U.S. News & World Report

Vietnam

Beset by hunger and hyperinflation, Vietnam suddenly discovers capitalism, turning Ho Chi Minh's Communism on its head

Every three months, a Soviet expert carefully adjusts the embalmed corpse of Ho Chi Minh, laid out for public worship in a marble, Soviet-built mausoleum in Hanoi. Like so many other symbols of socialist solidarity, the service is probably obsolete: With his revolution corroding day by day, Ho may already be spinning in his grave.

Although Communist party boss Nguyen Van Linh continues to insist that Marxism-Leninism is "the intellectual quintessence of mankind," Vietnam today is a hotbed of primitive capitalism. Everyone from unemployed soldiers to civil servants is getting into the act. Government press officers in Saigon have started an ingenious moonlighting operation, for instance. When government cars and guest houses are not being used for foreign visitors, officials rent them out for weddings -- at rates that triple their earnings. The Foreign Ministry in Hanoi is also in the wedding business: Photographers working for the ministry's magazine take wedding photos and develop them in the ministry lab.

In Hanoi, a capital city without traffic lights or gas stations, ragged roadside vendors dispensing liter bottles of fuel from plastic jugs have sprung up to meet the demand created by a sudden influx of Honda motorcycles. A typical gas salesman is a 34-year-old former soldier named Nguyen Manh Tien. Returning home after 10 years in Cambodia, he failed to find a job. His stand near Hanoi earns him about 60 cents a day.

Down the road, another ex-soldier runs a more diversified family business. Doan Ngoc Binh peddles a dozen worn truck tires, three packs of cigarettes and some hard candies, and his wife functions as local hairdresser, dressmaker and renter of white ruffled wedding dresses at $ 6 a wearing. Because the road is a busy truck route, five tiny tire shops have opened within 50 yards of one another. On a good day, Binh makes $ 10 a tire.

The celebrations of Ho's 100th birthday in May were largely devoted to denying that this petty-capitalist counterrevolution is taking place. Yards of Marxist boilerplate were rolled out, along with stolid comrades from Moscow and neighboring Cambodia and Laos, to swear that nothing has changed in the never-never land of proletarian internationalism. In fact, everything has. Ho Chi Minh's corpse keeper may soon be the last Soviet aid official left in Hanoi. The most honored visitors, if Vietnam has its way, will be capitalist investors and diplomatic envoys from the United States. Cambodia will drop down the memory hole. Vietnam will stop the world and get back on.

Graybeard apparatchiks. If the gangway has not been rolled out for Vietnam, it is because of American insistence that a peace plan for Cambodia be adopted before the U.S. can begin to normalize relations with Hanoi, lift its economic embargo or unblock multilateral loans. Peace prospects have worsened in Cambodia in recent weeks as the Chinese-backed Khmer Rouge has extended its sway on the ground and toughened its stance at the bargaining table. The five permanent members of the U.N. Security Council will have another go at resolving the Cambodian stalemate this week in Paris, but the outlook is not bright.

The Vietnam that is puppy-dog eager to welcome back its former enemies is a startlingly different place from the ascetic revolutionary bastion that fought the longest stretch of wars in this century, first against Japan, then France and finally America. The Vietnamese have made the most radical changes in command Communism in what is left of the Marxist world. The movers are not charismatic Gorbachevs or Deng Xiaopings but the grayest lot of apparatchiks this side of Albania. What drove the hard-liners to go for reform was not a vision of capitalist paradise but the ugly reality of hyperinflation, hunger and a bankrupt economy hurtling into an abyss.

Vietnam's reformist turnabout is less abrupt than it seems. In the 1960s, wartime necessity led Hanoi to tolerate a bigger private sector than in China or the Soviet Union. After Vietnam's 1978 invasion of Cambodia, aid cutoffs by China and the West forced a further loosening of the Stalinist model. The "reform" that officially began in early 1987, with a go-ahead for private business and family farming, merely ratified and accelerated the free-market forces already at work.

Then last year, Vietnam became the first Communist country to free nearly all its prices from state controls. It also took state firms off the government dole by removing most subsidies and lifted the last caps on capital investment and hiring of workers by private business. All these are things that the reformers in Beijing and Moscow are still just talking about.

Back from the brink. Vietnam has dared to go all the way with price decontrol, partly because most prices were already market linked and sky-high; partly because consumer goods were plentiful as a result of smuggling, border trade with China and a few good harvests, and partly because the International Monetary Fund was on hand to help design a price-depressing credit crunch. But Hanoi's anti-inflation medicine, like Beijing's at about the same time, was an overdose. Consumer demand and business activity plummeted, and savings piled up in banks. The tight-money policy and the demobilization of half a million soldiers pushed urban unemployment up to at least 20 percent. With no free-labor market, the only alternative to starvation for the jobless was private enterprise.

Vietnam today looks much like the China of the early 1980s, when farmers, liberated from Mao's communes, doubled their output and their incomes and service industries and manufacturers sprang up to meet long suppressed consumer demands. Vietnam's newly decollectivized farmers have similarly seized on their new freedoms to grow more, earn more and, especially in the long-deprived north, to plow their windfalls into bricks and mortar. Last year, Vietnam went from the brink of famine to become the world's third-largest rice exporter, selling some 1.4 million tons.

Harvard economist Peter Timmer says Vietnam could become another East Asian economic tiger if it invests in agriculture instead of trying to industrialize. Vietnamese expatriate Tran Van-Thinh, who was the chief textile negotiator for the European Community, is also trying to steer Vietnam away from conventional export-led development. His advice: Skip the textiles and go for computer software.

Vietnam's current strategy could be called "anything that works." Would-be capitalists are learning hard lessons about market saturation. On a Hanoi street that used to have one or two shops selling consumer goods, the sidewalk is now filled with Soviet refrigerators sent home by Vietnamese "guest workers," Japanese washing machines brought in by sailors and Chinese electric fans carried across the border by private traders. Profits on such items have dropped to 2 to 3 percent, barely above the monthly inflation rate. Savvy street vendors like 34-year-old Nguyen Mai Huong, who started out selling clothes and moved upmarket to televisions and refrigerators, are now considering switching to motorbikes. But competition has also pushed down the profit margins on the ubiquitous Hondas.

Nevertheless, those with a talent for making something out of nothing are making it big. Bach Minh Son's roofing business is one showcase success story. Son, a former government engineer, developed a new roofing material made from laminated, corrugated bamboo. He then scoured the country for the tools he needed. He found a dozen mid-tech machines donated by Vietnam's former East European allies and left to rot, unused, in jungles and warehouses. Son bought these hunks of scrap metal at 1 percent of their original value, fabricated replacement parts and now has a $ 2 million-a-year export business. He is looking for a foreign partner to finance a tenfold increase in capacity.

Bubbly before noon. Profit is the name of the new game, even for state firms, which have been ordered to make up their losses any way they can. Vietnam's national railroad may be the world's oldest, slowest and worst equipped, but it has taken up the challenge. Managers are making the best of a poor endowment by delivering tickets to customers' doors, providing taxi and freight-transport services to stations and offering breakfast with newspapers and cigarettes on its trains. They also have shortened the 1,200-mile journey between Hanoi and Saigon from 72 to 52 hours, while shedding 30 percent of the workers. Domestic traffic increased by 30 percent last year, despite a 20 percent price rise.

State entrepreneurship takes other eye-popping forms. Nguyen van Duc pours midmorning French champagne in his Japanese-designed office in Saigon as he describes his international network of 26 joint-venture trading companies and local projects, including a shipping company, a brewery, a five-star floating hotel, a golf course and an airline. Duc, who travels in a private plane and a Mercedes, ostensibly operates on behalf of the Communist rulers of Saigon, the People's Committee. But he says he is free to spend or invest the odd $ 20 million without consulting his public patrons. "It's not know-how," he explains, "it's know-who."

The absence of rules is a bigger problem for Vietnam's market economy than the remnants of command Communism. "The whole system lacks a legal framework," says economist Le Doan Doanh, who blames resistance from local party bosses for Hanoi's failure to adopt macroeconomic regulations. Banking and commercial laws have been drafted and redrafted in consultation with foreign advisers, but they have yet to get on the books. The banking system, such as it is, is riddled with abuses and is far from ready to replace Stalinist central planning as an allocator of credit. Earlier this year, Vietnam suffered its own savings and loan crisis, when hundreds of unregulated credit cooperatives went broke, leaving uninsured depositors, including hundreds of factories, holding the bag. Some local officials have since been indicted, along with a few bankers.

Tiananmen redux? Like all Communist societies, Vietnam has never been as pure as it pretended to be. Party leaders may not live like the unlamented ex-rulers of Eastern Europe, but they do have the usual special hospitals and stores, chauffeurs and bodyguards. The party has made some effort to put its house in order: Eighty thousand officials have been dismissed, mainly for corruption, over the past three years. Yet the scale of payoffs is said to have mounted greatly, and top leaders continue to shield their colleagues. If Vietnam is not a Tiananmen Square waiting to happen, says one insider, that is because "the threshold of popular resentment has not yet been reached."

But Hanoi's leaders are taking no chances. In March, the party purged a Politburo member who had warned that Vietnam could go the way of Eastern Europe unless it liberalizes. At about the same time, two leaders of the country's most outspoken association, a club of former resistance leaders in Saigon, were deposed, along with the editor of the club magazine, which had been an irreverent exception to a dull, conformist press. Police in Saigon blocked protests at the time of key anniversaries this spring the same way Beijing authorities did, by pre-emptive arrests. The only visible sign of resistance was some anti-Communist graffiti in Saigon.

Vietnamese leaders indignantly reject any comparisons with China. But Hanoi's notion of political reform is much like Deng Xiaoping's. It has taken a few small steps toward multicandidate elections and separation of party and government, but it maintains an absolute ban on multiparty democracy and public expressions of dissent.

Where Vietnam is keen to emulate China is in attracting foreign investment. So far, however, although hundreds of Americans and thousands of Japanese have been sniffing round, there have been few foreign bidders because of the American embargo and the resulting credit constraints. Vietnam desperately needs multilateral loans to develop its infrastructure and to make up for the $ 1.5 to $ 2 billion in aid and subsidized trade it will be losing from its former East bloc allies. Some foreign experts think transfers of comradely resources could be halved this year. And Vietnamese fear they may soon be asked to start repaying a debt to Moscow that could reach $ 18 billion.

No place like home. The Soviets will be putting trade with Vietnam on a strictly commercial basis next year, but they already have cut supplies of key exports such as oil, steel, fertilizer and cotton, and reduced purchases of Vietnamese manufactured goods. Vietnamese industry is feeling the pain, and the fertilizer shortfall could hit this year's rice crop. The Vietnamese know it will be years before they can find other markets to replace Eastern Europe, which has taken two thirds of their exports. They are seeking help from international trading companies and exploring new forms of barter. But short-term prospects are bleak.

One thing Vietnam has in surplus, but which the East Europeans no longer want, is labor. Some 200,000 Vietnamese have been toiling, as government mercenaries, in East European factories. Czechoslovakia, East Germany and Bulgaria already have asked to have them repatriated, and the Soviets can be expected to follow suit. Vietnam is trying to stave off their return because of the job shortage and because their earnings help pay off debts. But the far greater threat is that these workers will bring home heretical ideas.

Although Vietnam wants nothing to do with democracy, it does want to enjoy some of democracy's fruits, and it is tired of being the world's bad boy. So it is turning a newly accommodating face to angry neighbors and sometime enemies. To deter a further exodus of boat people, it is showing videos of the horrific conditions in Hong Kong detention camps and arresting thousands of would-be refugees. It has sent ministers to Beijing with humble pleas to reopen long-severed rail routes and expand trade. But widening differences over Cambodia will prevent a reconciliation anytime soon.

Vietnam knows it is bargaining from weakness. This is why it was so bitter last year when it got no reward for playing its only card, the long-promised troop withdrawals from Cambodia. Now it is trying again to catch America's attention by offering, once relations with Washington are normalized, to let American ships use the American-built naval facilities at Cam Ranh Bay.

The Vietnamese desperately want to put Cambodia and some of the last 30 years of their history behind them. "My readers don't want to hear about Cambodia any more," says Nguyen Ngoc Truong, the editor of a subtly subversive Foreign Ministry magazine. Truong argues that a continued American military presence in East Asia would help Vietnam counterbalance its uncertain friends in China, the Soviet Union and Japan. Official thinking hasn't moved that far, Truong admits, but balance-of-power diplomacy is "a conception some people are developing." In fact, Ho Chi Minh had the same idea 45 years ago, when he asked for American help to keep French colonialists from reoccupying Indochina. His lure: The use of Cam Ranh Bay.