Five days before US President Donald Trump and North Korean leader Kim Jong-un met in Hanoi for their second summit, two former Vietnamese ministers of communications were arrested and charged with “violations related to management and use of public capital.”
The two officials are alleged to have approved a state-owned telecom’s purchase of a private TV provider for more than four times its estimated value, at a loss to the state of about US$307 million.
Similarly, a few months ago, two vice ministers of police, a minister of transportation and a former head of the state petroleum corporation were all brought to court on charges of selling state property to private companies at a loss.
Taken together, these cases point to a high level of state capture — a form of corruption, rife in former Soviet-bloc countries, in which powerful private actors use insiders to gain control of public institutions and assets.
Like North Korea, Vietnam started opening its economy while allowing little to no private ownership.
However, after three decades, Vietnam — like many developing countries — is not immune to the detrimental effects of extractive elites. There is evidence of powerful private companies’ undue influence over domestic policies.
In a commentary in People’s Daily, former Vietnamese president Truong Tan Sang said that corruption is worse now than at any time in the Communist Party of Vietnam’s (CPV) 70-year history.
“There is collaboration between those in power and rent-seekers to abuse state policies,” he wrote. “They arrange business deals that benefit some individuals and groups greatly, but cause immeasurable damage to the state budget and disrupt the economy.”
Nonetheless, Vietnam’s hybrid model of socialist governance and market economics has been widely touted as an example for Kim to follow. Between 2007 and 2017, Vietnam’s wealth grew by 210 percent and real-estate consultancy Knight Frank said that more than 200 Vietnamese have investable assets of at least US$30 million.
Having expanded by 320 percent between 2000 and 2016, Vietnam’s “super-rich” class is growing faster than that of India (290 percent) and China (281 percent). And if current trends continue, it will have grown by another 170 percent — from 14,300 to 38,600 millionaires — by 2026.
A significant share of these nouveaux riche have acquired their wealth by taking advantage of loopholes in the governance system. Such cronyism has thrived in the absence of clear regulations governing property ownership and conflicts of interest on the part of public officials.
One obvious reason is that government employees typically receive exceedingly low salaries; even the prime minister earns only about US$750 per month.
Against this backdrop, the CPV launched an unprecedented anti-corruption campaign, while publicizing its efforts to fight “interest groups” and thwart state capture.
So far, the prosecution of some former high-ranking officials has alleviated public discontent.
The Hanoi summit, together with Trump’s trade war against China, seems to have driven more foreign direct investment into Vietnam, thereby relieving some pressure on the economy and thus on the government.
However, in the long run, the party cannot rely on such windfalls.
Moreover, Vietnam’s previous growth was based heavily on speculation in real estate and stocks, rather than on manufacturing, technology and other high-value-added industries.
However, if the country wants to move up the global value chain and achieve more sustainable growth, deep political reforms are needed.
Over the past three years, the CPV’s top thinkers have held a public discussion about introducing more checks and balances. Apart from the anti-corruption trials, there are plans to reduce the number of people on the state payroll and to raise the salaries of those who remain.
In crafting its new development plan, the CPV seems to have been inspired by Singapore and the Nordic countries. Its goal is to move from a model based on cheap labor and capital-intensive, high-pollution, industrial-based investment to one based on advanced technologies and services, which would ensure more sustainable and equitable growth.
Judging from public statements, the party’s leaders seem to have recognized that flagrant corruption and rapidly rising inequality pose a threat to their legitimacy.
Yet it remains to be seen if the enforcement efforts will actually lead to meaningful political reforms, stronger safeguards against corruption, and clearer regulations for property ownership, so that the rich no longer have to rely on insiders to accumulate and protect their wealth.
Much of the CPV’s rhetoric has focused on the need for “morality and ethics” on the part of government officials.
However, it would be better to accept that self-interest is a powerful and inescapable human trait. By simply enjoining government officials to behave honestly out of a sense of public duty, the party risks missing the opportunity to establish stronger and more rational corruption monitoring mechanisms.
While most Vietnamese have enjoyed years of rising living standards, the economic model of the past three decades must be transformed. Vietnam is once again at a crossroads.
Although Kim and Trump could not reach an agreement on ending US sanctions last week, Kim still seems to be heading down the Vietnamese road. If he is serious about emulating Vietnam’s hybrid model of socialist governance and market economics, he will have to be mindful of the risks.
Tran Le Thuy is a journalist and researcher in Hanoi.
Copyright: Project Syndicate
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