In 2011, Vietnam achieved significant economic results, despite a 5.9% growth, that was well below expectations. Having reached the status of a middle income country, the Socialist Republic is currently running in a race in which the goal is “quick and sustainable” growth, as Prime Minister Nguyen Tan Dung affirmed in his new year message. But many interconnected obstacles and challenges still remain. With a double-digit inflation, a deep economic transformation and rapid industrialization, social tensions could be a major problem in the next three years.

Vietnam is an international success story. Since 1986, when doi moi (renovation) was launched, results in terms of growth and poverty reduction have been unparalleled in the history of developing countries. Between 1990 and 2008 Vietnam has recorded a 7% average growth, reducing the number of people living on no more than one dollar a day from 63% in 1993 to 22% to 2006.

With the entry into the World Trade Organization (WTO) in 2007, the country has become an important manufacturing hub at a regional and international level, able to attract a significant amount of Foreign Direct Investments (FDI). By the mid 1990s, FDI into Vietnam were over US$2 billion per year. The flow then decreased because of the financial crisis at the end of the 90s, surging once again in 2006 and reaching an estimated US$10-11 billion in 2010.

But if the WTO membership was considered a milestone, since then “Vietnam very much failed to contribute to its own people let alone to its fellow WTO members,” said Pham Chi Lan, a Vietnamese Economic expert in an article in ‘Vietnam Financial Review’.

This observation points out some shortcomings that have occurred mainly in the industrial sector, which was meant to support the second-phase growth of the country, and whose potential is based on the working class, a class of mostly non-specialized workers, less aware of the regulations that should serve to protect them.

Around 1.3/1.5 million new job seekers a year enter the Vietnamese labor market and many of them go to occupy temporary or informal sectors of labor the market labor even within formal industrial manufacturing activities.

“The necessity to respond to the needs of the new industrial work force is recognized by the authorities as a key priority at a time of economic crises and volatile inflation, which threaten the life of the weakest,” Do Ta Khanh, project manager at the Institute for European Studies (IES) in Vietnam, told PlanetNext.

In partnership with the Institute for Workers and Trade Unions (IWTU), the University of Naples ‘L’Orientale’, the Italian Institute for social and economic studies, the French Les Mondes du Travail in association with Vietnam General Confederation Labor (VGCL), IES conducted a survey in the industrial districts of Hai Duong, Hanoi and Vin Phuc, interviewing 745 workers employed in FDI, Joint Stock Companies and Private enterprises operating in garment, automotive and automotive support industries, with the aim to “empower workers and Trade Unions in Vietnam.” From the study there emerged some limitations and challenges that Vietnamese authorities are going to face.

According to the survey, most of the workers– especially female and migrant workers in garment and other private enterprises–are not aware of their basic rights and obligations in labor relations. They are not familiar with the laws that regulate strikes or procedures for requesting intervention from the Trade Union. In some cases, particularly in FDI enterprises, workers have to pay for the privilege of having a job and are forced to work overtime, all of which does not comply with Articles 68 and 69 of the Labor Code of Vietnam, which state that work shifts are not to exceed 8 hours per day, 48 per week and that overtime should not exceed 200 hours per year.

Mostly women and migrants workers at garment and automotive enterprises regularly exceed the 200 hours per year limit, sometimes reaching 800 hours per year, with the aim, in 62.6% of cases, of increasing their income. A garment worker, who asked for anonymity, told PlanetNext that if working class expectations are changed, “with consumer prices increasing and low salaries we have to work overtime.”

In 2011 Vietnam’s consumer price index (CPI) was at 18.58%, “on the top of the world,” as described by Deputy Prime Minister Nguyen Van Ninh, thwarting government intervention on raising the minimum wage and leading to a large number of strikes. Even though, according to the Ministry of Labor, War Invalids and Social Affairs (MoLISA), the almost 900 strikes that were recorded in eleven months of 2011, doubling those of 2010, were mainly due to enterprises that “did not respect labor law.”

In such a context, the first goal of 2012 should be to limit the rise in inflation, which was originated by fiscal policy more than a monetary one. “In 2011, investment in just 22 public corporations was estimated at VND253 trillion (more than $12 billion) and total spending was even greater,” underlines Pham Chi Lan. That is three times more than the VND81 trillion cut in government spending announced by the National Assembly and never implemented, leading the authorities to borrow money abroad. The increase in public debt fueled the credit growth in the first half of 2011 and resulted in the current inflation level.

If almost 63% of the interviewed workers do overtime for higher income, 32.2%, especially in FDI enterprises, are forced to do so by management. What is lacking is ethical behavior by foreign companies and action by the Trade Union, whose representative is part of management.

On the one hand, authorities are called upon to rethink the FDI strategy and rules. On the other hand it is necessary “to strengthen the capacities of the Vietnamese trade unions in order to identify, articulate and organize the needs and interests of the most vulnerable sectors of the new industrial working force,” Pietro Masina, International political economy professor at L’Orientale, told PlanetNext.

This could lead to sustainable growth, but not to rapid growth. Hence, following this path could reduce the government’s growth projections and limit the inflow of FDI. Were this to increase, on the other hand, it could result in a reduction in national sovereignty. At the moment it is not possible to assess the long-term implications of the steep increase in FDI flows into the Vietnamese economy since its admission to the WTO. “A crucial challenge will be the ability to increase value adding in existing industries and to achieve industrial upgrading towards more value-added production,” Masina commented to PlanetNext.

The past four years have taught us that economics is not an exact science; and every country has been blaming external and international market crises for their failures. In the case of Vietnam, the feeling is that some problems are internal more than external. The country has great potential and the ability to exploit this potential lies in the hands of a small group of people.

Focusing on reducing inflation could result in a stagnation period, but would ensure better social stability, one of the key elements in ensuring investments in the country. At the same time, fewer and better quality FDI would ensure industrial growth closer to the needs of the entire population and not only to a small economic and political elite.

An edited version of the article was previously published on ATimes.com