Wednesday, July 17 2019


Inequality a global trend, but Viet Nam should worry

Update: July, 10/2014 - 08:37
by Gabriel Demombynes, Senior Economist

Should inequality be a concern in Viet Nam?

I asked this question of an older farmer I met in Lao Cai last year. After our interpreter struggled to find a word in Mong language that translated as "inequality", I asked him if he viewed the difference in income between the rich and poor as a problem. When he said no, I asked him how much he thought a rich person earned. One million Vietnamese dong (US$47) per month, he said.

The gentleman was not concerned about inequality in large part because he was unaware of the large gap that exists between the rich and poor in modern Viet Nam. Having rarely left his village or spoken with someone not of Mong origin, he did not know that VND1 million is far less than that of a typical resident of Ha Noi or HCM City. And the total wealth of the richest individual in Viet Nam, according to Forbes magazine's list of billionaires, is VND30 trillion ($1.4 billion), an amount inconceivable to him.

The farmer's response matches the findings of the World Bank's latest Taking Stock report, which draws on a perception of inequality survey conducted by The World Bank and the Institute of Labour Science and Social Affairs last year.

According to the report, rural Vietnamese are less likely to see inequality as a problem as they imagine the gap between rich and poor to be fairly narrow. In contrast, urban residents—particularly the young and those who get information from TV and the Internet—see much larger gaps and are more concerned about inequality. The World Bank report finds that more than three out of four urban residents said inequality was a problem.

But the fact is that overall inequality has grown relatively little over the last 20 years. The average income of the bottom 40 per cent of the population—the World Bank's measure of "shared prosperity"—has grown by 9 per cent per year since 1993, one of the fastest rates of improvements in welfare anywhere in the world.

Nonetheless, Viet Nam today faces two separate inequality concerns. The first is remaining inequality of opportunity, particularly between ethnic minorities and the majority community. "Opportunity" refers to children's circumstances (determined by factors beyond their control) that affect their chances of success later in life. Malnutrition rates among ethnic minority children are double those of the majority.

Just 13 per cent of Mong and Dao children attend upper secondary school, versus 65 per cent of Kinh and Hoa. These disadvantages limit the chances these children will have as adults, and thus inequality can persist across generations. As a Vietnamese saying goes, "The King's Son will become the King, while a layman's son will end up sweeping fallen banyan tree leaves".

A second concern, both in Viet Nam and around the world, is rising inequality at the top. The recent best-selling book Capital in Twenty-First Century by French scholar Thomas Piketty has ignited a global debate on the rising concentration of wealth.

When a small number of people control a large share of wealth, political decisions may be distorted by the influence of that group. Respondents in our Viet Nam survey were particularly likely to voice concern about inequality if they perceived the rich as having accumulated wealth through illegitimate practices or family connections.

The limited data on high-end wealth suggests that as Viet Nam has moved towards a more market-oriented economy, the number of extremely wealthy has skyrocketed. By one estimate, the number of super-rich—with assets of more than US$30 million—nearly quadrupled in the last ten years. Our analysis shows, however, that in Viet Nam neither the number of super-rich nor the growth in their number is out of line with worldwide patterns. The number of super-rich in Viet Nam is similar to that of other countries at Viet Nam's level of income.

Concerns about inequality will grow as more Vietnamese move to cities and are exposed to the differences between rich and poor. The children of the Mong man I met have travelled far from their village to work and have a much broader understanding of inequality in modern Viet Nam.

So, how should the government respond? I believe a policy focus on tackling barriers to equality of opportunity makes sense. Our perceptions survey shows that inequalities in opportunities are seen as one the most worrisome forms of inequality in Viet Nam, particularly among rural and poorer people.

The fact that many children receive inadequate nutrition, education, and sanitation means that Viet Nam is failing to enable those children to achieve their potential. The country should strive to ensure that every Vietnamese child has the same chance in life, regardless of the circumstances in which she/he is born. — VNS

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