Promoting industrialization and enhancing human resources in Vietnam

Vietnam is in the process of industrialization striving to overcome its backwardness to become a middle-income and industrialized country by 2020. This goal can be accomplished only if it succeeds in urban and rural industrialization nationwide. The process, nonetheless, is progressing much more slowly than it is expected.

ECONOMIC DEVELOPMENT No 205, September 2011 PROMOTING INDUSTRIALIZATION AND ENHANCING HUMAN RESOURCES IN VIETNAM by Assoc Prof., Dr BUØI QUANG BÌNH* Vietnam is in the process of industrialization striving to overcome its backwardness to become a middle-income and industrialized country by 2020 This goal can be accomplished only if it succeeds in urban and rural industrialization nationwide The process, nonetheless, is progressing much more slowly than it is expected In addition, gaps between zones and provinces are widening due to plenty of causes, especially differences in human resources It is the quality of human resources that causes a bottleneck to the shifting and distribution of resources and limited production factors Thus, the enhancement of human resources contributes to stimulating the country’s industrialization and sustainable economic development Keywords: industrialization, the quality of human resources, gap between provinces Industrialization and quality of human resources Industrialization has brought many countries achievements in economic development by changing modes of production and hence becomes the target for many developing countries Industrialization can be carried out in different ways depending on each nation’s conditions However, a large number of studies in the world have presented common conditions for industrialization based on success stories in many countries with various socioeconomic features Industrialization originated in the U.K in the mid-18th century when steam-powered machines were first introduced They were then applied to industries of textile, railways, marine transport, etc and opened a new era in industrial development Thriving manufacturing sector made the U.K the world’s richest country at the time Industrial development spread to North America and West Europe in mid-19th century, and Asia at the end of the 19th century with Japan being the first to be industrialized Industrialization is evident in the accumulation of industrial enterprises and industrial sectors, which affects an economy by decreasing the portion of traditional production and increasing the portion of industry in terms of output and other factors such as labor and especially the portion of industries making capital goods On this basis, Roy Harrod vaø Evsey Domar (1940) introduced a model bearing their names claiming that the accumulation of capital, i.e machines, factories, facilities, means *University of Economics, Đà Naüng University RESEARCHES & DISCUSSIONS 35 ECONOMIC DEVELOPMENT No 205, September 2011 of transport, etc stimulates economic development However, increasing the capital for industrialization must guarantee a good relation with labor, which was mentioned by Marx in his Capital, volume I (1867) He believed that technical progress increases the quantity of machines and equipment for workers, increasing organic structure of capital (consisted of constant and variable capital, or C/V) This implies that accumulation of capital must be consistent with improvement of labor quality According to Leviw (1954), rural labor in agriculture should be relocated to industry As labor efficiency in industry is higher than in agriculture, income in the former sector rises more quickly The shifting of labor from the traditional sector to modern industry not only produces accumulation for industrial development or industrialization but also redistributes labor, encourages specialization and enhances labor productivity Hollis Chenery (1974) showed that in the process of industrialization, the share of industrial sector in GDP was ascending and share of agricultural sector was descending when per capita GDP increased Industrialization requires the accumulation of production factors, storing in a certain space, and then reallocating them In other words, it is industrialization that adheres to urbanization (Williamson, Jeffrey A., 1987) Later, drawing from the model by Solow (1956), Mankiw (2000) pointed out that the growth of population and labor accompanied by improvement in their quality would increase labor efficiency while technical advances would ensure successful industrialization According to Sung Sang Park (1992), industrialization in economic development depends on not only capital accumulation but also human capital of the labor The latter is the result of the accumulation of knowledge, skills and knowledge, etc in production and training It serves as a foundation for upgrading technical level and changing modes of production of an economy The process of doing so is called industrialization 36 RESEARCHES & DISCUSSIONS Vietnam’s industrialization to develop it from an agricultural country into an industrial one has proved that the best use of human resources and enhancement of its quality are crucial, especially in rural Vietnam This view was made more convincing in innumerable researches by Vietnamese economists According to Ñinh Phi Hoå (2003), agriculture plays a very important role in industrialization and economic development, and agricultural knowledge of producers must be the key Industrialization requires the accumulation and concentration of production factors and facilities in certain space, hence relating to urbanization (Vũ Thò Ngọc Phùng, 2006) Đặng Kim Sơn (2008) confirmed the need to change the labor structure in agriculture and promote specialization among farmers, i.e to enhance the quality of human resources This issue was also discussed by Buøi Quang Bình (2010) Changes in the population structure in developing countries indicate that young population is on the rise and that golden population structure occurs when working-age people make up two thirds of the population, or dependent people make up only one third This structure reflects the good quality of human resources when the majority of the population are young and healthy Golden population structure appears and lasts for only 30-40 years, so policies on industrialization in economic development should be modified accordingly to make full use of it (Nguyễn Đình Cử, 2010) Being industrialized from an agricultural country with high ratio of rural labor, Vietnam needs to effectively employ and develop human resources in the countryside (Bùi Quang Bình, 2004 & 2010) Numerous researches have been carried out on industrialization and the quality of human resources They focus on criteria and conditions for successful industrialization The criteria consist of per capita GDP, increases in urban population, structure of industry in GDP, and proportion of industrial laborers, etc Concerning conditions for industrialization, they include ability to accumulate capital, quantity and quality ECONOMIC DEVELOPMENT No 205, September 2011 of human resources, policies on industrial development, and characteristics of Vietnamese economy, etc It is apparent that the quality of human resources plays a major role and are placed much emphasis on because it helps connect and make full use of other resources, such as capital and technology Industrialization in Vietnam We are going to examine the above-mentioned indicators based on the data from GSO Figure shows that urban areas are more attractive thanks to favorable conditions for industrial development and act as hubs of capital, labor and technology In contrast, industrialization level in rural areas is much lower than that in urban areas The cities are home to 80% of enterprises, 93% of operating capital, and about 94% of fixed assets and long-term investment This situation means that the industrialization level or the distribution of industrial factories differs for six economic zones in Vietnam Of these, the Hong River Delta, the Central Coast and the Eastern South are key economic zones They attract majority of investment, working capital and workforce, accounting for 70% of the country’s GDP, which reflects a dichotomy to form economic centers as the rule of industrialization This is a two-edged process wherein economic centers can help their neighboring provinces develop but they also widen the gap between provinces The division is detailed in Figures and Altogether, these criteria revealed that Vietnam’s industrialization has just passed the preparatory stage and is coming into the course of acceleration Figure 2: Proportion of laborers in manufacturing – construction sector Figure 1: Indicators of industrialization in Vietnam Source: GSO (2010), Doanh nghiệp Việt Nam năm đầu kỷ 21 (Vietnamese enterprises in the first nine years of the 21st century) RESEARCHES & DISCUSSIONS 37 ECONOMIC DEVELOPMENT No 205, September 2011 are big cities and economic centers, and the others are more closely connected with rural and agricultural production Quality of human resources industrialization in Vietnam and This section deals with the quality of human resources, especially the influences of its disparity on industrialization, presented through increases in capital/ labor ratio and in workforce in manufacturing sector Figure 3: Capital volume (VND billion) per 1,000 laborers in 2008 Source: GSO (2010), Doanh nghiệp Việt Nam năm đầu kỷ 21 (Vietnamese enterprises in the first nine years of the 21st century) & 2009 Census results Figures and describe the matrix of industrialization level with the national average at its center In the matrix, the upper right part (group 1) of both figures represents regions with the highest industrialization level while the lower left (group 2) signifies the lowest level The mean value of fixed assets and long-term investment of enterprises per 1,000 working laborers of group is VND28 billion whereas the figure for group is only about VND10 billion, indicating a disparity of 2.8 times The proportion of laborers working in manufacturing and construction sector is on average around 26% for group and 9.4% for group Likewise, the capital available in early 2009 of enterprises per 1,000 workers in groups and is VND168.8 billion and VND24.9 billion respectively Coefficient of variation is alternatively 0.55 for the mean value of the fixed assets and longterm investment, 1.77 for the capital volume up to early 2009 and 0.72 for the proportion of laborers in manufacturing-construction sector The dichotomy becomes more noticeable when regions enjoying high level of industrialization 38 RESEARCHES & DISCUSSIONS Figure 4: Proportion of trained workers Figure 5: Proportion of high school graduates aged 15 and above Source: GSO (2010), Doanh nghiệp Việt Nam năm đầu kỷ 21 (Vietnamese enterprises in the first nine years of the 21st century) & 2009 Census results Figures and represent relations of proportion of trained workers and the proportion of high school graduates aged 15 and above with the value of fixed assets and long-term ECONOMIC DEVELOPMENT No 205, September 2011 investment of businesses per 1,000 working people The labor quality is not only responsible for the accumulation and concentration of capital for production and human capital but also helps change labor structure and relocate more labor to manufacturing-construction sector, as shown in Figure Figure 6: Proportion of working population expressed in log Figure 8: Proportion of trained labor working population expressed in log Figure 7: Proportion of able-bodied population Source: GSO (2010), Doanh nghieäp Vieät Nam năm đầu kỷ 21 (Vietnamese enterprises in the first nine years of the 21st century) & 2009 Census results Figures and show the relation between the proportion of working population and that of able-bodied people – the criteria which reflect the quality of the population as well as the accumulation and concentration of fixed assets and long-term investment of enterprises If these percentages rise, the quality of human resources becomes higher and will attract investment from enterprises and promote industrialization This is also evident in the fact that capital for production available in early 2009 depends on the proportion of trained workers in all provinces (See Figure 9) Figure 9: Proportion trained labor expressed in log Source: GSO (2010), Doanh nghiệp Việt Nam năm đầu kyû 21 (Vietnamese enterprises in the first nine years of the 21st century) & 2009 Census results Although the said criteria reflecting the quality of human resources are incomplete, they are the most important The effects of these factors on the industrialization are fairly clear and strong Zones with human resources of better quality seemingly attract and accumulate more capital and state-of-the-art technology, which stimulates industrialization in flourishing RESEARCHES & DISCUSSIONS 39 ECONOMIC DEVELOPMENT No 205, September 2011 provinces, but at the same time, widens the gaps in industrialization and economic development Quality of human resources in Vietnam The quality of human resources can be assessed using various criteria such as physical health, education background, professional expertise and competence This research only covers some criteria, including proportions of able-bodied population, working population, trained labor force, and high school graduates Figure 10 describes criteria of quality of human resources by provinces based on the 2009 Census On average, able-bodied people account for over 92% of the population, leaving the disabled about 8% The coefficient of variation is around 0.018 meaning no big difference among provinces The latter percentage is lower than the average of developing countries (10%), but is still higher than that of average developed countries The lower percentage of disabled people in Vietnam in comparison with other developing countries is due to improvements in living standards, especially health services provided to people after more than 35 years of war Many other developing countries, meanwhile, are still in civil wars or are underdeveloped economically Vietnamese life expectancy is 72.8 years (75.6 for urban residents) with a coefficient of variation of 0.033, which shows no great difference between provinces The proportion of working population averages over 66%, making up two thirds of the population This indicates that most of the population is young and healthy entailing a low dependency ratio Therefore, Vietnam is said to enter the “Golden Population Structure” period, an opportunity that almost happens only once in the history of demography of each nation This proportion does not differ much over provinces because the coefficient of variation is 0.052 The literacy rate is roughly 94% among people Figure 10: Quality of human resource by province Source: 2009 Census results 40 RESEARCHES & DISCUSSIONS ECONOMIC DEVELOPMENT No 205, September 2011 aged over 15, which is high in comparison with other developing countries Literacy rates are quite different among provinces, as the coefficient of variation is 0.083 Despite its efforts to enhance education, Vietnam sees only 48% of its population graduate from high schools (this figure is 61% in cities and 43% in rural areas) This percentage implies large disparity among provinces with the coefficient of variation of 0.304 Trained workers of the whole country account for about 14% of the working population, which is very low compared to other countries in the region This proportion stands 8% for rural areas and 25.4% for urban ones, representing a fourfold difference The coefficient of variation among provinces is 0.409 In general, the quality of human resources in Vietnam is pretty good with regards to physical health Education and technical expertise, however, leave much to be desired Moreover, the difference degree between the last two elements is obvious These characteristics have substantial effects on the country’s industrialization and economic development Conclusions and suggestions The above analyses allow the following conclusions: Industrialization is promoted to turn Vietnam into an industrialized country This process leads to the establishment of key economic zones acting as development centers that support economic growth in neighboring provinces on the one hand and widen the gap between economic centers and agricultural provinces on the other hand The quality of human resources has been improved in the past few years in terms of physical health In fact, the majority of the population is young and healthy, which is a favorable condition for the industrialization, especially for solving problems of capital However, there are various weaknesses to worry about, such as poor educational background and expertise of the workforce etc., but there are wide gaps between provinces and cities Human resources quality is affecting the country’s industrialization and needs bettering; otherwise, it will become a hindrance to this process Here are some suggestions: The widening gaps between zones caused by the industrialization should be well understood to support development of key economic zones and make the best use of their positive effects on neighboring provinces Policies on allocation of human resources should be modified to stimulate development of less developed zones and provinces Economic connections between provinces must be beefed up to transfer labor-intensive enterprises to laborredundant rural areas in order to reduce migration Educational reform is a decisive factor It should include encouragement to participation of private and foreign sectors in education service, especially the vocational training; and effective implementation of training programs for peasants and rural residents A new model of industrialization based on development and full employment of human resources (instead of depending on foreign investment and export of raw materials) should be adopted along with a strategy to enhance the quality of human resources Social welfare policies should be modified to make them consistent with socioeconomic conditions in the context of global integration References Buøi Quang Bình (2010), “Mô hình tăng trưởng kinh tế Việt Nam 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Economic Research 42 RESEARCHES & DISCUSSIONS ... descending when per capita GDP increased Industrialization requires the accumulation of production factors, storing in a certain space, and then reallocating them In other words, it is industrialization. .. especially in rural Vietnam This view was made more convincing in innumerable researches by Vietnamese economists According to Đinh Phi Hổ (2003), agriculture plays a very important role in industrialization. .. 2011 provinces, but at the same time, widens the gaps in industrialization and economic development Quality of human resources in Vietnam The quality of human resources can be assessed using various