the monopolistic state enterprises, the share of the private sector has been declining in these years because the monetary restraint in 1989 and the drastic reduction of assistance from the CMEA countries in 1990 affected the private sector much more seriously, since it has a disadvantage in size and equipment compared to the state sector, which has easy access to direct/indirect subsidies from the government. Thus the increase of state share does not necessarily mean the improvement of efficiency in the state sector.

Charts 2-V-6 and 7 show the production share and the labor share by sectors. The private sector is dominant in food, forestry products, and other areas, while the state sector occupies a large share in electricity, fuel, metallurgy, etc. In general, the share of the private sector in labor is larger than that in production, indicating the lower labor productivity of the private sector. This is more clearly illustrated in Table 2-V-6. The labor productivity (production/worker) of central and local state enterprises surpasses that of non-state enterprises by six and three times, respectively. This can be attributed to the gap in their size and equipment. Measuring the size of the enterprises by the number of workers per enterprise, local state enterprises are forty five times larger, and the central state enterprises are nearly two hundred times larger than the non-state enterprises.

The government’s intention to reduce employment in the state sector is reflected in Chart 2-V-8 and Table 2-V-7. The number of state enterprises has also decreased (see Chart 2-V-9). As a consequence employment in the private sector has increased. Considering the lower labor productivity in the private sector, this movement of labor into the private sector has brought down the productivity of the overall economy.

While labor productivity of the state sector is higher than that of the private sector, it is observed that the capital productivity of the state sector is lower than that of the private sector. The state sector accounted for 48.6 percent of the total investment in 1989 while it produced only 21.6 percent of the gross social products in the same year. $ ^{[11]} $ Thus, concentration of credit to the state sector and the remaining low-interest subsidiary loans to state enterprises implies inefficiency in credit allocation. The total productivity of the Vietnamese economy would largely improve if these credits went to the private sector, where capital equipment is poor and thus even small increases in available capital would bring about a large increase in production.

Thus, we can conclude that the movement of production factors in Vietnam — both labor and capital -- has had inverse effects on the productivity of the Vietnamese economy. Although it is justifiable to some extent that the government reduces state employees and gives subsidiary credit to state enterprises from the viewpoint of the improvement of the fiscal balance and of the stability of the economy, the government also should take into consideration the effects on the productivity of the economy when implementing economic policies. If a reduction of state-sector employees is an indispensable agenda in the state enterprise reform, the government should try to improve the labor productivity of the private sector by encouraging capital flow into the private sector.

## 2 -5 Agricultural Sector Reform

Agriculture is an important industry in Vietnam. It occupies about 70 percent of the labor structure and about 40 percent of total production (see Chart 2-V-10 and 11). Cooperatives