Democracy Lab

Southeast Asia's Economic Poster Child Is Stalling

How the Communist Party is fiddling while Vietnam burns.

"Long live the glorious Communist Party of Vietnam," proclaims one of the many red-and-yellow official banners that loom over central Hanoi.

Like citizens of other one-party states, most Vietnamese have developed a handy ability to block out propaganda as they buzz through the streets on their ubiquitous scooters in search of subsistence, stability, or greater riches. "Is the Party really attempting to send a message to the people, or merely trying to reassure itself?" quips one Vietnamese academic, unwilling, like most in this police state, to speak openly about the future of the country's self-appointed rulers.

Vietnam's leaders have good reason to be nervous these days. After an extended period of rapid economic growth (above 7 percent per year) that ended in 2008, the economy has been floundering, beset by inflationary bubbles, large outflows of capital, the collapse of two major state-owned companies, and a crippling build-up of bad debt in the banking sector.

In the headlong rush to invest in Vietnam as it prepared to join the World Trade Organization in 2007, foreigners overlooked structural weaknesses such as widespread corruption, the clunky but politically powerful state-owned sector, and a dearth of investment in infrastructure, health, and education. With most economists forecasting that Vietnam will struggle to grow much more than five percent in the near future -- hardly fast enough to absorb the young people entering the labor force -- no one is ignoring these difficulties now. Indeed, the timing of the slowdown could hardly be worse: Other Southeast Asian emerging-market economies, including Indonesia and the Philippines, appear to have sharpened their acts, while Burma has peeked from the shadows in search of connection to the global economy after decades of isolation and stagnation.

Everyone, from government advisers to foreign investors, knows what it would take to get the economy back on the fast track. Hanoi must stop providing, monopoly licenses, cheap credit, and other privileges to state-owned companies and their private-sector cronies. The banking sector must be recapitalized and given sufficient incentives to channel capital to enterprises with the best prospects. And the government must get serious about preventing corruption, which has a synergistic relationship with all the other ills. The catch is that this would require more than technocratic tuning of policies, and an atavistic, secretive Communist Party is hardly a promising vehicle for such reform.

Vietnam's chattering classes (and a growing number of highly critical, if highly anonymous, bloggers), have laid much of the blame for the country's woes at the door of Prime Minister Nguyen Tan Dung. Critics inside the Party, foreign diplomats, and academics all argue that Dung amassed unprecedented power in his own office, overturning a consensus-based approach to governing in the Politburo, the Party's 14-member top leadership body. More importantly, they contend that he used his excessive influence to support cronies and to drive the development of the powerful state-owned corporations and banks that have frittered away vast sums and served as a drag on growth.

When the Party's central committee recently met behind closed doors (as always) to thrash out a way forward, there was much speculation (or wishful thinking) that Dung would be deposed. But in the end, the Party opted for a classic "muddle through" solution. It criticized the Politburo and, in particular, "one comrade in the Politburo" -- widely rumored to be Dung, for mismanaging the economy. But it opted not to discipline them, lest "hostile forces" use the occasion to "distort and sabotage the country."

While senior Party members implicitly acknowledged the threat to its survival from poor economic performance, rampant corruption, and a surge in land and labor disputes, they clearly felt that the threat posed by accountability was greater. It is little wonder, then, that as the economy has struggled and social tensions have increased, Vietnam's powerful Ministry of Public Security has stepped up its crackdown on dissent. The latest among dozens to be arrested or jailed this year on catch-all charges of "propaganda against the state" are two songwriters and a bookish student, pictured on blogs hugging a teddy bear.

In the run-up to joining the World Trade Organization in 2007, Vietnam was on its best behavior when it came to human rights, persuading U.S. diplomats and others that it was committed to upholding freedom of speech and religion more seriously. But according to those same U.S. diplomats, the bloom is off the rose; they are now reluctantly chiding a Vietnam they have been keen to court as part of America's "pivot" back to Asia to counter-balance a rising China.

The crackdown hasn't been limited to political boat-rockers. Vietnamese authorities have been busy investigating the heads of state companies and banks who are widely blamed for Vietnam's economic woes. Among those accused or convicted: executives from Vinashin and Vinalines, the two giant state-owned shipping companies that collapsed after amassing billions of dollars in debt; Nguyen Duc Kien, the founder of Asia Commercial Bank (Vietnam's largest private bank) and one of the country's most prominent tycoons; and Tran Xuan Gia, a former investment minister and chairman of the aforementioned ACB.

The wide range and high level of the people targeted has sent shockwaves through the business community in Vietnam, domestic and foreign. Kickbacks, bribes, and fraudulent accounting are systemic in Vietnam, and not just among domestically-owned companies. Indeed, as many of those arrested on suspicion of economic crimes have disappeared from view, and rumors swirl about who could be next, some senior executives have felt compelled to appear in public just to prove that they haven't been caught in the net.

Keen to revitalize Vietnam's image as a successful emerging market, some foreign investors and international donors have asserted that these arrests are a reassuring sign that the Party is trying to get its house in order. But that's a stretch: As the British political scientist Martin Gainsborough (who's written extensively on the country), has argued, crackdowns on corruption in Vietnam are typically related to infighting within a system that is driven more by patronage than policy.

China has been facing similar imperatives to fight corruption and restructure its economy. But, setting aside the intrigues surrounding Bo Xilai and the recent outcry over the reported wealth of other top leaders, China's Communists have proved far more adept at re-inventing themselves for the modern era than their Vietnamese comrades.

Richard McGregor, the former Beijing bureau chief for the Financial Times, has concluded that the Chinese Communist Party has morphed into a large, powerful Ivy League-style networking club for those who want to get ahead. In Vietnam, by contrast, the party and the government are hemorrhaging their best assets. Young people have been quitting by the thousands, frustrated by the low salaries and the old-fashioned hierarchy. Real ideology, as opposed to vapid slogans, is notably absent in Vietnam today.

Many observers like to argue that Vietnamese officials have a unique ability to muddle through without facing up to systemic crises -- a talent that has been found lacking in almost every other transition country, from Indonesia to Argentina. But this reliance on improvisation seems to have become part of the problem. "The Party displays an extraordinary ability to adapt, but has tended to react to challenges [only] when they came," wrote Tuong Vu, a political scientist at the University of Oregon. "This reactive mentality has not helped the party to stem corruption and decay, which now reach the top level."

In contrast to nearby Burma, which has been freeing political prisoners and starting to implement overdue economic and political reforms, Vietnam's leaders appear to be trying to turn back the clock in hopes of shoring up their power. Over the last year, they have introduced new restrictions on imports and foreign workers, and are finalizing regulations to increase state control of the Internet and to reassert Soviet-style price controls.

The vast scale of the government's repressive apparatus probably assures the Party its grip on power for many years to come. But without a radical shake-up, the Party's political legitimacy will continue to ebb and the country's great economic potential -- only glimpsed to date -- will remain under wraps. Even reform-minded, Western-influenced officials feel caught in a bind. "We need a major crisis if the country is to move forward," says one mid-ranking economic official. "But we're scared about what will happen in such a situation."

Photo by HOANG DINH NAM/AFP/Getty Images

National Security

Rockets' Red Glare

No, Iron Dome does not prove that "Star Wars" was right.

Israel's "Iron Dome" missile defense has been spectacularly successful at intercepting short-range Hamas rockets: officials relate that roughly 80-90 percent of attempted intercepts have succeeded. However, it is important not to learn the wrong lesson from this. Some have gone so far as to claim that Iron Dome's success finally vindicates Reagan's dream of a missile defense "shield" against nuclear-tipped ICBMs. That this small battlefield system has been so successful against the relatively slow-moving short-range rockets doesn't mean that larger and much more expensive missile defense systems, such as the planned NATO system, will work against longer-range strategic missiles that move ten times as fast.

Besides the speed of the quarry, there are two important distinctions between the systems: where the intercepts take place (in the atmosphere for Iron Dome vs. in space for the NATO system), and the nature of threat (conventional battlefield weapons vs. nuclear-tipped deterrent arms).

According to the current NATO missile-defense plan, the United States, working with European allies, would ramp up the deployment of a mix of increasingly sophisticated sea- and land-based missile interceptors around Europe in an attempt to guard against any possible future Iranian nuclear missiles. While this certainly sounds good, the problem is that an enemy intent on delivering a nuclear payload could easily defeat the NATO system by using decoy warheads, thereby swamping the defense's radars and other sensors with fake signals.

In contrast to the short-range Hamas rockets, which fly through the atmosphere during their whole trajectory, the longer-range ballistic missiles -- which the NATO missile defense system is designed to counter -- spend most of their flight in space. For decades it has been known that trying to intercept a warhead in space is exceedingly difficult because the adversary can use simple, lightweight countermeasures to fool the defensive system.

For instance, cheap inflatable balloon decoys -- similar to the shiny ones at children's birthday parties -- can be released together with the warhead when the missile burns out. Because the NATO missile-defense interceptors try to strike the warhead in the vacuum of space, these balloons and the warhead travel together, making it impossible to distinguish the decoys from the real thing. If many such lightweight balloons were released near the warhead, the defense would quickly be overwhelmed with fake targets.

In fact, the CIA's own top specialist in strategic nuclear programs testified in 2000 that "[m]any countries, such as North Korea [and] Iran ... probably would rely initially on readily available technology ... to develop penetration aids and countermeasures. These countries could develop countermeasures based on these technologies by the time they flight test their missiles."

Unfortunately, warnings of such fatal weaknesses were not heeded in designing the NATO missile defense system. Now, two government-sponsored scientific studies have shown that the missile defense system being planned to protect the United States and Europe is fundamentally flawed and will not work under combat conditions. As Philip Coyle, who was associate director for national security and international affairs in the Obama administration's Office of Science and Technology Policy, recently put it, the program is "chasing scientific dead ends, unworkable concepts and a flawed overall architecture."

The Pentagon's own Defense Science Board report on NATO missile defense says that "the importance of achieving reliable . . . discrimination [between the warhead and decoys] cannot be overemphasized." It underlined that missile defense is "predicated on the ability to discriminate" real warheads from other targets, "such as rocket bodies, miscellaneous hardware, and intentional countermeasures." And if "the defense should find itself in a situation where it is shooting at missile junk or decoys, the impact on the regional interceptor inventory would be dramatic and devastating!" In short, the interceptor inventory would be exhausted in chasing decoy warheads, rendering the system useless.

Both because they are about ten times slower than long-range missiles and because they fly through the atmosphere, the Hamas rockets are much easier to intercept. Any decoys would quickly slow down in the atmosphere and be rendered ineffective and so none are used. So extrapolating the success of Iron Dome to the NATO system is technically unwarranted -- they are entirely different beasts.

Another big difference between Iron Dome and the NATO missile defense system is the nature of the threat. Iron Dome guards against small battlefield rockets that are actually used, whereas the NATO missile defense system is designed to counter nuclear-tipped missiles that are useful for their deterrent value and that have never actually been used since they were invented. Such missiles are intended to protect one's own nation and influence adversaries' strategic calculations; they are not fired off in everyday battles.

So an 80 percent-effective tactical missile defense system against conventional battlefield rockets -- such as Iron Dome -- makes a lot of sense. If 10 conventional rockets are headed your way, stopping eight is undeniably a good thing. The possibility of stopping eight of 10 nuclear warheads, however, is less decisive in altering strategic calculations since even one nuclear explosion will inflict unacceptable devastation. Just one nuclear-tipped missile penetrating your missile shield is about the equivalent of a million conventional missiles making it through. An imperfect -- or, as is the case in the NATO incarnation, a deeply flawed -- missile defense system doesn't alter the deterrent calculus between states. At least, it shouldn't.

So even after NATO has set up and activated a strategic missile-defense system, it still will not have neutralized the perceived threat from Iran -- if and when Tehran obtains nuclear weapons -- or North Korea. Not only that, but Washington's strategic calculations toward our adversaries will remain unaffected: The United States will still need to be just as worried about Iran's missiles, since the destruction of even one NATO city or region is simply too high a cost to bear. For that security calculus to change, national missile defense would need to intercept 100 percent of incoming nuclear warheads. This is an unattainable goal for any piece of machinery, and especially for the system being fielded, given the government's own damning scientific assessments.

As Pavel Podvig succinctly put it, "it would take only a small probability of success to make such a [nuclear] threat credible while missile defense would need to offer absolute certainty of protection to truly be effective." Even the largely successful Iron Dome system, while providing a worthy cover has not provided normalcy for Israeli citizens: the terror is still there.

A defense against deterrent nuclear-tipped missiles could also backfire by causing our adversaries to pre-emptively increase the number of missiles in their stockpile. So while the NATO system creates incentives for NATO adversaries and competitors, including Russia and China, to increase their nuclear stockpiles, it offers no credible combat capability to protect the United States or its allies from this -- increased -- weaponry.

And if policy makers mistakenly believe that the strategic missile defense system can protect them from nuclear attack, they may stake out riskier policies than they otherwise would. In fact, it is possible that the protection afforded by Iron Dome may have played a role in encouraging Israel to escalate the recent conflict, secure in the system's effectiveness. A similar escalation, but with a dysfunctional missile defense system, may lead to a much more dire nuclear miscalculation.

But what if a system could be invented that did offer a high degree of protection from long-range nuclear missiles? Unfortunately, such a system would only encourage a change in the delivery method of the nuclear weapons used by our adversaries. It would not devalue the nuclear weapons themselves.

A "functional" missile defense to counter North Korea's ICBMs, for example, could encourage Pyongyang to develop a ship-borne nuclear device instead. Since such a weapon is more difficult to detect and attribute to a given country, our adversaries may be less inhibited in using it as compared to an easily detected ICBM, which has a clear point of origin. (U.S. satellites continually monitor the globe for missile launches.) So if a missile defense encouraged our adversaries to exchange even a single ICBM for a ship-borne one, our security would actually decrease. Of course, an adversary might develop these alternate delivery methods in any case, but creating incentives for them to do so is not in our interest.

In short, if our adversaries obtain nuclear weapons, we should actually hope that they are mounted on missiles, because missiles are attributable -- we can pinpoint their launch sites -- and thus our enemies are deterred from using them. The real danger of a strategic missile defense that works is that it may work to discourage the missiles -- without discouraging the nuclear weapons themselves.

The real lesson in all this is that we should work hard to stop the spread of nuclear weapons -- once our adversary has them, we will be deterred no matter what kinds of defenses we think we have. But to stop the spread of nuclear weapons we need the assistance of major players like Russia and China. Ironically, the infatuation with the NATO missile defense ensures that we don't get that cooperation because those nations may fear that the system alters the strategic balance with the United States. Indeed, the bipartisan Strategic Posture Commission has pointed out that "China may already be increasing the size of its ICBM force in response to its assessment of the U.S. missile defense program."

Although Iron Dome has been remarkably successful in intercepting slow-moving battlefield rockets in the atmosphere, one ought not jump to conclusions about what this means about attempting to defend against high-speed nuclear missiles in space -- or even its desirability. 

Uriel Sinai/Getty Images