Subsidy period
Thời bao cấp generally refers to the period between 1975 and 1986, when all of Vietnam operated under a command economy from the end of the Vietnam War until the onset of the Đổi Mới economic reforms. Although North Vietnam's economy had been under command economy since 1954, this period is generally not regarded as belonging to the bao cấp era.
In this planned economy, most private merchants were eliminated, goods were distributed through a ration coupon system managed entirely by the state, and restrictions were placed on people buying and selling on the open market or transporting goods from one region to another. The state monopolized the distribution of most goods and restricted cash transactions. The family registration system was established during this period to distribute food and other commodities on a per capita basis, most notably through rice ration books that specified the quantity and types of goods that could be purchased.
Economy
Economic management mechanism
Before the Đổi Mới reforms, Vietnam's economy was managed using a centralized planning system with the following characteristics:- The state managed the economy primarily through administrative orders based on a detailed system of legal targets imposed from the top down. Enterprises operated on the basis of decisions made by competent state agencies and the legal targets assigned to them. All methods of production, materials, capital, product pricing, organizational structure, personnel, and wages were decided by the relevant authorities. The state assigned targets for capital and material allocation to enterprises, and enterprises delivered their products to the state. If there was a loss, the state would compensates; and in exchange if profits were made, the state would collect them.
- Administrative agencies intervened too deeply in the production and business activities of enterprises but did not bear any material or legal responsibility for their decisions. Any material damage caused by the decisions of administrative agencies would instead be borne by the state budget. Enterprises had no autonomy in production and business, nor were they bound by any responsibility to meet any targets or achieve certain results.
- The relationship between commodities and money was neglected and considered a formality, giving predominance to a bartering system. As the state managed the economy through a “distribution-submission” system, many important commodities such as labor, inventions, and important means of production were not legally considered commodities.
- The management structure involved many inefficient intermediate levels that were considered authoritarian and bureaucratic, all while enjoying better benefits than the workers.
Vietnam prioritized state-owned and collective enterprises, seeking to rapidly eliminate private ownership and the private sector. The economy fell into stagnation and crisis as Vietnam followed Soviet-type economic planning without truly understanding its advantages and disadvantages, lacking the capacity to leverage its strengths and mitigate its weaknesses.
Forms of subsidies
Subsidies through prices and quantities of goods
The state determined the value of assets, equipment, supplies, and goods at a level significantly lower than their market value. As such, economic accounting was merely considered a formality during this period.Manual laborers were given 20 kg of rice per month, while government workers were eligible for 13 kg. Due to rice shortages, the population had to supplement their diet with extra corn, sweet potatoes, cassava, and job's tears. The rice portion was supplied by the central government, while the supplementary portion is managed by local authorities, who added additional food such as 10 kg of cassava or sweet potato for every 13 kg of rice. Even with money, goods were extremely scarce, and even people with ration coupons who line up to buy, might not have any goods left to purchase by the time their turn came. Goods were not only of poor quality, but also very limited in quantity. In practice, there were only enough goods to use for a short period of time, and by the end of the month, people often had to buy extra on the black market.
Foreigners in Vietnam had the right to shop for certain items at separate state-owned stores such as Intershop in Hanoi, which offered special items such as canned goods and wine.
The main sources of supplementary food were the Soviet Union, India, among other countries who provided aid, and some transactions were carried out under barter agreements. Indonesia also agreed to sell 200,000 tons of rice to Vietnam on credit. Furthermore, Vietnam borrowed 300,000 tons of wheat from India, but due to their limited milling capacity, they were unable to produce flour in time and had to negotiate with India to get extra help milling wheat. Vietnam received 70% of the flour, with the remainder considered milling waste and payment for their services. The Ministry of Food asked Mr. Jean-Baptiste Doumeng, director of Ipitrade Company and a member of the French Communist Party who was friendly with Vietnam, to help find a source of supply. He subsequently helped purchase 500,000 tons of Thai rice with cash to sell on credit to Vietnam.
Other than consumer goods, during the subsidy period, the government also controlled the distribution of housing, with the standard being four square meters per person. Apartment complexes, similar to those in the Soviet Union, were built in cities and allocated to mid-level officials and workers. The Housing Department was responsible for repairing damaged housing, but poor management led to encroachment on public land, making it difficult to distinguish between public and private property. Life in these collective housing blocks was made even worse by residents keeping livestock in cramped, unsanitary apartments. Thanks to the subsidy economy, housing prices in cities were relatively cheap, but workers and civil servants still could not afford to buy because their incomes were too low.
Subsidies through ration coupons
The state regulated the distribution of consumer goods to government officials and workers according to quotas through ration coupon tickets. The ration coupon system, with prices far below market rates, transformed wages into a system of payment in kind, eliminating incentives for workers and undermining the principle of earnings according to labor. The Democratic Republic of Vietnam began implementing rice ration books around 1960, initially for food, and later adding ration coupons for all essential goods. The focus of the subsidy period was on ration coupons that specified the types and quantities of goods that people were allowed to purchase, based on certain criteria such as rank and seniority. Some groups received preferential treatment, allowing them priority in purchasing. For example, ordinary citizens were only allowed to buy 1.5 kg of pork per month, but senior officials had the right to buy 6 kg per month. Batteries, fabrics, bicycle parts, sugar, condensed milk, fuel, fish sauce, lard, and salt all required ration coupons to purchase.Depending on their job position and professional characteristics, government officials and civil servants, as well as working people, were issued food ration coupons under a separate system.
Senior officials received the A1 special standard, ministers received A coupons, vice ministers received B coupons, heads of departments, bureaus, and institutes received C coupons and had access to exclusive stores on Tông Đản Street, Nhà Thờ Street, and Vân Hồ Street. At that time, there was a popular saying:
Tông Đản là của vua quan/ Nhà thờ là của trung gian nịnh thần/ Đồng Xuân là của thương nhân/ Vỉa hè là của nhân dân anh hùng. Tông Đản is for the king and officials/ Nhà thờ is for the flattering courtiers/ Đồng Xuân is for the merchants/ and the sidewalks are for the heroic people.
Subsidies under the capital allocation system
There were no sanctions imposing liability on capital-allocated units. This increased the burden on the budget and led to inefficient capital use, giving rise to a “begging-granting” mechanism.The role of currency
Due to a shortage of goods during the subsidy period, distribution of goods was primarily orchestrated through a system of ration coupons. Items could be purchased on the black market, but this was not the main channel of distribution. Purchased items were associated with a corresponding ration coupon. A notable side effect of the subsidy economy period was the devaluation of the Vietnamese currency. Workers' wages were sometimes paid in kind because the continuous decline of the currency. Wages in 1980 had decreased by 51.1% in value compared to wages in 1978. By 1984, that amount had become only 32.7%.The free market was considered illegal and was restricted, as such goods circulating on the black market were scarce and very expensive. Consequently, people and government workers often sold consumer goods they did not use on the black market.