Economic and non-economic returns to communist party membership in Vietnam

What is it about?

Single-party political systems exist in a number of countries, such as China and Vietnam. In these countries, party membership is potentially an important source of economic and social status. This paper investigates these effects and the mechanisms behind them. In particular, we use household- and individual level panel data to analyze the causes and consequences of Communist Party membership in rural areas of Vietnam. Fixed effects models are employed to control for unobserved differences between party members and others. Results suggest that party membership has a moderate, positive effect on income, on the order of 7 percent, and a large, positive effect on subjective well-being, even after controlling for income. Party membership is closely associated with working for the government but also appears to increase the propensity to use credit and to boost income from farm- and non-farm enterprises. There are strong gender effects: Men are several times more likely to be party members than women are, and the effects of membership on income and subjective well-being are only present among men. Overall, results confirm that in spite of pro-market, economic reforms, Communist Party membership continues to be of high value in rural Vietnam.

Featured Image

Photo by Sam Williams on Unsplash

Photo by Sam Williams on Unsplash

Why is it important?

Vietnam has undergone significant economic- but limited political reform in recent decades. An important question is whether a party membership premium is compatible with further reform, or functions as an barrier to change (cf. e.g. Frye and Shleifer 1997; Hellman 1998; and Fforde 2017). For economic reform, the effects are somewhat difficult to predict. As argued by Morduch and Sicular (2000), benefits to cadres and party members may go hand-in-hand with reform if the amount of rents received by cadres and party members depends positively on economic reforms. This would for example be the case if rents come in the forms of ownership stakes in newly established businesses. While local governments have been less involved in the process of industrialization in Vietnam than in China (cf. Walder and Nguyen 2008), our results still suggest that party members may benefit disproportionately from the new, economic opportunities that arise during the process of reform. In particular, we find that party members earn more than others from households enterprises. On the other hand, our findings also suggest that this earnings gain might be driven by preferential access to credit. Hence, party members seem to benefit from the opportunity to establish enterprises, but perhaps only because the credit sector is government-controlled. This suggests that party members may be happy to support some forms of liberalization (e.g. facilitating entry of small enterprises), but not others (e.g. privatizing the credit sector). In terms of political reform, predictions are easier to make: the stronger the returns to Communist Party membership, the lower the incentives to accept competing political forces. Saxonberg (2013) suggests that a main reason why Communist regimes in China and Vietnam survived, while the regimes in Eastern Europe collapsed, is indeed that cadres and party members in China and Vietnam were allowed to reap significant, financial gains from reform, rather than being hurt by economic changes. Our results are consistent with this interpretation. They contribute to explaining both the feasibility of economic reform and the persistence of the Communist regime.

Perspectives