Vietnam: Don't Blow It

Not a great look.

Photographer: Hoang Dinh Nam/AFP/Getty Images

Vietnam has a briskly growing economy, a vibrant tech scene, and a young and entrepreneurial workforce. Foreign investment is surging. Exports are thriving. The local beer is the toast of Asia.

Yet by some measures, the country's progress is precarious. And as Vietnam's Communist Party convenes in Hanoi this week to select new leadership, amid much intrigue and controversy, there's a risk that the regime could squander a singular opportunity to reform its economy for the long run -- and to address the festering problems underlying Vietnam's remarkable rise.

The outcome of the selection process is still anyone's guess. The favored candidates for the party's general secretary are Nguyen Tan Dung, the current prime minister, and Nguyen Phu Trong, the incumbent. Dung generally supports freer markets and closer ties to the U.S.; Trong favors more state meddling and friendliness toward China.

Whoever wins will face a slate of economic conundrums, ideological quandaries and geopolitical hazards. But he also has two very big opportunities.

The first is demographic. Fully 60 percent of Vietnam's population is under age 35, with about two people of working age for every dependent. Actuaries call such a windfall a "golden population structure." Yet this won't last. In 20 years, the proportion of citizens aged 65 or older will roughly double. That means it's crucial to put a sustainable social safety net in place now, while the middle class is growing and able-bodied taxpayers abound.

The second opportunity is economic. The Trans-Pacific Partnership, a U.S.-led free-trade deal, is likely to benefit Vietnam hugely. If ratified, it would cut some 18,000 tariffs in 12 countries, helping Vietnamese goods -- from apparel to seafood -- find new customers and new markets. By 2030, the World Bank reckons, the agreement would boost the country's exports by about 30 percent and its economic growth by 10 percent.

All this good fortune means that the new general secretary should have a very unusual grace period -- and a very brief window for pushing ambitious reforms.

Despite its lively growth figures, Vietnam faces some daunting challenges. The economy remains heavily dependent on low-wage labor and cheap exports. The tax system is among the most complicated in the world. Corruption is embarrassingly common. And distrust of government is widespread.

Some Vietnamese officials have recognized these problems. They've made progress in streamlining investment rules, selling off some state-owned companies, and opening more markets to foreign investors. They've also tried to encourage better governance and public works investment.

But a few further reforms are in order.

Relinquishing state control of more businesses should be the top priority (some of that delicious beer, for instance, is still brewed by the government). That would help rationalize the economy, reduce fraud and boost productivity, which would in turn ease the burdens of an aging workforce. Scrapping the regime's "two-child policy" could also alleviate demographic pressure. Raising the retirement age -- now set at 60 for men and 55 for women -- would go a long way toward shoring up the teetering pension scheme. And easing official discrimination against families that sided with the U.S. during the war would remove a serious impediment to upward mobility.

All easier said than done, of course. But there are indications that at least some members of the Communist Party understand these challenges and are prepared to act on them. There may never be a better time.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.