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Vietnam needs a policy for its growing middle class

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Signs of Vietnam's growing middle class are everywhere, including this busy Circle-K convenience store in Hanoi.   © Reuters

As the 30th anniversary of Vietnam's sweeping Doi Moi -- or "open door" -- reforms approaches, the country is often presented as a poster child for economic development.

     Under the reforms, which opened the way to a partial market economy, the communist country has done much to promote growth and alleviate poverty. With an economic growth rate of 6% last year, according to the World Bank, its successes have been acknowledged internationally.

     The change of policy, which began in 1986, had wide-ranging effects. Not only were the Vietnamese people saved from a looming famine in the 1980s, but the country's middle class is now among the fastest-growing in Southeast Asia. According to a recent survey by Boston Consulting Group, the number of people defined as middle class will jump from 12 million in 2012 to 33 million by 2020. That amounts to about a third of the population, which is by then projected to reach about 97 million.

     These estimates may be too low. A strong trend toward urbanization could accelerate the growth of the middle class, which is the driver of more than 50% of the country's total consumption. The youthful profile of its society -- nearly 60% of people are under 30 -- is also changing the nature of that consumption. For example, Vietnam has become the fastest-growing market in the world for Apple products, from laptops to iPhones.

     Although the term "middle class" is widely used, the rapid growth of middle-income consumers should not be seen as equivalent to the formation of a new class in Vietnamese society. That would entail certain features that require a long time to emerge, including a collective identity and a perception of common interests. In fact, there are important regional and occupational differences between the country's middle income earners.

     The concept of a middle class in the context of an officially communist country remains a challenge on a number of levels. Imprecise and inconsistent terminology is used to refer to income groups in Vietnam, and this is, to some extent, intentional on the part of the government. Generally, the term "middle-level" is preferred in official language to sidestep the political connotations that are often attached to the term "middle class" -- a group that was essentially seen as the enemy in traditional communist society. Moreover, wide discrepancies between official salaries and unofficial incomes render the income criterion unreliable in the Vietnamese context.

Elusive concept

Vietnam is not alone in its lack of clarity about its middle class -- the term remains an elusive concept in international scholarship. However, two categories of people are usually included in this group in Vietnam: those who are regarded as middle class due to their profession and those who own property. While people in the second group are defined more by their material wealth, professionals attain their economic and social status as a consequence of their knowledge, education and skills. This group also includes entrepreneurs who take risks and invest in business ventures.

     There are also clear regional differences in the composition of Vietnam's emerging middle class. In Ho Chi Minh City, the country's largest and most economically advanced urban area, the middle class is dominated by professionals and entrepreneurs, and it continues to expand rapidly to include a large proportion of the motivated people who come to the city looking for opportunities.

     Ho Chi Minh City's new middle class is a product of the upward social mobility brought about by hard work and flexibility, and a willingness to seize opportunities. In terms of business culture and opportunities, the city is far ahead of the capital, Hanoi, where the middle class is made up mostly of people in the public sector. However, Hanoi residents have one key advantage: their political connections.

     In spite of their differences, the two regions' middle classes represent Vietnam's growing strata of beneficiaries of Doi Moi policies. And while a class-based identity has yet to develop, these educated and well-connected groups possess strategic potential.

     Politically, the emergence of a growing and vibrant middle class indicates that the ideology of a classless society has passed its shelf life in Vietnam. During the gradual transition to capitalism, the principles of the middle class have become woven into the economic and social fabric of the nation, even though it still clings to communism. Unlike in China, where there are social policies that explicitly address the middle class as the foundation of the country's stability, Vietnam is still reluctant to acknowledge its existence.

     This is partly because the formation of this class is at an early stage in Vietnam as compared with China. However, as this segment of society continues growing rapidly, the lack of specific social policies to deal with the associated social and economic changes could be dangerous for Vietnam's leaders. Without acknowledging and addressing the middle class, the government risks leaving a political vacuum.

Huong Le Thu is a researcher based at the ISEAS-Yusof Ishak Institute in Singapore. She specializes in Vietnam and China.

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