Sunday, July 11, 2010

Trade, Not War, Transformed Vietnam — And It Can Do the Same for Others

Fifteen years ago this week, the United States established ambassadorial relations with Vietnam. These past 15 years have seen remarkable developments in the relations between the two erstwhile bitter enemies.

Indeed, in any competition for globalization’s poster child, top billing naturally goes to continental-sized China and India. But Vietnam, the country called the Smaller Dragon, has also fast emerged as a globalization winner — a success recognized by its selection this year as host of the World Economic Forum East Asia Summit over the more established settings of Singapore, Seoul, Hong Kong and Kuala Lumpur.

In economic terms Vietnam is a rapidly rising power. Since the beginning of this century, it has held third place in average annual GDP growth, just behind China and India, and been most successful in poverty reduction. It has become a major exporter, ranking 40th.

Ironically, the country it most exports to, at almost 20 percent, is the United States, which waged battle there for nearly two decades, resulting in the loss of more than 58,000 Americans and more than one million Vietnamese.

The United States is also a prominent presence in inward investment, along with others, including South Korea, Taiwan, Japan, Switzerland, Australia and the EU. In 2007, following more than a decade of intense negotiations, Vietnam joined the World Trade Organization.

One major indicator of Vietnam’s success is the degree of active engagement of its “diaspora” in the development of the country. Many of the “boat people” or their progeny have returned, bringing valuable capital, know-how and networks.

The country also has dynamic demographics: With a current population of 90 million, it will pass 100 million by 2011, hence benefiting from a considerable youth dividend.

The speed of change has been amazing. In the last decade Vietnam has become an entrepreneurial, open and dynamic society. In pursuing policies of reform, liberalization and further integration with the world economy, the Vietnamese government aims to achieve the status of industrialized nation by 2020.

The Vietnamese people have a renewed sense of achievement in the present, pride in the past — this year Vietnam celebrates the 1000th anniversary of the establishment of the city of Hanoi — and confidence in the future.

By no means was it always like this. During most of its 2,000 years of recorded history, Vietnam’s main preoccupation was maintaining its sovereignty, autonomy and identity vis-a-vis its colossal neighbor to the north, China.

During the past century, in the course of a few decades, the Vietnamese fought successively — and, as it turned out, successfully — against the Japanese, the French, the Americans and the Chinese. This year marks the 35th anniversary of the “fall of Saigon,” bringing to an end the Vietnam War, following which, in 1976, the country unified as the Socialist Republic of Vietnam.

The first decade was marked by Stalinist repression, economic stagnation leading to collapse and the outpouring of refugees. Vietnam seemed to be heading for the proverbial basket case.

By 1986, however, recognizing the challenges and emboldened by the example of China’s opening, Hanoi embarked on a reform program known as doi moi , or renovation.

The program raised hopes and foreign investors flocked, but initial results were disappointing as implementation of the reforms lagged. In the 1990s, foreign investors turned away, claiming that the only way to become a millionaire in Vietnam was to start off as a billionaire.

Then came a second wind at the beginning of this century, opening the door wide. Foreign investors returned, many boat people returned and the economy boomed, as Vietnam managed to weather the 2008-09 recession storm.

In a 2005 article in Foreign Affairs, leading Chinese intellectual reformer Zheng Bijian wrote that the most important strategic choice the Chinese leadership took in the late 1970s was to embrace globalization. The same could be said of the Vietnamese in the late 1990s.

For both nations, comparable forces apply. Their respective economies were collapsing to the extent that the legitimacy of party rule risked being lost.

A second force was the “demonstration effect.” Having engaged strategically with globalization, East Asia was already the poster child of the late 20th century global economy. Following Japan’s “miracle,” the Association of Southeast Asian Nations was the fastest growing region in the developing world by the 1980s.

Southeast Asia transformed from a battlefield to a globally oriented and increasing regionally integrated marketplace. In 1995, Vietnam joined the market and abandoned the battlefield, intensifying this process and providing further impetus to growth.

This answer of globalization, however, has its limits. Globalization has not yet reached Pyongyang or Rangoon. Still, the countries that have failed to embrace globalization in East Asia are the exception and not the rule. The tremendous chasm in social and economic performance between those that have globalized and those that have rejected globalization serves as one of the most potent arguments in favor of globalization.

The enthusiastic embrace of many East Asian countries — retained despite the 1997-98 monetary crisis — has increasingly put an Asian stamp on 21st century globalization.

It seems reasonably certain that the global economy will be dominated by Asia in the decades ahead. Vietnam’s global saga is a national plot within this overall continental theme.

There are still many risks inherent in the Asian regimes, including Vietnam’s. Problems of infrastructure, governance, corruption, weak institutions, rising inequality — though not as bad in Vietnam as in some other East Asian countries — could jeopardize future prospects.

But the greatest risk for Vietnam — indeed for the region and the world — is de-globalization and the outbreak, as in the 1930s, of protectionism and xenophobia. This would be a tragedy.

The growth of Vietnam and its East Asian neighbors is not at the expense of other regions and undoubtedly provides significant benefits.

A key global public policy priority is to consolidate the World Trade Organization and conclude the Doha Round as the best means for preventing de-globalization and thus allowing Vietnam, along with others, to continue the route to peace and prosperity.

The astonishing Vietnam global saga raises a number of philosophical questions. The late Robert McNamara, secretary of defense under US presidents John Kennedy and Lyndon Johnson, and chief architect of the Vietnam War, witnessed Vietnam’s metamorphosis. In his 1995 book, “In Retrospect: The Tragedies and Lessons of Vietnam,” and in the 2003 film “The Fog of War,” he recognizes the immense errors committed by the United States. For Vietnam to become a prosperous, open and dynamic society, was it really necessary to have shed so much blood?

And how can we apply lessons from Vietnam to today? Should the United States not actively encourage rather than impede Iran’s application to accession to the WTO? Are there not means to leave brinkmanship aside and exert all efforts to engage North Korea in regional and global markets, as opposed to bellicose sanctions? What about the lessons from Southeast Asia for the Middle East?

Transforming Southeast Asia from battlefield to marketplace in the 1960s, 1970s and indeed as recently as the1980s would have at one time seemed an impossible dream. Yet the dream has become reality. Middle Eastern nations have not yet “embraced” globalization, but there, too, the dream might be realized.

In my generation, we chanted, “make love, not war.” But in this century, in the hope of a better future, we should be chanting, “make trade, not war.” That could be the main lesson from Vietnam’s global saga.

By Jean-Pierre Lehmann, professor of international political economy at IMD in Lausanne, Switzerland, and founding director of The Evian Group, is co-editor of “Peace and Prosperity Through World Trade.”

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