, there is little that can match the drive of the chinese to advance. It also helps to have the former province, singapore, next door as a yardstick. it's a matter of national pride not to let singapore get too far ahead.

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Have you done one of these articles focused on Malaysia?

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Jan 4, 2023·edited Jan 4, 2023

I guess we are living in parallel universes, because Vietnam as I know in this universe doesn't tend to find "peace instead of great challenges" or revel in lucrative wholesale or retail instead of studying. In fact, it is the Chinese diaspora in VN (yes, Mingxiang refugees from East Asia) who excel at dropping out and peddling around on streets (Google is free, so please do some searches about Huaren founders of businesses in Saigon). On the contrary, what sets Vietnam apart from other parts of Southeast Asia is her proclaimed academic continuity and due respect for education. Chinese diasporas aside, Sinosphere countries regarded academia as the only means to climb social ladder, well different than Indosphere ones like Thailand or India itself where one was religiously meant to belong to a fixed caste at birth. Of course, such a system breeds rote learning and unecessary taboos, but most importantly, it gives peasantry a glimmer of hope, rather than religion-induced subliminal subjugation.

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Dec 3, 2022Liked by Noah Smith

Viet Nam's demographics, specifically total fertility rate projections as given by the UN, look good compared to the more famous countries you list. (Although the UN might be assuming continued low urbanisation rates.) It's not going to experience as intense a "demographic dividend" as SK is experiencing, but it won't have the following hangover either.

Provided it sorts out the education, infrastructure, and institutional things you list, it should do relatively well.

Viet Nam doesn't have superb wind or solar resources, just OK ones, and fairly good but not great hydro power potential, so it needs industries with relatively low energy intensity. The exports chart confirms this, but it also offers little inspiration for areas in which Viet Nam can move up the value chain. Maybe it can offer medical services or something like that, if it sorts out education.

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I personally don't think that not-so-great renewable energies resource is a real problem. The govt should know better than anyone how Vietnam's topography is like and which areas are OK to produce energy, which is being ramped up in production in Southern Vietnam (you can find information on this). Hence, economic growth of a country shouldn't have any tight correlation with natural resources as they can always seek foreign investment instead (Japan is a typical poor-natural-resources country compared to others in the world and still they always seem to have made it through).

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Good points. I stand corrected.

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Nice stuff. I went back and read (skimmed) the Cherif-Hasanov paper you cite to better follow your assumptions. It's very useful, as a way of making sense (to me) of the Canadian (where I live) dilemma about industrial policy. Proximity to the US is mostly a positive, but it does create some issues about growth in TFP: we can export abundant primary items and maintain a semblance of advanced. Too difficult for government to steer the market away from oil & gas, even under the merits of climate change.

Brazil, where I was born, is to me the real inexplicable story of a country endowed with every conceivable advantage, and yet unable to put together a winning strategy. I hope you will do that analysis at some point.

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Is there any public, disaggregated data on TFP growth in agriculture?

WARNING: if Noah finds this data I will write a comment about cashews

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Thank you for writing an article about my country. But 99.99% Vietnamese officials don't know how to read English and this article.

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There's been a 200-year movement of urban intellectuals dumping on peasants, of which this post is a prime example. It's not clear to me why any peasant with two acres and a rice paddy would want to give that up to become urban chum in Saigon.

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There's been an arrow of urbanism in which peasants will leave the fields for cities that's an anthropological fact.

Two acres of city land is far more productive and produces far more wealth for many more people than two acres of cropland. Fewer than 2% of people worldwide are needed to grow food, and agricultural output is far higher and more people are fed now than in any point in human history.

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Dec 4, 2022·edited Dec 6, 2022

'Far more productive' and 'far more wealth', I agree with, as well as the anthropological fact of peasants leaving for the city. The question I raised is that making them happier. I get working on your two-acre rice paddy is back-breaking work. It isn't clear to me that moving more Vietnamese off the land into sweatshops will raise the level of human happiness, even if it increases Vietnam's GDP. I've spent all of 72 hours in Vietnam on a cruise ship full of rich Americans and Australians stopping in Saigon, Da Nang and Halong Bay. All of my encounters with Vietnamese were with tour guides who spoke English. They were remarkably frank about their frustrations with corruption and the Communist regime. The broader point is Noah's style of econ think leaves out what people want with their lives. It could be we want to become a rich country so we can vacation in Paris. It could also be something different. Tangentially, the Vietnamese I spoke with were much more hostile to China (with whom they fought a war after our war and are in the neighborhood) than with the US.

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It's hard to say what will make people happier. We're getting into psychology (what individuals want) and culture (what society approves of, or happiness weighed against other values).

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I've been working with Vietnam a fair amount in recent years and traveled there again in September. One of Vietnam's challenges as you point out is an infrastructure deficit. Unfortunately the solution is not merely spending more money. Like the United States, it takes a long time and is overly expensive to build infrastructure in Vietnam. In the south where I spend most of my time it is taking forever to build roads, airports and rail lines. I am not an expert on this but I gather part of the problem is corruption. It would be interesting to have Yuen Yuen Ang's analysis of the type of corruption in Vietnam in this regards. In addition even these many years later I gather the central government still favors the north over the south for infrastructure (and other benefits). You might check out Michael Tatarski's Vietnam Weekly Substack who writes about this issue on occasion: https://vietnamweekly.substack.com/

Thanks for the interesting and helpful post on Vietnam's development.

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Dec 3, 2022·edited Dec 3, 2022

Good read, thank you. It's not just that each Vietnamese owns their own restaurant but one short street can have three little houses making bricks independently. It's historical, I think, much of Vietnam's industries are still all clustered together in one location - Silver Street still has all the silversmiths, etc. I asked a local why it's still this way (instead of having silver shops all over the city) and he said it's easier for the businesses to collude on price when they are next to each other! I see similar in Latin America - car parts dealers will all be on the same street, for example. And, yes, they are all colluding.

If you haven't written about the Philippines yet, I'd love to see it. Check out Jolibee Foods. Their restaurants cover practically every corner of city and town. Jolibee (Like McDonald's), Greenwich Pizza, Mang Insal (Chicken), Chow King ("Chinese"), Red Ribbon (cakes). You generally don't have another place to sit and eat if it's not a large mall. They don't have to collude with anyone one price. It's very difficult to have an independent business with the rampant corruption. Jolibee colludes in the labor market - most manager positions available to most in the country are for a Jolibee company, at around $12/day. Still I've seen small towns undergo very rapid changes in the last few years.

The Philippines economy largely depends on remittance from overseas. I would love to see a breakdown of how much that remittance is from Filipino vs non-Filipino. Overseas Filipino Workers (OFWs) are an international story - Singapore and Hong Kong women wouldn't be able to work without their domestic help - but I don't think they make enough to send back as much in the remittances as the numbers portray. Maybe more a human story than an economics story but the stranglehold a few with power hold over the country is so tight that most want to leave the country to support their families - which is nuts especially for a country so family-oriented.

Thanks again.

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Jollibee has also purchased the Coffee Bean & Tea Leaf chain in the U.S. and a part of Smashburger.

Jollibee has the franchise rights to Burger King, Panda Express and Yoshinoya in the Philippines.

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The low percentage of Tertiary education level has a lot to do with the low number of Universities, as training personnel and building Universities take time and capital more than a lack of willingness to attain higher education. As one reply mentioned, the issue of class size is also due to the time gap between training adequate numbers of teachers and the period population boom period.

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This is such a great insight and review.

Would you have one for Indonesia.

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