The Rushford Report Archives
25 Years On: Vietnam at a Crossroads

04/10/2000
The Asian Wall Street Journal

By Greg Rushford


HANOI -- How many communists does it take to collect a toll? Three: If you take the toll road that runs downtown from To Noi Bai airport here, there is one apparatchik who collects your money, another to stamp the ticket, a third to supervise. And have you heard the one about the professor of Marxist-Leninist economics in Saigon (renamed Ho Chi Minh City in 1975, in honor of its "liberator") who sends her daughter to pursue a degree in business administration in the United States? Don't laugh. Many a son and daughter of the Communist Party elite have been educated in either the former colonial master, France, or the former enemy, America. As for the toll takers, well, the state has many mouths to feed -- a task it has performed dismally.Vietnam is today at a crossroads.

After 25 years of communism, more than one-third of all Vietnamese little girls and boys, age five and under, have stunted growth because of malnutrition, the World Bank reports. Vietnam, with an annual per capita income of around $300, is one of the poorest countries in the world. Uncle Ho may have won the war, but his successors have not yet won the peace.

So, which road to take, that of Adam Smith or Karl Marx? You'd think that would be obvious. The evidence that communist economics are what is holding Vietnam back is already in. When Vietnam launched its doi moi economic reforms in the late 1980s -- very tentative market-oriented liberalizations -- millions of Vietnamese entrepreneurs immediately displayed their renowned resourcefulness. Vietnam's annual economic growth shot up like bamboo shoots, to more than 8% a year. Investors, seeing the next Asian tiger, rushed in.

But Vietnam's leaders got cold feet in the mid-1990s, and backed off the reform process. Predictably, annual economic growth immediately plunged by about half to near 4%. Investors rushed elsewhere: Foreign investment, which had been running at more than $2 billion annually from 1995-97, plummeted to about $600 million a year.

The bottom line: Vietnam will never defeat poverty as long as its economic system stifles the creative energies of its citizens. Investors will return only when the government demonstrates the necessary seriousness of purpose to convince prudent executives to put their money at risk.
If its economic fundamentals were put on sound footing, this country would quickly get rich. This is because Vietnam's greatest natural resource is its people, who are blessed in energy, intelligence, and possess a proud culture. Just visit Saigon's central market. What a wonderful place. You can see the vitality, the drive, the friendly and frenetic energy in the eyes of the entrepreneurs.
Yet while Vietnamese society may not be naturally inclined to communism, the Communist Party runs the country. And like all communist parties, officials think in terms of controlling their people, not empowering them. For instance, while the formerly culturally isolated Hanoi now boasts several Internet cafes, authorities here are in the habit of blocking their citizens' access to politically incorrect websites through "firewalls." This is a killer for business. Vietnam is a country where access to accurate market data is already notoriously difficult. These firewalls ensure that Vietnamese businessmen are ignorant of information that is easily available to their competitors in Singapore or Bangkok.

You need permission here to conduct any purposeful economic activity. Every one of those two million Mom-and-Pop operations you see -- the "micro enterprises" that drive economic growth -- is supposed to have a piece of paper giving them permission to do business. The same kind of noodle shop down the street might have a different set of papers. It is a criminal offense not to have some official piece of paper allowing one to do business.Getting your permission slip to begin an enterprise is only the first step. Say you want to run a bus service between Hanoi and Haiphong. You will get to know many bureaucrats from many government agencies. These people will -- for a price -- give you pieces of paper showing that you have permission to drive the buses, to use the terminal, to collect tickets, to use the public-address system, and perhaps 20 more permissions.

Consumer credit? Hah. Instead of GE Capital or GMAC, Vietnam has loansharking. The state bank forbids loans guaranteed only by salaries. The idea was to "protect" workers' earnings. But as workers understandably resented the nannyism, there are plans afoot to give consumer loans to people who can demonstrate that they have a "viable and profitable" investment or business. If you don't own your own profitable company and want a new refrigerator or motorbike, better find a loanshark.Foreign investors have their own special miseries. You can manufacture your widgets in Vietnam, but you aren't allowed to set up your own retail network to distribute them. For that, you have to find a local (inefficient) partner.

As for project finance, try financing a factory when you aren't allowed to borrow against the land your building sits on, something investors in other countries take for granted. Vietnam has every traditional protectionist scheme in the book: high tariffs and taxes, special export taxes, all sorts of licenses, plus the additional communist nasties like state-owned enterprises that suck up already scarce credit and leave banks saddled with bad loans. As a recent World Bank report candidly puts it, if the government here doesn't soon show that it is serious about cleaning up its cluttered economic house, Vietnam "faces the possibility of becoming one of the slower performers in the region."

The good news is that Vietnam's leaders understand this, at least in an intellectual sense. Due to an "enterprise law" that went into effect on Jan. 1, for example, businesses will no longer be forced to obtain approval from a dozen bureaucratic desks to get launched -- if the law is implemented, which is a big if. The leaders talk the free-market talk, but they are walking slowly.
Last year, Vietnam negotiated a liberalizing trade accord with the United States. Hanoi is still sitting on it. Another year's hopes for increasing prosperity dashed.

U.S. Ambassador Pete Peterson, a former prisoner of war who has become a huge booster of Vietnam's potential, uses a basketball metaphor to express his frustration over the slow pace of reform. Vietnam has learned to dribble, to pass and shoot, says Mr. Peterson. "But they haven't even gotten out on the floor yet." When they do -- and this country has too much of what economists call "human capital" to be a laggard forever -- the world will see some truly impressive economic slam dunks.


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