How the South Saved the North in Vietnam

From: Vietnam: Rising Dragon, by Bill Hayton (Yale U. Press, 2010), Kindle Loc. 4187-4227:

The Vietnamese combatants in the Vietnam-American War were not fighting because they hated ‘northerners’ or ‘southerners’. Both sides were heirs to nationalist movements which stressed their attachment to national unity. Their divisions were over ideology, the role of the state in society, religion and many other political issues.

In this long view of Vietnamese history, the 21 years between the division of the country into capitalist and communist in 1954 and its reunification under communism in 1975 seem less important than what went before and after. But those 21 years meant there was continuity in the south between the freewheeling capitalism of French Cochinchina and that of the ‘American’ Republic of Viet Nam (RVN), which was never truly suppressed after reunification before economic reforms began in socialist Vietnam in 1979. Capitalism is a relatively recent introduction in the north but it has been southern Vietnam's default position for almost all of the past 150 years.

When the communist People's Army crashed through the gates of the Presidential Palace in Saigon in April 1975, it seemed, in the minds of the northern leadership, to confirm Hanoi's superiority: militarily, ideologically and historically. The north had beaten the Americans. Triumphalism reigned. Hanoi sent another army to the south, an army of northern bureaucrats which tried to remould it into an image of the north without regard to its very different economic situation. But bureaucratic ideology met its match: capitalism was never truly eradicated. More humiliatingly for the ideologues, in those parts of the country where socialism prevailed, hardship endured. Gradually they had to face up to the reality that Hanoi communism couldn't solve all the country's problems. Hubris would soon be humbled.

Even now, the extent to which Hanoi's rule was saved by the south is unacknowledged in public discourse: the ‘Official History’ of Hanoi's supremacy endures. But if it hadn't been for that legacy of southern entrepreneurialism, Vietnam might have collapsed. Despite Hanoi's draconian campaigns in favour of collectivisation and against ‘comprador capitalists’ (mainly ethnic Chinese), old trading arrangements survived. In 1979, when the failure of Hanoi's policies had become obvious, southern leaders, such as the then Party boss of Ho Chi Minh City, Vo Van Kiet, authorised ‘pragmatic’ steps to make ends meet. The city authorities bought rice from farmers at market prices and allowed those Chinese entrepreneurs who hadn't fled the country to make contact with traders in Hong Kong, Singapore and Taiwan to keep imports and exports flowing. Such fence-breaking broke the rules imposed by Hanoi, but kept the economy alive.

When, eventually, the failure to make state socialism pay the bills forced Hanoi to open up the economy, the south was ready to take full advantage. The first foreign investors to arrive were the trading contacts of the Chinese community. They found the south more conducive to business: less rule-bound, less ideological. In addition the south had the benefit of roads and ports paid for during the war years by American taxpayers. Between 1990 and 1994, 60 per cent of all foreign direct investment went to Ho Chi Minh City and three of its neighbouring provinces: Binh Duong, Dong Nai and the ‘oil province’ of Ba Ria-Vung Tau. These advantages for the southern provinces were multiplied by a curious arrangement, initially begun as an incentive to encourage economic growth.

The Vietnamese government allowed (and still allows now) provinces to retain any revenue they earn above a set target. In the north, most provinces tried to boost their income by developing the state sector. But leaders from those four southern provinces – more open-minded, less suspicious of foreigners – looked abroad for investment. It worked. Labour-intensive industries such as textiles, garments and food processing flocked in and the taxes and tariffs they paid made their host provinces rich. The surplus (after deductions for kickbacks and patronage) was reinvested in better infrastructure and services, which encouraged other investors to locate there, creating a virtuous circle of growth. Southern leaders, who had been largely excluded from the pinnacles of power since reunification, knew they were unlikely to make it to the top of national politics. Instead, they concentrated on keeping their own constituents happy, untroubled by the need to break national rules to keep the income flowing.

While some in Hanoi disapproved, they couldn't stop the fence-breaking because the country needed the cash. In the 1980s provinces had depended upon the central government for the allocation of subsidies from the Soviet Union. By the early 1990s the central government was dependent upon the surplus being generated in the south. The quid pro quo was a strong policy of redistribution. Southern surplus still funds government spending across the country, lifting the standard of living in northern and central areas closer to the national average and helping to preserve national unity and the Party's hold on power.