Paper presented at the “Week-End de la Liberté” organized by the Cercle Frédéric Bastiat on the theme: Economic Freedom, Prosperity and Full Employment. (July 3-5 2009)
Translated for ActiveHistory.ca by Michael Poplyansky, PhD Candidate, York University
Before going their separate ways, Vietnam and Cuba followed similar political and economic paths, making the impact of economic freedom on each country’s development very clear, both directly and comparatively. This paper will not discuss full employment, because in Communist Vietnam, as in today’s Cuba, everyone theoretically had an assigned job—even if it was not the job that one hoped for, or at the location that one preferred, much less at the salary that one wanted. Nor will I evaluate the progress of “liberalism”, since the term implies political freedom; I will simply examine the consequences of legalizing formerly banned economic activities.
We will mainly focus on Vietnam, where successive reforms constitute a series of instructive examples–in contrast to Cuba, which remained stuck in the status quo. Those who would like to know more about this Stalinist dictatorship should consult Pierre Rigoulot’s very comprehensive work.
Today’s Vietnam is made up of France’s former colonies and protectorates. Before the Communists reached power, the economy was largely dependent on subsistence farming, the exceptions being several plantations for staples such as rubber trees. The country’s industrial beginnings (Indochina Breweries) were not significant enough to absorb the growth of the agricultural population and per capita rations were poor in the northern Red River delta. The situation was much better in the southern Mekong delta; Vietnamese colonization, at Cambodia’s expense, was more recent and the rural population was less dense. France had provided the beginnings of an education system. In general, poverty was not crippling; it was the only self-sufficient French colony, meaning that France’s investments (the roads with their famous Eiffel bridges) could be paid for through locally generated revenues and not metropolitan subsidies.
Cuba was in a completely different position. It was “a Latin American country like any other”, with, of course, deep economic inequalities. It had a sufficiently large middle class. The number of cars and the level of meat consumption were the second and third highest in Latin America—and that at a time when Uruguay and Argentina were considered to be part of the “North”. In 1959, there were more highways per capita and more televisions than in France. At that time, Cuba provided aid to Spain. Today, it is Spain that, through a variety of channels, provides aid to Cuba. Although Fulgencio Batista y Zaldívar, Cuba’s leader before the revolution, was blamed by many for an adult illiteracy rate of 23.6 %. (See El Païs, cited in Courrier International n° 949, p.24, and the corroborating data in Coucher de soleil sur La Havane) This figure should not be compared to the “universal education” of which Castro boasts, but to the state of other Southern countries at that time, as well as to their current situation. Again Batista was blamed for the concentration in land ownership, only 8% of landowners held 70% of the land. There, as well, international comparisons would be instructive. So would a reminder of the classic solution: the spontaneous development of the industrial and service sectors lead to a decline in the farming population, which ensured that remaining agricultural operations became larger in size. Finally, Castro’s supporters claim that Batista puts Castro in a favourable light, when, in reality, he was much less repressive than other caudillos…and his successor. We should remember that in 1940, Batista was elected with the support of the Communists. After his 1952 coup d’état, it is appropriate to speak of a “dictabanda”, a soft dictatorship with a diverse media and a broad political spectrum—only the Communist Party was banned.
In sum, the Cubans were then much more “developed” than the Vietnamese in terms of access to health care, service and information.
In these two countries, “the Revolution” was presented as part of a “multiparty” struggle for independence, directed respectively against France and the United States. This allowed for the introduction of Soviet intellectual and military support. In the Cold War context, anti-colonialism was a convenient cover for Soviet imperialism. The Soviets were considered to be “the good guys” by large segments of the population.
In Cuba, the Communist Party (then called the PSP, the People’s Socialist Party) was a latecomer to Castro’s 26th of July Movement (M-26-7). The Communists were very reluctant to provoke armed conflict. Castro needed the PSP so that Cuba could be part of the Socialist camp and benefit from the Soviet nuclear umbrella. Before 1961, Castro called himself a democrat, favourable to free elections, and so on. After 1961, he would say that he had always been a Communist.
In Vietnam, the Communist takeover of the North in 1954 followed a long and bloody war, at the end of which important minorities, most notably the bourgeoisie and the Catholics, left for France or for South Vietnam, further impoverishing the country. By contrast, the conquest of the South in 1975, after the American departure in 1973, was very quick. The upper-class and Catholic segments of the population did not have enough time to flee and the region suffered little destruction. In the meantime, South Vietnam had undergone considerable development (without getting into numbers, it is sufficient to note the significant imports of English- and French-language books). This development can be partially explained by the maintenance, until the last moment, of French schools and businesses, by the appearance of “American” schools, and by the activities of a Chinese and Vietnamese entrepreneurial class.
In Vietnam, the “Front” (NLF: National Liberation Front) appeared very early on as a simple smoke-screen for the Communist Party. In Cuba, Fidel Castro, who had proclaimed that he was not a Communist even though his brother was one, rapidly took typical economic measures, up until the formalization of the Communist Party as Cuba’s sole political party (1965).
In both cases, the government took swift and forceful control of the population. In Cuba, numerous executions were linked with the exodus of the bourgeoisie. In Vietnam, the post-1954 “agricultural reforms” led to a popular revolt, the suppression of which caused over 100,000 deaths. Following the takeover of the South in 1975, bureaucrats and military officials were sent to reeducation camps; the ordinary employee stayed a year or two, while senior managers remained more than ten years. The nationalized entrepreneurs, many of whom were part of the Chinese minority (“The Boat People”), took to the sea, often leaving their gold behind in return for lax surveillance of the beaches. The government thereby rid itself of a potentially dangerous minority, all the while acquiring hard currency that would otherwise have been buried or taken away.
The Communist takeovers were, therefore, consolidated by the nationalization of the economy and the disappearance of “the qualified” segments of the population. All occurred in a general atmosphere of information control and the elimination of political and intellectual freedoms.
These measures had the same consequences as in other Communist states: notably, the collapse of agriculture. In these countries, the peasant who has to take his harvest to the cooperative has a tendency to produce only for himself and for his family. In Vietnam after 1975, the collapse of the South added to the impoverishment of the North. Poor nutrition was so severe that families depended on emigrant remittances, coming principally from Miami for the Cubans and from France or from America for the Vietnamese.
Industry was also nationalized; it did not initially occupy a major place in the economy and never really developed. Fidel Castro concentrated the country’s efforts on the “zafra”; the sugar cane harvest quickly became Cuba’s economic thermometer. Castro went so far as to interrupt all other activities, in order to send workers to the “zafra”. This was always done with a machete in hand, while elsewhere in the world, most notably in Australia, mechanized harvesting techniques were being developed. The international price of sugar did not leave a sufficient profit margin for Cuban salaries. Fortunately, Castro obtained from the USSR a “political” preferential price, which permitted survival until 1989. Coupled with this was, as in any other socialized economy, a dramatically reduced service sector. This aspect of the economy was considered to be parasitical and was reduced to a bare minimum – it normally represents 70% to 80% of modern countries’ wealth.
Meanwhile, the Soviet Union’s political and economic “stagnation” was especially problematic for satellites like Cuba or Vietnam. They only benefited indirectly—therefore little and with much delay—from the USSR’s plundering of “outside” countries’ innovations. Moreover, this plundering concerned “basic industries”, highly linked to the military sphere and not to the people’s humble needs. “Then, they eat steel?” the man-on-the-street would remark, when celebrating the results of this plan. Furthermore, the satellites had to pay for the USSR’s “brotherly aid.” In Vietnam this aid consisted of Soviet armaments to fight the Americans, then the Cambodians, then the Chinese. In both countries, the population would be used to further the USSR’s international goals: Cubans served as cannon fodder in Angola and tens (or hundreds?) of thousands of Vietnamese were relocated to other parts of the Communist world, where Westerners were surprised to find them after the fall of the Wall.
The years 1989-1991 saw the disappearance of the Soviet Empire and of the USSR. Although these developments were catastrophic for Cuba, they represented the beginning of liberalization for Vietnam, freed from its obligations and from the many “advisors”, who lacked popular support and whose economic advice was highly questionable (I spoke with them in 1989). The reforms, long quietly discussed as a result of the country’s general decline, were at last possible. Vietnam took the plunge but Cuba limited itself to authorizing some foreign investment in the hotel industry.
The first Vietnamese reform was to authorize the sale of agricultural produce on the peasant market. The result was immediate: several months later, they no longer knew where to keep the rice! I witnessed the smallest bit of pavement (notably the South Korean roads in the Mekong delta) being used to stock mountains of rice. The Vietnamese progressed, almost instantaneously, from scarcity to normal food supplies in the cities and to food exports. Moreover, this free market provoked a chain reaction: the city-dweller had “to do something” to pay for the rice. From there, basic services to the peasantry reappeared: barbers, tailors, artisans of very simple consumer goods. Before long, these services were themselves being serviced by the rapid emergence of the restaurant industry.
But all that was limited by the prohibition of private enterprise. The State then allowed “families” to create micro-businesses. Everyone suddenly had many “cousins” and the standard business grew from having 2-3 to having 8-10 employees. Saigon was transformed. On my previous visit, one could have had an accident at dusk (which comes early) because the poorly lit sidewalks were filled with potholes as deep as the sewers; the shop-windows, meanwhile, were completely desolate. In a matter of months, shopkeepers transformed the city streets, which became filled with well-kept and clearly lit storefronts, terraces and other amenities.
Another trip took me to Cambodia, to a still devastated Phnom Penh, more than ten years after the Vietnamese victory over the Khmer Rouge. The country had then gone from genocidal Maoist Communism to stagnating Soviet Communism, representing, at the time, significant progress. The hotel had been summarily restored by a Chinese man, who knew that he might only be a temporary occupant. The sole reading material was the French-edition of the “Moscow News”; the television aired Soviet propaganda—in Russian—on the Second World War, showing a brave Commissar tracking an ignoble female Nazi spy. The Cambodian boys had never seen blonds and were hypnotized.
Vietnamese reforms finally arrived. I saw the Chinese innkeeper rushing to the city-hall and returning with a title to the hotel; the Khmer Rouge having destroyed the land-registry, pieces of land– worth approximately 15 € — were redistributed to their occupants. The new owner called his extended family together, and they all began to repaint the façade.
In Vietnam, private cars were once again authorized. Mothballed “Dauphines” and 203s emerged, soon to be replaced by Toyotas. The transportation of goods became much quicker, thus multiplying the number of small businesses. Meanwhile, their employees, or “cousins”, were purchasing bicycles and scooters. Supply and demand for private labour having materialized, wage earning was allowed. This was another leap forward.
Foreign investors arrived on the scene. At first, they could not purchase land or buildings. Nor could they directly hire their employees. The State paid the workers, by taking in hard money and remunerating citizens in devalued local currency (as is the case today in Cuba). A new stage of development was nevertheless attained; soon, another step would be taken with the introduction of direct wage earnings. Ownership of land or of buildings would remain a “delicate” question and is still not guaranteed to this day.
By 1995, openness to foreign investment and the elimination of restrictions on the private sector were well advanced; trade and prices had been liberalized; permanently sliding exchange rates had become more realistic. The Prime Minister declared that the reforms had “liberated the creativity, the dynamism and the abilities of the Vietnamese people”. He added, however, that “reforms were at a stage of transition [because] a number of very serious problems had to be resolved”. There still existed no civil code, business code, nor legal framework for competition, consumer protection, State enterprises, cooperatives and public markets. Banks and public accounts did not yet operate according to Western standards.
This reexamination of the economic sphere’s arbitrariness generated political tension, notably in 1995 and 1996. Conservatives regretted the weakening of the Party’s role in economic life. They delayed privatization and prevented all political reforms. One party-rule, “the dictatorship of the proletariat” and “democratic centralism” remained in place.
Rates of growth outstripped planned forecasts and attained “Chinese” levels, with a small blip during the Asian crisis of 1997. International trade shifted from the Soviet bloc to the rest of the world. Relations with the IMF and the Asian Development Bank were normalized. Vietnam joined the ASEAN in 1996 and concluded a bilateral commercial accord with the United States in 2000. In 2005, currency reserves surpassed the foreign debt.
In 2006 a new guard took over the government, following the almost complete retirement of their predecessors. For the first time since 1975, two of the three most important positions in the regime were occupied by Southerners – who some considered to be more pragmatic. In 2007, Vietnam joined the WTO. Apart from making a statement of principle, Vietnam had to enforce the protection of intellectual property rights. With the help of Switzerland, it is moving in that direction. Likewise, again with Swiss assistance, Vietnam is developing a legal framework to regulate competition, and the business world more generally.
The country’s economy is underpinned by tourism, agricultural exports, and, increasingly, “Chinese-style” production. By that, I mean that Western companies (broadly-speaking, those that depend directly or indirectly on the United States, Europe, Japan, Hong Kong, Singapore….) are locating their factories there, not only because of the low-cost, high-quality labour force, but also so as not to be entirely dependent on China.
Economists therefore had the chance to witness a laboratory-type experiment in Vietnam, where one economic freedom was added at a time, thereby making each one’s impact immediately visible. This was contrary to what occurred in other former Soviet countries, where everything was transformed overnight. It is not my place here to say which of the two methods is better; rather, it is to express observations made possible by gradual change.
Vietnam’s gradual approach was based on the parallel Chinese experience. Of course, in both countries, the aim was to save the political system, at a time when it was collapsing in the Eastern bloc.
Finally, Vietnam’s index of economic freedom score is 51 today, moving up from 40 in 1995, the beginning of this statistical series. This result can be compared to France’s score of 61, the United States’ 81, and Hong Kong’s 90—the world champion. Before 1989, it was probably in the same range as Cuba’s, which was 28 in 1995 and remains so to this day, with likely very little movement in between. It is striking to consider that all this was generated by simple legal decisions and that citizens spontaneously did the “rest”, especially the Southerners who had only lived under Communism for 14 years and who, in large measure, had held onto their “capitalist” abilities. (All these figures are from the 2009 index of economic freedom, The Heritage Foundation & The Wall Street Journal)
As for Cuba’s index of economic freedom score, it is the worst after North Korea’s and Zimbabwe’s. The government had privileged foreign policy (including “exporting the revolution”) over domestic needs like food, housing, and transportation, without giving citizens the opportunities to change themselves. The official statistics (gross and per capita GDP) are not reliable. The country survived by clinging onto the USSR and now lives off Venezuela’s oil charity and that of the exiles and tourists. Vietnam was able to pull itself out of that situation; exiles’ support is now limited to assisting their older relatives, given the almost complete absence of pensions and health insurance (and that country calls itself socialist!)
Why is Vietnam Recovering, while Cuba is Sinking? by Yves Montenay and Michael Poplyansky is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 2.5 Canada License.