Mr Thomas J. Vallely (photo: ksg.harvard.edu)

VietNamNet Bridge - “The failure of the US Congress to pass PNTR has nothing to do with Vietnam.  Vietnam has done a fantastic job throughout the process of negotiating WTO accession with the US and the rest of the world,” said Thomas J. Vallely, Director of the Vietnam Program at the John F. Kennedy School of Government, Harvard University in an interview with VietNamNet. 

This interview was made by VietnamNet Editor-in-Chief Nguyen Anh Tuan on the occasion of Vietnam’s WTO accession, its hosting of the APEC summit, and the visit of President George W. Bush to Vietnam.  

Mr Vallely is an expert on Vietnam’s development and is knowledgeable about the US-Vietnam relationship.  The Vietnam Program has conducted policy-relevant research on Vietnam’s economic development for more than 15 years.  The Vietnam Program’s flagship initiative in Vietnam is the Fulbright Economics Teaching Program in Ho Chi Minh City, a center of public policy research and training that is a joint program with the University of Economics-Ho Chi Minh City.

I have just learned that the PNTR vote, which failed to pass on Monday, October 13, has been postponed.  So President Bush will be coming to Hanoi empty handed.  What is your analysis of this situation?

First let me say that the failure of the US Congress to pass PNTR has nothing to do with Vietnam.  Vietnam has done a fantastic job throughout the process of negotiating WTO accession with the US and the rest of the world. 

The New York Times is reporting that President Bush is extremely disappointed by this turn events and embarrassed that he will be unable to visit Hanoi with PNTR.  The Bush Administration and the US government regards the relationship with Vietnam as an important one on many different levels.

Frankly, this week PNTR was the victim of the collapse of Republican Party leadership in the House of Representatives following the victory of the Democratic Party in the elections last Tuesday, 7/11.  As you are aware, the Republicans in the House of Representatives have been wracked by a series of scandals recently.  I think following their loss in the elections, the leadership in the House of Representatives was unable to coordinate a vote on PNTR; this is reflected in the high level of absenteeism this week—many Republicans simply didn’t show up to cast their vote.  This is indeed a disappointment, however, I am confident that it is temporary only.  I believe that a vote on PNTR will be held in December, or in January.  If you look at the voting on Monday, you will see that the Democrats who will assume leadership positions in the House of Representatives next year all voted in favor of granting PNTR for Vietnam, including Nancy Pelosi, who will become Speaker of the House, Charlie Rangel, and George Miller. They will be able to work in a bipartisan way with the Republicans to pass PNTR. In the Senate, PNTR will also enjoy bipartisan support under the leadership of Democrats Max Baucus and John Kerry and Republicans Chuck Hagel and John McCain.

I am pleased to see that the Bush administration removed Vietnam from the list of “Countries of Particular Concern” regarding religious freedom.  Frankly, it was an insult to Vietnam to be included on the list and I think taking Vietnam off the list demonstrates a desire on behalf of the Bush Administration to continue to strengthen the bilateral relationship.

You are someone who has followed the development of Vietnam for many years.  Do you have any views about recent events in Vietnam? Is Vietnam indeed “taking off”?

Vietnam’s recent accession to the WTO is indeed an impressive achievement; joining the WTO is not easy.  For a country with Vietnam’s economic potential, the negotiation process is particularly difficult.  The Vietnamese people should be proud of this accomplishment.

But of course, as Vu Khoan--someone who deserves a great deal of credit, along with many others, for Vietnam’s WTO accession--recently observed in Tuoi Tre, WTO membership is a means to an end, not an end in itself.  Through events like the Prime Minister’s very successful trip to Japan, Vietnam’s election to the Security Council in 2008, and, of course, APEC, the country is demonstrating a desire to play a more proactive role in world affairs, inside and outside the economic sphere, and to elevate its position in the international community. 

But to have a voice in international affairs, above all else Vietnam must continue to develop and ensure that all Vietnamese can partake in the benefits of economic growth.  Successful countries are influential countries.

Certainly one example of Vietnam’s higher international profile is the APEC summit to be held in Hanoi this week.  What do you think Vietnam could and should do to take advantage of the APEC summit? What outcomes do you expect from APEC?

APEC provides a forum for the economies of the region to discuss matters of mutual concern.  You know the old joke that APEC really stands for “A Perfect Excuse to Chat.” But there is nothing wrong with top leaders getting together to chat. Vietnam’s new leaders should seize on this opportunity to establish personal contact with top political and business leaders, and to communicate to them the government’s desire to pay close attention to major economic and political trends and to what the rest of the world is saying about Vietnam.

APEC will be President George W. Bush’s first trip abroad since the Republican Party lost control of the House of Representatives and the Senate.  The mid-term elections appear to have dramatically altered the landscape of American politics. Do you believe the Democrat’s victory will have implications for the US-Vietnam relationship?

(Laughing) Well, because you and President Bush both attended Harvard Business School, I think you are in better position to evaluate the President than me! 

Clearly one message of the election is that the American people were dissatisfied with American foreign policy and America’s relations with the rest of the world generally.  I think that you will see an immediate shift in American foreign policy towards an approach emphasizing dialogue and diplomacy.  The United States will likely become more receptive to engaging constructively with those countries that presently do not enjoy good relations with Washington, like Iran for example.  Regarding the Vietnam-US relationship specifically, I do not foresee any major changes.  It is disappointing that the House of Representatives did not pass PNTR on Monday, November 13; I do hope that the House will vote again on PNTR soon.  Not passing PNTR hurts Vietnam, and hurts America.  But we should not let it overshadow the importance of the US-Vietnam economic relationship or its immense potential.  I think that overall the US and Vietnam have a very normal relationship.  Certainly recent events like Vietnam’s WTO accession, the Intel investment, and APEC have helped boost awareness of Vietnam within the US, especially within the business community.

With respect to economics and trade, I would caution that the victory of the Democratic Party may lead to an increase in protectionist sentiment in Washington.  The Democrats tend to be more protectionist and skeptical towards globalization than Republicans; this is an issue which Vietnam will need to be aware of as it continues to export more and more to the US market. 

You and your colleagues at Harvard and the Fulbright Economics Teaching Program in Ho Chi Minh City study the Vietnamese economy carefully.  What do you think are the principal challenges confronting the Vietnamese economy today?

First, it must be said that the Vietnamese economy is not growing as fast as it should.  I think this is clear.  Vietnam needs to create at least one million jobs every year just to absorb new labour market entrants.  On average over the last five years, the state sector created 12,000 jobs per year, or about 1% of the number needed. Yet the state sector receives a majority of the capital invested.  In theory, it is the economic efficiency of a firm that matters, not its ownership structure.  As Deng Xiaoping once said, it doesn’t matter if a cat is black or white, so long as it catches mice.  However, looking at performance, it is clear that Vietnam’s state sector is not catching many mice—it is extremely inefficient, does not generate growth, does not create jobs and is slow to adapt and use new technologies.

Last week, Prime Minister Nguyen Tan Dung released a statement analyzing the opportunities and challenges of WTO membership for Vietnam.  The Prime Minister listed a number of priorities for further reform, including strengthening the financial and legal systems and continuing to create conditions for small and medium sized enterprises to flourish.  Are you familiar with this statement?

I was extremely impressed with Prime Minister Nguyen Tan Dung’s recent statement.  The Prime Minister articulated a reform agenda for Vietnam with a clarity and force that I have not seen in some time.  In particular, it is clear that Mr. Dung understands the importance of policymaking to Vietnam’s future success.  Mr. Dung stated that participation in globalization and the global trading system is a necessity, not an option; he also expressed confidence that Vietnam can succeed within the global economic system.  I remember a time not too long ago when Vietnam was not as confident. 

I agree with Prime Minister Dung’s observation that small and medium size enterprises—the overwhelming majority of which are non-state—are the main drivers of development.  One challenge for Vietnam will be creating conditions for small enterprises to become large enterprises.  Currently, although the private sector is much more efficient than the state sector, the private firms are too small to compete in the global economy; bigger firms are a necessity if Vietnam is to take advantage of WTO membership and compete successfully.  Creating conditions for the emergence of large private firms will require strengthening the legal and financial systems and, critically, improving education.   

Photo: www.pbs.org

I emphasize that a stronger private sector can take full advantage of foreign investment.  From the perspective of a developing country like Vietnam, foreign investments are most valuable for the technology and skills transfer they offer, but taking advantage of these opportunities requires establishing meaningful collaborative relationships with local firms.  The reality is that at present very few Vietnamese firms have the capacity to serve as suppliers to foreign companies. Foreign companies are investing in assembly operations in Vietnam, not in research, development and design. Investments in labour intensive production is good because Vietnam needs to create millions of jobs. But in the long run the country will not grow rich sewing shirts and turning screws. You need to compete with China and India head to head in high technology, innovation and research.  It is quite clear that in Vietnam today connections between research in the basic and applied sciences and industry are limited at best; according to the World Intellectual Property Organization, residents of Vietnam registered only two patents in 2002, as compared with 40,346 in China and 1,117 in Thailand by their residents.  These statistics suggest that Vietnam is a long way from realizing it’s ambitions to become an important player in knowledge-based industries.

Looking forward, improving education will certainly be a central challenge for Vietnam…

Yes, absolutely.  I think that Prime Minister Dung identified the central challenge when he said that today Vietnam’s competitive advantage is in sectors requiring a large pool of cheap, unskilled labor.  Realizing Vietnam’s goal of industrialization and modernization and developing a value-added, knowledge-based economy depends above all else on education.  If Vietnam does not institute systemic reform to its university system, immediately, the country will fall far short of its potential.   There is a crisis in higher education in Vietnam, and I think it is every bit as pressing as the crisis in agricultural production Vietnam confronted in the 1980s. Addressing this crisis will require a level of urgency and focus which I’m not sure exists; Vietnam ought to treat the goal of improving higher education with the same level of urgency that the Soviet Union and the US brought to the “space race” during the Cold War.

After former Prime Minister Phan Van Khai visited Harvard and MIT in 2005, you wrote a “proposal for discussion” for the creation of a top-tier university in Vietnam.  It has now been almost a year since that document was first published on VietnamNet.  Are you aware of any progress on this issue?

Well, let me first say that I continue to follow the debate in Vietnam regarding higher education reform closely.  The recent efforts to combat academic dishonesty and corruption in education are important and should be applauded. 

I am also pleased to see that the government has declared its intention to provide Vietnamese universities with more autonomy.  That is certainly a basic prerequisite for improvement but it is not enough.  Recruitment and promotion must be merit-based. This is essential to attract young, foreign-trained scholars and scientists into the universities.  I talk to many Vietnamese studying at American universities; they want to come back to Vietnam, but frankly I don’t know anyone who wants to return to a Vietnamese university, particularly when there are so many rewarding opportunities in the private sector both at home and abroad.  Indeed, what is the incentive to teach at a Vietnamese university—classes with hundreds of students, little chance to do research, a “he who lives longest becomes the village elder” approach to promotion, and the need to moonlight excessively to support oneself?  I understand that today in Vietnam, a teacher’s official salary is determined by seniority alone, along with small allowances for those who hold advanced degrees.  At the same time, Chinese universities are paying world-class salaries to lure away talent from elite American universities—do you think that the computer science professor who leaves his position at a leading American university is going to be paid more than his older colleagues? I think so!  And not just ethnic Chinese talent either, today many professors at Harvard hold visiting professorships at Chinese universities. 

Globalization means competition for talent not just between the public and private sectors in Vietnam but around the world. Vietnamese universities are in a competition for talent with not just with Intel and Canon but also with MIT and Oxford.  To succeed in this competition, universities in Vietnam and elsewhere do not necessarily have to pay salaries equal to those available in private companies. But academics do demand a professional environment for research and teaching, world class facilities and the opportunity to take full part in international networks of scholars. 

Regarding the “proposal for discussion” there may be progress but I am not aware of any.  I still believe that it would be possible to secure the participation of elite US research universities to establish a new university in Vietnam but only if Vietnam uses the right strategy.  I know that Duke University, for example, remains interested in participating in an undertaking that build a new university in Vietnam.  It would be a mistake to ignore the urgent importance of developing top-tier universities.  My colleague at Harvard, Professor Henry Rosovsky, spoke with former Prime Minister Phan Van Khai about higher education last year.  Professor Rososvksy argues that a higher education system is like an “ecosystem.” Within the ecosystem, you need different kinds of institutions—regional universities, vocational training schools, teachers colleges, professional schools…But you also need an elite university capable of attracting top-talent and providing them with an environment in which they can research.  Every country with a quality education system has some of these “apex” universities.  Vietnam can and must create an institutions like this too.  I think that in partnership with an international top-tier university like Duke, Vietnam could built its own within a decade.

But it is important to remember that the biggest obstacle to improvement is not money. Until the universities—new or old—have governance structures that encourage excellence and achievement the universities will not perform well no matter how much money you throw at them. 

You have said in the past that the best strategy for creating a top-tier university is to build a new institution.  Do you still believe this to be the case?

I understand that some people are of the opinion that upgrading an institution is an optimal approach.  Is it possible in theory?  Perhaps.  But we must remember that the central failure in Vietnamese higher education is governance and low standards.  If you are willing to fire teachers who lack ability, whose knowledge and teaching style is backward; compensate people based on their performance, not on their seniority within the system; replace the leadership with younger, more dynamic individuals; and install a new, efficient, merit-based management system, than maybe it might be possible to turn an existing university into a top-tier university.  I doubt if the political will exists though.  In every country, universities tend to be conservative institutions that are resistant to change.  Encouraging universities to adopt “advanced curricula” from overseas may produce marginal improvement, but does not respond to the central problems in higher education. 

Competition is important.  I remember that a decade ago there were fears that if Vietnam opened its insurance sector up to foreign participation, Vietnamese insurance companies would be unable to compete.  What happened? Well, Vietnamese insurance companies are now far more competitive and professionally managed than they were before.  I think a new, top-tier university can have a similar impact on education system.  The universities have no incentive to compete.  I know many people in Vietnam are concerned about the “commercialization” of higher education; some use this to argue against increasing competition and autonomy.  I sympathize with this concern, but it strikes me frankly as misguided.  The fact is, for Vietnamese students and their families, Vietnamese higher education is already extremely commercialized—I visit many Vietnamese universities and as soon as you set foot on campus you are confronted with a forest of advertisements for different degree and certificate programs.  Make universities compete more, and you will see the positive element of market forces.

I need to add one critically important clarification.  Although autonomy and competition are critical conditions for improvement in higher education, the importance of state funding is of crucial importance.  Even in the United States, private universities like Harvard and MIT depend on government funding—typically in the form of research grants—to operate.  In a developing country like Vietnam, state financing will be the most important funding source into the foreseeable future.  Do not think that “private” universities means “privately funded” universities.

In fact Vietnam’s annual spending on education is compares favorably to other countries in the region. The Vietnamese government is investing a lot in education…

Yes, and it will need to continue to do so.  However, as I have often said, the issue is not money, in terms of total expenditures, but how the money is allocated.  Is funding for universities tied to tangible indicators of achievement, such as number of journal articles published, patents filed, or graduates who are admitted to foreign graduate programs?  If my understanding of the World Bank Higher Education Project II loan is correct, the way the loan is going to be used is emblematic of this pattern.  The loan is going to be spread around the system, with small amounts to a different universities, as determined by the Ministry of Education and Training.  Without making receipt of funding dependent upon the achievement of excellence, the loan is virtually certain not to have an impact.  This amounts to rewarding stagnation and failure, and is certainly not a strategy for attaining a level of quality in higher education similar to those of the major APEC economies.  The only thing that is certain is that it will add to the debt repayment burden your children will have to honor, Tuan!

Another concern with respect to allocation of investment is avoiding waste.  Today, many provinces in Vietnam appear eager to develop their own universities; these plans need to be evaluated rigorously in terms of the actual needs of the region.  For instance, the Mekong Delta might be better off combining their resources into a few universities that can meet the human resources demands of the entire region than rushing to build new institutions in each province.

Until the universities—new or old—have governance structures that encourage excellence and achievement the universities will not perform well no matter how much money you throw at them.  

Photo: www.fetp.edu.vn

In his recent statement on the opportunities and challenges of WTO membership, the Prime Minister observed that in a globalizing world, competition occurs not only between firms but between states, and the policies they implement.  Harvard has been analyzing Vietnam’s economic policy and engaging in a dialogue with the Vietnamese government for many years.  What do you think of the current state of Vietnam’s policymaking apparatus?

First, Vietnam is fortunate to have some extremely talented young policymakers serving at the central and provincial level.  I am proud that Harvard and the Fulbright Economics Teaching Program (FETP) has trained some of them.  When the US and Vietnam completed the bilateral negotiation of Vietnam’s WTO accession, the US team had tremendous respect for their Vietnamese counterparts.  I am told that at one point the Americans complained among themselves that negotiating with the Vietnam was too difficult because so many of them were educated at America’s elite universities, including Harvard!

However, crafting effective policies that maximize the opportunities and minimize the risks of globalization requires more than just talented individuals. Vietnam is still lagging behind in the creation of institutions capable of conducting sophisticated analysis of global economic and political trends.  Without policy analysis of the highest quality, Vietnam is like a ship at sea without a compass or a chart.  Other countries in the region are doing a better job in this area.  My Harvard colleagues tell me that the policy and economic analysis conducted by Chinese researchers in the government and universities is both of a higher quality and more critical than research done by foreign experts.  Sadly, this is not the case in Vietnam, where even basic development indicators are still calculated by foreigners!   

Of course, I think it is important to emphasize that no government provide its policymakers with all of the information and perspectives they need to formulate policies.  This is why it is critical that the government establish mechanisms for pursuing dialogue with international business and other leaders. That is why CEOs, presidents and finance ministers flock to events like the World Economic Forum.  It is also why the leadership of China regularly consults with business leaders and other experts, in private and through events like the annual AIG-sponsored Shanghai mayor’s conference.  The opportunity to get an impartial view from someone who has risen to the very top of his or her field can be very valuable to policymakers.

The donor community has been supporting capacity building within Vietnamese research institutes for a long time now. Do you believe that these efforts are paying off?

On balance, I think that foreign aid to build Vietnam’s policy research capacity and conduct policy analysis has probably hurt more than it has helped.  Donors have distorted the market, using their resources to make themselves the center of gravity. Vietnamese research institutes are focused on “chasing” projects that suit the donors’ priorities but that often have very little to do with Vietnam’s real needs. Giving Vietnam’s research institutes full financial independence  will only make things worse as long as they rely on donor projects for their survival. 

The primary constraint on the Vietnamese policy analysis apparatus, however, is not money, but governance.  As a Harvard graduate, Tuan, I think you appreciate that Harvard achieves excellence by creating an environment within which people are evaluated solely on the basis of their talent.  They are encouraged to think critically and to challenge “conventional wisdom.”  No country has succeeded in modernizing and industrializing without high quality policy analysis and universities. 

Are you suggesting that official development assistance is not benefiting Vietnam? 

Yes, overall the impact of foreign aid has been minimal.  Vietnam’s achievements in alleviating poverty and sustaining relatively high (but not high enough!) levels of growth was made possible by the decision of the Party to unleash the energies of the Vietnamese people. All of this happened long before most of the donors were even here, and although they like to take credit for Vietnam’s success they really had nothing to do with it.  For the most part foreign aid is used to build projects that Vietnam would have built anyway.  The donor community does not support critical analysis.  The Vietnamese media, including VietnamNet, is playing a far more valuable role in analyzing the development challenges confronting Vietnam than, say, the World Bank.  I thought that one of the most interesting dynamics of the mid-term CG meeting in Nha Trang this past June was the fact that Vietnamese newspapers expressed concern that the donors were not being critical enough.  

Do you see any productive role for the donor community in Vietnam? For instance, at this stage in Vietnam’s development, with pressing need for infrastructure, foreign assistance can be of importance, otherwise Vietnam would be forced to borrow at higher rates on international markets?

I think that organizations which seek to promote a dialogue based on ideas, not donor money, can have an impact, particularly given the low capacity of Vietnam’s policy analysis. The United Nations, which is working with Harvard and the Vietnamese government agencies to research key policy challenges facing Vietnam, is the best example of this. 

Regarding ODA, I agree that there can be benefits if it is used efficiently.  Although I think there are real questions about whether ODA is being used to build sensible infrastructure that Vietnam will need. The bottom line is FDI is far more important than ODA.  Intel’s recent decision to increase its investment in Ho Chi Minh City, Japanese investments like Canon’s in Hanoi—these are key.  The Prime Minister’s recent trip to Japan appears to have been a great success in this regard.  Japanese investment can play a key role in Vietnam’s future.  A Japanese economist recently argued that there is a huge opportunity for Vietnam to become a destination for high-quality Japanese investment, but taking advantage of the opportunity will require that the Vietnamese private sector continues to grow so that it can integrate into the supply chains of large multinational companies.

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