FOUR TAKEAWAYS FROM A RECENT TRIP TO VIETNAM AND CAMBODIA

The Canadian Association of Former Parliamentarians in February of this year organized a 3-week study tour of Vietnam and Cambodia. It attracted 20 members of the Association, including my wife and me.

The group included former MPs from all political parties. We had some lively discussions about Canadian politics, but the atmosphere was always respectful and cordial. We enjoyed the normal travel experiences that were enriched by information from competent and friendly professional guides who also took excellent care of the trip’s logistics.

What made this trip different from normal tourist experiences were meetings with local politicians skillfully arranged by Leo Duguay, an Ottawa lobbyist, former MP and Prime Minister Joe Clark’s Chief of Staff. Thus, we spent a couple of hours with Canada’s Ambassador to Vietnam in Hanoi, which brought us up to date on the country’s relations with Canada and local economic and political conditions. We sponsored a dinner meeting with ten members of the Canadian Chamber of Commerce in Saigon, which provided much first-hand information about the opportunities and challenges of doing business in the country.

We also met with three members of Vietnam’s parliament in Hanoi who served as chairs of important legislative committees. These politicians gave us mainly boiler-plate information about the country’s economic and social conditions but responded with some spontaneous and interesting answers to our questions at the end of the session. This meeting ended with a privileged guided tour of the parliament building designed in grand communist style.

We were lucky with the timing of the trip, which started when the Covid-19 crisis affected primarily China and ended when the return flights were still on schedule. The crisis in China brought us some unexpected benefits through the virtual absence of Chinese tourists in airports, hotels, restaurants and tourist attractions. According to our guide, their absence meant that we were able to visit some attractions without lengthy queuing required just a short time earlier.

The visit to Vietnam and Cambodia increased my understanding and appreciation of the cultures and economies of these two countries in many ways, but the following narrative focuses on just four topics that involve important takeaways of interest to me as a free market economist and a person interested in the Vietnam War.

The first takeaway involves my memory of the tragedy of that war, which I had expected to be revived during this visit. To my surprise, our guides and other Vietnamese never mentioned it to us on their own initiative. Only once were we given information about a battle, but only after we asked for it. This happened when we wondered about the history of a large, barren space in the middle of the ancient Citadel of Hue. Our guide explained that the historic buildings that had previously occupied this space were destroyed when Vietcong troops infiltrated the area during the Tet Offensive and American forces launched a counterattack. Before this event, the Americans deliberately had kept their troops out the Citadel to protect its cultural heritage. The guide left the clear impression that he blamed the Vietcong more than the Americans for the tragic destruction of the historic buildings.

I was also surprised by the displays at the “Hanoi Hilton”, the prison where US downed pilots were kept. It is now a museum and contains very few displays and narratives about the horrors of the War. Instead, it holds many exhibits showing how well the American prisoners were treated and how many anti-war demonstrations had taken place around the world. The only disturbing images in the prison are of the French government’s treatment of Vietnam prisoners during the colonial period.

The second takeaway comes from numerous stories by our guides about the personal and economic problems caused by Ho Chi Minh’s government after the Americans had left in 1975. This government had imposed on the South economic and social policies its leaders had studied during visits to Moscow during the War.

The guides’ accounts of these policies revealed deep resentments over the hardships they caused their people, resentments allegedly shared by many in the country. Under these offending policies, many landowners, members of the middle class and others considered by the communist politicians to be the enemies of the working class, had their properties seized, were jailed of even executed. Many of these victims fled the country and became the boat people of history. Many of them lost their lives at the hands of pirates from the Philippines and Indonesia. Only few were accepted as refugees by Canada and other Western countries.

Very damaging also was the economic planning regime, which forced all production by individuals and companies to be delivered to the government, which transferred it to consumers such that everyone had a fair and equal income. One of our guides told us with some mirth that under this system his father was no longer able to pursue his traditional practice of trading fish for watermelon under pain of being imprisoned. It took Vietnam many years to end the communist planning regime and liberalize the economy.

The third takeaway involves the performance of the Vietnam economy after the liberalization. It was clearly evident during our visit but the following draws on some statistics found on the Internet to describe it.

The country’s population is 97 million, which makes it the 15^th largest country in the world (Germany, Europe’s largest country has a population of 84 million). The communist-style planning after 1975 caused stagnation and by 1986 had made Vietnam one of the world’s poorest countries.

Conditions improved dramatically after the government in 1986 moved away from this model, imitating the successful 1978 reforms by Deng Xiaoping in China. This improvement was evident in numerous ways. The main airports were new and modern. Ubiquitous retail and artisan shops were fully stocked and busy. Restaurants of different quality were filled with customers. Traffic on all roads was very heavy. Construction of buildings and roads was everywhere. People were well dressed. I saw no homeless people or beggars.

   

Official statistics back these impressions of economic growth and prosperity. Between 2002 and 2018, per capita GDP increased 2.5 times, though it still has long way to go to make Vietnam a rich country. In 2018 its GDP had reached US$2,500 while in comparison, Canada’s was $46,000. The growth of GDP of 7 percent in 2018 is encouraging as is the statistic that the rate of poverty shrank dramatically from 70 percent in 1986 to 6 percent in 2019.

Theses results were created by free market policies. Producers no longer had to deliver their output to government agents but were free to sell it to the highest bidder. Lower tariffs resulted in the opening of trade with the rest of the world. Direct foreign investment was encouraged through low levels of regulation and taxes, low cost of labor, low inflation, secure property rights and a stable political environment. In December 2019 alone, direct investment worth $20 billion was made mainly by firms from Japan, South Korea and China.

Of particular interest to me is that the government allows the side-by-side circulation of US dollar notes in private markets. In the ubiquitous restaurants, retail stores selling clothing, shoes and other consumer products, payment is routinely expected to be made in dollars. Only change of less than one dollar is settled in Vietnamese Dong, the local currency. Credit card charges are in Dong but are converted to other currencies at rates that keep retail prices at a bargain level for Canadians. Many private employers pay their workers in dollars, government employees are paid in Dong, which can readily be converted into dollars.

The free market policies brought an interesting symbol of success. In 1986, Vietnam was unable to feed itself and had to import rice. Now it is once again the largest net exporter of rice in the world, taking advantage of outstanding growing conditions in the Mekong Delta, which we toured comfortably for a day on a boat. A bicycle trip of one the islands in the delta allowed us to see these fertile fields and the comfortable homes they support.

Another indicator of Vietnam’s economic success is the heavy traffic on its urban roads. In Saigon it is dominated by 7 million scooters and motorcycles owned by the city’s 11 million inhabitants. These two-wheeled vehicles compete with relatively small numbers of cars, trucks and buses. However, in spite of the crowding, the traffic moves smoothly. During many trips in our tour bus, we saw no traffic jams or accidents.

These results are almost a miracle as the traffic is, what someone called “organized chaos.” One of its causes motivated the writing on a t-shirt I saw: “Traffic rules in Saigon: Traffic light green: go; light yellow: still go; light red: continue to go. I believe that the smooth flow of traffic and the low incidence of accidents is due to the great maneuverability of two-wheeled vehicles. Observing scooters carrying a woman and two children miss hitting other vehicles by inches is heart-stopping, but we all seemed to get used to seeing such spectacle and no longer were amazed. Besides, wearing helmets was legally required and universally obeyed. A bit of trivia: according to one of our guides, the reason why women on scooters almost always wear long-sleeved shirts and gloves is to protect their skin from the sun.

However, the traffic in the Vietnamese cities raised in my own mind the question of how it will function in the future as the population and incomes continue to grow rapidly. I would not be surprised if, in a decade, there would be congestion just like that in other large urban areas of the world, especially since the greater prosperity will lead to the increasing replacement of two-wheeled vehicles by cars.

My fourth takeaway concerns Vietnam’s economic future. The growth in national income foreseen by the members of the Canada-Vietnam Chamber of Commerce in Saigon is likely to be realized. But I predict that it will be accompanied by problems that face all rapidly growing, low- and middle-income countries. One of these problems is traffic congestion. Another is that foreign investment continues to increase the demand for labor and drives up wages. As this happens, the attractiveness of foreign investment and volume will decrease and cause a reduction in the expansion of the economy along with a slowdown in the increase in wages, tax revenues and public spending on infrastructure and social benefits.

In their presentation to us, parliamentarians in Hanoi suggested that the government is aware of these problems and importantly, is ready to deal with them through more deregulation and free market policies. By coincidence, the day before our meeting with these officials, a newspaper reported that a parliamentary committee had announced plans for further deregulation.

However, as the government continues on this path, it faces a fundamental conflict, which I raised in a question posed to the parliamentarians in Hanoi: “How will your government deal with the conflict between the consequences of ever growing liberalization and the maintenance of income equality required by your communist ideology?”

 

My question brought a burst of laughter among the parliamentarian, which our group were delighted to join. The chair asked one of his colleagues to provide an answer to my question, which brought the standard line that the communist party remains committed to policies that create prosperity and income equality. At the reception after the meeting, the chairman of the group shook my hand and said, “good question.”

I wish the people of Vietnam that its politicians will be able to deal successfully with the inevitable conflict between free markets and income equality. It will require them to give up much of their power, status and income. Only time will tell whether they will do so.

In conclusion, a bit of information useful to climate change skeptics everywhere. During the period 900 to 1,100 AD, the people of Cambodia had built many temples. Ten of the largest and best-preserved are fine tourist attractions. They are so large and elaborate that their construction and maintenance took very many workers who were directed by a large elite of priests and politicians. Many peasants were needed to feed these workers and elites.

What caused this society to lose its ability to maintain these temples and turn them into today’s still spectacular ruins? A guide explained that it used to be believed that prolonged and destructive warfare with neighboring countries was to blame, but that recent research by respected archaeologists has discovered strong evidence that the main cause was climate change – a prolonged drought reducing agricultural output dramatically. If this explanation is correct, cosmic forces must have been responsible since green-house gases emissions by humans at the time were trivial. Might such forces also be the main driving force behind the current global warming?

The author is Emeritus Professor Economics, Simon Fraser University and a Senior Fellow at the Fraser Institute.

He was a member of the Reform Party caucus in the Canadian Parliament in 1993-97. His political experience and professional career are described in “A Professor in Parliament”, published in 2000. Copies of the book can be obtained from the author at the cost of postage by writing to herbert.grubel@shaw.ca.

SOME ANXIETY-REDUCING PERSPECTIVES ON COVID-19

The evidence is overwhelming that government policies reduce the spread of the COVID-19 virus. Like most Canadians, I follow the recommended policies, leave home only to buy necessities and keep the proper distance from others on my one-hour daily walk to stay fit.

Most Canadians and I followed these government policies after having read and become scared by the daily media reports of the number of infections and deaths caused by the virus. However, these reports also caused me to worry and become anxious about the risk of infection and death of my loved ones and myself (I am in my eighties). 

To deal with this anxiety I ration my exposure to the news, replace the CBC and Trudeau specials with music and entertainment on TV and only skim newspapers and magazine articles. But I also reduce my anxiety by considering some statistics that put my personal risks in perspective, using data from April 15. Here is what I found.

On that day, out of 35.5 million Canadians 27 thousand equal to 0.076 percent were infected and 898 or 0.0025 percent died. It helped my anxiety to know that my chances of getting infected are really very, very small. They are very likely to remain thus even if the number of infections and deaths continues to grow at their recent levels for some time.

   

However, it is known that the number of infections is much higher than the official data indicate. Around 18 percent or 80 percent of the population are asymptotic carriers of the virus. Does this fact imply that I should worry after all? The answer is no. While the asymptotic carriers pass on the virus and increase the number of infected, this effect is reflected in the above numbers.

Another source of worry for many is that their elderly relatives and friends are more likely to die if they catch the virus. In New York City as of April 14^th, of the total 6,839 deaths caused by the virus, 25 percent were of patients between the ages of 65-74 and 48 percent were of those over 75 years old. Nearly one half of all Corona deaths in Canada are linked to long-term care facilities.

These statistics about the age of Canadians who died from the virus implies that the chances of individuals below the age of 65 dying from the infection is one half of the 0.0025 percent presented above.

However, there is another interesting aspect about the high death rates of the elderly. Almost all have one or more life-ending diseases, which in Canada every month in 2018 killed 7,072 aged 80 to 89 and 5,034 over the age of 90. These numbers are obviously much larger than the 898 Canadians of all ages who have died at the time of writing during the entire epidemic from COVID-19. This statistic should reduce the worry of some with elderly relatives of friends, though our sympathies should remain with those who lost loved ones earlier than they had expected.

A final source of worry and anxiety is that the epidemic could last a long time and cause many more infections and deaths. Unfortunately, it is not possible to predict how long the epidemic will last in Canada. However, it is possible to get a realistic assessment of these events by considering the experience of some countries at different stages of the spread of the virus.

Singapore has used very effective containment policies and ended the epidemic quickly. Its infections were equal to 0.058 percent and deaths equal to 0.0002 per cent (a total of 10) of the population of 5.6 million.  South Korea’s effective containment policies also ended the epidemic quickly. Its infected were 0.021 per cent and deaths 0.00044 per cent of the population of 51.2 million. Even if these countries will suffer a second wave of infections and deaths, they will have the experience to limit it effectively and keep the numbers small.

Italy for some time had the distinction of having the largest number of infections and deaths in the world. At the time of writing its infection rate is 0.27 per cent and death rate is 0.035 per cent in a population of 60 million.

The difference in the numbers for the three countries is explained by the timing and effectiveness of their governments’ policies used to limit the spread of the virus by encouraging or mandating social distancing and self-isolation, all backed by varying degrees of testing of individuals.

Canada’s containment policies resemble those of Singapore and South Korea more than those of Italy. There is therefore hope that the spread of virus will be stopped before too long and the ultimate infection and death rates will remain very low. However, even if the effectiveness of Canada’s policies is more like those of Italy and the ultimate rate of infection and deaths are double the present level, only 0.15 per cent would be infected and 0.005 per cent would die.

By all means, let us all keep social distance and self-isolate as long as is necessary, but stop worrying about the risk we face individually. It is very similar to that from catching the flu and much smaller than getting involved in a vehicle accident, which in 2018 injured 419 and killed 5 Canadians EVERY DAY.

DEFINING CANADA’S MIDDLE CLASS

In November 2019, Canada’s Prime Minister Justin Trudeau appointed MP Mona Fortier to the post of Minister of Middle-class Prosperity. No such ministry has ever existed before.

During her first press conference, the Minister was asked for her definition of the middle class. Her response is summarized in the headline of a report by CTV News:

“Middle class prosperity minister says Canada can't measure who is in the middle class.”

This answer implies the existence of a serious problem for her and the government since it is impossible to adopt policies to serve people whose identity is not known.

It is a puzzle why this problem exists since there are several standard definitions of the middle class used by statisticians and governments around the world. The first considers families to be members of the middle class if they earn incomes falling within a specific range of dollar incomes such as $30 thousand and $50 thousand. Government census and other data readily allow calculation of the number of families in the group and their average incomes.

This approach provides useful information about conditions at a moment in time, but it cannot be used for the design of policies over time. The reason for this problem is discussed by Thomas Sowell, who shows that increases in incomes due to inflation or real gains in income normally experienced by all citizens of Western democracies will necessarily decrease the number and average incomes of families in the range of previously specified absolute incomes. An income of $30 thousand may have been a decent, middle-class income in 1970, but is not in 2020.

A second definition allows the creation of useful information through time by making the range of middle-class income a function of its distribution. For example, it considers families to have middle-class incomes if they are in the middle three quintiles of the distribution or, in other words, have incomes that are neither in the lowest or highest twenty percent and therefore are neither “poor” nor “rich”.  Under this definition the number and average incomes of families in the middle class keep up with economy-wide increases in prices and real income and provide information needed to deal with any perceived problems affecting the middle class.

A third definition provides the same benefits as the second but is more in tune with the current concern of politicians and governments with poverty and the incomes of the highest income earners. It has been used by the Organization for Economic Co-operation and Development (OECD), “which defines a member of the middle class as anyone who earns between 75 per cent and 200 per cent of median household income after tax. Based on the most recent data available from Statistics Canada, in this country that means anywhere from about $45,000 to $120,000.” 

It might reasonably be expected that the government of Canada’s statistical office has access to the basic statistics needed to calculate the incomes and numbers of the middle class based on the last two definitions just discussed.

However, Trudeau’s government has failed to do so for unknown reasons. Whatever they may be, they have forced two of its ministers to come up with the following strange statements:

Bill Morneau, the Minister of Finance said in the House of Commons on January 30, 2017:

“The Government of Canada defines the middle class using a broader set of characteristics than merely income…Middle-class values are values that are common to most Canadians and from all backgrounds: they believe in working hard to get ahead and hope for a better future for their children…they aspire adequate housing and health care, educational opportunities for their children, a secure retirement, job security and modest spending on leisure pursuits.”

Mona Fortier, the Minister of Middle-class Prosperity in her first press conference said:

 “Well, I define the middle class where people feel that they can afford their way of life. They have quality of life. And they can ... send their kids to play hockey or even have different activities. 

It's having the cost of living where you can do what you want with your family. So, I think that it's really important that we look at, how do we make our lives more affordable now?” 

These characteristics of the middle class spelled out by the two ministers are common to all Canadians who, without exception, want a better future for their children, aspire to adequate housing and so on. So, why appoint a minister with a big staff, high salary, big office and limousine, and charge her with improving the prosperity of all Canadians, which is the same as the professed goal of all members of the current Liberal and that of all preceding governments of Canada?

Is it possible that the conventional, empirical measures show that the middle class in Canada has done well and that the Liberals’ slogans about the need to help suffering middle-class families used during the last two federal elections are inconsistent with the facts?

Herbert Grubel

Emeritus Professor of Economics, Simon Fraser University

Senior Fellow, The Fraser Institute