Vietnam must tame self-serving elites
Jonathan London says self-serving elites are corroding the economy
The arrest of Nguyen Duc Kien, one of Vietnam's wealthiest and most prominent businessmen, on suspicion of "economic violations", has severely rattled the country's economy. Yet this episode is only the most recent evidence of an emerging struggle over the country's economy. Vietnam, which has been widely assumed to have a bright developmental outlook, is now in the doldrums. And there is profound uncertainty as to whether and how it can get out.
Concerns about the economy have been brewing for some time. The near-collapse of the state-owned Vinashin group in 2010 under a mountain of bad debt and a cloud of shady dealings was only the most spectacular in a series of business failures featuring state-owned and state-linked firms.
Anything-goes lending and rampant property speculation have contributed to double-digit inflation, at once corroding the economy while undermining the economic security of vulnerable households. Nor is relief in sight. Foreign investment has declined precipitously alongside the global recession, further dampening growth and employment. In the meantime, prices for food and essential services continue to rise. None of this has helped Hanoi's performance legitimacy.
And, yet, none of this comes as a surprise to Vietnam watchers. Lax governance and market liberalisation - a hazardous combination in any setting - are occurring within the context of a highly opaque polity in which power and rank is increasingly put at the service of self-maximising ends.
To some, the arrest of banker Kien, who is close to Prime Minister Nguyen Tan Dung, suggests that a power struggle is under way. At the very least, the arrest has shaken Vietnam's economy and its secretive political establishment.
Vietnam's current troubles are profoundly political. Perhaps more than any other country in East Asia, Vietnam's elite has historically been a pluralistic one. In the past, it has been argued, such pluralism ensured unity and strength in the face of adversity. In the context of a market economy, however, elite pluralism has devolved into pluralistic opportunism that is now endangering growth. Using elite membership as a licence to cash in, a new breed of elite, nurtured largely within and on the borders of the party, is endangering the country's prospects.
Importantly, not all members of the Vietnamese elite are a party to these activities, as the arrest of Kien attests. Indeed, there are many competent, committed people within the party, the state and state businesses who are alarmed by the recent trends. By and large, however, attempts to promote greater accountability have been bought off or otherwise deterred.
Vietnam still has a great deal going for it. Its young and inexpensive workforce and its proximity to regional growth centres almost guarantee it will continue to grow. Japan and Korea are keen to see the country industrialise, and trade with the US continues to expand. Barring a disastrous turn in relations with China, economic ties between the two are likely to deepen and may be expected to bring tangible benefits.
Yet, there are reasons to doubt whether Vietnam will be able to even approach the performance of regional role models. Clearly, an economy driven largely by self-interests diverts attention from existing constraints on growth, such as inadequate infrastructure and the runaway costs of essential social goods, from health care to housing.
The challenge facing the Communist Party of Vietnam today is straightforward enough. It must tame self-serving interests within the state while promoting more competent and accountable leadership at all levels of authority. In the past, the party has shown a capacity to surprise and has demonstrated adaptability and resilience in the face of adversity. Whether such capabilities have atrophied amid developments of the last several years, only time will tell.
