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institutional framework in addressing the challenges faced in mountainous regions, namely the need to alleviate poverty and enhance food security, to promote agricul- tural growth while ensuring environmental sustainability, and by doing so, guarantee the welfare of future generations. This section discusses successively the results rela- tive to the combination of the state, market and communities in the uplands and its implication for sustainable development, and those relative to the political economy of mountainous areas in Vietnam. It also derives main policy recommendations.

The four research chapters of this thesis provide insights into how the state, mar- kets and communities interplay in the uplands and affect rural economic lives. As put by Hayami(2001, p.318), “How to combine community, market and state in the

economic system is probably the most important agenda in development economics”.

The combination of the three organizations determines the institutional framework and the resulting incentive structure in the economy, and, by such, affects resource allocation, farmers behavior towards resource use, and has a strong impact on the sustainable development of the region. Research on land institutions shows that the state seeks to maintain control over land use and allocation and was able through strong enforcement to impose its law on communities and thereby weaken customary practices. The land market, on the other hand, does not function well presumably because of interferences with the state and the resulting uncertainties. The interplay between the state and the market on the rural credit sector has been discussed in detail in Chapter 5. In this sector, the intervention of the state prevents the estab- lishment of independent formal lenders and thus the development of a competitive formal sector which could improve the functioning of the market, by fostering institu- tional innovations and improving credit access of poor households. Yet, as the results show, the informal sector has well-developed and competes to some extent with both

7.2. Discussion of research findings and policy implications 136

state-owned lenders. This demonstrates that conditions for the establishment of a competitive market are good in the area.

The strong enforcement and action capacities of the state are certainly strength. This has enabled the state to deeply transform the economy, increase its efficiency, and reduce poverty throughout the country (cf. introductory chapter). In comparison, the weakness of the state is perceived in many developing countries such as in Africa as a major problem. Yet, these successes come at the cost of important inefficiencies. First, inefficiencies, in terms of poverty, are linked to low poverty outreach of formal banks and the weakness of the land market that disadvantage young generations. These inefficiencies also affect the rural economy. The micro-credits are not used to finance profitable activities, but permit instead well-off households to purchase durables. The absence of a land market also creates efficiency losses, by preventing the transfer of land from less productive to more productive farmers, and by causing young farmers to migrate. Finally, these inefficiencies hamper environmental sustainability, due to low incentives for conservation investments that the institutional framework creates. State interventions such as the rural credit policy are very costly, and do not yield intended impacts.

The state so far does not seem to attach much importance to the power of incentive- based mechanisms that can arise from the development of competitive markets, but shows its intention to keep control over land use and agricultural development in the region. Beyond economic motives, the objective is to maintain political stability in the area, limit discontent among ethnic minorities, and keep control over populations that have already opposed the state in the past1.

The land use policy of the government translates well the low trust of the state in incentive-based mechanisms. Likewise, its response to soil degradation and related environment issues in Yen Chau has been to enforce the establishment of rubber plan- tations in the area, against farmers’ will2_{. Yet, as shown in Chapter3, the clarification} of the land law and a greater transparency in the state’s objectives could eliminate suspicions regarding future reallocation and enhance the adoption of long-term conser- vation technologies, at a lower cost. Experience elsewhere has shown that establishing markets for environmental services is possible through the implementation of Payment for Environmental Services (PES) mechanisms. These mechanisms create incentives

1_{Some ethnic groups, including H’Mong and some Thai subgroups joined the war against the}

Vietminh, on the side of the French (1950-1954) or the Americans (1962-1975). As explained by

McElwee(2004) opposition of ethnic minorities to state policy have been frequent during past decades and still take place. In May 2011, thousands ethnic H’Mong people marched in the street of Dien Bien Phu (located next to Son La, further west) to claim a greater autonomy. The demonstration was rapidly quashed by military intervention. The event was so rare that is was relayed by international media, see http://www.bbc.co.uk/news/world-asia-pacific-13284122 or http://www.nytimes. com/2011/05/06/world/asia/06briefs-Vietnam.html– last accessed on October 25, 2011.

2

Several village in Yen Chau have been targeted to establish these plantations. This measure has met a strong opposition from the locals. In some cases, the police had to intervene and force farmers to plant the seedlings.

for land users (the suppliers of environmental services) to undertake conservation costs which are covered by identified beneficiaries (‘buyers’ of environmental services)

(Engel et al.,2008).

Thus one recommendation of this thesis concludes to is for the state to reinforce and/or develop institutions that support the functioning of incentive-based mecha- nisms in the area. Results show that the socio-economic conditions enabling good functioning of markets and related incentive structure are quite good in the area. Greater transparency and credibility of the state is needed to achieve objectives of the land reform. The opening of the rural finance sector to independent actors (such as NGOs, or other independent MFI) would enhance the functioning of the market, par- ticularly for the poor, and free the state from unnecessary expenditure. Reinforcing the legal system in addition would enable the informal sector to function better. The implementation of PES mechanisms, for instance in watersheds, between upland and lowland farmers, could help to address environmental issues in the area3.

One main source of success of the current framework is to be found in the intri- cate web of political and non political organizations that exist in mountainous regions enabling a rich social life, and allowing the government to reach even the most re- mote areas through policies. This web is due first to legacies from the collectivization period during which rural life was organized by and around cooperatives. The Mass Organizations which play an essential role in conveying state policy and in farmers’ everyday life are directly inherited from that period. The sense of collectivism is also strongly anchored in the Vietnamese culture4. The historical and anthropological lit- erature highlights that this sense of ‘collectivism’ existed before the collectivization period, and has been ‘instrumented’ by the communist regime to impose the col- lectivist system (Jamieson,1993, pp.217,256-257; Bergeret, 2003, p.30-33; Kerkvliet, 2005, p.39)5.

The Mass Organization system enables the state to implement policies in remote areas but also permits a vertical circulation of information from the state to the grass- roots and vice-versa, enabling the government to test and adjust policies based on feedback from the field. The book ofKerkvliet (2005) shows concretely how lowland villages, through everyday politics have influenced national policy at the time of decol- lectivization. Hence, this model also empowers rural citizens. Yet, mountain people

3

A study bySchad et al.(2011) studies the institutional system at place when a flood occurs in Yen Chau. It notably analyzes how this system affects farmers’ perception of the event and their incentives to undertake preventive measure against floods (through soil conservation technologies for instance). Results show that the current system may not provide the right incentives to farmers, as responsibilities during flood management are not assigned relative to the role of actors in flooding, but follow hierarchical administrative structures.

4

SeeMarr(2000) andThem(2006) for discussions of the notion of ‘collectivism’ and ‘individual- ism’ in Vietnamese culture.

5

To these authors, this trait of the Vietnamese culture also explains why the regime has met little opposition during its implementation and persisted so long in Vietnam’s rural areas.

7.2. Discussion of research findings and policy implications 138

and ethnic minorities, due to their minority status, remain politically marginalized and their voices are unlikely to weigh in the political debate. The literature highlights the complex political relationships between the state and minority groups6.

The density of these social relationships also benefits the local economy, by reduc- ing transaction costs through good levels of information circulation and the resulting high levels of trust7. Although this relation is not tested empirically (because of the lack of variability in the data), this partly explains in the view of the author and in view of the literature highlighting the role of social capital on the functioning of finan- cial markets (Zeller,1998;Dufhues et al.,2011), the good performance of the informal credit sector. As highlighted in Chapter5, the difficulties experienced by formal in- stitution in increasing their market share is explained by their own inefficiencies, but is also due to the presence of a vibrant informal sector.

This thesis has also investigated factors that enhance the formation of social cap- ital, by studying the determinants of two important of its facets, namely the partici- pation of citizens in local organizations and the formation of financial social networks. The empirical literature, as highlighted in Chapter 6 remains very scarce on this is- sue, and it is one important contribution of this thesis to provide evidence on this issue. Results show that the ability (or willingness) of people to interact socially and form social networks does not result from innate and given factors such as ethnicity and identity, but is also enhanced by the institutional and policy framework. Ethnic heterogeneity in addition is found to induce dynamism in these social relations, which contrasts with the ‘conservatism’ of homogeneous communities. The policy message delivered by these findings is not to be found in the resettlement policies conducted in Vietnam and elsewhere in South East Asia that have induced potentially large neg- ative human and cultural consequences, but rather in the positive consequences that social interactions among people of different cultures can generate for the economy. Policies aimed at promoting social interactions, and by such favoring bridging con- nections among people of diverse cultural and social backgrounds may yield positive spillover effects in the economy.

One other recommendation is for Vietnam to support the emerging civil society in the mountains, to help it to organize politically and raise its voice. This will help the government to adapt policies to mountainous contexts, to better address its challenges, and to enhance sustainable development in the region. These measures may come as a complement to current policies, notably those aimed at providing safety

6_{See for instanceMcElwee(2004);Michaud(2000,2009);Friederichsen and Neef(2010).} 7

As can be seen in the round 1 questionnaire in the Appendix (questions 6.4.3a to d, p.15) respondents level of trust was measured and this data has been analyzed by the others. The data shows very high level of trust, less than 3% of respondents answered negatively to these trust related questions. These questions were adapted from the integrated questionnaire on social capital developed by the World Bank (Grootaert et al.,2002)

nets and reducing poverty in the areas. Horizontal inequalities8_{between the Kinh and} other ethnic groups remains a pressing issue in Vietnam (Minot et al., 2003;van de

Walle and Gunewardena,2001; Baulch et al.,2007). As two recent reports from the

World Bank have shown, Vietnam is making progress in this direction, by enhancing the functioning of the state and integrating young and qualified individuals in the direction of the party, and by supporting the emergence of an independent civil society in the country (World Bank,2009,2004). These efforts will hopefully be pursued in mountainous regions and among ethnic minorities. The creation of the Committee for Ethnic Minorities (CEM, former Committee for Ethnic Minorities and Mountainous Areas (CEMMA)) in 1993, a group aimed at representing the voice of ethnic minorities among public authorities, and its empowerment in 2008, demonstrates good intention in this direction, even though observers judge its action as inefficient (Baulch et al.,

2007)9.