Saturday, April 7, 2012

Vietnam Won the War – Won the Peace – And Is Now Trying to Lose the Economy

Didn’t They Get the Memo – Communism Doesn’t Work

The history of the United States and Vietnam is about as interesting and unusual and strange as the history between any two countries can be.  Ho Chi Minh was educated in the United States and went home to fight a war of independence against the French.  The U. S. did not intervene to save France from defeat and the country was partitioned.  We then tried to keep the two parts of the country separate, and failed. 

Ultimately the U. S. reconciled with Vietnam, and it has become a trade partner of the U. S.  Also, the country is in a dispute with China over the South China Sea and wants to enlist the United States to be on its side.  Finally, in recent years the country has opened itself up to foreign investment and because of that has had strong economic success.

Now the country is moving back to its olds ways, i.e. Communism which if history has taught us anything is about as bad an economic system as can be imagined.  China has largely discarded Communism, and has adopted a quasi socialist economic regime, with private enterprise controlling a larger and larger part of the economy, and state owned businesses operating the rest, but acting  much like privately owned businesses.



So if Vietnam is reverting to the old discarded ways, one would expect that its economy would suffer, and so it is.


The most immediate concern is inflation, which last year rose to above 20% for the second time in three years (see chart). Vietnam now has Asia’s highest inflation rate, a fact that government censors have asked local journalists to stop reporting. Thousands of businesses have gone bankrupt, property prices have collapsed and banks and state-owned enterprises (SOEs) are riddled with bad debts.

The cause of the problem, the state owned companies that operate like everyone expects state owned companies to operate, regardless of the economic system.

Everyone, even communist leaders, agrees on the main reasons for the slowdown. The poorly run, corrupt and wasteful SOEs, which account for about 40% of output, weigh the economy down.

So once again government is failing the people.

Even if there were a change of mind at the top, it would still be difficult for leaders to implement change throughout the system. Power in Vietnam is more dispersed than in neighbouring China, and vested interests in business and politics are bigger obstacles to change. Moreover, whereas China’s Communist Party has had some success in reinventing itself as an Ivy League-style networking club for the elite, its comrades in Vietnam appear stuck in the past. The legitimacy won by military victories more than a generation ago is fading into distant memory, and Vietnamese leaders’ claim to economic competence is increasingly difficult to sustain.

And once again another country has to learn a painful lesson.  Regulated capitalism is about the best anyone can do for an economic system that produces higher income and growth.  Too much regulation and you get what Vietnam will experience, too little and you get what the U. S. will experience if Conservatives implement their policies.  

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