Hanoi’s Underground Capitalism

Along the pitted elegance of Pho Ngo Quyen, a bustling street in Hanoi, Vietnam, you will, predictably, find uniformed men in Soviet-style uniforms, banners with Communist Party slogans, and grandfatherly pictures of Ho Chi Minh. Yet, capitalism thrives everywhere else in this community — in the tiny food stalls, countless mobile phone stores and clothing shops  offering everything from faux European fashion to reduced-price children’s wear,  sandals and sneakers.

Outside a ministry office, someone is cutting hair on the street. Nearby a woman is drying squid to sell to customers. Internet cafes proliferate, filled with young people.  Virtually every nook and cranny has a small shop or workplace for making consumer goods.

In some ways, Hanoi seems very much a third-world city in terms of its infrastructure and cracking sidewalks, and it shares some characteristics with the slums featured in this Megacities project, such as underground economies and a growing population migrating from rural areas. But its poverty pales compared to places like Mumbai or Rio. The poor sections are rundown and crowded, but you don’t see people sleeping on the streets. This is a city clearly on the way up — in a country with nearly 95% literacy and a countryside that not only feeds itself but remains the largest source of export earnings.

Of course, many rural residents — still roughly 70% of the population — continue to pour into Hanoi and other cities, but without the same desperation that characterizes, for example, people moving from Bihar to New Dehli or Mumbai. There is nothing of the kind of criminal elements that fester in the favelas of Brazil or Mexico City colonias.

In Hanou, even for the poor, it’s not just about survival. There’s a sense of Wild West in the East. With very un-socialistic frenzy, motorcyclists barrel down the streets like possessed demons, with little regard to walking lanes or lights. Everyone not on the government payroll seems to have hustle, or is looking for one.

Modern-day Hanoi reminds me most of China in the 1980s, when I first started going there. But there are crucial differences. State-owned companies in Vietnam lack the depth and critical mass of their Chinese counterparts, for example.  Still, as in China, foreign firms are moving in: Panasonic plants dot the outskirts, and Nokia is planning to build a $200 million factory on the city’s edge.

Hanoi is not Singapore either, where an enlightened state has allowed flashes of street capitalism, particularly in the hawker’s stalls that make the city a foodie’s delight. In Singapore business remains highly deliberate and world-class, enabled by a much envied and skilled Mandarinate. As you walk around Hanoi, peak inside a cavernous building and you’ll see not a sleek Singapore-style mall, but a cluttered collection of small boutiques. It reminds one of nothing more than the Vietnamese outposts in Orange County, Calif., or in Los Angeles’ Chinatown, which is now largely dominated by Chinese from Vietnam.

Le Dang Doanh, one of the architects of Vietnam’s economic reforms, which were  known as (Doi Moi) and launched in 1986, estimates the private sector now accounts for 40% of the country’s GDP, up from virtually zero. But Le Dang estimated as much as 20% more occurs in the “underground” economy where cash — particularly U.S.  dollars — reigns as king.

“You see firms with as many as 300 workers that are not registered,” the sprightly, bespectacled 69-year-old economist explains. “The motive force is underground. You walk along the street. I followed an electrical cable once and it led me to a factory with 27 workers making Honda parts and it was totally off the system.”

After years as a Communist apparatchik, Le Dang now has more faith in markets than is commonly found in the American media or U.S. college campuses. Trained in the Soviet Union and the former East Germany, Le Dang saw up close the “future” of a state-guided economy and concluded it doesn’t work. He noted that in agriculture farmers produce 50% of the cash income on the 5% of land that they can call their own. He also mentions proudly that his son, born in 1979, works for a private Hanoi-based software firm.

Other Vietnamese also have developed a taste for self-interest — and display considerable ingenuity finding their way. One clear inspiration, and source of capital, for the rapid acceleration toward capitalism comes from the over 3.7 million overseas Vietnamese. Ironically many of these are former stalwart opponents to the nominally capitalist rulers who fled the Communist takeover in 1975.

Today you see these ties at Vietnamese banks and trading companies nestled in various U.S. communities, including the largest in Orange County.  Overall, the U.S. community — also strong in Houston, Northern Virginia and San Jose –  accounts for roughly 40% of the total diaspora.

These communities have prospered, after a shaky start following the end of the Vietnam War. They are particularly prominent in fields such as information technology, science and engineering, with percentage representation in the workforce in those fields higher than most other immigrant groups.

For years the Communist homeland had little contact and shared no common purpose with this  largely successful, intensely capitalist diaspora. Strengthening ties between these upwardly mobile communities and the mother country are changing both. As UC Davis researcher Jane Le Skaife has found,Vietnam now ranks sixteenth in the world in remittances from abroad, with over $8 billion in 2010, nearly three-fifths come from the U.S.  This amounts to roughly 8% of the country’s GDP and is a larger amount than investment from international aid donors.  Skaife and others believe this number may be much too small given the Vietnamese penchant for  running beneath the official radar — a skill honed over the centuries.

Although hardly fans of the official Marxist-Lenninist regime, many Vietnamese , notes Le Skaife, now take great pride — and see great opportunity — in Vietnam’s rapid growth and growing affluence.  According to the  CIA World Factbook, the country’s poverty rate has dropped from 75% in the 1980s to  10.6% of the population in 2010 . In terms of economic output, a brief on Vietnam by the World Bank reported that between the years 1995 and 2005 real GDP increased by 7.3% per year and per capita income by 6.2% per year.

The growing symbiosis of   Vietnam with its diaspora, particularly in the U.S., will shape the rapid development of the country, notes Le Dang. This parallels the roles played earlier by the Indian and Chinese diaspora in the development of their home countries over the past two decades.

Nowhere will this impact be felt more than in major cities such as Hanoi, Danang and especially Ho Chi Minh City (the former Saigon). “We are seeing more of the expatriates here, and they are bringing management skill and capital through their family networks,” Le Dang says. “They are a key part of the changes here.”

For Americans, these changes should be welcomed both for economic and geopolitical reasons. Although much of our intelligentsia welcomes the onset of a “post-American” world, the perspective in Hanoi could not be more different. To Vietnam’s leaders, the United States, for all memories of the devastating war there, remains a critical counterweight to the country that has been their historic rival, China. Americans are more welcomed in Hanoi these days than in Berlin or Paris, or maybe even Toronto.

Even in the ramshackle working class wards along the Red River, you see signs in English and the dollar is welcome. It’s not that these fiercely independent people want to become Americans, but that they are acting like Americans — or at least those who still favor grassroots capitalism as the best way to secure the urban future.

This piece originally appeared in Forbes.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and an adjunct fellow of the Legatum Institute in London. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

Photo by Gerry Popplestone