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Reposted from November – by Popular Demand

Eastbound – Pre-Dawn
Three Hours west of Los Angeles @ 37,000 feet
Aboard Cathay Pacific Flight 882 from Hong Kong
Returning from Hanoi Vietnam

HANOI
A city of four million people and two million motorbikes.

In this communist place massive Soviet-style monuments abound, including statutes of Lenin and the Ho Chi Minh Mausoleum, its architecture ripped from the pages of socialist-dogma design 101.

Also scattered throughout the city are the architectural vestiges of the 100-year French occupation; but most such buildings have seriously deteriorated.


Meanwhile, the English-language daily newspaper, Vietnam News, reports with pride the laying of wreaths at a Stalin memorial, congratulates the government for its “solidarity” with the Cuban people, while reporting, without a hint of irony, that is has “progressed” to become the 68th poorest nation on the planet.

So make no mistake: Economics notwithstanding, Vietnam is dominated by a strict, unapologetic communist regime, still trying to decide how it can “manage” a free-market economy.

I traveled to Vietnam at the invitation of my good friend and neighbor, Gordon James. Dating back to the Presidency of Bush 41, Gordon, who owns Gordon C. James Public Relations (offices in Phoenix and Washington D.C.), has done free advance work, strictly as a volunteer, for the entire Bush family.

On this trip Gordon was organizing the entire U.S. contingent – about 400 strong – in preparation for the arrival of the President and Secretary of State, Condoleezza Rice, at the 2006 APEC Conference held in Hanoi.

While Gordon worked, I toured the city and countryside, spoke with many interesting people, and read volumes of surprisingly candid economic information provided by the Vietnamese government.

APEC – Asia Pacific Economic Cooperation (“cooperation” is used as a noun in this context) — is comprised of 21 countries, including several Latin American and African countries, plus all the usual suspects in Asia, and the U.S. It is a very active organization with events and meetings at many levels and locations throughout the year, culminating at the annual meeting where the heads of state convene for carefully scripted meetings.

At this particular conference President Bush was scheduled for several “bilaterals” – one-on-one meetings with other heads of state – and at least one “tri-lateral” with Japan and China. I left the day before the President arrived which suited me just fine. Our entire hotel was on lock down as government troops and police prepared for the President’s arrival.

Just a few days prior to the conference, Vietnam was admitted as the 150th member to the World Trade Organization (WTO), at a formal ceremony in Geneva.

The Vietnamese view WTO membership as enormously important to them. It will not only open new markets, but will lower tariffs on the vast majority of goods coming into Vietnam to no more than 15 percent. This will open vast new product selections to the Vietnamese.

Between their new status as a WTO member, and as host of the APEC conference, the Vietnamese government is just dripping with enthusiastic predictions of soon-to-arrive prosperity.

However, from what I saw, they have a long, long way to go.

SMOKIN’ – AND CHOKIN’
Not only Hanoi, but this entire region of the world, is choking on its own air. I’ve never seen air quality this bad – even on the worst days in LA.

The problem — somewhat, but not entirely, seasonal — originates in the rain forests of Indochina where farmers slash and burn to make way for fields, and then burn what’s left after each harvest. The situation is compounded everywhere, from Thailand to Cambodia to China to Vietnam where farmers do much the same and where villagers burn coal and wood to survive.

Meanwhile, the choking exhaust of old Soviet-era trucks and literally two million motorbikes, and a growing number of cars, in low-lying Hanoi all add to the air pollution problem in the city.

Young women in particular wear masks or scarves across their nose and mouth, often for vanity to keep their complexions fair, but mainly to keep from breathing the particulates that settle everywhere.

RENEW ME, BABY!
But air quality is a very small part of the story. Vietnam is dirt poor.

It’s certainly true that Asia in general, and countries like Vietnam in particular, are exploding economically. However, make no mistake: More than 80% of Vietnamese survive on less than $10 U.S. per day – and an incredible 26% of them somehow manage to live on less than $2 U.S. per day.

One of every 25 babies born in this country dies before their first birthday.

Meanwhile half the population is under 30. This fact and the government’s now strictly-enforced policy allowing no more than two children per family, presage huge pension and health-care problems in the future.

While the south enjoyed a free market economy of sorts until America withdrew in 1975, it was not until 1986 that the current government of Vietnam finally allowed private businesses to officially exist. This policy change was called – and is still constantly referred to as – “The Renewal”; and everywhere you see self-laudatory proclamations of the government congratulating itself for the so-called “renewal process.”

From 1975 until 1986, what free enterprise that existed – and there was plenty — was strictly black market stuff. Officially, all Vietnamese were employees of – I would say slaves of – the communist government.

Now, free-enterprise, in the form of micro-business, flourishes everywhere. However, families are only allowed tiny shops along the streets – each no more than about 12 feet wide and about 30 feet deep. But the buildings that house them can be deeper, and multi-storied. So families live above and behind their shops. Meanwhile, each building is extremely narrow, and often as many as five or six stories high, especially in the city.

In accordance with custom dating back to the 1700s, businesses are grouped geographically by block, by street, and in the countryside, by village.

So, in Hanoi, one entire block is devoted to businesses selling only motorbike seats. The next block features only businesses that sell light bulbs, the next block medicines, and so on. And, for example, a village about 45 minutes from Hanoi devotes itself entirely to ceramics. One building after another contains a ceramics store in front and a ceramics factory in back.

Yet even this explosion in micro-enterprise is just a part of the story. Major companies have committed major dollars to Vietnam. Cannon has a very large facility here; and Intel, for example, just announced that it will invest $1B U.S. here. And there are many others.

CONTRACT? WHAT CONTRACT?
Legally, Vietnam is racing to catch up with the rest of the world. Until they do, the risks of doing business here – especially for foreign investors – may simply be too great. The government has made major revisions in banking, securities and contracts law to create at least the promise – or perhaps the illusion, time will tell – of transparency, fairness and enforceability.

However, the legal infrastructure is still virtually non-existent by western standards. The method – the infrastructure — of enforcing contracts, or the system of laws under which they are to be interpreted, is fuzzy at best. One French businessperson here said that civil disputes can become, without the consent of the parties, criminal matters, at the discretion of the state.

Remember that France left its mark here for 100 years. What seems to be emerging, one business person told me, is a mix of British/American common law, and French civil law. Layer that with a Communist government steeped in a failed Socialist mentality, and God knows what – or who – the system will spit out in the future.

Meanwhile, credit markets are still virtually non-existent. For example, home buyers can finance very little, if any, of the purchase price of their homes. They must work for many, many years to save the cash necessary to pay the asking price. Even then they rarely receive a fee interest – outright ownership — in their property as we routinely do in the States. Instead, 50-year “renewable” leases are most common, according to Richard Leech, Director of CB Richard Ellis Vietnam, in Hanoi. Of course, a simple change of government policy may make “renewability” an illusion. The beauty of fee ownership is that it protects against that sort of government criminality.

What’s more, foreigners may not own Vietnamese real estate at all. Even a corporation with, say, only one percent foreign ownership, may not own real estate here.

How the government expects that policy to work is beyond me. What happens when a Vietnamese landowner dies, and his wife is a foreign national? Does she lose his estate? This type of nonsense is just one of many indications that the communist government in Vietnam still doesn’t get the whole private property/free enterprise thing; although, in fairness, the ban against foreign ownership of real estate is not entirely uncommon in emerging economies.

Therefore, of particular concern to foreign investors – you and me – must be the possibility of arbitrary changes in government policy that may reduce or eliminate property and contract rights with the stroke of a pen.

On the other hand, because Vietnam has just been admitted to the WTO – and it certainly does not want to get kicked out after eleven years of trying to gain admission – it must maintain certain minimum standards to remain a member. Those standards include reasonable consistency and transparency in laws, and in the governing process. But even small levels of transparency will represent a sea change for many agencies and officials.

Vietnam views its WTO membership as the ticket to attract vast amounts of foreign capital – perhaps some of yours. To accomplish this, it must behave. However, no investor wants to be part of a cautionary tale about the perils of jumping in too soon.

Meanwhile, Vietnam offers one of the world’s cheapest labor markets – and will likely continue to do so for at least another 20 years. If you invest in well-managed labor-intensive businesses here, you may do well. However keep in mind that Vietnam is at the very low end of the technological food chain; and because there is so much flat-out poverty here, the country does not represent a huge market for many discretionary consumer items (unless you can make a $500 motorbike) yet.

HOT REAL ESTATE MARKET
Despite its problems, Hanoi boasts one of Asia’s hottest real estate markets, with rents more than double that of Singapore. According to Richard Leech, rents for Grade A office space in downtown Hanoi go for around $45 U.S. gross rent per square foot!
There just is not enough quality space available. But because foreigners cannot own real estate the capital needed to create more rentable space has not been forthcoming.

Instead, foreign companies that wish to locate in Hanoi attempt to find a local partner. In exchange for the use of that partner’s land, they will grant stock, or options, or some other equity interest to them. This permits the foreign company to essentially control the land in exchange for equity in the company itself.

NOT SO HOT INCOMES – AND HOME OWNERSHIP
Also according to Richard Leech, the “average salary in Hanoi is $1,000 U.S. per year” – about $2.80 U.S. per day. However, official numbers put the “average” Vietnamese income at about $2,800 per year – about $7.50 U.S. per day. Whichever number is correct may not matter much. They are both so low that land ownership – even ownership of a 50-year lease – is a remote prospect for most Vietnamese.

Ironically, the government has commissioned a number of private companies to build what look like condominium projects in the suburbs of Hanoi. You see them everywhere. These are large complexes, not just one or two homes, but dozens, and in some instances hundreds.

But there’s a problem: They are empty. I mean really empty. No windows, no fixtures, appliances, doors, woodwork, etc. No nothing – just brick shells, hundreds of them, waiting for Vietnamese families to move in.

But the average Vietnamese can’t afford the cost of even the shells, let alone the cost of making each condo habitable. Remember, real estate financing is still rare – very rare.

The result is that many families in the city usually elect to live in three-generation units, sharing very limited space above a tiny shop in downtown Hanoi. The wife and grandparents may tend the shop, while the husband works elsewhere; or several family members may have other jobs. But regardless, those new government-planned housing projects remain beyond their reach.

SOY SAUCE WITH YOUR PENSION?
Honest to God, I’m not making this up: Some rural communities in Vietnam have created “pension funds” denominated in rice for their agricultural workers. The idea is for each worker to contribute ten quintals of rice per year until they contribute at least 100 quintals. If a worker chooses to contribute more, he will collect “interest” at the rate of fifty percent, compounded annually.

At age 60, or if a worker becomes disabled, he becomes eligible for “pension distributions” of two quintals (about 22 pounds) of rice each month. If he “over-funded his pension, he may collect that fifty percent bonus on the excess!

But that’s not all: He can borrow against his pension for small rice loans. He can then use the rice to perhaps to buy some chickens, or to send a child to school – or he can use his rice paddy (remember that 50-year lease) as collateral to receive a pension loan of up to several tons of rice. He might use this to start a new business, or to buy more livestock.

But rice is the currency of choice for the entire pension system: What you put in and what you take out. As a local pension administrator said: “The price may vary, but a quintal of rice is a quintal of rice no matter what.”

I guess it’s better than eating your pension check.

VIETNAM’S STOCK MARKET – SHOULD YOU INVEST?
According to Adam Sitkoff, Executive Director of the American Chamber of Commerce in Hanoi, there is indeed a fledgling stock market in Vietnam – and many excellent investment opportunities.

Meanwhile, the official Vietnamese news agency claims that, in particular, foreign investment opportunities exist in the securities industry itself as foreigners are allowed to own as much as 49 percent of brokerage or financial services firms. However, capitalization requirements for such firms are quadrupling January 1, 2007.

But chances are you are less interested in starting an investment advisory firm in Vietnam than in finding ways to invest there, and here’s my best suggestion: Don’t do it.

There is just not enough corporate transparency, nor tradition of proper corporate governance, to justify the risk an outsider would assume by investing from afar.

If you lived in Vietnam, could kick the tires of the companies in which you were interested, and worked through one of the handful of fledgling reputable in-country investment advisors, it might be worth doing – if you demanded and received a high risk premium on your invested dollars.

But Vietnam investing is not for armchair investors looking for the level of risk and reward commonly associated with the larger markets in Asia – at least not yet.

Personally, I see the investing environment as much like Vietnam’s attitude to the admission of private ships into their territorial waters and ports. Their official policy is that private ships such as The Global Adventure are welcome. But other non-Vietnamese owners have recently had their ships confiscated, at least for a few days.

Iin practice, the Vietnamese don’t yet quite understand how to handle the whole freedom thing. And while they certainly welcome private investment these days, and while they know they should protect it, I would not risk my money – at least for now – on the hope that they will.

We’ll revisit Vietnam. I hope that someday soon I will be among the first to enthusiastically recommend you invest here. But not yet.

DOING BUSINESS IN VIETNAM
Meanwhile, for those who wish to start a business here, or to deal directly with Vietnamese businesses, here are some pointers I received from John Simmons, Commercial Officer with the U.S. Embassy in Hanoi:

First, remember you are not going to do anything in Vietnam without someone’s permission. Often more than one agency will need to sign off on your activities. Be patient and start early.

Start by contacting the Vietnamese embassy and the American Chamber of Commerce in Vietnam. They are both online. When visiting with the embassy, keep it simple! Do not overcomplicate your story. Remember, everyone fears the government, including the people who work for the government. No one wants to be guilty of a mistake, so keep the main thing the main thing!

Ask the U.S. Embassy or American Chamber for guidance on where related industries are located in Vietnam. Then, after you collect as much information as possible by phone or on the internet, physically shop and explore those businesses in person.
Work through the Chamber and the U.S. Embassy for tips, if not actual assistance, on getting permission to market your product or service, or for information on installing a manufacturing or assembly facility in the country.

Explore barriers such as tariffs, taxes, ownership percentage requirements, etc. For example, as we have discussed, as a foreigner you cannot own real estate here. However, ownership limits vary for other industries here.

Remember that Vietnam’s greatest asset is a very cheap-, and reasonably well-educated labor force.

Also, as is the case increasingly throughout the entire world, English is the preferred second language of all Vietnamese. While the average person on the street will know little or no English, the labor force contains many qualified people highly conversant in our language.

And perhaps most important of all: Until you fully test whatever you want to do, do NOT invest more than you can afford to lose.

HERE’S SOME SPENDING MONEY, GRANDPA
I just can’t end this article without including this cultural gem: Most Vietnamese practice Ancestor Worship. When a family member dies they bury them, if possible, in the hills for three years.

Then, with the help of professional “exhumers”, they relocate the bones to a family pagoda, usually in a rice paddy. They choose rice paddies as grandpa’s ultimate resting place so that he may enjoy the wide-open spaces, and so that he may bring good fortune to the crops.

Regularly, family members offer sacrifices at the family alter. They are big on burning money so that the smoke will make its way to heaven to provide spending money for their dearly departed.

However, the U.S. dollar is the preferred currency. Why? They wish to protect their ancestors’ purchasing power in heaven!
I kid you not.

BUT REMEMBER THE BASICS
When analyzing Vietnam, remember the basics:

First and foremost this is a communist country. My impression was that the people live in fear of the government. I could not get anyone to even discuss public policy issues with me.

That is not to say the Vietnamese don’t deeply respect the sacrifices made by so many of their countrymen. There is, after all, at least one monument to their war dead in just about every village. And why not? No doubt, just about every family in the country has lost someone to war during the past 50 years. Remember, the French and the Americans were not the only people they fought. They also fought the Chinese over disputed borders, and they fought each other.

And also remember this horrendous travesty: Many families – particularly those in the south – lost family members who fought with the Americans, or who had supported the South Vietnamese government. These people were often murdered by the north after they had surrendered and after they were powerless to defend themselves. By some responsible estimates, as many as 2 million people were murdered by the government in the years following the end of “The American War”. “Murdered” is the operative word*.

While this atrocity is not discussed, it is no doubt remembered. Therefore, I suspect the Vietnamese people are conflicted. On the one hand they certainly honor their dead – especially in this land of ancestor worship — but I do not believe that this respect translates into anything more than a compulsory – obligatory – acceptance of the communist government. But we cannot know for sure because their basic freedoms – especially their right to free speech – are severely restricted.

RECONCILING TYRANNY WITH FREE ENTERPRISE
What the leaders of this one-party government don’t realize is that the day in 1986 when they opened Vietnam to free enterprise, they began to close the book on Vietnamese communism.

The two systems are ultimately incompatible.

How long, for example, will a wealthier and more economically independent Vietnam tolerate a government that, for example, routinely takes land for government projects, or even for private businesses, without properly compensating the displaced owners?

For how long will the people of Vietnam tolerate a government that fails to provide choice with respect to family size, health care, careers or education?

For how long they will tolerate a government that still murders its citizens essentially at will, and accounts to no one?

And for how long will the people of Vietnam tolerate a government that deprives its citizens of basic God-given rights?

It is clear to everyone else: Vietnamese communism is dead. Unfortunately for many who will continue to suffer under this regime, the party leaders just haven’t gotten the memo yet.

A CAUTIONARY TALE: VIETNAM AND IRAQ
As I look at the gut-wrenching poverty here, it is crystal clear that the people of Vietnam are worse off, not better off, because we left Vietnam instead of finishing our mission there. Documents released in the 80s, including the memoirs of the highest-ranking North Vietnamese leaders, make it clear they were ready to quit their assault on the South. Only the mixed signals emanating from Washington D.C. kept them going.

Unlike our acquaintance — and Senator — John McCain, I was not in Hanoi 37 years ago. I cannot compare the way it was then to what it is today. (Nor, actually, did he see much of it either from the six-inch window of his six-by-nine foot cement cell – his home for six horrible years.)

But this much I know for certain: Adjusting for world-wide advances in technology, the economy in this capital city today is little better, if not worse, than the free-market economy that existed in South Vietnam nearly four decades ago. That’s how little improvement – if any –has occurred. And that does not account for the incredibly deep, yet unspoken, psychological scars that linger from the murder of up to two million defenseless people by the government after our departure.

Looking again at the vulnerability of this third-world country, I am painfully reminded that the Vietnam War was not lost on the river Mekong near Saigon, or on the Red River that passes through Hanoi. It was lost on the river Potomac where four decades ago many of the same professional defeatists we hear from today persuaded a great nation to do a very cowardly thing: Cut and run.

There were great difficulties in how we prosecuted the Vietnam war, just as there are difficulties now in Iraq; and while we sowed the seeds for success in both countries, there are American opportunists now, as there were then, who would have us believe that the only reasonable course is to abandon the principals, the country, and the people, to whom we should be committed.

While the “Dominos Theory” – the idea that if one east-Asian country fell to Communism, all others would – was a tough sell in the 1960s (although history has proved the theory’s partial validity), it is much clearer that democracy in Iraq has the strong support of most of the Iraqi people, despite civil unrest, and that the stability of the entire Arab would definitely be jeopardized if Radical Islam regains a toe-hold there.

What we should have learned from Vietnam (but haven’t yet it seems) is not that we must leave when times are dark; but that we: (a) must speak with a single voice in support of our mission, even as we debate the best strategies for accomplishing it; and:
(b) that we must constantly improve and refine our approach on all fronts to actually win the war by accomplishing our clearly defined goal — a free and democratic Iraq able to defend itself from within and from without. That day is not that far away – if we stand tall.

I can only hope that the fate of those who believed in us in Iraq will not be the same as those who believed in us in Vietnam.

In 1969, as a 19-year-old volunteer in the U.S. Marines, it was my privilege to spend a year of my life fighting for the freedom of the South Vietnamese people. The official revisionist history of Vietnam, according to its communist leaders, its monuments, and way too many Americans, concludes that we should apologize for having been here.

I don’t. I apologize for leaving too soon.

*Regarding what happened in Vietnam after America withdrew, another good friend of mine urges me to “forgive and move on.” Well, here is my take on that sort of “can’t-we-all-just-get-along” mentality: I’ve always believed that forgiveness is the exclusive providence of the victim. Those of us who fought, whether we lived or died, have nothing to forgive. The men who faced us on the field of battle were just doing their jobs, as we were doing ours. But neither we, nor those of us who stayed home, have the moral authority to forgive those who murdered innocent people. Perhaps God or their victims will forgive them someday. But that is not our right. “Perhaps,” she says, “but it was all a long time ago.“ Yes, it was; and the last time I checked, those victims were still dead. Time does not heal a mortal wound. Time does not make murder less a crime.


Comments

1 Comment so far

  1. Louis Letson on March 29, 2007 1:27 pm

    Enjoyed this. I hope to go to Vietnam this year to look for some friends from 1969.
    (USN Cam Ranh Bay and environs)

    And you are right: We left too soon.
    LL

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