THE ECONOMIC POLICY OF NORTH VIETNAM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01141A001900050001-4
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• Original Classification: C
• Document Page Count: 30
• Document Creation Date: December 23, 2016
• Document Release Date: July 25, 2013
• Sequence Number: 1
• Publication Date: February 1, 1961
• Content Type: REPORT

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CONFIDENTIAL
Economic Intelligence Report
N? 106
THE ECONOMIC POLICY OF NORTH VIETNAM
CIA/RR ER 61-5
February 1961
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
CONFIDENTIAL
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CONFIDENTIAL
Economic Intelligence Report
THE ECONOMIC POLICY OF NORTH VIETNAM
CIA/RR ER 61-5
WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
CONFIDENTIAL
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CONTENTS
Page
Summary and Conclusions'
1
I. Economic Administrative Structure
3
II. Reconstruction (1955-57)
5
III. Three Year Plan (1958-60)
7
A. Socialization
8
B. Investment
9
C. Consumption
14
D. Agriculture
15
E. Industry
16
IV.
Five Year Plan (1961-65)
17
V.
Relative Influence of the USSR and Communist China
?
?
20
Appendix A. Methodology
Appendixes
23
Tables
1. North Vietnam: Gross Value of Agricultural and Indus-
trial Production, 1955-59 and 1960 Plan 5
2. North Vietnam: Percentage Distribution of Gross National
10
Product, by End Use, 1955-59
-3. North Vietnam: Gross Domestic Investment, 1955-59 and
1960 Plan 11
4. North Vietnam: Allocation of Budgeted State Investment,
1958-60
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50X1
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Page
North Vietnam: Percentage Distribution of Total
Available Resources, by End Use, 1955-59 15
6. North Vietnam: Sino-Soviet Bloc Aid, 1953-60 . ? ? ? 22
Chart
North Vietnam: .Economic Administrative Structure
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THE ECONOMIC POLICY OF NORTH VIETNAM*
Summary and Conclusions
The Communist regime of the Democratic Republic of Vietnam (DRV)
is dedicated to the establishment in North Vietnam of a thoroughgoing
Communist society and to the reunification of North and South Vietnam
under Communist auspices. Forced to give up attempts, at least tem-
porarily, to reunify the country by force, the regime has concentrated
on the building of a Communist state that will outproduce the Republic
of South Vietnam and attract the South Vietnamese to emulation and
eventual partnership.
Pre-DRV political and economic factors have exerted influence on.
the framing of DRV economic policies, but such factors have been in-
creasingly subordinated to those arising from Communist ideology. The
transformation of North Vietnam from an underdeveloped, agricultural
country to an industrial nation is to be achieved within the tradi-
tional Communist framework of the socialization of private property,
the rapid expansion of agricultural and industrial production, and the
restriction of increases in consumption in favor of large increases in
investment. A cardinal aspect of economic policy has been North Viet-
nam's increasing orientation toward other members of the Sino-Soviet
Bloc, especially Communist China. Its economy has depended on sub-
stantial material and technical assistance by the Bloc in the form of
shipments of machinery and equipment, the dispatch of technicians to
North Vietnam, and the training of the North Vietnamese in science and
technology.
The DRV has adjusted, when necessary, Communist principles of eco-
nomic development to the realities of existing conditions in North
Vietnam. Recognizing the limitations in economic resources, DRV
leaders have spoken of the potential of the economy in terms of self-
sufficiency in food, the development of a limited range of industries,
and economic integration with the rest of the Sino-Soviet Bloc, but
they have not proclaimed the more ambitious goal of the USSR and
Communist China of economic self-sufficiency. In contrast to the USSR
and China, North Vietnam from the beginning has given full attention
to the development of agriculture. Agricultural policies have aimed
at the fuller employment of North Vietnam's abundant labor force
* The estimates and conclusions in this report represent the best
judgment of this Office as of 1 January 1961.
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through the adoption of labor-intensive methods of increasing crop
yields. The relatively great emphasis on light industry has been an
accommodation to limitations in capital plant and to the shortage of
technical and managerial skills rather than an ideological deviation
from the traditional Communist policy of a rapid expansion of heavy
industry. Finally, in contrast to Soviet and Chinese emphasis on the
construction of large-scale industrial facilities, the DRV has relied
on the operation of small-scale industrial facilities, which employ
available labor in quantity and afford the greater use of traditional
production processes.
Although similarities in the population-resource base of Commu-
nist China and North Vietnam -- notably the enormous population rela-
tive to the amount of arable land -- have invited similar approaches
to economic development, North Vietnam has been proceeding along the
path of socialist development at a slow pace compared with China.
DRV policies have fallen short of Peking's bold measures in breadth
and vigor. The excesses of ideological persecution in China have not
been duplicated in North Vietnam, nor has the DRV pushed forward so
urgently its programs for socializing agriculture and developing
heavy industry.
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I. Economic Administrative Structure
a
The USSR pioneered the development of central planning and direc-
tion of a socialist economy. Communist China borrowed heavily from
Soviet administrative organization and techniques of planning, and
North Vietnam in turn has adopted the Chinese economic administrative
structure.
The North Vietnamese leaders have created a highly centralized,
authoritarian government structure firmly in the hands of the Com-
munist Party. Key Party leaders hold important administrative posi-
tions and direct the mass organizatiOns that implement decisions of
the Party directorate. All important economic decisions are framed
by the Politburo of the Party Central Committee, which is made up of
the dozen or so most powerful leaders of the Lao Dong (Communist)
Party. Decisions of the Party are translated into specific programs
of action through a national economic plan. Whereas the formal exe-
cution of the national economic plan is the primary responsibility of
the administrative hierarchy of the government, a Communist Party
structure paralleling and often interlocking with that of the govern-
ment provides the top leadership of the Party with an effective means
of overseeing the execution of plans at all levels of operation.
The Council of Ministers, the higheOt executive organ of the
government, is responsible for the formulation and execution of
national economic plans (see the accompanying chart*). The Council
of Ministers has established an economic planning commission -- the
State Planning Committee -- that functions as a staff department for
planning. . Within the context of economic policies prescribed by the
Party, the State Planning Committee draws up the annual and long-range
plans that gOvern the operation of the economy. Unlike the USSR and
Communist China, North Vietnam has never assigned the functions of
annual and long-range planning to different economic commissions. A
second important planning commission -- the Scientific and Techno-
logical Commission has important responsibilities in the economic
field. It performs the specialized function of selecting and pro-
moting new -production techniques, coordinating long-range technical
developments, and insuring the widest possible adoption of technical
innovations throughout industry and agriculture.
The State Planning Committee has no direct authority over exe-
cution of the plans. The Council of Ministers issues instructions on
plan execution through the economic ministries of the central govern-
ment -- which exercise jurisdiction over large industrial establish-
ments -- and through provincial and district governments --which
* P. 4, below.
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NORTH VIETNAM: Economic Administrative Structure
COUNCIL OF MINISTERS
PLANNING BOARDS:
STATE PLANNING COMMITTEE
SCIENTIFIC AND TECHNOLOGICAL
COMMISSION. .
CENTRAL
STATISTICAL ADMINISTRATION
INDUSTRIAL MINISTRIES
ENTERPRISES OPERATED BY INDUSTRIAL MINISTRIES
29717 1-61
LOCAL GOVERNMENTS
ENTERPRISES OPERATED BY LOCAL GOVERNMENTS
exercise jurisdiction over small industrial establishments. Detailed
targets for all sectors of the economy, such as the level of produc-
tion for major commodities, the amount and types of capital construc-
tion, and the allocation of labor and materials, are sent down to
individual operating units throneb this economic control structure.
The system of econothic control in North Vietnam requires periodic
reporting by all operating units. Statistical reports are prepared
according to uniform standards established by the Central Statistical
Administration, which is attached directly to the Council of Ministers
and works very closely-with the two planning commissions. At regular
intervals, individual producing units report to supervising authori-
ties -- a central economic ministry or local government -- on the
degree of plan-fulfillment. The individual reports, when added to-
gether at the national level by the Central Statistical Administration,
give tentral planners an over-all view of plan performance and data
for future planning. On the basis of these periodic progress reports,
top-level administrators may order adjustments in the allocation of
labor and materials to insure fulfillment of announced plan goals, or
they may revise plan targets in keeping with changed economic conditions.
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Reconstruction (1955-57)
Economic policy in North Vietnam in 1955-57 was essentially a
policy of reconstruction after long years of international and civil
war. The chief efforts of the regime were devoted to the reconstruc-
tion and rehabilitation of basic transportation and communications
facilities and to the restoration of prewar levels of production.
Comprehensive government control was established over banking, modern
industry, foreign trade, and domestic wholesale trade. The govern-
ment moved slowly in the socialization of agriculture, subordinating
the goal of collectivization to the goal of increased production.
The DRV was faced, at the outset, with the immediate necessity
of providing Minimum supplies of food in spite of disrupted produc-
tion, epidemics, and inflation. The short-run goal of the regime was
an increase' in production of food to prewar levels. Agriculture, as
a sector, was afforded a much greater emphasis than it had ever been
given in the economic planning of other countries of the Sino-Soviet
Bloc, receiving about 20 percent of total capital investment allocated
under the 1956 state plan. The increase in agricultural production in
1955-57 (see Table 1) was attributable to favorable weather conditions
and to the strenuous efforts of the regime to (1) reclaim abandoned.
land, (2) expand irrigation and flood control measures, (3) increase
the use of chemical and' natural fertilizers, and (4) insure better
methods of cultivation. All segments of the North Vietnamese popu-
lation -- farmers, Party activists, and soldiers -- were mobilized for
work in the construction of irrigation and flood control projects and
the planting of crops.
Table 1
North Vietnam: Gross Value
of Agricultural and Industrial Production
1955-59 and 1960 Plan
Million Constant Dong
1955
1956
1957
1958
1959
1960 Plan
Agriculture
1,582
1,851
1,914
2,228
2,411
2,687
Industry
334.
646
971
1,056
1,383
1,648
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DRV authorities displayed considerable flexibility in adjusting to
problems arising from agrarian reform, the source of most of the unrest
and tension that afflicted the regime. The government moved slowly in
the socialization of agriculture, reflecting in part a decision to fol-
low the precepts of Communist China and in part a respect for the
militant independence of the peasants. Agrarian reform -- involving
the redistribution of land, the mobilization of peasants under Commu-
nist Party supervision, and the institution of a compulsory labor
program in rural areas -- was patterned after China's land reform pro-
gram of 1949-52. It provided for the confiscation, requisition, and
expropriation of lands belonging to those classified as landlords,
traitors, and reactionaries and the formation of manpower-exchange
teams (called mutual aid teams in China) as the first step in collec-
tivization. Implementation of the plan for agrarian reform, however,
did not keep pace with the timing of events as originally planned. By
the end of the reconstruction period in December 1957, only about
27 percent of North Vietnam's peasant households were enrolled in these
manpower-exchange teams.
About 25 percent of state investment funds were allocated to the
restoration of North Vietnam's transportation and telecommunications
networks during 1955-57; Top priority was given to the reconstruction
of the rail system, particularly the two lines running north from
Hanoi to the south China border. Because of Communist China's special
interest in these rail lines linking Southwest China, via North Viet-
nam, with the main Chinese rail net, it was natural that Peking should
take a leading role in the early rehabilitation of the Vietnamese
system. The use of Chinese laborers and engineers -- more than 2,000
Chinese laborers and supervisors are estimated to have been working on
the North Vietnamese railroads in 1956 -- was largely responsible for
the rapid progress in railroad construction.
With major material, financial, and technical assistance from other
countries of the Sino-Soviet Bloc, the DRV undertook the rehabilitation
and expansion of industrial capacity. Somewhat more than one-half of
the increase in industrial production in 1955-57 -- the gross value of
industry rose from about 335 million constant dong* in 1955 to about
970 million constant dong in 1957 -- was the result of the restoration
of existing large plants. By the end of 1957, nearly all the impor-
tant prewar installations had been restored and, in some cases, re-
equipped and enlarged. Emphasis had been placed on the rehabilitation
* Dong values in this report are given in current dong unless other-
wise indicated. Dong may be converted to US dollars at a rate of ex-
change of 4 dong to US Sl and to rubles at a rate of exchange of 1 dong
to 1 ruble.
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of the mining and electric power industries and the food-processing
and textile industries.*
The major industrial facilities reconstructed during 1955-57 were
largely taken over by the state; in 1957 the output of the public
sector of industry accounted for about 35 percent of total industrial
production. Socialization of small-scale and handicraft industry, on
the other hand, was not pressed vigorously. Counting on private
enterprise to supply an important part of locally produced consumer
goods, the regime made various tax and price adjustments to encourage
private production. Indirect control of private industry was obtained,
however, by state control of domestic wholesale and foreign trade and
by nationalization of the,banking system.
III. Three Year Plan (1958-60)
The major goals of the DPW Three Year Plan (1958-60), as revealed
in the government report to the National Assembly in December 1958,
are as follows: (1) large increases in agricultural and industrial
production, (2) extension of state control over all aspects of eco-
nomic life, (3) a limited improvement in material standards of living,
and (4) the strengthening of national defense.
The Three Year Plan has called for substantial increases in agri-
cultural and industrial production, aiming, in the first place, to
provide an adequate food supply and greater export surpluses and, in
the second, to lay the foundations for an industrialized state. Over-
all production in 1960 was originally planned to be 82 percent more
than production in 1957, the goal for agricultural production being an
increase of 79 percent and the goal for industrial production an in-
crease of 89 percent. As a result of difficulties encountered during
1959, however, these Three Year Plan goals recently have been re-
vised -- total production is now scheduled to increase by 50 percent,
agricultural production by 40 percent, and industrial production by
70 percent. The planned increases in agricultural and industrial out-
put are to be achieved through a doubling of state investment in
1958-60 compared with 1955-57.
The Three Year Plan has called for the "basic completion" of
socialization by the end of 1960. Originally identified with the
goal of 100 percent of peasant households in low-level cooperatives,
basic completion of agricultural cooperativization is now represented
as the inclusion of only 75 percent of peasant households in low-level
* Installations that were restored during 1955-57 include the Cao-
bang tin mine, the Hon Gay coal mines, the Haiphong wool and silk
factory, the Nam Dinh weaving mill, and the Hanoi distillery.
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cooperatives. Basic completion of industrial socialization has been
equated with the goal of 100 percent of nonhandicraft industry in
state or joint state-private establishments and 75 percent of handi-
craft industry in low-level producer cooperatives.
A. Socialization
Socialization policies of the Three Year Plan are designed to
transform the mixed private and state economy of North Vietnam into
a uniform socialist economy. At the outset of the plan, socialist.
control was predominant only in wholesale and foreign trade and in
large factory industry. During 1955-57 the emphasis had been on
re-
construction and production rather than on the establishment of com-
plete state control over the economy. During 1958-601 production has
continued to be stressed, but there has been a new and concerted
effort to collectivize remaining private areas in the economy.
North Vietnamese policies for socialization have followed
closely those established by Communist China, although socialization
in. North Vietnam has proceeded at a much slower pace. In converting
the bulk of private enterprise to the socialist system, the regime
has followed the Chinese example of staged economic transformation.
Collectivization of agriculture has progressed through the formation
of manpower-exchange teams to the formation of low-level agricultural
producer cooperatives and finally to high-level cooperatives on the
order of the Soviet collective farm.* Socialization of agriculture
has proved a difficult and uncertain task, forced on a reluctant and
individualistic peasantry. To make the masses of peasants more will-
ing to join cooperatives, the regime has organized hundreds of
national, provincial, and local conferences of workers and farmers and
has launched an intensive propaganda campaign in all the mass media.
A comparatively small proportion of the North Vietnamese farm popu-
lation was in agricultural producer cooperatives in December 1957, but
by December 1960 the regime claimed that about 85 percent of peasant
households wereorganized in cooperatives. The sudden spurt in
* Manpower-exchange teams are a rudimentary form of socialization in
which peasants pool their labor to accomplish certain farm jobs but
retain ownership of land, buildings, animals, and tools as well as of
the crops produced. The agricultural producer cooperative is a higher
form of agricultural collectivization in which peasants retain owner-
ship of the means of production but in which all farm work is done in
accordance with a government-sponsored cooperative plan and the crop
is divided on the basis of the peasants' contributions of land and
capital as well as Of labor. In high-level cooperatives.the means of
production are owned in common, and a member's share of the collective
income is determined solely on the basis of work performed.
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enrollment in collectives -- from about 55 percent of peasant house-
holds in July 1960 to about 85 percent in December 1960 -- has been
reminiscent of the dramatic advance in collectivization in Communist
China during the winter of 1955/56. The rapid completion of the drive
for socialization would indicate, however, that cooperatives in North
Vietnam may require considerable consolidation before they are effec-
tive organizations for state control over production.
A major aspect of industrial policy in North Vietnam in
1958-60 has been the extension of state control and, in most cases, \
state ownership to manufacturing enterprises. Throtgh nationalization
of French-owned mines and factories in 1955-57, the DRV had gained
possession of a substantial portion of modern industrial capacity.
Following the pattern set by Communist China, the DRV has adopted a
policy of gradual nationalization of the remaining private enterprises,
featuring an intermediate stage of joint state-private ownership.
Under joint public-private ownership, private owners continue to direct
the day-to-day manufacturing and technical operations of their busi-
nesses but are subject to the orders of Party officials on over-all
policy, including prices, wages, and level of output. As of December
1960, private large-scale industry in North Vietnam has been completely
eliminated. Wholly state-owned enterprises -- particularly important
in mining and in the cement, electric power, and machine tools indus-
tries -- now account for about 44 percent of total industrial produc-
tion, and joint state-private enterprises for another 10 percent.
At the present stage of economic development,' the regime is
encouraging handicraft production of light consumer goods. The handi-
craft sector of industry -- which accounts for about 46 percent of
total industrial production -- is made up of a large number of artisan
and handicraft workshops operated by family groups. It has been the
policy of the regime to reorganize these craftsmen into low-level
handicraft cooperatives that subsequently are to be developed through
successive stages of increasingly intensive socialization. Handicraft
producers have been the subject of the increased tempo of socialization
during the last few months of 1960. Embracing about 65 percent of all
handicraft workers in December 1959, low-level handicraft producer
cooperatives included about 84 percent of handicraft workers in Decem-
ber 1960.
B. Investment
A'fundamental economic policy of the DRV -- like other Commu-
nist governments. -- is to insure a rapid rise in investment as a per-
cent of gross national product (GNP). Only since 1958, however, has
the regime been able to raise investment as a percent of GNP to the
level generally associated with rapid economic development (15 percent
or more).
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Gross domestic investment in North Vietnam during the period
1955-57 averaged about 12 percent of GNP (see Table 2) -- not a very
impressive allocation of resources to investment, especially by Com-
munist standards. In the period of economic recovery (1955-57), most
of the small GNP of North Vietnam was used, by necessity, to bring a
starving population up to a tolerable level of subsistence. Foreign
economic assistance extended to North Vietnam by other members of the
Communist Bloc was used not only to support the small initial program
of investment but also to furnish desperately needed consumer goods.
Table 2
North Vietnam: Percentage Distribution
of Gross National Product, by End Use
1955-59
Consumption
Gross domestic
investment
Government
Net exports of goods
and services
1955 1956 1957 1958 1959
Percent
89.3 87.5 92.0 85.2 83.1
9.6 13.2 13.4 15.2 18.8
12.4
10.6 10.8
9.8 9.3
-11.3 -11.3 -16.2 -10.2 -11.2
GNP (million current
dong) 2,112 2,859 2,809 3,402 3,830
GNP index in current
prices (1955 = 100) 2/ 100 135 133 161- 181
GNP index in constant
prices (1955 = 100) 2/ 100 124 137 161 176
a. See methodology, Appendix A, p. 24, below.
The DRV has been able to increase the share of investment in
GNP to about 20 percent only because of the continuing large net in-
flow of goods and services from the Sino-Soviet Bloc, an inflow amount-
ing in 1955-59 to 10 to 16 percent of GNP (see Table 2). Economic aid
to North Vietnam at about the present absolute level will be needed
during the next few years in order to retain the momentum of growth,
and such aid will almost certainly be forthcoming. It is believed,
however -- on the basis of analogy with North Korea -- that the USSR
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and Communist China hope to reduce the drain on their own resources
by reducing foreign aid to North Vietnam as soon as North Vietnam can
support its own investment program. Rivalry between the USSR and China,
on the other hand, could prevent a decline in economic assistance to
North Vietnam.
The investment program has been financed primarily through
the consolidated state budget, which includes foreign aid. State in-
vestment* in 1958-60 was more than double state investment in 1955-57.
State investment was planned to increase by about 57 percent in 1960,
rising from 494 million dong in 1959 to 775 million dong in 1960.
Total nonstate investment was planned to increase from about 53 mil-
lion dong in 1959 to an estimated 59-million dong in 1960, an increase
of 11 percent (see Table 3). It is believed that these investment
plans have been essentially fulfilled.
Table 3
North Vietnam: Gross Domestic Investment
1955-59 and 1960 Plan
Million Current Dong
1955
1956
1957
1958
1959
1960 Plan
Budgeted state
investment
155
280
290
295
494
775
Miscellaneous
budgeted investment
12
58
46
173
174
N.A-
Nonstate investment
35
41
42
49
53
59
Total
202
379
378
517
721
N.A-
Although the DRV expects ultimately to achieve a high degree
of industrialization, the regime has been realistic enough to concede
that the country at present lacks the capital plant and the technical
and managerial skills to carry out such a program. In contrast to
both the USSR and Communist China, North Vietnam has begun its plan-
ning with full attention to the basic importance of agriculture in
* State investment is investment under the state plan for increases
in fixed assets. It excludes certain miscellaneous budgeted invest-
ment such as increases in inventories of goods or expenditures for
geological surveys.
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the economy. DRV policy has emphasized investment in irrigation,
production of fertilizer and agricultural implements, and the pro-
cessing of agricultural commodities.
State investment in agriculture has amounted to about 10 per-
cent of total state investment in 1958-60 (see Table 4*), indicating
that much reliance has been placed on nonstate (local) investment in
agriculture, which requires considerable labor but relatively little
capital equipment. Local investment accounted for a little more than
one-half of. the total investment in agriculture of 66 million dong in
1955 and in 1959 represented about 55 percent of total investment of
96 million dong. The primary emphasis of local investment is on
small-scale irrigation and flood control projects that permit expansion
of double cropping and an immediate increase in agricultural production.
The influence of state investment on agricultural production is pri-
marily long-term, in that it is directed to large-scale irrigation and
water conservation projects, reforestation, and other activities the
effects of which on agricultural production will not be felt for many
years. During 1958-60 the government has constructed 26 medium and
large-scale irrigation projects, thereby increasing the area under
irrigation to 3,800 square miles, an increase of 1,400 square miles
compared with 1957. 1/** The largest of he projects -- the Bac Hung
Hai irrigation system -- will provide drainage and irrigation facili-
ties for more than 800 square miles southeast of Hanoi, in the Tonkin
Delta. Relative to investment in irrigation and water conservation
projects, only small amounts have been directed to the improvement of
agricultural techniques, land reclamation, mechanization, and the
organization of state farms.
' Approximately 46 percent of state investment in 1958-60 has
been allocated to the industrial sector, light industry accounting for
nearly 70 percent of total industrial investment. In contrast to
Communist China's overriding emphasis on heavy industry, allocation of
industrial investment in North Vietnam has stressed the production of
consumer goods (especially textiles, paper, and plastics), the pro-
cessing of agricultural commodities, production of fertilizer and farm
tools, and mining. A large part of industrial production has been
channeled into agriculture in the form of agricultural machinery,
chemical fertilizer, and construction materials. ksubstantial per-
cent of investment in industry, therefore, has represented indirect
investment in agriculture.
* Table 4 follows on p. 13.
**
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Table 4
North Vietnam: Allocation of Budgeted State Investment
1958-60
a
Million Current Dong Percent
1960 1958-60 1958-60
1958 1959 Plan Plan Plan
Industry 117 224 349 727 46.5
Agriculture 43 87 164 10.5
Transportation and
,communications I 100 J 274 17.5
State trade and supply
services I I I 131 8.4
Government administration L1 8 I I 39 2.5
Culture, education, and 339
medicine. I >127 I 91 5.8
Research and scientific
services I I 34 2.2
Public works I I I 30 1.9
Housing 74 4.7
Total 295 494 775 1,564 100.0
Investment in transportation and coMmunications in North Viet-
nam -- about 18 percent of total state investment in' 1958-60 -- has
been second only to investment in industry in the allocation of state
funds. The major portion of investment in transportation has gone to
railroad construction. The prewar rail net has been completely recon-
structed except for the large section between Thanh Hoa and the border
with South Vietnam. In addition, a new 70-mile rail line from Hanoi
northwest to Thai Nguyen, the site of the new iron and steel plant,
has been recently constructed. Priority has been given to the two rail
lines -- the Hanoi - Lao Kay and Hanoi - Nam Quan lines -- linking
Hanoi with South China. Roughly two-thirds of the metric ton-kilometers
on these lines is Communist Chinese freight in transit across North ?
Vietnam between Kunming in Southwest China and the main Chinese rail net'
in South China. The recently announced policy of converting to standard
Chinese gauge (4 feet 8-1/2 inches) the 1-meter gauge rail lines (3 feet
3 inches) of North Vietnam will complete the integration of the rail
systems of the two countries. The DRV has followed a policy of using
railroad facilities intensively, but the rail system is still inadequate
to handle the rapidly increasing demands made on its services. Serious
congestion has been reported, particularly at the change-of-gauge point
at P'ing-Hsiang.
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The DRV policy of holding down "nonproductive" investment is
reflected in the fact that only 6 percent of state investment in
1958-60 has been allocated to culture, education, and health; only
7 percent to housing and public works; and only about 2 percent to
government administration. Since 1955 the regime has constructed
about 1,800 general education schools, 30 professional schools, and
6 colleges. 2/ Although some new housing has been built by the
Ministry of Industry with state funds, most of the new housing has
been built locally with traditional construction materials. Of the
total 2 million square meters of new housing constructed during the
reconstruction period (1955-57), only 85,000 square .meters were built
by the state for workers at factory sites and in the cities, whereas
the remaining 1.9 million square meters consisted of traditional
style dwellings financed locally. ?V
C.. consumption
Most of the total available resources* of North Vietn.m have
been used in supporting a large population at near subsistence levels.
In 1959, consumption accounted for roughly 75 percent of total avail-
able resources (see Table 5**).
Aggregate consumption in 1957 was about 37 percent higher than
that in 1955, representing an average annual increase of about 17 per-
cent. This increase in consumption -- although quite large in percentage
terms -- reflects merely a recovery from extremely low levels of con-
sumption during the war years. As the Communist program for sociali-
zation has given the regime increasing control over the allocation of
resources and as the level of consumption has approached the prewar
standard of living, increases in consumption in 1958 and 1959 have
fallen off appreciably compared with increases in consumption in
1955-57. The increase in aggregate consumption in 1959 above that in
1958 of about 10 percent represents an increase in per capita con-
sumption of about 7 percent.
In general, increases in consumption have been no greater than
those considered necessary to allay public discontent. The level of
consumption in rural areas has presented a special problem to the
* Total available, resources are made up of North Vietnam's GNP aug-
mented by the large net inflow of goods and services from other
members of the Bloc, which during 1955-59 amounted to 10 to 16 percent
of GNP. Policy decisions with respect to allocation of resources are
made in terms of total available resources rather than GNP. Estimates
of total available resources, by end use, are given in Table 5, p. 15,
below.
** Table 5 follows on p. 15, below.
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Table 5
North Vietnam: Percentage Distribution
of Total Available Resources, by End Use
1955-59
1955
1956
1957
1958
1959
Percent
Consumption
80.2
78.6
79.1
77.3
74.8
Gross domestic invest-
ment
8.6
11.9
11.6
13.8
16.9
Government
11.2
9.5
9.3
8.9
8.3
Defense
' 7.3
5.0
5.0
Government adminis-
tration
2.8
2.6
2.2
2.2
1.9
Communal services
1.1
1.9
2.1
2.1
1.8
Total available
resources (million
current dong) 2,350 3,181 3,264 3,750 4,258
Index of total
available resources
(1955 = 100) 100 135 139 160 181
regime, in that rural consumption has increased more slowly than urban
consumption at a time when peasant discontent over collectivization is
growing.
D. Agriculture
A salient feature of the North Vietnamese economy, like that
of Communist China, is the enormous population relative to the amount
of cultivated land.* Agricultural policies have aimed at the full ex-
ploitation of abundant human resources by the adoption of labor-
intensive methods of increasing crop yields rather than capital-
intensive methods of increasing output per farmer through mechanization.
* The average per capita area of cultivated land in North Vietnam is
h?e 'about 0.10 hectare compared with 0.16 hectare in China. (One hectare
equals 2.471 acres.)
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The DRV has placed its reliance on the wide extension of relatively
simple improvements, such as deeper plowing; small-scale irrigation
and flood control projects; pest and insect control; improvement of
transportation, storage, and food processing; extension of double-
cropping; and reclamation of wasteland. Key features of the govern-
ment's program to increase the level of technology in agriculture
have been the establishment of schools for the training of local
Party leaders in agriculture, the development of elementary technical
training programs in the rural areas, and the establishment of
numerous experimental plots on which improved farming techniques are
demonstrated.
Collectivization of agriculture in the USSR was accompanied
by a program for mechanization, requiring tremendous changes in the
system of agricultural production as well as in the economic institu-
tions of the countryside. Collectivization of agriculture in North
Vietnam, on the other hand, has resembled collectivization in Com-
munist China, in that it has been instituted within the traditional
framework of increases in irrigation, improvements in application of
fertilizer, and reliance on other labor-intensive methods of culti-
vation. Mechanization of agriculture in the modern sense is still in
its infancy and is largely concentrated on state farms,* where it is
used mainly in the reclamation of wasteland.
?
E. Industry
Contrary to the policy adopted in the USSR and Communist
China, the short-run policy for industry in North Vietnam has empha-
sized an increase in output of consumer goods and goods that support
agricultural production. This priority for light industry has been
an accommodation to limitations in capital plant and to the shortage
of technical and managerial skills. The regime has expected its
emphasis on light industry to (1) help meet the serious shortage of
foodstuffs and consumer goods, (2) provide goods for export, (3) take
full advantage of the large annual additions to the labor force,
(4) realize the highest output from scarce capital resources, and
(5) foster the development of a body of experienced workers who may
ultimately acquire the advanced skills needed in heavy industry.
Although continuing to emphasize the development of light
industry, the DRV in mid-1959 embarked on a limited program to ex-
pand heavy industry. A key objective is the establishment -- with
Communist Chinese equipment and technical assistance -- of an
* State farms are large farms directly owned and operated by the
state. Workers on state farms are paid wages rather than sharing in
the division of the product.
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integrated iron and Steel plant in the Thai Nguyen area northwest of.
Hanoi, The Three Year Plan calls for an expansion of the small
machinery, cement, and electric power industries as well as mining.
.In addition, several new heavy industrial plants are to be built in
the metal-processing, chemical, and fertilizer industries, among them
a zinc factory at Quang-yen, a petroleum-processing plant at Quang-yen,
and a superphosphate plant at Viet Tri.
DRV policy in industry has been directed to a rapid expansion
of production in a narrow sectorof the economy -- the textile, rice
milling, sugar refining, construction materials, electric power, and
mining industries. Development of both heavy and light industry has
stressed the fuller use of existing capacity and. the concentration of
production on a small number of products. Quality and diversity of
product have been sacrificed to the emphasis on increases in produc-
tion.
In contrast to the Soviet and Communist Chinese predilection
for large-scale integrated industrial plants, emphasis on small-scale,
less highly mechanized plant facilities has characterized industrial
planning in North Vietnam since 1955. The small plants program has
been directed toward the fuller employment of the labor force, the
greater use of traditional production processes, a reduction in the
transportation costs of raw materials, and a more rapid completion of
industrial construction.
The emphasis on small-scale industry has promoted the expansion
of local and regional industry, particularly in the mountainous in-
terior areas. In 1957, except for specific mining and forestry activi-
ties, almost all of North Vietnam's productive capacity, both agricul-
tural and industrial, was located in the Red River Delta area. In ?
1959, regional state industry, comprising more than 500 establishments,
represented about 12 percent of the total value of State industrial
production. L[.,/ A substantial part of investment ih industry under the
Three Year Plan has been allocated to newly developing industrial
areas -- Viet Tri, Thai Nguyen, and Vinh.
IV. Five Year Plan (1961-65)
Only the general outline of North Vietnam's new Five Year Plan
(1961-65) has been announced; and no specific 'commodity targets have
been released. it is clear, however, that whereas earlier formulations
have stressed the development of agriculture and light industry, the
Five Year Plan will shift to the more conventional Communist policy of
making heavy industry the focal point for economic development. 2/
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The broad objective of the North Vietnamese Five Year Plan -- rapid
increases in industrial production with emphasis on heavy industry --
is identical with that of the Soviet First Five Year Plan (1928-32) and
the Chinese First Five Year Plan (1953-57). In submitting materials on
the DRV Five Year Plan to the Lao Dong Party Congress in September 1960,
Politburo member Le Duan has outlined the new priorities of DRV eco-
nomic planning:
Socialist industrialization is the central task of the whole
period (1961-65). It consists in building a balanced and mod-
ern socialist economic structure, coordinating industry with
agriculture, and conferring a reasonable priority upon the ra-
tional development of heavy industry while striving to develop
agriculture and light industry.
Industry -- above all, heavy industry -- plays the leading
role in the socialist economy. Only with a modern industry can
agriculture and the other economic sectors realize their full de-
velopment. Inversely, agriculture is the basis of industrial
development; the development of agriculture will create the
fundamental conditions for a vigorous and speedy promotion of
industrial development. 6j
Development of heavy industry is to emphasize (1) the generation of
electric power, especially hydroelectric power; (2) the refining of
tin, aluminum, antimony, lead, -chrome, ferrosilicons, and manganese;
and (3) production of medium-size machine tools, electric motors,
construction materials, tractors and other farm equipment, and chemi-
cal fertilizers. ,The machine building industry has been singled out
as the one key branch in the development of industry.
The priority assigned to heavy industry in the new Five Year Plan
is not designed, however, to make North Vietnam economically self-
sufficient. Le Thanh Nghi, Minister of Industry, has recently stated:
Heavy industry must be rationally developed, because our
country, covering a small area, has not enough necessary raw
materials to supply all branches of heavy industry and because
our population is small. Furthermore, our country is a member
of the socialist camp headed by the Soviet Union, provided with
a modern heavy industry, and there is economic cooperation and
mutual assistance among the socialist countries. Therefore, we
can focus our efforts on the development of the branches which
enjoy the most favorable natural and economic conditions in our
country. Z/
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The Third National Congress of the Lao Dong (Communist) Party adopted
the following resolution on 10 September 1960:
We must build a system of heavy industry the structure and
scale of which must be in conformity with our conditions and
requiremen ts and with the division of labor and cooperation
between our country and the fraternal socialist countries. /3/
The long-range aim of industrial policy in North Vietnam is the develop-
ment of a limited range of industries and economic integration with the
rest of the Sino-Soviet Bloc.
The new policy in industry of combining "the construction of large
enterprises with medium-size and small enterprises, the use of modern
techniques with rudimentary techniques, the building of new enter-
prises with the full use of existing ones, and the development of
central with local industry" 2/ is practically a restatement of indus-
trial policy in Communist China since the "leap forward" program of
1958. The new emphasis on larger, capital-intensive construction proj-
ects will allow North Vietnam to use more efficiently the technical aid
furnished by the USSR and China and may simplify the procurement of
machinery and equipment for import. At the same time, the continued
emphasis on small-scale industrial production at the local level will
take advantage of the potential for labor-intensive production and will
expand local sources of raw materials for industry and construction.
Second only to the task of building up production in heavy industry
under the Five Year Plan is the task of tightening state control over
agriculture, handicrafts, and retail trade. Socialization of agricul-
ture is viewed as the "main link" in the whole chain of socialist
transformation. It is to be a continuation and consolidation of the
pattern of collectivization established during the Three Year Plan;
the present agricultural producer cooperatives are to be turned into
high-level cooperatives and then merged into larger cooperatives that
will embrace all economic activities of each village. 12/ This 1965
goal for agricultural socialization closely resembles the organization
of agriculture achieved in Communist China at the end of its First Five
Year Plan (1953-57) -- high-level cooperatives organized on a village
level, comprising some 200 peasant families.
Recent statements by Party leaders on the development of agriculture
in 1961-65 indicate that mechanization of farm work cannot be widely
introduced in the next 5 years. 11/ The leadership has quite reasonably
questioned the economic benefits of a costly program for modernizing
agriculture in a labor-surplus economy where a huge peasant labor force
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is already engaged in intensive methods of cultivation. Following the
Chinese Communist example, the North Vietnamese are likely to forego
modernization of agriculture until industry can supply the needed
machinery at reasonable cost and until the expansion of industry re-
quires the release of peasants to the industrial labor force. Agri-
cultural policy in North Vietnam in 1961-65 will continue to stress an
increase in the number of crops per year and increases ii crop yields
per hectare through relatively simple and inexpensive measures such as
small-scale irrigation and flood control projects, better selection of
seeds, improved planting techniques, and increased applications of
fertilizer.
V. Relative Influence of the USSR and Communist China
It is clear that considerable influence from the USSR and Communist
China is exerted on the framing of at least the most important domestic
programs and practically all the foreign policies of North Vietnam. At
the same time, the DRV's background of independent achievement, its
present military strength and political cohesiveness, and its strategic
role in the furtherance of Bloc interests enhance DRV status within the
Sino-Soviet Bloc and give it a voice in shaping not only its own poli-
cies but also those Bloc policies that vitally affect its future. In
particular, the DRV appears to have maintained a remarkable degree of
independence in the formulation of domestic economic policy, in view of
the fact that North Vietnam has continued dependent on Bloc economic
assistance for the investment capital crucial to the success of its
Three Year Plan (1958-60). The DRV has been relatively free to choose
those features of economic planning in the USSR and Communist China
that have been most applicable to economic development in North Vietnam.
The prime determinant in the formulation of over-all economic
objectives has been North Vietnam's membership in the world Communist
movement. Pre-DRV political and economic factors have been increasingly
subordinated to those factors arising from Communist ideology. The DRV
has adjusted Communist principles of economic development, however, to
the realities of existing conditions in North Vietnam. Because of the
basic similarity in economic conditions in Communist China and North
Vietnam, China has provided the inspiration and guidance for most of
North Vietnam's domestic economic policies. The new emphasis of the DRV
Five Year Plan (1961-65) on the development of heavy industry and the
construction of large-scale, capital-intensive industrial projects is
expected to promote a more rapid assimilation of Soviet technology and
equipment. It is expected, therefore, that Soviet influence on eco-
nomic planning in North Vietnam will increase markedly during the next
5 years.
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The infusions of economic aid from the USSR and Communist China
have not provided conclusive evidence of the relative influence of
these two powers on economic policy in North Vietnam. As of December
1960 the USSR had extended 365 million current US dollars of aid funds-
compared with 300 million dollars from China; Soviet aid to North
Vietnam has been primsrily in the form of long-term loans, whereas
Chinese aid has consisted primarily of grants (see Table 6*). Whereas
the USSR has sent more machinery and equipment in the heavy industrial
field, the Chinese have furnished larger quantities of basic materials
and manpower. Although the Soviet aid program to North Vietnam has
provided smaller amounts of grant funds, fewer technicians,** and a
smaller number of complete plant installations than has Chinese ecb-
nomic assistance to North Vietnam, North Vietnamese leaders seem to
have been more favorably impressed with the Soviet aid program. The
USSR has proved more willing and able to supply the industrial machin-
ery and equipment needed for North Vietnam's industrialization, and
Soviet technical advisers, although fewer in-number, have generally
possessed higher qualifications.
North Vietnamese officials -- dissatisfied with the operation of some
of China's aid projects -- are increasingly relying on Soviet economic
advisers in the formulation of the new DRV Five Year Plan.
The respective roles of Peking and Moscow in guiding and formulating
DEV policies appear to have been complementary rather than competitive.
The USSR and Communist China have given aid and advice in the areas most
appropriate to their capabilities. It appears' to be in the interest of
North Vietnam, in the long run, to maintain an over-all balance in its
relations with both powers so that it can be freer to pursue an inde-
pendent economic policy. Pressures on North Vietnam to choose sides in
the current Sino-Soviet controversy may make it increasingly difficult,
however, for North Vietnam to maintain such a balance.
* Table 6 follows on p. 22.
** An estimated 600 to 650 Soviet advisers and technicians -- compared
with 3,000 to 5,000 Chinese advisers, technicians, and laborers --
were reportedly working in North Vietnam during 1957. It is believed
that these proportions have been maintained through 1960, in spite of a
drop of perhaps one-half in absolute numbers. In general, Soviet ad-
visers have been most active in industry, particularly heavy industry,
and the Chinese in agriculture, transportation ahd communications, and
military affairs.
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Table 6
North Vietnam: Sino-Soviet Bloc Aid
1953-60
Million Current US Dollars 2/
Grants
Credits Total Percent
Communist China 225 75 No 41.7
USSR 100 265 365 50.8
East Germany 15 15 2.1
Czechoslovakia 9
Poland 8 -16 H7
4 .-5.1
Rumania
Hungary 2 2 0.3
Albania Negl. Neg1. Negl.
Bulgaria Negl. Negl. Negl.
Mongolia Negl. Negl. Negl.
Total 363 356 719 100.0
a. Extensions of economic aid to North Vietnam have been .
announced in rubles or yuan. Ruble values have been converted
to US dollars at the official rate of exchange of 4 rubles to
US $1 prevailing at the time of the aid agreements; yuan values
have been converted at the rate of 1 yuan to 1 ruble.
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APPENDIX A
?
Tr,
METHODOLOGY
This report on economic policy in North Vietnam was prepared
mainly from DRV government reports on annual economic plans. Official
statements on economic planning and policy have been reported in radio-
broadcasts, newspapers, and periodicals.
Statistical data on economic development in 1953-60 have been pre-
sented in Tables 1 through 6 as background information. Most of the
statistical data used are official claims, which have been checked for
internal consistency. The dearth of Western observers in North Vietnam
who could compare official statements with on-the-spot observations
makes it difficult to evaluate official claims. On the basis of a
comparison with the Chinese Communist economy at a similar stage of
development, however, these statistics may be tentatively accepted as
reasonable and accurate. No unified series of statistical data are
available from North Vietnamese sources on gross domestic investment,
farm home consumption, national income, or gross national product (GNP).
The methodology for estimating these categories is presented below.
Gross domestic investment (Table 3*) was derived by summing (1)
official statistics for state investment in fixed assets; (2) esti-
mates of stockpiling of construction materials and equipment, invest-
ment in operating inventories, and general geological prospecting; and
(3) estimates 'of nonstate investment in agriculture. It was assumed,
in estimating the second category, that 80 percent of budgeted expendi-
tures for economic construction over and above that portion invested
in fixed assets represents increases in inventories and other miscel-
laneous investment. Estimates for the third category -- nonstate in-
vestment in agriculture -- represent a constant 2.2 percent of gross
value of agricultural production.
Consumption estimates in Table 2** and Table 5xxx were derived by
summing (1) official statistics for retail sales, excluding estimated
sales of consumer goods to government and business organizations and
estimated sales of production materials to farmers, (2) estimates of
farm home consumption, and (3) estimates of consumer services. Esti-
mates of farm home consumption were computed on the basis of data on
*
P.
11,
above.
**
P.
10,
above.
***
P.
15,
above.
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aggregate consumption; the gross value of agricultural production; and
the allocation of farm output between farm home consumption, marketed
farm output, and production materials. Consumer services were esti-
mated to represent about 15 percent of total consumption.
Estimates of GNP in Table 2* were derived by adding (1) estimates
of consumption, -(2) estimates of gross domestic investment, (3)
official statistics on expenditures on government, (4) official sta-
tistics on .the net export of goods and services. Estimates of total
available resources in Table 5** represent estimates of GNP augmented
by the net inflow of goods and services.
Official North Vietnamese statistics on national income, budget
expenditures, state investment, and retail sales are released in cur-
rent prices. Estimates of the percentage distribution of GNP in
Table 2* have been computed, therefore, in current prices. The re-
sulting index of GNP for the period 1955-59, however, greatly over-
states the real increase in GNP for 1956, when prices were considera-
bly higher than in the other 4 years. Inasmuch as prices in 1956 were
higOler than those in 1955 and 1957, GNP for 1957 in current prices
showed a slight decline compared with 1956. GNP for 1957 in constant
,prices, however, was greater than the corresponding data for 1956.
Accordingly, rough estimates of GNP in constant prices were drawn up
on the basis of North Vietnamese data on gross value of production in
constant prices, and an index of GNP in constant prices was then com-
puted from these estimates and incorporated as the final line in
Table 2.*
* P. 10, above.
** P. 15, above.
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