American involvement in Vietnam, part II: prospects for U.S. business in a new era

Business Horizons, March-April, 1995 by Clifford J. Shultz, II, William J. Ardrey, IV, Anthony Pecotich

ECONOMIC TRANSFORMATION

Vietnam would not be such a promising market, of course, had not the Vietnamese government restructured the political and economic foundation of the country. The most fundamental changes occurred in 1986, when the Seventh Party Congress implemented a policy referred to simply as doi moi, which loosely translates into "economic renovation" or "change for the new." This policy change included market-determined pricing and a tolerance for free enterprise. Results were striking and immediate as a private sector blossomed and foreign investors flocked to Hanoi and Ho Chi Minh City (HCMC, formerly Saigon). Yet for all Vietnam's progress and promise, the nation continues its three-steps-forward, two-steps-backward transformation called market socialism--a free market economy under the aegis of communist party leadership.

Any discussion about buying, selling, and doing business in Vietnam must bear in mind that Vietnam has been, and will continue to be, an authoritarian, single-party state. Although the economy continues to evolve as the country borrows administrative practices from Singapore, China, and other Asian economic models, support for economic reforms is not universal within the government. The present government continues to be led by the Communist Party of Vietnam (CPV), which intends to stay in power by ensuring that senior positions in government are held by party members.

In a sense, reform was forced upon the communists. Unlike neighboring China, where economic liberalization has enjoyed the unqualified support of both the senior leadership, headed by Deng Xiaoping, and a reformist faction that has kept the new economy marching forward since 1978, reform in Vietnam is supported by ambivalent factions within the CPV. Conservatives know that macroeconomic prosperity is by no means the only outcome of reform policies. These policies have also changed the face of Vietnamese society, and threaten to bring even greater social change, corruption, a widening gap between rich and poor, Western ideas on individual rights, and cries for political freedom that are imported along with investment capital and technology.

Despite the potential threats of "social depravity" and "cultural imperialism," doi moi was seen by the CPV as the only answer to Vietnam's desperate economic situation. To stay in power after years of deprivation, the Vietnamese government had to deliver greater prosperity. But the CPV continues to pepper progressive laws with party rhetoric, so the central leadership in Hanoi remains divided to this day between hard-liners and reformers. Such division could permit the CPV to impede reforms despite the accelerating momentum of the reform movement.

By maintaining many inefficient socialist principles, the central government actually empowers local governments with deciding which line to pursue, conservative or reformist. In the absence of clear guidelines from the central government and the ruling party, local officials will be inclined to exert greater control over the economic development of their regions. American businesses hoping to initiate enterprises may find they will have to receive approval first from Hanoi, then from local governments whose officials will need to be convinced of the benefits of having a new American business in town. All this is despite recent efforts by the Vietnamese government to streamline the approval process for startup operations. In one of the poorest countries in Asia, this opens the system to more corruption and the danger of "foot-dragging" by conservatives in Hanoi at a time when a detailed law on foreign investment, a blueprint for a modern banking system, and rational codified tax policies are long overdue.