How capitalism defeated communism in Vietnam

Vietnamese toddler Phuong Xuan Vu and his brother, aged 10, were responsible for delivering food for their family, who were always experiencing hunger. They were living in Vietnam in the 1980s, so they needed food cards. One of the most precious things to the family was a guide to the grocery vouchers. As the oldest child, Vu's brother took care of the guidebook, knowing that if he lost it, the family wouldn't have anything to eat. The vouchers were inside the guidebook and were printed on yellow wax thin paper. They made the difference between hunger and having something to eat, although it was never enough. Vouchers had to be exchanged at food distribution centers.

People often had to wait hours and sometimes all day to get some food, and those who wanted to increase their chances of getting food came at night. They were already in line before the food was even delivered, hoping it would show up at some point. When it was finally your turn, you often found yourself face to face with stern officials. As Vu Nancy C. Napier and Dau Thuy Ha recounted in their 2020 book, Vietnam's Bridge Generation, "The officials were not friendly. They were overbearing and domineering. We felt like we had to beg for food that was rightfully ours."

The amount of food you received depended on the status of your family. Civil servants got more, factory workers less. If there wasn't enough rice, people got wheat, though almost nobody knew what to do with it: even if they knew how to bake bread, they couldn't get the other ingredients properly. They needed electrical power to heat the oven anyway, but electricity was only available for a few hours a day. Today, Vietnamese people call this period "Thoi Bao Cap" - the "subsidy period". This was the time of the socialist planned economy, before the free market reforms of the late 1980s.

In 1990, with a per capita GDP of $98, Vietnam was the poorest country in the world, second only to Somalia and Sierra Leone. Every poor harvest led to famine, and Vietnam relied on food aid from the United Nations and financial assistance from the Soviet Union and other Eastern Bloc countries. As late as 1993, 79.7% of Vietnam's population lived in poverty. By 2020, the poverty rate had fallen to 5%. Vietnam is now one of the most dynamic countries in the world with a vibrant economy that creates great opportunities for hardworking people and entrepreneurs.

Previously, Vietnam could not provide its own population with enough rice for food. However, the country is now one of the largest rice exporters in the world, as well as a major exporter of electronics.

After the defeat of the French colonists, Ho Chi Minh established a system based on the Soviet planned economy in North Vietnam. In 1975, after the fall of the pro-Western government in South Vietnam and the withdrawal of the last American troops from the country, the government of the newly unified country decided to introduce socialism in the south as well. The war brought devastation to the country. Some 14-15 million tons of bombs and explosives were dropped in Vietnam, 10 times more than Germany dropped in World War II. Napalm inflicted heavy civilian casualties. In South Vietnam alone, 1.5 million people died, including 300,000 civilians. By the end of the war, South Vietnam had nearly one million orphans and at least one million veterans.

The planned economy caused more devastation. In 1977, the government began collective farming in agriculture and nationalization of nearly 30,000 private enterprises. Many peasants in South Vietnam thought collective farming was particularly unfair because the Communists had given them land during the war to consolidate their support and now wanted to take their land from them. Many of them resisted collective farming, and some left their land or sold their animals rather than work on the collective farms. By 1980, only 24.5% of the rural population in South Vietnam worked on collective farms, compared to 97% in North Vietnam.

"Peasants in South Vietnam began to limit production, which was largely directed toward their own needs," explains Claudia Pfeifer in her book Confucius and Marx on the Red River. "Within months, the agricultural sector had almost completely collapsed." Less than 10% of the farming area was under irrigation, although 40% of the area could use pumps - lack of electricity and frequent shutdowns prevented their use. Only 30% of the agricultural sector's electricity needs were met. State cooperatives received 40% of state funds, although they contributed only 5% of total agricultural production. Wealthy collective farm members were not rewarded for the amount of rice, but only according to the number of days they worked. If you worked 30 days, you received 30 points, which entitled you to a certain share of the crop. If you worked 20 days, you received 20 points and correspondingly less. In 1980, Vietnam produced only 14 million tons of rice, although 16 million tons were needed to meet the basic needs of the country's population. Each failed harvest immediately led to food shortages and the introduction of rationing. By the late 1970s, there was about one-third less winter rice per person in the northern half of the country. Most of the crop was produced on land that was privately cultivated.

At first, the new rulers of South Vietnam said they only wanted to nationalize foreign enterprises. Vietnamese enterprises became so-called parastatal enterprises (state-owned enterprises). But this was a temporary measure: the plan was for all enterprises to gradually become fully state-owned. The same problems arose in industry as in agriculture. Production stagnated, and state-owned industrial production actually declined by 10% from 1976 to 1980. International sanctions against Vietnam, imposed in response to the country's invasion of Cambodia in 1978-1979, exacerbated the economic crisis. That same year, China went to war with Vietnam, exacerbating the problems. But 1979 was also the first attempt to soften socialist policies.

Like several other foreign communist governments before them, beginning with Vladimir Lenin's New Economic Policy in the 1920s, the Vietnamese regime realized that survival required a retreat from its ideology. "In the early 1980s, a free market was again allowed, with prices based on cost calculations and supply and demand," Pfeifer wrote. "At the same time, the first subsidy cuts in state-owned enterprises were implemented." These initial reforms solidified what was already happening spontaneously in several villages. Many agricultural collective farms and even state enterprises had long ignored official rules and regulations. Peasants refused to work on collective farms and concentrated their work on the land they themselves owned because they could sell the goods produced there at market prices. Informal contracts were established between collective farms and families, and between state farms and private traders. Such spontaneous developments, initiated locally rather than by the party, were the source of reform. Policy changes began at the local level and then were extended to the whole country. For example, the Mekong Delta provinces switched from a subsidy rationing system to a market-based system as early as the 1980s. "Were it not for such illegal or pilot procedures," Tran Thi Anh-Dao wrote in her 2022 book Rethinking Asian Capitalism, "it is extremely likely that market-based mechanisms would have never

The initial focus of Vietnam's reforms was on agriculture, at the time the most important economic sector. In 1981, for example, Directive 100 was introduced, which allowed individual families to use collective farm land. In Vu Le Thao Chi's words, this "enshrined the unwritten habit of family-based production within an officially sanctioned framework." In the early 1980s, several other other reforms were introduced in Vietnam. Firms were now responsible for their own profits and losses. Enterprises could decide for themselves what to do with any excess profits. Planners maintained strong controls, but these measures only legalized what was already happening illegally.

"For example," notes political scientist David Wurfel, "when there was a shortage of materials, goods could be sold on the open market to generate cash to buy goods, or perhaps to pay bonuses to workers and thereby increase productivity. Although this was largely illegal, these initiatives became increasingly widespread. Thus, the first key reform decree for state industry in January 1981 required factories to register all activities they undertook off-plan, while it allowed them to acquire and dispose of resources as needed to increase their supply."

Although these reforms improved the situation, the supply of basic food products still could not meet the needs of the population. Vietnam remained one of the five poorest countries in the world. Officially, there were about 4 million unemployed in Vietnam, but in April 1987, the Vietnamese ambassador, in a confidential conversation with the Hungarian foreign minister, stated that the actual number was 7 million. Meanwhile, inflation had risen to 582% by 1986. "Since monthly salaries did not cover even a week's living expenses, almost all families had to seek additional sources of income to make up for the shortfall," wrote Japanese scholar Mio Tadashi in his 1989 book "Indochina in Transition." "In Hanoi, it became common to use one room of an apartment for raising pigs. Pig farming was the best source of additional income, and most families converted one room in a three-room apartment for pigs, enduring all the inconveniences, smells, and adverse sanitary conditions."

Control over the Communist Party shifted from reformers to a faction that was more suspicious of all changes. After the introduction of the first reforms in the late 1970s, a period ensued during which liberalization was frozen. At the fifth party congress in 1982, opponents of further changes were thriving. However, the country's problems became increasingly pressing, and gradually the reformers prevailed. At the tenth executive plenary session of the fifth Central Committee in May 1986, Deputy Prime Minister To Huu and other opponents of reform lost their positions in the Council of Ministers. At the sixth party congress in December 1986, a large number of representatives from South Vietnam supported market reforms. The party congress was marked by an outpouring of radical self-criticism. In one speech, a delegate openly stated, "The people have lost faith in the party." For the first time, the official report abandoned a detailed description of the long, heroic struggle of the Vietnamese people and contained only a brief enumeration of the party's successes. The leadership openly acknowledged that the years 1976–1980 were lost years, during which there was virtually no economic growth, and the report explicitly mentioned issues such as unemployment, inflation, corruption, low productivity, declining labor productivity, and environmental damage. This speaks volumes to the Vietnamese, as they did not try to blame all their problems on the consequences of colonialism and wars, but instead turned to the future. Even under a one-party dictatorship, they allowed a tremendous amount of grassroots initiative. Official reforms were important, but to a large extent, they solidified what was already happening illegally in countless villages. The best thing the country's political leadership can do is refrain from opposing such spontaneous events and create a framework of legal certainty. The evidence of this is the enormous increases in freedom and wealth that can be observed in Vietnam today. Prepared based on materials from How Nations Escape Poverty: Vietnam, Poland, and the Origins of Prosperity.