Yes, European Investors Should Be Concerned About Political Instability in Vietnam
The securocrats are taking over the Communist Party at the same time as Vietnam has a decade to sort out some very important economic problems.
On April 26, Vuong Dinh Hue, the head of Vietnam’s National Assembly, “resigned” over violations and shortcomings related to the corrupt activities of his assistant and deputy. This comes just weeks after Vo Van Thuong resigned as president; as did his predecessor last year. I won’t go into the background of these specific cases. There’s so much info online already.
The first thing to say is that we’ve never seen anything like this before. For decades, the Communist Party has promised to crack down on corruption. Since 2016, it has. Why? It’s the Vietnamese Communist Party, so, naturally, one has to do quite a bit of tea-leaf reading to try to explain what’s actually happening, and even then, most analysis depends on the analyst’s pre-existing assumptions about the Communist Party. Some, for instance, see all of this as merely internal politicking, as rivals try to outmuscle each other. We’re now less than two years away from the Communist Party’s quinquennial National Congress, so this is the time that the party is deciding on its future personnel. So, in a way, the explanation makes some sense that someone like To Lam, the public security minister and likely successor as party chief, is trying to get rid of his rivals.
But, for me, that mistakes the outcome for the cause. The anti-corruption campaign has become existential to the Communist Party. In the 1990s, the Communist Party lost its “legitimacy” as the spreader of socialism because no one cared any longer about socialism. In the 2000s, the Party also lost its monopoly on nationalism after it faced considerable criticism (including from American War icons like Vo Nguyen Giap) for selling Vietnamese land to the highest bidder from China, the bete noire of Vietnamese nationalism. So, by the 2010s, all the Communist Party had left as a source of legitimacy was economic growth. (And its exceptional growth was a result of a laissez-faire approach from the Communist Party, which has never been too competent in state affairs. Doi Moi was an admission of that incompetence.) But everyone knew that corruption was rife because the state didn’t intervene in the economy, and the public detested the Communist Party because of this. A number of analysts were predicting that corruption could be the Party’s downfall.
What happened after 2016, when party chief Nguyen Phu Trong defeated then-Prime Minister Nguyen Tan Dung, the personification of the corrupt cadre (or “rent-seekers”), was that the Communist Party hit on morality as a source of legitimacy. To put it briefly, morality had always been there. Ho Chi Minh wasn’t a good socialist thinker; most of his teaching, which was hurriedly hashed into “Ho Chi Minh Thought” in the 1990s, was about how communists should behave. Trong, an ideologue who edited the Communist Party journal for most of his life, resurrected that with aplomb in 2016. Indeed, his so-called “morality campaign”, which specifies how cadres should act and behave, is far more important than the mere anti-graft campaign, as Trong has admitted. So we’re left with a situation where those left in the upper echelons of the Communist Party now think that morality, not economic growth, is the biggest source of legitimacy and, thus, the way it survives in power (which is what really motivates the Party).
My concern is twofold. First, profit-seeking and individualism are the core no-nos of the morality campaign. That’s good if you want to limit corruption, although corruption will remain rife because of the nature of Vietnamese politics, where there are only top-down punishments. (So basically, Trong is trying to perfect human nature rather than look at the institutional causes of corruption.) That’s terrible if you want an effective bureaucracy where civil servants have some autonomy to make decisions over areas where they’re experts, and if you want a bureaucracy run on merit, not patronage. After all, no one will show their merit if they’re all terrified of making mistakes and being punished for those mistakes. They’re going to defer to their superiors, making it more patronage-based. We’ve already seen the bureaucracy ossify because of this. My guess is that it’ll only get worse, leading to an increasingly dictatorial rule, where the only decisions the government implements are those that come down from on top. But, at the same time, the Party is removing anyone from the upper echelons who has experience in managing the government and the economy. Now, the majority of Politburo members are from the security apparatus and the military. So, you have an increasingly dictatorial chain of command because everyone is terrified of being fingered for corruption or misuse of state money, so they won’t do anything risky without the say of their superiors. And those superiors are increasingly people from the security apparatus with no experience (or probably interest) in economic affairs.
Second, and a corollary, all this is happening when, to be frank, Vietnam has about a decade or so to sort out some very serious problems. Its demographics aren’t favorable. The size of its workforce will start to contract during the 2030s, and it will become an “aged” society by around 2034. This will happen when the average Vietnamese is much poorer than the average Thai or Korean when their society became “aged”. I don’t see how Vietnam doesn’t become “old before wealthy”. Then you have necessary infrastructure projects that need to get built. You’ve got to implement a proper tax base. You need to do something about pensions, as 20% of the population will be retirees by 2050. There’s also geopolitics. An imploding economy in China, Vietnam’s largest trading partner, is not good news. Nor would be the return of Donald Trump. Remember he called Vietnam the "single worst abuser" on trade with the United States. One also ought to be mindful of how Vietnam copes now that other Southeast Asian countries are gaining more of the decoupling investment. Plus, Vietnam is going to face some serious ecological challenges in the next decade or so, especially if it cannot convince neighbors to stop interfering with the flow of the Mekong River (here’s looking at Phnom Penh).
So, over the next decade, the party/government will face some of the most difficult tasks in recent history. A start has been made on some of these, but things aren’t progressing as quickly as they should, in part because of the side effects of the anti-graft campaign. But that campaign is leading to the removal of people with actual experience and expertise in governance from the Communist Party, leaving just the securocrats and socialist ideologues who now don’t think that economic growth is the main source of legitimacy.
One can take a Panglossian view and say that because, it seems, the Vietnamese economy has been relatively insulated from what’s happening in the Politburo, political instability won’t seep down too much in the future. But the fear should be what happens after the Communist Party’s next National Congress in early 2026, when all of the current peccadillos will be consolidated into a new leadership. The securocrats will take over. The anti-corruption campaign will roll on (although my guess is that it’ll peak before 2026) because morality is now the driving force of Party decision-making. That means less attention on the sort of economic reforms that the communist government really needs to make to prepare for an aged society and increasingly complex world trade.
What about the Western securocrats like George HW Bush, Theresa May (Home Sec from 2010-16), Sarkozy (Interior Minister on two occasion under Chirac), Cimoszewicz and Leszek Miller? Only when a securocrat from Vietnam MAY land the top dog job it's all doom and gloom. Clueless.