DSpace at VNU: Ownership, organization, and income inequality: Market transition in rural Vietnam

Ownership, Organization, and Income Inequality: Market Transition in Rural Vietnam Author(s): Andrew G Walder and Giang Hoang Nguyen Source: American Sociological Review, Vol 73, No (Apr., 2008), pp 251-269 Published by: American Sociological Association Stable URL: http://www.jstor.org/stable/25472525 Accessed: 05-11-2015 03:06 UTC Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://www.jstor.org/page/ info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive We use information technology and tools to increase productivity and facilitate new forms of scholarship For more information about JSTOR, please contact support@jstor.org Sage Publications, Inc and American Sociological Association are collaborating with JSTOR to digitize, preserve and extend access to American Sociological Review http://www.jstor.org This content downloaded from 129.97.58.73 on Thu, 05 Nov 2015 03:06:15 UTC All use subject to JSTOR Terms and Conditions Ownership, Organization, and Income Inequality: Market Transition in Rural Vietnam Andrew G Walder Giang Hoang Nguyen VietnamNational University,Hanoi StanfordUniversity In transitional property rights shape economies, where advantages decline however, provide government the scale economies, labor-intensive rapidly retains and family an ownership enterprise influence enterprises to those of private relative income greater of economic structures social opportunities stake for and the allocation income distribution dominate, political entrepreneurs officials, in the initial phases of In agrarian officials'income enterprises, Larger when especially of reform This a article replicates thefindingsfrom an earlier studyof rural China using comparable survey data from Vietnam.Wefind thatduring thefirst twodecades of ruralmarket reformin Vietnam and China, thescale and ownership offirms differedradically Small family dominated enterprises rural development in Vietnam, whereas China s development was dominated by largerfirms, initiallyestablished by ruralgovernments.Consequently, while cadre income advantages have kept pace with those of private entrepreneurs in China, theyhave declined rapidly inVietnam on inequality in transitional economies has retreatedfrom an initialpre Research with claims about the inherent occupation of market transition The claim that the impact shiftfrom plan tomarket inherentlyfavors entre preneurs and direct producers at the expense of human capital at the political officials?and attracted a expense of political capital?has great deal of attention (Nee 1989, 1991) The ensuing debate was largely about how to inter pret the findings of survey-based analyses that often failed to detect the predicted decline of political advantages (Bian and Logan 1996; Hauser and Xie 2005; Liu 2003; Nee 1996; Nee and Cao 1999; Parish andMichelson 1996; Szelenyi and Kostello 1996;Walder 1996;Wu and Xie 2003; Xie and Hannum 1996) As research accumulated itbecame apparent that early claims aboutmarket transitionwere under specified This made itdifficult to testpropo sitions aboutmarket transitionsand theirimpact Direct Department all correspondence of Sociology, toAndrew Stanford G Walder, University, Stanford,CA 94305-2047 (walder@stanford.edu) American Sociological Review, The primary source of confusion was a lack of clarity about what constitutes market transi tion.Researchers have attempted to clarify this question by noting thatthe relationshipbetween the spread ofmarket mechanisms and changes in ownership is highly variable across nations and economic sectors In addition, transitional economies differ inways that affect income distribution thatcannot be attributedtomarketi zation This has led many observers to clude that the impact of markets is in fact contingent on variable political and economic circumstances According to this view, these dimensions of change are independent of the spread of markets, and recognizing this fact will lead to a more precise and testable theory (Gerber 2002; Gerber and Hout 1998;Walder 1996,2002;Zhou 2000) What specifically does "market transition" mean in the context of twentieth-centurystate socialism? Itmeans the abandonment of input output planning based on annual sales and sup ply quotas devised by planning agencies?a shiftfrom plan tomarket Under stateplans, cus tomers forproducts and suppliers of inputswere specified at fixed, state-set prices Profit was irrelevantas either ameasure of performance or 2008, Vol 73 (April:25l-269) This content downloaded from 129.97.58.73 on Thu, 05 Nov 2015 03:06:15 UTC All use subject to JSTOR Terms and Conditions 252 AMERICAN SOCIOLOGICAL REVIEW as an incentive, and virtually all profits were retained by the state.Labor was a fixed cost and full employment a goal: workers were not laid off to cut costs Capital did not accumulate at the level of the firm; itwas accumulated by government jurisdictions that redirected it in the form of investmentgrants to targeted firms and sectors (Ellman 1989; Kornai 1992) Market transitiondoes not refer to tinkering with market mechanisms as a supplement to these structures: itmeans a transition to a sys temwhere market mechanisms are dominant, if they have not completely supplanted govern ment plans altogether.A government no longer guarantees customers forproducts, nor does it specify the sources of supplies Prices of prod ucts and supplies fluctuate to reflect relative scarcities Profit becomes the primary if not sole measure of performance, capital accumu lates at the firm, labor becomes expendable, and employment guarantees disappear The gov ernment reduces or eliminates subsidies for unprofitable firms; uncompetitive firms floun der and eventually disappear Market transition thereforeimplies a wrenching process of indus trial restructuringand the emergence of forms of competition that did not previously exist, especially as a domestic economy is exposed to global competition The transition tomarkets may be rapid or gradual, but the contours of the path are well established.1 Is ownership an independent dimension of market reform or is itactually an integral part of any definition of a market economy? The previous paragraph describes radical changes in economic organization, but itmakes no mention of ownership Conceptually, researchers have long recognized thatmarket allocation and own ership are distinct and independent dimensions of economic organization Through much of the twentiethcentury,criticsof capitalism debat ed the feasibility ofmarket socialism Indeed, Soviet economists in the 1920s carefully sidered the compatibility ofmarket allocation with state ownership of assets before devising the system that came to define state socialism (Erlich 1960; Lewin 1974) As a policy matter, the debate has focused on whether market reforms are effectivewithout a simultaneous privatization of firms Kornai (1990), among others, argues thatmarket reforms under state socialism not work in practice, nor would theywork in a postcommunist context if state ownership ismaintained.2 Ifmarket allocation and ownership were not conceptually inde pendent dimensions of change, therewould be no policy issue to debate Most importantly,as an empirical matter, the world's transitional economies exhibit wide variation in ownership forms The extent to which government ownership ispreserved, how early and rapidly privatization occurs, under what rules privatization occurs, andwho obtains ownership rights all vary enormously across transitional economies (Walder 2003) Some transitional economies rapidly privatized state assets at an early stage of reform; others pre served government ownership for decades as they dismantled their command economies It thereforedoes not matter whether one agrees that privatization is an integral dimension of market transition or is essential for improved economic performance Analytically, owner ship varies independently from the spread of in observable ways market mechanisms Ownership must thereforebe specified for any theory to have clear empirical implications Variation in the pace and procedures of pri vatization is due primarily to government pol icy,and thishas led some observers todesignate political change as a crucially important cir cumstance describe details below differ in agriculture, as we will stratification outcomes 2Walder Kornai's argumentsare (1995) notes that in a large economy with many small less compelling a each of which operates government jurisdictions, envi in a competitive small number of enterprises ronment The budget constraint on these rural firms is necessarily harder than that of larger firms inmore industrialized urban jurisdictions Indeed, thismay be one The that can alter The two transitional economies that delayed the privatization of core state assets for the longest period of time?China and Vietnam? are theonly ones where theoriginal communist parties still rule in the name of socialism and where political structureshave undergone little fundamental change A wide range of variation in thedegree of regime change thathas accom reason for the surprisingly strong performance of theruralpublic sectorin thefirstdecade ofChina's market reforms This content downloaded from 129.97.58.73 on Thu, 05 Nov 2015 03:06:15 UTC All use subject to JSTOR Terms and Conditions MARKET TRANSITION IN RURAL VIETNAM panied market transition can be seen inmore than two dozen postcommunist regimes Some communist regimes collapsed andwere replaced by competitive multiparty political systems at the outset of market transition.At the other extreme, the previous regime, either inpart or inwhole, has continued to rule as an autocra cy, even as itdismantled a command economy (McFaul 2002) Political incumbents' advan tages in these varied circumstances should be very different, even ifprocesses of economic change are otherwise similar Among other effects, the extent of regime change independ ently influences the ability of officeholders to derive income from public assets or convert them to theirown property (Walder 2003) Although the allocation of assets matters in crucial ways, some argue that the structureof theassets is also an independent dimension that alters stratificationoutcomes (Rona-Tas 1994; Walder 2003) Large-scale enterprise and centrated capital tend to favor those in posi tionsof authority.Small-scale assets, especially family-sized firms and private smallholding agriculture, tend to spread theirbenefits more broadly.Researchers have offered several claims to support thisproposition First, entrybarriers vary greatlyby the scale of enterprise.Entry bar riers are low in small-scale, labor-intensive activities because capital requirements for ini tial investment are smaller, technologies are accessible, and theexpertise required toproduce and market goods iswidely dispersed in a pop ulation.3 Large-scale enterprises in the corpo rate sector, or assets like oil andmineral rights, are initially under the control of government officials who oversaw them in thepast and who have experience, knowledge, and administrative access that few others possess The opportuni ties to derive income from or to obtain owner ship rights over these concentrated corporate assets are biased toward incumbent officials (unless a government passes laws thatare effec tively enforced to prevent this) Opportunities are further biased toward incumbentswhen they assets about small-scale is the reasoning as the "market opportunity thesis" originally This same articulatedby Nee (1989), which did not specify limitingscope conditions.The position here is that the impact of market assets opportunity varies by scale of 253 can easily liquidate assets and hide them, espe cially iftheproceeds can be laundered ormoved offshore (Ding 2000a, 2000b, 2000c; McFaul 1995) Based on these observations, entrepre neurs' advantages relative to those of officials are inverselyrelated to the scale of enterprise or the concentration of assets: the large corporate sector favors cadres more than smaller enter prises (Rona-Tas 1994); rural settings favor entrepreneursrelative to officials (Walder 1996, 2003) Despite the obvious comparative agenda implied by these ideas, almost all research on this subject uses observations from a single country examined in isolation To test claims that the impact of market transition varies according to political circumstances and the ownership and scale of assets, researchersmust compare countries that arematched according to theoretically relevant characteristics This article attempts to so by examining claims about the ownership and scale of enterprise in an analysis of ruralVietnam that replicates an earlier study of China VIETNAM IN COMPARATIVE PERSPECTIVE Vietnam and China are ideally matched for a cross-national comparison of economic sectors The two countries' trajectories sharemany com mon features They stand out from all other transitionaleconomies in the continuityof their political institutions, the overall structure of theireconomies, and the rapid growth thatmar ket reform has stimulated Unlike almost all other transitional economies, the ruling Communist parties of China and Vietnam have survived intactwith onlymodest organization al change Both have resisted the rapid and wholesale privatization of previously existing state assets, and theyhave both left the largest such assets under state control for extended periods Both began as predominantly agrarian societies with relativelyhigh percentages of the population residing in rural regions and in employed agriculture.4Moreover, both have In 1990, 80 percentof theVietnamese popula tionlived inruralregionsand 75 percentof the labor This content downloaded from 129.97.58.73 on Thu, 05 Nov 2015 03:06:15 UTC All use subject to JSTOR Terms and Conditions 254 AMERICAN SOCIOLOGICAL REVIEW had much higher rates of economic growth than other transitional economies.5 The processes of reform in rural Vietnam and China are also very similar.Market reforms began with thedismantling of collective farms, where the land and themeans of production were both held in common and jobs were assigned by themanagers of production units Income opportunities outside of collective structureswere highly circumscribed The first step of reform divided collective lands into family farms of generally equal size and qual ity (an initial condition thatanalyses ofmarket transitionoften ignore) This reformfreed fam ily farms to produce for ruralmarkets, which were expanding rapidly, and to diversify into animal husbandry, cash crops, and nonagri cultural sideline activities It also freed fami lies to establish private businesses, and the private nonagricultural sector expanded rapid ly inboth countries Finally, laborwas no longer tied by legal obligations to collective farms Individuals could work forwages in local enter prises ormore distant regions.A thriving rural labormarket consequently reemerged in both countries Despite these parallels, the rural economies of Vietnam and China betray striking differ ences in ownership and scale Rural enterprise inVietnam emerged almost exclusively from small family businesses, some of which have gradually developed into largerprivate firms Rural China also developed a thrivingsector of small family enterprises,but inaddition itdevel oped an extensive sector of larger enterprises In the firstdecade of reform, the larger enter prises were typically founded by rural govern ments with public funds For the next two decades, these enterprises remained nominally under government ownership, despite thewide force was in agriculture; the figures for employed In China were 73 and 53 percent, respectively fed trast, the corresponding figures for the Russian and for eration were 27 and 14 percent, respectively; Poland theywere 39 and 25 percent (WorldBank 2006) The ratio of 2005 per capita gross domestic prod uct to thatin 1990 is 94 in theRussian Federation, 1.68 inPoland, 2.37 inVietnam, and 3.69 inChina (WorldBank 2006) variety of contracting and leasing arrangements throughwhich theywere managed.6 Why did the rural economies of China and Vietnam develop so differently?First, rural col lectives inNorth Vietnam made more extensive concessions to household production than did China during theMao era In SouthVietnam, the government never consolidated collectives before the onset of market reform in 1988 Second, the stronger collective structures and peacetime conditions inChina leftrural com munities with higher standards of living and more funds for investment by the late 1970s (Kerkvliet and Selden 1998) As market reform began nationwide after 1982, ruralChinese gov ernments invested funds to create new manu facturing firms at high rates, which led to a rapidly growing industrial sector under public management (Oi 1992, 1999; Peng 2001; Walder 1995;Whiting 2001) In contrast, rural Vietnam was much poorer, due to decades of warfare, and had weaker collective structures Individual households thus funded and ran almost all new rural enterprises (Kerkvliet and Selden 1998) By the second decade ofmarket reform,the resultwas a rural economy inChina where the scale of enterprisewas much larger and ownershipmuch more oriented toward local government than inVietnam Data on the scale and ownership of rural enterprises in the two countries after the onset ofmarket transition reveal radical differences (see Table l).7 InVietnam, in 2002, individual sector familybusinesses made up 65 percent of nonagricultural employment and employed an average of 1.7 people The comparable house hold sector inChina, in 1996, employed only 19 percent of the labor force and an average of 1.9 The are the rural enterprise sec two exceptions tors of the coastal southeastern provinces of Zhejiang a thriv and Fujian They are famous for developing sector where many firms were ing private enterprise from government Web to for the table However, and urban and rural enterprises inVietnam initially disguised as governmentowned (Chen 1999; Liu 1992;Whiting 2001) We assembledTable 1using public data available sites tabulations listed on the official in the sources distinguish classify detailed ownership categories, we obtained the original data set for the "IndustrialComplete Survey2002" from theGovernmentStatisticsOffice of Vietnam This content downloaded from 129.97.58.73 on Thu, 05 Nov 2015 03:06:15 UTC All use subject to JSTOR Terms and Conditions MARKET TRANSITION IN RURAL VIETNAM 255 Table Scale and Ownership ofRural Enterprises inVietnam and China Vietnam 2002 Public China 1996 Sector 702.2 5.8 880.7 Employees (1000s) Number of firms(1000s) 121.1 firm per Employees Percent of total employment Private Sector Employees (1000s) Number of firms(1000s) per firm Employees Percent of total employment Individual Sector 153.4 77.8 18.1 654.2 5,510 16.2 333.0 40.3 16.6 3.2 16.8 2,529 33,080 1,494 17,680 Employees (1000s) Number of firms(1000s) per firm 1.7 1.9 Employees Percent of total employment 135,080 65.1 19.0 TotalEmployment (1000s)_3,885_173,670 Individual Business Establishment General Statistics Office of Vietnam survey (2002), Non-farm and theNational Bureau of Statistics of China (www.stats.gov.cn) (www.gso.gov.vn), Notes: includes enterprises classified as central and local state, joint-stock with "Public sector" inVietnam sector enterprises In China, it includes collective sector enterprises registered state and collective share, majority includes limited liability companies, private under township and village governments "Private sector" inVietnam Sources: enterprises, joint stock companies with minority it includes firms classified as "private." state share or no state share, and foreign joint ventures people per firm Larger enterprises employed the remaining 35 percent of the labor force in Vietnam, with thepublic sector averaging 121 employees per firm and theprivate sector aver aging 40 employees per firm.Only 18 percent of total employmentwas in thepublic sector In China, however, 78 percent of total employ ment was inpublic-sector firms thatemployed an average of 153 people Privately-owned firms, employing an average of 16 people, accounted for only percent of total employ ment As a transitional economy, rural Vietnam thereforediffersmarkedly from China in two importantways First, the scale of enterprise is much smaller Only 35 percent of employment inVietnam in 2002 was in firms outside the household sector,which employed an average of 62 people In China, 81 percent of employ ment in 1996 was in firms outside the house hold sector,which employed an average of 116 from Table people (calculated 1) Non agricultural activity inVietnam was dispersed across a vast number of small household enter prises In China itwas concentrated in a small er number of largerenterprises Second, barely over half of employment outside the individual sector inVietnam was in the public sector In In China, contrast, the figure was 96 percent in China (calculated from Table l).8 In short, small pri vate enterprises have led rural industrialization inVietnam, whereas larger government firms have done so inChina THE EFFECTS OF ENTERPRISE SCALE AND OWNERSHIP Scale effects interactwith ownership inways that influence income distribution In one sense, ownership is implied in scale effectsat the lower end of the range: small family enterprise in what is commonly called the "individual" sec tor is,by definition, privately owned However, enterprises that draw on pools of capital that transcend what a single family can invest or borrowmay take a range of differentownership forms The wholly owned government enter prise is at one end of the spectrum.These enter prises, though, should not be confused with a state socialist enterprise in a command econo many or leased contracted By this point, managers of these government-owned firms (Walder and Oi 1999) This content downloaded from 129.97.58.73 on Thu, 05 Nov 2015 03:06:15 UTC All use subject to JSTOR Terms and Conditions 256 AMERICAN SOCIOLOGICAL REVIEW my They are not part of input-outputplanning, they compete on product markets with private enterprises and other government-owned firms, and thegovernment jurisdictions thatown them not have deep financial reserves thatguar antee their existence (Walder 1995) These enterprises are founded with government cap ital,whether classified as "state" or "collec tive," and they are overseen and operated by the founding government jurisdiction (Walder 1992,1995) The local governmentalso hires the managers and pays them a salary and bonuses as government employees At the other end of the spectrum are private firms owned by indi vidual families or partnerships.These are found ed with private resources (sometimes from overseas relatives) or bank loans.As these firms expand theymay diversify theirownership struc tures by adding partners or selling stakes to new investors.They remainfree, however, of the kind of supervision and obligations that are usually associated with government ownership In these larger firms there is a range of own ership forms between fullgovernment owner ship and fully private firms The transitional economies of both Vietnam and China have developed a range of mixed ownership forms thatcombine public ownershipwith private cap ital There are two ways inwhich themixed character of ownership is evident The first is in various joint-venture or joint-stock arrange ments (with or without foreign investors) that combine private investmentwith a government stake The second develops inside convention al government-owned firms that involve various management contracting schemes At their extreme, they take the form of renting or leas ing publicly-owned firms to individual man agers (Walder and Oi 1999) When a manager assumes full legal ownership of the assets, often with some residual debt to the government, the firm shifts into the "private" category (Li and Rozelle 2003) As a market economy expands in a rural region, themix of ownership forms outside the individual household sector varies according to existing government policy and local access to capital Some coastal regions ofChina, which have strongkinship tieswith overseas Chinese communities, rapidly developed thrivingpri vate sectors that drew on overseas funds and expertise (Chen 1999; Liu 1992) Initially,these larger private enterprises falsely registered as publicly owned so that they could buy political insurance Most Chinese regions, however, established new market-oriented firms as gov ernment ventures with public investment or local bank loans (Oi 1992,1999; Whiting 2001) This latter strategy has been rare inVietnam, where development in the rural economy has relied primarily on bank loans to small family firms (Kerkvliet and Selden 1998; RonMs and Ramamurthy2001) To the extent that individual enterprisesdom inate an economy, we expect that these house holds will showmore rapid income gains than will the households of political officials In these circumstances, the rural cadres' house holds will fall behind the entrepreneurs unless they too go intoprivate business Coastal China witnessed this effectearly in its reformprocess Indeed, some researchers argue that this is a general proposition aboutmarket transition(Nee 1989; see also Walder and Zhao 2006) Rapid cadre income gains become possible onlywhen a locality develops a sector of larger scale enterprises These gains, though,depend partly on the extent of government ownership We expect thatcadre households' income advan tageswill be largewhere firms are government owned and where they dominate the nonagri cultural economy Large enterprises generate revenues thatdirectly raise official salaries and bonuses, and they create a largerpool of high salaried managerial and staffpositions Local officials' power to appointmanagers or allocate management contracts provides themwith the leverage to place family members in higher paying positions within these enterprises.9 In contrast,we expect that income opportunities for cadre households will be more limitedwhere largerenterprises have few or no ownership ties to government, especially if the private firms have no history of past government ownership We expect this in part because governments have less authority over private firms and because of the smaller scale and tighterbudg et constraints of private enterprises Smaller firms offerfewerhigh-salaried managerial posi tions and have fewer financial assets a They need not thisby direct intervention; hire a government offi manager may unilaterally cial's relative as a strategy to cement a relationship This content downloaded from 129.97.58.73 on Thu, 05 Nov 2015 03:06:15 UTC All use subject to JSTOR Terms and Conditions 257 MARKET TRANSITION IN RURAL VIETNAM Large private enterprises, however, are still likely to provide opportunities for official incomes thatfar exceed those of smaller enter prises from the individual sector Researchers have found thatprivate entrepreneurs, intenton growing the scale of their operations, actively seek strategic relationships with government officials For example, they offer them paid positions on theirboards or hire theirkin (Wank 1999) Large-scale enterprises may therefore have a positive impact on official incomes that is independent of ownership, although public ownership is likely to enhance the effects of scale Given the radical differences in theownership and scale of rural enterprise inVietnam and China, we expect thata replication of an earli erChinese studywill yield differentfindings.10 One Chinese study (Walder 2002) offers three findings based on hierarchical linearmodels that estimate the effects of economic context First, cadre households' net income advantages remained large after 15 years of reform and theywere equal inmagnitude to those of private entrepreneurhouseholds Second, cadre advan tages were stable across local economies: they did not change with levels of nonagricultural development, the extensiveness ofwage labor, or the extensiveness of private entrepreneur ship Third, entrepreneurs' income advantages were highly sensitive to context They were smaller where wage labor was extensive and the nonagricultural economy was more highly developed In otherwords, although the devel opment of a market economy within China did not diminish cadre advantages, itdid diminish entrepreneur advantages This latter finding resulted from the importance ofwage incomes in thehighly industrializedChinese countryside, as well as the diminishing advantages across time for the initial cohort of small household as rural nonagricultural entrepreneurs economies grew Given thedifferentscale and ownership struc tures of ruralVietnam, we expect that income distribution will look very different than in China First,we expect to find thatprivate entre preneurs prosper relative to cadres to an extent not observed inChina Second, we expect to find a differentrelationship between rural develop ment and trends in income advantages If these scale and ownership effects are strong,we may also find that the furtherdevelopment of this type ofmarket economy enhances the relative prosperity of entrepreneurs EVIDENCE FROM A 2002 NATIONAL SURVEY The 2002 Vietnam Household Living Standards Survey (VHLSS) contains data thatare ideal for a replication of the Chinese study Like the 1996 Chinese survey, thedata were gathered 15 years after the onset of market reform Conducted by theGeneral Statistics Office of Vietnam, the survey is a multistage probabili ty sample of all 61 Vietnamese provinces It yields a rural sample of 13,698 households.11 We coded data from thehouseholds to replicate as closely as possible thevariables used in the Chinese study Inmost cases themeasures are identical In some cases, due to differences in 11 The commune, randomly selected 3,000 with probabilitypropor tional to population The survey then further divid commune areas Of into three enumeration ed each the resulting total of 9,000 enumeration areas, the sur 3,000 with probability vey again selected propor tional to population the it randomly allocated Next, enumeration areas to two separate samples: 2,250 for a short income survey and 750 for a more elaborate income and and concentration of assets as an of elite opportunity, he that there were similar asset Vietnam and China important deter assumed incorrectly structures Consequently, similar elite opportunities predicted tors of the two countries in rural he erroneously in the rural sec holds, holds a resulting in target sample of 15,000 house to The data from this sample were used construct A survey In these 750 enu expenditure the survey randomly 20 selected from a complete list of commune house areas, households minant is the (this to the Chinese but the com corresponds village, mune has a larger average population) Of the total inVietnam, the survey 10,511 communes nationwide meration 10 AlthoughWalder (2003) identifiedthe scale primary sampling unit in rural areas the lowest level of rural government the working description data set of 13,698 valid cases is available online of the survey (http://surveynetwork.org/surveys/index) information about the General Statistics its survey methodology is available (http://www.gso.gov.vn) This content downloaded from 129.97.58.73 on Thu, 05 Nov 2015 03:06:15 UTC All use subject to JSTOR Terms and Conditions Further Office and at itsWeb site 258 AMERICAN SOCIOLOGICAL REVIEW administrativedefinitionsbetween the two coun tries,we devised a measure that is as close as possible to the one used in the original study Household-Level Measures Human capital We calculate twomeasures of human capital at thehousehold level to control for education and experience Both are identi cal to those in the Chinese study.We define education as the average level of education (in years) of currently employed members of the household We define experience as theaverage age of currently employed members of the household labor force This variable Household trolsforwide variations in the size of thehouse hold labor force resulting from household structureand life-cycle effects It is the sum of currentlyemployed household members (iden tical to themeasure in theChinese study) Cadre household This variable indicates the presence of at least one current government officeholder in a household Successive sur veys of ruralChina have used differentdefini tions of "cadre" (see Walder 2002), but they have yielded consistent results The 1996 sur vey bases the definition on respondents' ver batim descriptions of their occupations The working definition in that study is a village or township leader,whether salaried or not, in a government organization The Vietnam survey does not contain verbatim descriptions, so we base the definition on the occupational catego We code as cadre ry recorded by the enumerator those classified as "leaders" in government or party organizations, "managers" in government owned organizations or enterprises, or "other leader" inofficial organizations or associations This yields a sample of "cadre households" that make up 2.4 percent of the sample, compared to 3.8 percent in theChinese survey.Given the evident differences in the definitions, it is not possible to treat them as strictlyequivalent If there is a bias, the smallerVietnamese catego incomes rymight inflate cadre household because it ismore restrictive: it excludes the unsalaried and part-time village leaders includ ed in theChinese study household Entrepreneur This variable measures whether a household derives income from a private nonagricultural enterprise In the Chinese study, these households are identified by an answer of "yes" to thequestion ofwhether the family derived income from a private non agricultural business?21 percent of thehouse holds fit this category.The Chinese survey also contains verbatim descriptions of these activi ties,which reveals that large numbers of these households were actually engaged inpiece work or hired themselves out as repairmen or structionworkers The study uses these verba tim descriptions to restrict the entrepreneur category to three types of activities that the researchers consider to be private enterprise: drivers who own their own vehicles and haul passengers or goods; a retail shop, guest house, or wholesale business; or a manufacturing enterprise This more restrictive definition applies to percent of the households (see Walder 2002) The Vietnamese survey does not record ver batim descriptions of nonagricultural work activities Instead,we create a similarly restric tive definition of an "entrepreneur" household using a variable forwhether a household oper ates a nonagricultural enterprise that itregistered with thegovernment and forwhich itpaid taxes in theprior year.Although using registered tax statusmight exclude small-scale and informal private activity, thismethod identifies per cent of households as entrepreneur This is almost identical to the proportion of entrepre neur households in theChinese study.Even if this category excludes smaller operators who avoid taxation, it is consistent with our desire to include only themore substantial private enterprises in theVietnamese definitions, in linewith theChinese study If there is a bias in thisdefinition, it is similar to that in theChinese studyand itwould tend to inflatethenet income advantages of entrepreneurs income As in theChinese sur Household asks about various sources of VHLSS the vey, income.We sum the income from these sources to derive a measure of total household income during theprior year Self-reported income esti mates are subject to significant error,especial lywhen they involve the recall of incomes from earlier periods Zhou (2000) shows that the detailed retrospective income questions in This content downloaded from 129.97.58.73 on Thu, 05 Nov 2015 03:06:15 UTC All use subject to JSTOR Terms and Conditions 259 MARKET TRANSITION IN RURAL VIETNAM surveys closely approximate official data, suggesting thatresponses to such questions are consistent across surveys If there is a bias inVietnam, it isunlikely tobe differentfrom that in ruralChina The dependent variable used in the income equations is thenatural log of total household income Chinese Commune-Level Economic Measures of Context The focus of this analysis iswhether the rela tivenet returns to political position and private household enterprise vary by levels of eco nomic expansion, orwhether theyvary by type of local market economy The Chinese study reasons that the composition of household income directly reflects local economic texts It thususes sample data on the sources of household income to derive a series of village levelmeasures of local economic context.We use the same methods to derive identical commune-levelmeasures from theVHLSS data Average commune income.We compute the mean annual household income of the com mune from the25 households in each of the 550 communes This is an overall measure of the level of economic development The income levels of the sampled communes vary widely, from around 12million dong per year at the 10th percentile (US$730) to around 34million a year at the 90th percentile (US$2,050) (see the Appendix, Table A) NONAGRICULTURAL DEVELOPMENT Non agricultural development is a directmeasure of a locality's shiftout of agriculture.We define it as the proportion of total commune income derived from nonagricultural sources The aver age commune derives 46.4 percent of its income sources from nonagricultural (see the Appendix) The sampled communes rangefrom those almost wholly dependent on agriculture to those thathave moved almost entirely out of agriculture Private entrepreneur economy This vari able gauges the relative importance of private entrepreneurship in a commune's nonagricul turaleconomy: theproportion of nonagricultural income derived from private household pro duction, taxed or untaxed Communes vary widely in theirdependence on private income Some have almost no private household activ ity,while others derive almost all of theirnon agricultural income from private activities (see theAppendix) economy We define wage Wage-labor labor economy as the proportion of a com mune's nonagricultural income derived from salaries This is a form ofmarket expansion in which households sell labor to enterprises rather than engage in private enterprise.An average commune derives 38 percent of itsnonagricul tural income from wages (compared to 70.6 percent in the average Chinese village) Wage employment This is the proportion of total commune income derived from salaries and bonuses This measure shows even more clearly the relative unimportance ofwage labor in ruralVietnam: communes derive an average of only 16.2 percent of their overall income from wages (compared to 33.1 percent in China) These contextual variables capture qualita tivelydifferentdimensions of economic expan sion, and they directly reflect the huge differences in the structure of the enterprise sectors The predominance of the individual sector inVietnam leads tomuch higher pro of income from household businesses, portions whereas the predominance of large-scale enter prises in ruralChina leads tomuch higher pro portions of income from wages Within each country, moreover, the relative proportion of income from wages versus household enter prise is an indirect indicator of the regional scale of local enterprise.Where larger enter prises dominate a local economy, wages will make up a higher share of income; where the individual sector is dominant, income from household business will occupy a larger share Although the income data are a direct reflection of the scale of enterprises, they not contain any information about ownership InVietnam, unlike China, roughly half of employment out side the individual sector is inprivate firms This content downloaded from 129.97.58.73 on Thu, 05 Nov 2015 03:06:15 UTC All use subject to JSTOR Terms and Conditions 260 AMERICAN SOCIOLOGICAL REVIEW Table Comparison of theVietnamese and Chinese Samples Vietnam 2002 Mean householdeducation(years) Mean householdage (years) Mean household labor(persons) Cadre households(percentage) households(percentage) Entrepreneur households(percentage) Cadre-entrepreneur Percentof totalincomefromagriculture Percentof totalincomefromwages Percent of nonagricultural Percent of nonagricultural Table Correlates of High Income 5.35.7 40.0 3.7 2.5 2.4 3.8 9.08.1 49.3 43.2 35.4 30.4 15.2 income from household income from China 1996 52.6 enterprise 24.8 wages_3CU_75.8 in Rural Vietnam and China Private Entrepreneur (pearson Vietnam 2002 822*** Average 480*** development income (commune) China 1996 447*** ? -.147*** 203*** Nonagriculturaldevelopment 749*** coefficients) Nonagricultural Development Wage Employment Economy Nonagricultural correlation 293*** ? Average (village) income_.421***_.646***_.646*** *** < 001 /? (two-tailed tests) The Rural China These Economies of Vietnam and Compared variables reveal marked structural dif ferences between the two rural economies (see Table 2).12 Although both derive less than half their total income from agriculture, wage income ismuch more important inChina: 35.4 percent of total income versus 15.2 percent in Vietnam, and 75.8 percent of all nonagricultural income versus 30.1 percent in Vietnam in rural Vietnam are far more Households dependent on income from private activities: 52.6 percent of nonagricultural income versus 24.8 percent inChina More striking are the differentcorrelates of private entrepreneurshipand wage employment 12 household Although same the in both roughly educational samples, levels are the Vietnamese households are considerablylarger(by 1.2persons) and younger (by 10years) (see Table 3) The small er size households and higher age of the Chinese reflects the impact of China's one-child policy, which reduced fertility rates after the early dramatically 1980s in the two countries Private entrepreneurship is much more strongly correlated with nonagri cultural development inVietnam (.822) than in China (.203) In this respect, the relative roles ofwage employment and private entrepreneur ship are reversed in the two countries Wage employment ishighly correlatedwith both non agricultural development (.749) and average village income (.646) inChina; inVietnam it is more weakly correlated with nonagricultural development (.447) and in fact negatively cor related with average commune income (see Table 3) INCOMES OF CADRES AND ENTREPRENEURS IN 2002 The relative incomes of cadre and entrepreneur households highlight thedifferencesbetween the two rural economies In China, cadre house income depends heavily on wages Furthermore, in the context of a highly indus trialized rural economy, cadre households have double the average income of ordinary house holds and roughly the same income as entre preneurs (Walder 2002) InVietnam, by contrast, the average annual incomes of entrepreneur holds' This content downloaded from 129.97.58.73 on Thu, 05 Nov 2015 03:06:15 UTC All use subject to JSTOR Terms and Conditions MARKET TRANSITION IN RURAL VIETNAM Level and Composition ofRural Household Table 261 Income, by Household Type, Rural Vietnam, _2002_ Annual Mean ^, Median Income Income Household A Annual Mean Proportion From of Income of Number Private (thousand dong) (thousand dong) Agriculture Type 525 Cadre 22,650 30,474 176 26,635 50,052 Entrepreneur 188 41,000 76,295 Cadre-Entrepreneur 571 15,322 20,342 Ordinary Wages Households 297 269 043 1,199 29 076 175 12,173 Enterprise 099 731 615 157 13,698 Total_23,281_16,208_493_.287_.152 households are much higher than those of cadres: 50 million versus 30.5 million dong AN ANALYSIS OF INCOME DETERMINATION (see Table 4) Cadre households stillmake 50 percentmore than the average income of ordi Although average incomes are revealing,our pri mary interestis innet returnsto cadre and entre preneur households, and how these returnsvary by levels of economic growth and characteristics of local economies To estimate thesemagnitudes we employ the same multilevel models that the Chinese studyuses, along with interactionterms between village- and household-level variables.14 Because thedependent variable is thenatural log of household income,we can transformcoeffi cients (100 [^ -1 ]) to express thepercent change in thedependent variable resultingfrom a one unit change in the independentvariable.We relyon this feature to provide clear and intuitiveinterpreta tions of the findings Model inTable reports coefficients esti mated fora baseline model thatexcludes house Note thatthereare large hold-village interactions nary rural households (20.3 million dong), but they lagwell behind entrepreneurs InVietnam as in China, cadres' and entre preneurs' incomes have markedly different sources Cadre households have by far thehigh est earnings from wages of any group, and entrepreneur households derive most of their income from private household activity The relative lack of wage labor in ruralVietnam, however, forces cadre households to relyalmost as heavily on agricultural income as ordinary households (see Table 4) What elevates cadre household incomes above theirordinary neigh bors is their access to wage income Cadre households can rival the incomes of entrepreneurs only if they become heavily involved in entrepreneurship InVietnam, as in China, cadre-entrepreneur households have extraordinarilyhigh average incomes?50 per cent higher than entrepreneurs are households entrepreneur cadre However, extremely rare: only 29 out of themore than 13,000 house holds inour sample (this is a smaller proportion than in theChinese study).13Cadre households inVietnam are no more likely tobecome entre preneurs than other rural residents The per that are also centage of cadre households entrepreneurs (8.9 percent) is nearly the same as the total sample (8.7 percent) 13 Cadre-entrepreneur the Chinese sample and sample net returns 14 These households percent are percent of of theVietnamese to education and household labor Each additional year of average household edu cation adds 6.5 percent to totalhousehold income (the comparable estimate forChina is6 percent) Each additional employedmember of a household adds 15 percent to household income (the com parable estimate forChina is22 percent).Average household age, ameasure of experience, ismore weakly related to income Each year of average household age increases household income by percent (versus 9.4 percent in theChinese study), and as inChina the effect shrinkswith age.15 These estimates remain constant across all the models reported inTable are multilevel sions estimated with mixed the xtmixed effects linear regres in Stata command 15As seen in the statistical significance of the quadratic term, age squared This content downloaded from 129.97.58.73 on Thu, 05 Nov 2015 03:06:15 UTC All use subject to JSTOR Terms and Conditions 262 AMERICAN SOCIOLOGICAL REVIEW Table Multilevel Model Coefficients,Regression ofHousehold Characteristics and Commune Independent Variable Model Economic Contexts, Model Rural Income (In) on Household Vietnam, Model 2002 Model Model Level Household Education Labor 063*** 065*** 062*** 065*** 065*** (.002) (.002) (.002) (.002) (.002) (.003) (.003) (.003) (.003) (.003) (.002) (.002) (.002) (.002) (.002) 143*** 010*** Age -.0003*** Age squared Cadre Commune Household 100 -.0003*** 009*** -.0003*** -.0003*** 009*** -.0003*** (.00002) (.00002) (.034) (.034) (.034) (.034) (.034) (.018) (.022) (.022) (.021) (.018) (.111) income X 010*** 143*** (.00002) -.028 Level 009*** 143*** (.00002) 444*** Cadre-entrepreneur 144*** (.00002) 214*** Entrepreneur 143*** 217*** 383*** -.010 (.114) 216*** 344*** -.012 (.011) 213*** 407*** -.008 (.114) 215*** 466*** -.027 (.112) 002*** (.0001) Nonagricultural Entrepreneur development economy Wage labor economy Wage employment 269 144* * * * (.063) (.059) -.076 (.070) -.095 (.134) Interaction Cadre -.001 -2 9.65*** (.010) log-likelihood (.151) (.082) (.083) 577*** Entrepreneur Constant -.139 (.148) 778*** 9.65*** 9.65*** (.014) (.014) 138 (.176) -.643*** (.108) 9.65*** (.014) 060 (.310) -.620** (.181) 9.65*** (.014) (IGLS)_9123.7_8544.5_8637.5_8511.9_8471.1 Standard errors are in parentheses All continuous variables are centered on theirmeans The main effects for cadre and entrepreneur households therefore represent the effect at the sample mean for the village context = variable used in the equation N 13,698 for all models < < 001 < 01; ***/? 05; **p (two-tailed tests) *p Notes: Our primary interestis in the coefficients for cadre and entrepreneurhouseholds, which rep resent theirnet returnsaftercontrolling for these household attributes and local income levels The termfor the cadre-entrepreneurhouseholds in these equations serves primarily to ensure that theirhigh incomes are not included in the esti mates for either cadre or entrepreneur?their numbers are too small to generate meaningful coefficients The estimates for cadre and entrepreneur households mirror differences inmean house hold income In the baseline model (Model 1), entrepreneurhouseholds' net advantage (56 per cent) ismore than double thatof cadre house holds (24 percent) This difference is statistically < 001.16 In theChinese study, significant at/? the net advantage of cadre and entrepreneur households was statistically indistinguishable: 41 and 53 percent, respectively (Walder 2002).17 16 Obtained by estimating the equation as the reference category household 17 cadres and entrepreneurs Although with cadre likely pos sess individualattributesthatdistinguishthemfrom others?attributes that standard human-capital This content downloaded from 129.97.58.73 on Thu, 05 Nov 2015 03:06:15 UTC All use subject to JSTOR Terms and Conditions meas MARKET TRANSITION IN RURAL VIETNAM Does the expansion of a ruralmarket econ omy lead to a relative decline of cadre income advantages? If so, thencadre advantages should be lower relative to entrepreneurs in regions with higher levels of nonagricultural develop ment ormore extensive development of either labormarkets or the private household econo my Models to report estimates of themain effects and interaction terms for four different measures of commune economic context.Model reportsestimates that include interactionterms for both cadre and entrepreneur households with nonagricultural development Models and provide the same estimates formeasures of the extent towhich private entrepreneurship versus wage labor dominates a commune's nonagricultural economy Model examines the impact of growth inwage labor overall A key question iswhether the spread ofmar income kets diminishes cadre households' this is conceived as the advantages?whether expansion of the economy, the spread of labor markets, or the spread of private household entrepreneurship.One of thekey findings of the Chinese study is that none of thesemeasures diminishes cadre advantages: none of the inter action termsbetween cadre household and the measures of economic context are statistically significant We find the same pattern in Vietnam Cadre income advantages inVietnam are smaller,but as inChina, the levels of growth or the spread of eitherwage labor or private entrepreneurship does not affect them The second key finding forChina is thatnet returnsto entrepreneurshipare sensitive to local economic context.They decline sharplywith the spread of labormarkets and increase sharply to the extent thatprivate household entrepreneur ship iswidespread (Walder 2002) We find the same pattern inVietnam, with one important exception As inChina, the interaction termfor entrepreneur X commune inModel is large and positive This indicates thatentrepreneurs' net advantages are larger in regionswith wide spread private entrepreneurship Also as in China, the same interaction terms inModels and that gauge the impact of high levels of wage employment are large and negative In ures not capture (Gerber 2000)?there is no rea son to suspect that entrepreneurs have these charac teristics to any greater degree than cadres 263 otherwords, entrepreneuradvantages are small erwhere wage labor ismore widespread The only differencewith themodels estimated in the Chinese study is in the coefficient forModel thatgauges the impact of the shiftout of agri culture In theChinese study, the coefficient is small and negative but not statistically signifi cant In Table 5, the coefficient is large and positive The contrast resultsfrom thedifferent composition of incomes in the two countries In China, wage income is highly correlated with total income, but inVietnam it is negatively correlated with total income (see Table 3) The fact thatentrepreneuradvantages increasewith nonagricultural development inVietnam, but not inChina, reflects thedifferentroles ofwages versus private household production in the two economies The sizes of the coefficients for the contex tual effects illustratehow the relative returns to private business vary by economic context Table displays estimated net returns toprivate household enterprise across thepercentile range of the contextual variables inModels 2,4, and Because net returns to cadre households not vary by local context, the cadre figure is reportedas a constantpercentage inColumn 4.18 Column la inTable reports the percentile range fornonagricultural development, and col umn lb reports the corresponding estimates of net entrepreneuradvantage At the lowest ranges of nonagricultural development, where non agricultural enterprises generate no more than 13 to 28 percent of local incomes, the estimat ed net advantages of entrepreneurs range from 21 to 32 percent This is roughly the same as cadres' net advantage of 23.8 percent However, as the economy relies less and less on agricul tural net estimated entrepreneurs' enter grow Where nonagricultural incomes, advantages prises generate incomes, the 62 to 88 percent of local entrepreneurs' net advantages increase to between 60 and 86 percent, to times thenet advantage of cadres Columns 2b and 3b in Table show the same pattern, although ina reversedirection.At the lowest lev els of wage employment, entrepreneur advan tages are to times larger than cadres; at the 18This table corresponds to Table inWalder (2002:246) This content downloaded from 129.97.58.73 on Thu, 05 Nov 2015 03:06:15 UTC All use subject to JSTOR Terms and Conditions 264 AMERICAN SOCIOLOGICAL REVIEW II IL 11'? g^s II 2^ g^ NpS highest levels ofwage employment, cadre and entre preneur ' MOOOOOOOO r^H nnnww *cdS CS,