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Wednesday, July 7, 2010

Free Markets Blossom in Vietnam

Private Businesses Clog the Sidewalks of Vietnam's Major Cities

Americans think of the Vietnam War as the first armed conflict in our history that we lost. Tanks and troops from the communist North captured the South’s capital of Saigon on April 30, 1975, renamed it Ho Chi Minh City, and ended decades of war. Who can forget the scenes of the last frenzied evacuation of Americans and Vietnamese by helicopter from atop the U.S. embassy just hours before?

In a military sense, the communists achieved their primary goal of subjugating the South and uniting the two sections of Vietnam under one flag. But nearly 30 years later, Karl Marx wouldn’t recognize the place, and neither would Ho Chi Minh and his comrades whose dream was to fashion a unified Vietnam into a model of socialism. In many ways, the country’s economy is getting more free by the day.

The outlines of this story follow a pattern now almost monotonously familiar. Marxists come to power and promise a socialist paradise. They collectivize, nationalize, and terrorize. Central planning, they promise, will replace the “chaos” of the marketplace. In no time at all, everything falls apart. Another nation is added to the mournful heap of countless socialist flops. In their quixotic attempts to create omelets of society, statists of all stripes never produce much more than a lot of broken eggs. (See my “Where Are the Omelets?” The Freeman, October 1999, nid=4443.) Sooner or later, they or their successors resort to the market to rescue them. It turns out that of all the bombs dropped on Indochina since the war with the French colonialists in the early 1950s, socialism may have done the most damage.

It’s a pattern that reminds me of the wise advice of the French economist and statesman, Frederic Bastiat: “And now that the legislators and do-gooders have so futilely inflicted so many systems upon society, may they finally end where they should have begun: May they reject all systems, and try liberty.”

Since 1986, Vietnam has been trying liberty, or at least a notable dose of it. The Communist Party still imposes a political monopoly, but for the past 18 years it has been beating an economic path to free enterprise. It abolished price controls, legalized private property, sold off many state-owned enterprises, and encouraged free-market entrepreneurship. Labeled “Doi Moi” (meaning “new changes”), Hanoi’s program for revitalizing a moribund socialist economy by de-socializing it is clearly working. In February I saw it firsthand during a factfinding visit to Hanoi and Ho Chi Minh City arranged by the Virginia-based Atlas Economic Research Foundation.

Private businesses clog the sidewalks of Vietnam’s major cities. By some estimates, the private-sector contribution represents as much as 70 percent of GDP and 91 percent of total employment. When over a hundred different business licenses were abolished in 2000, more than 10,000 new companies were registered within months.

Vietnamese are starting businesses not just in city storefronts, but also in their homes. From 1990 to 1999 private household enterprises increased from about 800,000 to 2.5 million. At the same time, hundreds of state-owned enterprises, big and small, have been shut down or privatized. With numbers like this, the country’s formal name — the Socialist Republic of Vietnam — may be overdue for a makeover.

Downtown Hanoi even boasts a three-story luxury shopping mall, and the people shopping in it are not predominately foreigners. Overwhelmingly, they are native Vietnamese whose incomes have soared as the reforms have taken hold.

In the 1990s Vietnam’s economic growth averaged nearly 8 percent per year, astronomical by any economist’s measure. An agreement between the United States and Vietnam took effect in December 2001 that promises a blossoming of trade between the two countries and continued high growth rates for Vietnam. U.S. tariffs on Vietnamese products were sliced from an average 40 percent to an average 3 percent, and Hanoi committed itself to aggressive measures to further open its economy to foreign investment. Goods aren’t the only thing that’s moving more these days. Vietnamese citizens enjoy a freedom to travel abroad that was unthinkable 20 years ago.

Free-Market Teaching

Hanoi’s National Economics University is teaching thousands of students about the market economy and the transition from central planning to free markets. One of its lecturers, a staunch disciple of Nobel laureate and Austrian free-market economist F. A. Hayek, told me that among young people, there is “great interest and excitement” about what free markets can accomplish for Vietnam in the future. Perhaps some day soon, Vietnam will have its own free-market organization. Imagine that. A FEE in Hanoi!

Of all the palpable signs of transition and progress, perhaps none captures the changes and the new spirit of Vietnam better than the stock exchange in Ho Chi Minh City, which opened in July 2000. It wasn’t in Uncle Ho’s original plan, but unlike him (he died in 1969), public trading in stocks is alive and well in the city that bears his name. I visited the exchange and met one of its staff members there.

The stocks of some two dozen Vietnamese companies are now traded by an automated order-driven system (similar to NASDAQ). The largest of them is a company that produces air-conditioning equipment. Two dozen listed firms may not sound like much, but plans for a significant expansion are underway. The Securities Trading Center is conducting educational seminars around the country to acquaint citizens with the concept of stock ownership and to encourage private entrepreneurs to register their companies for listing on the exchange. When I asked the exchange staff why an ostensibly socialist government allowed such an icon of capitalism to open, she replied, “Capital formation and business growth. The government recognized that a stock market was necessary for both.”

It would be easy to overstate what’s happening in Vietnam. The country still has deep-seated economic problems, and vestiges of socialism abound. Corruption and cronyism are hampering the reform effort. The same one-party state that has granted considerable economic liberties could take them back. Indeed, some of the people I wanted to quote by name asked me not to, fearing the unwanted attention it might bring them from the regime. But the sense one gets from talking to Vietnamese is that change is not only in the air, it’s also putting down ever-deeper roots. More than a few told me that while it’s likely there will be occasional setbacks, hardly anyone has the stomach for a return to the days when central planners ran everything and ran it all into the ground.

Good morning, Vietnam!

  • Lawrence W. Reed is FEE's President Emeritus, having previously served for nearly 11 years as FEE’s president (2008-2019). He is also FEE's Humphreys Family Senior Fellow and Ron Manners Global Ambassador for Liberty. His Facebook page is here and his personal website is