The Berkeley years. Part X.
Traveling to Vietnam with Joe Stiglitz.
In early 2002, I was contacted by Joe Stiglitz to travel with him to Vietnam in the framework of the Initiative for Policy Dialogue (IPD) that he had created at Columbia University. Joe Stiglitz is one of the greatest economists of the 20th century. Between the late 1960s and early 1990s, he had made major contributions in both microeconomics and macroeconomics, making clever use of the introduction of informational problems in economics pioneered by George Akerlof, my colleague at Berkeley. It had been thrilling news for Heddy and me to hear one early October morning in 2001, while still in our bed with a view of the sun rising over the Golden Gate Bridge, that George Akerlof, Joe Stiglitz and Mike Spence had won the Nobel prize in economics. Joe Stiglitz had by then moved to policy advice. He had been the Chair of Clinton’s Council of Economic Advisers from 1995 to 1997 and Chief Economist and Vice-President of the World Bank from 1997 to 2000.
As Chief Economist at the World Bank, Stiglitz wrote a very critical article about US policies towards transition countries entitled “Who lost Russia?” that infuriated the Washington establishment. Larry Summers who was then Treasury Secretary in the Clinton Administration is said to have lobbied the World Bank President Wolfensohn to fire Stiglitz. He was supposed then to return to Stanford where he was teaching but wanted to stay on the East coast and accepted an offer from Columbia University where he is still today. In 2000, he decided to create there the Initiative for Policy Dialogue (IPD). During the 1990s, the IMF and the World Bank used conditionality in their relations with developing countries, making the allocation of loans conditional on the adoption of policies called the “Washington consensus”: trade liberalization, capital account liberalization, reduction of fiscal expenditures to eliminate public deficits, privatization of state-owned enterprises, elimination of tariffs and so on. Stiglitz was quite critical of the “Washington consensus” and of conditionality. With the IPD, he wanted developing countries to benefit from the policy advice of reputed academic economists and promote a dialogue with those countries to establish which policies might be the best for their economic development. In my own book on transition economics, I had been very critical of the Washington consensus in relation to transition economies (see https://gerardroland.substack.com/p/the-berkeley-years-part-vi ), which is probably the reason why Stiglitz had invited me to go with him to Vietnam.
Vietnam had started implementing radical reforms towards the market economy in 1986, the so-called Doi Moi reforms. This included decollectivization like in China, price and trade liberalization. These reforms took place before the big bang reforms in Central and Eastern Europe that started in 1990. They might have been partly inspired by Chinese reforms, but Vietnam’s communist regime has always been quite suspicious of China’s communist regime, especially after its attempted (failed) invasion of Vietnam in 1979. This suspicion has not been alleviated by China’s more recent aggressive policies in the South China seas, despite a normalization of relations between the two countries. Like in China, privatization was not prioritized in Vietnam but the development of the private sector was strongly encouraged. The strong expansion of the private sector had strongly compensated for the output fall related to price liberalization[1]. Contrary to China, introduction of private property rights was taken seriously and laws were passed to legalize private property of land and housing.
Everytime I land in East Asia, I am reminded of the humidity and warmth amid the grey skies that I experienced during my childhood in Hong Kong. It is always a Proustian moment where decades-old memories of smells and humidity permeate my brain. This was also the case when I landed for the first time in Hanoi in 2002 for the IPD mission. The roads in the countryside and streets of Hanoi swarmed with motorcycles, sometimes carrying very large loads or whole families. The pungent smell of unrefined diesel was less strong than in other developing countries. The cacophony of street life contrasted sharply with the calm of post-colonial hotels, parks and lakes such as the beautiful Sword Lake in the middle of the city.
The UNDP (United Nations Development Program) in Hanoi had arranged for our visit. The meeting with the Prime Minister and other Ministers was more formal, as was to be expected. An interesting remark in that context. During our conversation with the Prime Minister, he highlighted how Vietnam had been improving in various international rankings. I do not remember exactly, but it may have been in the “Worldwide Governance Indicators” (WGI) created by Daniel Kaufmann and Aart Kraay at the World Bank. I realized then that these indicators had an effect on governments, because they influenced foreign direct investment, which was important for their economy. Around the same time, my co-author Simeon Djankov created at the World Bank the “Doing Business Report” which gave international measures of the ease of doing business (how long it takes to open a business, how many steps are needed, how easy it is to get a loan to start a business, etc.). This report was probably even more influential around the world. Because governments in emerging markets paid such a close attention to it, they tried to see how they could improve their rankings. One way was to improve the institutional environment, which was very positive. Another was to find the easiest way to improve one’s indicators by making cosmetic changes that would not have much economic influence. I found there the basic theme of my doctoral dissertation about “indicator values” in centrally planned economies ( see https://gerardroland.substack.com/p/becoming-doctor-roland-1987-1988 ).[2] Another was to directly lobby the World Bank to change the measure or the value of one’s indicator. Unfortunately, this happened with the “Doing Business Report”. This was the case with China in 2018 that wanted to manipulate deteriorating data, and also later with Saudi Arabia and the UAE. It seems clear that Kristalina Georgieva (then World Bank President) and Simeon Djankov were both involved in these data manipulations. The Report lost all credibility and was discontinued.
The most important meeting I had in Hanoi was with Mr Le Dang Doanh with whom I quickly developed a very good relationship and whom I saw again later on another trip to Hanoi[3]. Small in stature but very sharp in intellect and wit, I thought he had a certain resemblance with Deng Xiaoping. His English was very good, contrary to many Vietnamese policy-makers who we met. He was the intellectual father of the famous Vietnamese “Enterprise Law”, which has been praised worldwide. The Law was quite revolutionary. It ended enterprise licensing, allowing enterprises to automatically register a business. This was a big anti-corruption move as it took away from bureaucrats the power to delay or deny licensing as a way to extract bribes. Legal rules for enterprises were unified across sectors and a lot of red tape was removed, making it easier for enterprises to grow. This law had had a very positive effect on enterprise growth in Vietnam. Mr Le Dang Doanh had, however, no illusions that this would end corruption in his country. He told me corruption would go elsewhere in other sectors where there were more opportunities for bribes. More than 20 years later, corruption is still a major issue in Vietnam today, mostly because of the communist party rule.
I finished my stay in Vietnam by joining a group of expats to do a Sunday run in the middle of the rice fields. I had been kindly invited by Andrew Steer, a very warm and engaging personality who then served as the World Bank country Director. Seeing a line of joggers run on the narrow paths between rice paddies below the humid Asian sky was quite a sight.
(To be completed)
Beautiful Sword Lake in the middle of bustling Hanoi.
[1] On the output fall and price liberalization, see https://gerardroland.substack.com/p/the-exciting-1990s-part-xiii.
[2] BTW, this logic that I had used to analyze the Soviet economic system is present anywhere performance indicators are used to incentivize behavior, another example being government budget deficit thresholds such as used inside the European Union Maastricht Treaty criteria or in World Bank or IMF conditionality programs.
[3] Jan Svejnar and I organized in 2004 the annual CEPR-WDI transition economics conference with the help of UNDP.