The most striking element that emerges from the analysis of the pension reforms presented in the previous three chapters is perhaps the fact that policy change has occurred in each of the three countries covered. This is in spite of a generalised concern among commentators about the alleged inability of continental European countries to undertake structural reform in the broad areas of social and economic policy. Even countries like France and Switzerland, which are generally depicted as some of the most reluctant to adapt their post-war welfare states to new international and domestic constraints, have managed to secure the adoption of unpopular retrenchment measures. These, although limited, can be seen as a first step towards a more comprehensive recasting of their respective pension systems. Perhaps, after all, the continental European welfare states are not as frozen as is generally thought (see also Taylor-Gooby 1996).

Policy change has occurred in the three countries covered by this study. Their governments, however, have used different strategies to secure the adoption of typically unpopular pension reforms. In particular, in Switzerland and on one occasion in France (1993), governments have dealt with the political difficulties associated with retrenchment by designing reform packages which included elements that had been previously demanded by key potential opponents of reform. To some extent, through the inclusion of these quid pro quos, they have managed to neutralise the effect of those veto points that exist in their political systems. In contrast, in the two other instances reviewed, the 1986 British reform and the 1995 failed attempt in France, legislation did not include similar concessions targeted on pro-welfare groups.

The long-term sustainability of current pension arrangements is one of the major issues with which advanced industrial societies will have to deal over the next few decades. The projected increase in the size of the older population, combined with a reduction in the number of workers, constitutes a significant challenge to the viability of existing pension systems, which, according to many commentators, need to be substantially reformed. While these general views are widely accepted, there is little agreement as to what the actual size of the pension problem is now and will be in future. Those who have analysed the phenomenon have reached conclusions that range from apocalyptic scenarios in which, if nothing is done, the elderly will appropriate increasing large shares of national income with massive detrimental consequences for the welfare of younger generations (World Bank 1994a; Thurow 1996), to less pessimistic ones, in which the occurrence of an increase in pension expenditure is accepted as a likely development, but it is felt that this will not constitute a major economic problem (Johnson and Falkingham 1992; European Commission 1995).

The evidence reviewed in this chapter suggests that gloomy predictions of a ‘demographic time bomb’ have little credibility. However, it seems clear that, when the baby-boomers born after World War II reach retirement age, pension expenditure will increase quite dramatically over a relatively short period of time. Most likely, this will result in a financing problem.

What is more, concern for pension scheme finances has been heightened by recent economic and political developments.

By international standards, the 1986 British pension reform constitutes one of the most radical departures from the traditional west European post-war approach to pension policy. As a consequence of this reform, British employees can now opt out of the state second-tier pension or of their occupational pension and make individual provision for their retirement through a private and personal pension. The significance of this change is twofold. On the one hand it constitutes a major shift from the state to the market in pension provision, with the implication that the redistributive function and the role of guarantor played by the former are substantially reduced. On the other hand, the introduction of the optingout clause means that fewer people are now paying into the state scheme which impairs its ability to meet existing and future pension commitments and thereby provides an incentive to the remaining employees to opt out of the state system. The impact of the 1986 Social Security Act has been substantial. Partly as a result of it, the UK is the only major industrial country which does not have a financial problem in meeting future pension commitments (see tab. 1.3). On the other hand, other problems have emerged, like the lack of adequate coverage for employees on low incomes or in intermittent employment, which personal pensions are unable to provide.

It is useful to recall that the debate and the adoption of the British reform occurred in a particular ideological and political climate.

The political dimension of the pension problem is to a very large extent a question of how the diverging preferences expressed by different groups in society will be aggregated. The ability of each individual group to influence policy will depend on a range of factors, such as its power resources, the political appeal of its cause and so forth. A crucial variable, however, is likely to be the extent to which political institutions allow non-governmental actors the opportunity to influence policy-making.

Relying mainly on the work of new-institutionalists, this chapter aims to set out a framework for understanding the paths to reform chosen by different countries. Its key independent variable is the degree of power concentration granted to governments by political institutions, although it is also pointed out that the design of pension schemes can provide powerful incentives for governments to act in given directions. Social and political variables are not totally neglected either, although the selection of cases allows us to control for most of these non-institutional variables. Prior to reform, Britain, Switzerland and France were experiencing budget deficits, and, at the time of reform, all three political systems were dominated by right-of-centre majorities committed to retrenching in the area of pensions. In all three countries, governments expected substantial increases in pension expenditure due to population ageing. Since most non-institutional variables are kept constant in the sample, the analysis of pension reform in these three countries is likely to highlight the impact of political institutions on government capabilities and on the ability of political systems to bring about and sustain policy change.

In 1990 the Australian National University's Research School of Pacific Studies convened a major conference on current conditions in Vietnam, and each year since then has held a Vietnam Update Conference. This has rapidly established itself as one of the leading international conferences of its type on contemporary Vietnam.

In engaging leading scholars to explore major policy issues relating to Vietnam, the Update Conference provides an invaluable focus for academic research, with direct spin-offs for policy development processes both in Australia and Vietnam. At the same time, it serves to inform the broader Australian community of important recent events and trends in what is an increasingly significant—and rapidly changing—regional neighbour. It also provides a unique opportunity for interchange between groups with diverse backgrounds and differing perspectives. The Update Conference enables academics, business people, public servants, aid workers and others with an interest in Vietnam to engage in wideranging and thought-provoking dialogue on political, social and economic issues of concern to both Vietnam and Australia.

From the outset, the conference organisers have encouraged the participation of scholars, commentators and officials from Vietnam. Indeed, in any one year up to half of the conference participants are Vietnamese. This effort has not only maximised the quality of the discussions at the Update Conference, but also facilitated the establishment of important and productive links between Vietnamese and Australian scholars and institutions.

Vietnam Assessment: Creating a Sound Investment Climate is an important contribution to the understanding of Vietnam's development prospects. Vietnam is confronted with critical choices about its future. The papers in this volume help chart the challenges and opportunities facing Vietnam as it continues on its path of economic transformation.

In introducing this selection of papers from the 1995 Vietnam Update Conference, I am also pleased to note the inclusion of papers from the second Vietnam Economic Research Project Workshop, an initiative of the National Centre for Development Studies.

The provision of legal services in Vietnam takes place in an environment in which both the institutional and legal frameworks are developing rapidly. The overall objective has been to achieve a complete change from bureaucratic management to running the nation according to the rule of law.

The new 1992 Constitution was specifically formulated to facilitate the transition from a centrally planned and managed economy to a more pluralistic one in which market forces would play an important role, but with a socialist orientation. Thus the new Constitution legitimised the independent operation of private firms and businesses and recognised the participation of entities other than the state in foreign investment. In addition, the government provided a measure of security to both foreign investors and Vietnamese citizens by granting title to legally held property and assuring landholders that their property would not be subject to appropriation or nationalisation without proper compensation.

The new Constitution gave impetus to the drafting of a considerable amount of new legislation required for the operation of a market-based economy. This included a Company Law, Law on Private Enterprises, Law on State Enterprises, Bankruptcy Law, Labour Code, Land Law, Tax Laws and, most recently, a Civil Code.

The process started with the Foreign Investment Law of 1987, which may be counted among the most liberal in socialist or formerly socialist countries. The thrust of legislation has been directed towards facilitating foreign investment and the better operation of the private sector so that it can sustain such a drive.

Challenges for practising foreign lawyers

Despite the new legislation, formidable difficulties still remain in operating within the legal environment in Vietnam. These appear to fall into two categories: intrinsic or conceptual difficulties on the one hand; and institutional problems that arise from these intrinsic difficulties on the other.

Intrinsic/conceptual difficulties

Lawyers practising in the commercial area in Vietnam, whether foreign or Vietnamese, have to deal with the inherent social uncertainty surrounding the mixture of law and commerce. The law, in the traditional interpretation, is an instrument of control to be used by the authorities in the proper management of society.

This volume comprises a selection of papers presented at the Sixth Vietnam Update Conference and the Second Vietnam Economic Research Workshop, both held at the Australian National University in November/December 1995. The theme of the volume is ‘creating a sound investment climate in Vietnam’. Although its economy has made a decisive turnaround this decade, Vietnam is still one of the poorest countries in the world. In terms of GDP per capita, it ranks 151st among the world's 174 countries, although, according to the UNDP's Human Development Index, it is in 121st place. Even at the current growth rate of 9.5% per annum, it will still take Vietnam 15 years to reach the standard of living presently enjoyed by Indonesia, and 28 years to reach that of Thailand.

Macroeconomic reforms and structural adjustments over the past 10 years, together with successful resource exploitation, have certainly brought impressive results, including sustained rapid growth and moderate inflation levels. However, rapid growth has also meant that most of the excess capacity in capital equipment and infrastructure created under central planning has been utilised. Continued growth of 9–10% per annum would thus require higher rates of investment than in the past. A sound investment climate is essential for the fulfilment of Vietnam's ambitions to catch up with other rapidly growing countries in the Asia–Pacific region.

Four themes emerge from the following chapters as necessary components of a sound investment climate. First, Vietnam must continue to provide a stable macroeconomic environment. Second, it must persist with its agenda for microeconomic reform. Third, there must be greater clarification of its laws, particularly in relation to property rights. In this regard, the administration of laws affects the investment climate almost as much as the laws themselves. Underpinning these three factors is the need for the political leadership to redefine its concept of the ‘leading role of the state’ to one in which the state provides the economic, legal and administrative framework for the functioning of a market economy.

Political reform that took place in Vietnam after the official endorsement in 1986 of the policy of economic renovation (doi moi) focused on two major domains. The first of these was the redistribution of power among major political institutions: the Vietnamese Communist Party (VCP), National Assembly, Presidency, cabinet government and government bureaucracy, and People's Courts. The second was reform within each political institution.

The 1992 Constitution, which replaced the Constitution of 1980, epitomised the new distribution of power. It recognised the VCP as a rather than the leading political force in the state and society. It also granted the National Assembly and its Standing Committee greater legislative power, while allocating substantial administrative and executive authority to the Offices of the Presidency and the Prime Minister. The state administrative system was a main target of reform of political institutions. This aspect of the reform touched on relations among and within government agencies, the central-local government relationship, and relations between the government bureaucracy and society. Specific measures instituted in the 1990s have included the merger and reorganisation of ministries and subministerial agencies; the simplification of administrative procedures; the strengthening of law enforcement mechanisms; and the improvement of procedures for handling citizens' complaints.

This chapter explores the VCP's reform of state institutions, focusing particularly on developments that have taken place in the 1990s. I argue that, examined from a political perspective, the reform of state administration can be interpreted as a reaction to the fragmentation and departmentalisation of the state apparatus that occurred following the disintegration of the central planning system in the 1980s. The emphasis on administrative reform signalled the VCP's intention to undercut this development through the recentralisation of the state administrative system. While this move should improve the central government's political credibility in the eyes of government officials, the Vietnamese public, and foreign donors and investors, it is also aimed at tightening the VCP's political grip on the state administrative system and regulating more closely the socioeconomic activities of Vietnamese society.

The growing share of foreign direct investment (FDI) in total net resource flows to developing countries has revived interest in the costs and benefits arising from foreign investment. The flow of FDI to developing countries in 1988 was US$19 billion; this was more than four times the total commercial lending of US$4.7 billion to these countries. By 1991, the amount had risen to US$35.9 billion. The share of FDI in total net capital flows into developing countries rose from 12% in 1987 to 37% in 1994 (UNCTAD 1995).

The strength of economic growth and stability in Southeast Asian economies over the past two decades has demonstrated that outward-looking strategies, including foreign trade and investment policies, contribute to strong economic performance. FDI generates much-needed capital inflows and other substantial benefits, including the transfer of technology and labour skills, better use of idle resources and improved access to export markets. Developing countries now not only encourage FDI, but actively compete for it by removing regulations and offering incentives to foreign firms.

Recognising the important role that FDI can play in developing a viable economy, the Vietnamese government promulgated a new Foreign Investment Law in 1987. It has since taken other steps to create a more attractive environment for foreign investment. In 1990, the law was amended to permit economic organisations in the private sector to engage in direct cooperation and investment with foreign organisations and individuals. It was amended again in December 1992 to create a more competitive environment for attracting foreign investment. In the eight years since the implementation of the Foreign Investment Law, capital inflows have increased significantly.

Vietnam's foreign investment policy

Investment incentives granted by host governments to foreign investors can be effective in influencing the location choices of foreign firms (Guisinger 1985). In this section, I compare Vietnam's foreign investment policies with those of other Asian developing countries, particularly Indonesia, considered to be a major competitor (Cuong 1993).