Vietnam’s Hidden Development Lesson: Markets Came Before Reform

At sunset near Ho Tay (West Lake) in Hanoi, a man sets up a chair and a mirror on the pavement. He charges two US dollars for a haircut; his costs are nearly zero. By the end of the month, he earns above Vietnam’s average income. This is not a typical development policy success story. The barber is not a microfinance beneficiary, nor did he attend a state training programme. He found a market gap, occupied it and made it work.

Three decades ago, Vietnam was among the world’s poorest nations. By 2023, extreme poverty had fallen to under four per cent, one of the fastest development turnarounds in modern economic history, according to the World Bank. The standard explanation centres on Doi Moi, the 1986 reform package, followed by export-led growth, foreign direct investment and integration into global supply chains. All of that is accurate, but none of it is sufficient as an explanation. Dozens of countries received comparable policy prescriptions from the same international institutions in the same period. Mozambique, Bolivia and Myanmar liberalised, but none of them had Vietnam’s scale and speed.

The variable that the standard account consistently underweights is what was already inside Vietnamese society before the first reform was enacted. Hanoi’s traffic offers a useful illustration. Motorbikes weave, slow and merge through dense flows that may appear disorderly, yet order is maintained through constant mutual adjustment by road users. This coordination relies on anticipation and flexible responses, producing a negotiated form of order shaped not only by formal traffic controls but also by continuous, decentralised interaction among participants.

The same distributive logic organises the sidewalk barber, the mobile pho cart, the phone repair stall, and the woman selling different items from a single basket. These are not marginal activities: informal employment accounts for approximately 65 per cent of Vietnam’s total workforce, according to Vietnam’s National Statistics Office, meaning the formal economy that attracts most of the current analytical attention sits on top of an informal foundation that preceded it by decades.

That foundation was built under pressure for survival. Generations of scarcity, wars, post-war and planned economy shortages produced a society that did not wait for formal institutionalisation to generate income. Before Doi Moi, market activity existed in the gaps of a planned economy that could not satisfy basic needs. Local officials tolerated what was quietly called “fence-breaking”, because strict enforcement would have worsened an already critical situation.

…Vietnam’s adaptive capacity, that once drove growth, is now the primary challenge for the country…

Doi Moi did not create Vietnamese market behaviour; it changed the state’s relationship with a market society that was already there. That distinction between governments that build markets and governments that stop blocking markets people have built is the most important, but least discussed, lesson that Vietnam offers.

Yet the same adaptive capacity that made Vietnam’s informal economy productive also made it so vulnerable. The World Bank’s assessment in 2025 of Vietnam notes that social insurance coverage among informal workers remains critically low, despite a decade of government effort to expand it. The barber by the lake has no sick pay, pension or legal protection if the pavement is cleared. Women in the informal economy frequently go back to vending within days of giving birth because there are no formal income replacements and no guarantee that their market space will be available when they return. Migrants who construct urban livelihoods from nothing can lose them in a single enforcement sweep.

Looking Ahead

This is the tension at the centre of Vietnam’s development model that development institutions underestimate. Vietnam’s adaptive capacity, which once drove growth, is now the primary challenge for the country – it must establish a protection floor that sustained prosperity requires. Informality absorbed labour and generated income when formal institutions were absent, and now keeps millions of workers outside the social systems that those institutions have built.

The development challenge Vietnam faces is not simply further liberalisation but building protections: health coverage, accident insurance, accessible micro-pensions that follow workers wherever they go rather than depending on formal contracts, so that the economic intelligence the country runs on does not become the thing that holds it back.

The more useful question is what obligations the government has toward the workers whose resilience built their communities and the country, and whether the state can establish a meaningful protection floor before those who built the economy from below are too old or too sick to benefit from it.

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