June 19, 2006

Are We Winning The Viet Nam War?

The New York Times reports that Viet Nam has received plenty of attention lately, and not just as an analogy to our current war in Iraq. American investors, prompted by the US government, have renewed interest in an increasingly capitalistic Viet Nam. In fact, DC wants to use its economic leverage to beat the Chinese in Viet Nam's market, a strange but interesting twist by the players of a much different conflict four decades ago:

With the fastest growth in East Asia after China and a capitalist game plan that is attracting global investment, Communist Vietnam is emerging as a regional economic power as it moves steadily from rice fields to factories.

And with the wounds of war all but healed, Washington is paying attention.

Trade talks between House Speaker J. Dennis Hastert, Republican of Illinois, and his Vietnamese counterpart turned into a lovefest here recently, choreographed by the hosts to show their affection for America.

"At last we're having dinner together," said Nguyen Van An, the leader of the Vietnamese National Assembly, as he hugged the speaker and presented a copy of a letter from Ho Chi Minh to President Harry S. Truman appealing for American help against the French. "We should have met 60 years ago."

Mr. Hastert's presence in April was part of a larger dance that has since starred Bill Gates, the founder of Microsoft, and Defense Secretary Donald H. Rumsfeld as visitors, and will feature President Bush when he attends the Asia Pacific Economic Cooperation summit meeting here this fall. Vietnam's leaders have made plain they want the United States on their side for equilibrium against China, a longtime occupier. Vietnam, though an ideological ally of Beijing, fears an expanding Chinese sphere of influence and being reduced to an economic appendage by China, its northern neighbor.

It has fought wars against China, most recently in 1979. But now, relations have "never been so good," said Ton Nu Thi Ninh, the vice chairwoman of the Foreign Affairs Committee in the National Assembly.

The US has put aside historical animosities to open another economic front in the battle against Chinese expansion in the Far East. The remarkable part of this story is that Viet Nam has actually moved this far into market-based economics after the tragic consequences of Hanoi's rule in the 1970s. This has mostly happened in the past six years, as the Politburo did not allow for private enterprise until a momentous decision in 2000. Mired in an economic disaster -- per capita income remained below $200 per year -- the regime had watched as the Asian Tiger roared all around it, including in China, while Viet Nam remained mired in the past.

Small- and medium-business owners abound in Viet Nam now, and per capita income has increased 400% in the period since. The government continues to operate monopolies for now in large industries, but the regime has given some indications of flexibility. Most interestingly for a former hardline Communist regime, people now proudly proclaim their incomes from the ownership of their own businesses. One entrepeneur has created a string of fast-food restaurants that he modeled on McDonalds, and each of the franchises can earn their owners $40,000 a year -- a fortune that represents almost 70 years' average income for the Vietnamese.

Even more interestingly, the Chinese have as much of an interest in moving manufacturing jobs to Viet Nam as do American investors. The labor rate for Viet Nam comes in significantly below that in China, making one of the more notorious of the labor exploiters (including illegal prison labor) fight to keep labor costs even lower. With 1.4 billion people requiring employment, the Chinese probably can't afford to export too many of their jobs, and that gives the US an advantage in taking up a share of that market. We can also afford to use that labor force even when it exceeds the Chinese labor rate, further squeezing China in Viet Nam for economics and influence.

It may turn out that we will win the Viet Nam War outright through the engagement of market economics and friendship and put an end to communism in Southeast Asia. This time, it may be the Chinese who have to worry about domino principles.


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