CAMBRIDGE, England — When Vietnam set out on the path of economic liberalization in the early 1990s, everyone expected another Asian miracle, Chinese-style. The liberalization program adopted by the country, known as Doi Moi, was expected to bring about the same radical reforms of economic policy that had achieved so much in China. Many of the ideas of Doi Moi were borrowed from the program adopted north of the border by Chinese leader Deng Xiaoping. However, while Deng was able to bring the “Old Immortals” on board in China by persuading them that, to survive in the long run, the Communist Party had to adopt capitalist practices, Vietnam had no leader similarly capable of bringing the anticapitalist brigade on board.

The relative failure of the Vietnamese economic experiment can be measured in many ways. Its lack of success is illustrated by the World Bank’s estimates that today “around 30 million people (37 percent of Vietnam’s population) live in poverty, around 25 million (60 percent of the labor force) are underemployed or unemployed and around 1 million people are added to the workforce each year.”

The excitement of the early years of Doi Moi has gone. In those years, foreign investors tripped over each other trying to get a piece of the action. Now they trip over each other on the way out. Five-star hotels built in Hanoi in the heady days of optimism for the expected hordes of foreign investors are mostly empty, or half-filled with low-spending tourists and honeymoon couples. Foreign direct investment fell from an average of around $2 billion a year over the period 1995 – 1997 to less than $500 million in 2000. What went wrong?

Basically, the leaders of the Communist Party of Vietnam were not prepared to accept the full-reform strategy needed to turn the economy around in the way that China’s was in the 1980s and even more so in the 1990s.

The private sector was not given the same degree of freedom as in China; legal protection for private investors (local and foreign) has not developed to the same extent; the experiments with alternative forms of public and collective ownership that were so successful in China have not been tried; and the old Russian-style state-owned enterprises and their managers remain unreformed and unreconstructed.

Such experiments that have been tried, such as export-processing zones and industrial estates, have largely turned out to be white elephants. Plans for a Chinese-style special economic zone have been tossed around for years without reaching the ground. And corrupt officials and their cronies in the black markets have captured many of the benefits of such modernization as has taken place.

This year sees the beginning of the implementation of a highly ambitious 10-year program known as the Socioeconomic Development Strategy. To turn the economy around so that it can make an appreciable impact on per capita income is admitted in the strategy to be a mammoth task. FDI would have to get back up to $2 trillion a year in real terms in each of the 10 years. Domestic private-sector investment would have to almost double from its current share of 7 percent of GDP to around 11 to 13 percent.

The World Bank estimates that the private sector’s contribution to value added in the industrial sector would have to double or even treble from its current 9 percent annual growth rate if the strategy’s target of 10 percent growth of industry is to be achieved. The government is pinning its hopes on the industrial sector providing the foundation for the 6 percent annual growth in GDP it regards as necessary to produce the social and, hence, political stability needed to maintain its hold on power.

So, as in China, some leaders of the Communist Party now recognize that the party’s survival depends on encouraging the private sector to develop a capitalist mode of production.

Those leaders of the Communist Party who have recognized the need to do a deal with the “devil” of private capitalism have not been in positions of power in Vietnam so far. This explains the relatively slow progress of essential reforms compared to China. Many people had written off Vietnam as a potential new Asian little dragon. Certainly under the leadership of Party General Secretary Le Kha Phieu this attitude has been justified. Once a political commissar in the army, Phieu has effectively blocked all meaningful economic reforms since he came to power in 1997.

In recent months, the Vietnamese government has signed agreements with the IMF and World Bank that would introduce many of the policy reforms needed to make the dreams of the Socioeconomic Development Strategy a meaningful, realizable program. Nobody was taking those agreements too seriously until last week. We have been there before. Last week, however, the political scenario changed, dramatically.

In its concluding stages, the recent Communist Party Congress appointed a new general secretary: Non Duc Manh. Manh, the first member of an ethnic minority to hold such a high position in Vietnam, is expected to be a mold-breaker. As leader of the National Assembly, he has come to represent the forces of reform and modernization over the last few years. Now he has the power to go with the ideas.

Maybe those who financed the five-star hotels will start seeing them fill up again with foreign investors and the restaurants, bars and nightclubs with local entrepreneurs. Without them, Manh, for all his forward thinking, will be stranded.

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