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Sunday
Jun152008

Capitalism's reverse domino effect in Vietnam

The Economist magazine recently published a special report on Vietnam. It's a fascinating story of how a closed political system rapidly opened itself up to globalization's transformative embrace by mixing role models from all over the globe, including accepting outside religious influences.

Call it the reverse domino effect: Vietnam goes super-capitalist to keep up with its northern neighbor - uber-capitalist China. And, with incomes rising rapidly, Vietnamese naturally reach for spiritual handholds to guide their tumultuous journey from extreme deprivation to abundant opportunity.

By copying Deng Xiaoping's reform of Chinese agriculture, Vietnam transformed itself from being unable to feed its 85 million citizens into a global farm-produce powerhouse. While the nation still draws foreign aid, the truth is, it soon won't need any. Instead, Vietnam now attracts larger annual flows of foreign direct investment.

This is a huge economic achievement, shifting the country from the status of "less developed country" to "low cost country." Thanks to rising agricultural productivity, the countryside's displaced farmers are driven into growing cities, where such cheap labor can be effectively exploited by foreign multinationals, which - on average - pay wages 40 percent higher than local employers can muster on their own.

A key tipping point in this process occurred when America's Intel corporation decided to plant a billion-dollar microchip factory outside the capital city of Hanoi, presumably sending the country's founding father spinning in his crystal sarcophagus grave still on display there. If Andy Grove's competitively "paranoid" company felt comfortable enough to plop down that much money, clearly Vietnam had turned a corner.

As The Economist reports, "When the UN Conference on Trade and Development asked multinationals where they planned to invest this year and next, Vietnam, at number six, was the only South-East Asian country in the top ten." Thanks to its banker-like embrace of free enterprise, free trade and sensible state finances, Vietnam's communist party leadership now aims to preside over a modern industrial nation within a dozen years.

Can the party maintain its dictatorship by ruling, according to the Economist's oxymoronic phrase, as "ardently capitalist communists"?

By combining a European-style welfare state with Deng's market socialism, Vietnam's single-party state seeks to emulate Singapore's People's Action Party, the Lee Kwan Yew-dominated technocracy that's ruled the city-state for decades by delivering social stability along with rising incomes.

But with Vietnam becoming one of Asia's hottest tourist destinations and Hanoi eschewing China's "great firewall" approach on Internet connectivity, it strains credulity to think that this huge population can long be kept on the same short political leash as tiny Singapore. In the early 1990s, Vietnam had roughly 12,000 state-owned firms. By 2010, only 500 will still remain in defense and other sensitive industries.

With so many private companies springing up since the government began recognizing their legal status in 2000, the country's latent entrepreneurialism has, in the words of the Economist, "burst back into life." And with educated expatriate Vietnamese returning home in recent years, Hanoi's rulers will inevitably face a far more demanding citizenry in coming years.

Here's where Vietnam's rising religiosity poses an intriguing model. Cao Dai, Vietnam's homegrown religion, mixes together bits of Buddhism, Taoism, Christianity and Islam into what it describes as the "one same truth." This sort of mushy, nondenominationalism is perfect for turbo-charging future market development: by remaining so amorphous and flexible, it can adapt to the population's increasingly diverse needs, setting a powerful example for the government.

I know it must seem crazy, three decades after a divisive war that still shapes American politics, to be talking about rising religious freedom and market economics in communist Vietnam, but it's worth noting as Americans continue debating whether we're "losing" Iraq and Afghanistan.

You can't lose what you never really owned, and in these tumultuous times, you take your role models where you find them.

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