Impact of the Economic Crisis 1975-1978

 In a short span of just a few years, the post-1975 euphoria of victory, unification, and the prospect of an industrialized socialist Vietnam embedded in the Soviet-style five-year plan (FYP) 1976-80 evaporated, and the leaders of the CPV found themselves confronting a severe economic crisis compounded by growing conflicts with Cambodia and China. Both domestic and external crises seriously threatened the legitimacy and survival of the party-state itself. In retrospect, although Vietnam's economic reform (Doi Moi) was officially launched only in 1986, its origins can be traced back to the economic crisis of what Adam Fforde and Stephan de Vylder referred to as the DRV model of the late 1970s— that is, Soviet-style central planning aimed at rapid industrialization, collectivization of agriculture, and strong central control of the economy.1 Central to the focus of this chapter is the shift in Hanoi's strategic thinking from the celebratory years following national unification, 1975-77, to the dual threat of economic crisis and war with Cambodia and China, 1977-78. The existing scholarship has left a few important questions inadequately answered. How did Hanoi's leaders interpret the causes of the failure of their 1976-80 FYP and its relationship with the national security threat posed by the Sino-Cambodian alliance? How did their interpretation of these crises influence their strategic thinking and consequently domestic and foreign policy changes intended to address the economic and national security threats to the Communist regime?

This chapter, while building on previous studies, focuses on how the interactions between domestic and foreign policy, especially the economic crisis and escalated military conflict with the Khmer Rouge and China in 1977-78, influenced Hanoi's rethinking of national priorities and strategies. Vietnam found.

itself in territorial dispute with China as early as 1974 and at war with the Khmer Rouge soon after its unification in 1975. By 1978, Vietnam had plunged into economic crisis at home, while the border conflict turned into a two-front war with China and in Cambodia. I argue that how Hanoi's leaders interpreted the impact of the economic crisis on the socialist system in 1977-78 and the threat it posed to the party-state influenced the change in their strategic thinking about their country's national security orientation. As the economic crisis worsened in 1978, and the military threat the Sino-Cambodian alliance posed to Vietnam's territorial sovereignty grew, the country's military-first leaders within the CPV moved to bolster against the Khmer Rouge and China, to Vietnam's territorial people, especially the chairman of the State Planning Committee and Deputy Prime Minister Le Thanh Nghi, were blamed for the economic crisis, although the sources of the crisis were impersonal and beyond their control. In early 1978, Le Thanh Nghi began to relax state central planning and focus on building local districts into an economic and national defense fortress in preparation for war. Hanoi decisively shifted from an attempted balancing position between the Soviet Union and China to a formal alliance with the Soviet Union against China in November 1978.

This chapter, however, does not focus on the objective reality of the failure of the FYP, which is the subject of many excellent studies, but rather on the shift or lack thereof in Hanoi's collective strategic thinking in the face of a mounting economic crisis and national security threat in the late 1970s. In Changing Worlds: Vietnam's Transition from Cold War to Globalization, David W.P. Elliott revealed the change in Hanoi's collective ideas after 1975, but briefly touched on these crucial years, 1977-78. Elliott observed (and I strongly agree) that "Although Vietnam's reforms were officially—if tentatively— launched in 1986, their origins were back in the late 1970s."4 In Elliott's account, General Secretary Le Duan's mind-set of orthodox Soviet-style central planning conformed to the old thinking, that is, top-down economic management, at the Fourth Party Congress in December 1976, and Duan and his closest ideological ally, Le Duc Tho, were unyielding and dogmatic in clinging to orthodoxy.5 The leading reformist, Vo Van Kiet, who served with the city-level leadership in Ho Chi Minh City, recalled that Le Duan's governing philosophy of Soviet-style central planning impeded the development of new philosophy of Soviet-style policy.6 Elliott discussed early reformists in the South, especially Vo Van Kiet and Nguyen Van Linh after 1975, but left in the thinking about economic Prime Minister Le Thanh Nghi who oversaw the national economy in the late 1970s. It was Le Thanh Nghi who advocated change and demanded "new  thinking" (tu duy moi) to deal with the economic crisis in 1977-78. Leaving personalities aside, this chapter reveals, in greater detail than Elliott did in his book, the impact of the economic crisis in 1977-78 on the internal debate between the economics-minded leaders and the conservative and military-first faction over Vietnam's national security strategies. Elliott's work takes as its starting point an analysis of the shift in collective ideas about the economy in the early 1980s, not the late 1970s as in this chapter, and does not address Hanoi's internal debate about Vietnam's domestic and foreign policy in late 1977 and early 1978, which I argue led to a significant shift in domestic and foreign policy strategies.

Newly available sources provide new insight into an internal debate within the Politburo in late 1977 and early 1978 about the problem of old thinking, which led to the decentralization of economic planning, that is, bottom-up planning, in response to the economic and national defense crises that Vietnam was facing at the time. The idea of decentralizing economic planning and delegating it to local authorities, especially at the district level, was accepted by the Politburo leadership and presented to the Third Plenum of the Party Central Committee in December 1977 as it was debating how to address inefficient economic management and national security threats from the Sino-Cambodian alliance in 1978 and toward the end of the FYP in 1980.8 Compared to the Doi Moi reform policy at the Sixth Party Congress in December 1986, this was certainly an incremental and improvised change, as Vo Van Kiet later noted, but it was also both a strategic and an ideological response to the domestic and international crises that Vietnam was confronting at the time.

While Elliott emphasized the coexistence of Marxist and nationalist components in the Vietnamese revolutionary mind-set, with the former giving way to the latter—the view to which I subscribe—political scientist Tuong Vu contends that the Marxist-Leninist ideology of state leaders was the overriding worldview that shaped Vietnam's socialist revolution and external relations from the 1920s to the late 1980s." Stressing that Vietnam's internationalism trumped its nationalism, Vu writes, "Although the Chinese invasion [of February 1979] aroused Vietnamese traditional patriotism in many Vietnamese, the conflict did not destroy the Vietnamese belief in internationalism precisely because of the way Chinese moves were interpreted—as an expression of feudalism and bourgeois chauvinism, and an act of 'betrayal' to the 'ideals' of internationalism."12

Portraying Vietnamese communist leaders like Le Duan as orthodox Marxists who could not imagine the future Vietnam outside the socialist bloc led by the Soviet Union, Tuong Vu's (2016) Vietnam's Communist Revolution:

The Power and Limit of Ideology asserted that Vietnam's vanguard socialist internationalism—that is, a two-camp worldview of Vietnam as the forefront of the socialist camp against the capitalist and imperialist camp—explained Vietnam's foreign policy behaviors with regard to the missed opportunity to normalize relations with the United States after 1975 and the failure to foresee Sino-Vietnamese hostility and the Chinese attacks in 1979.13 While the ideological worldview of the Vietnamese Communist leadership played a role in Vietnam's foreign policy in the second half of the 1970s, newly available archival sources show that Vu's argument errs by privileging the explanatory sources as Marxist-Leninist ideology. A social constructivist's lenses of power of Vietnam's Marxist-Leninist ideology, as Vu contends, are too confining; his ideational approach neither allows a nuanced analysis of Hanoi's strategic thinking about the linkage between domestic and foreign policy nor liberates analysts from the ideological-material dichotomy or, simply put, the either-or question that sets a constructivist theoretical and methodological framework apart from that of realism in international relations. Vu claimed that ideological affinity with the Soviet Union trumped pragmatism, writing, "There is simply no evidence that Vietnamese leaders ever considered leaving the Soviet camp.... Hanoi's quick fall back into Moscow's open arms indicated the more powerful pull of ideology compared to the push of the international structure." As I show, such an argument overlooks a significant but much less visible shift in Hanoi's strategic thinking about the nexus between economic development and national security that began well before Hanoi's plan to invade Cambodia in December 1978.

On closer examination of Hanoi's strategic thinking, as revealed in the leadership's privately circulated documents, a more complete explanation would have to take into account the interaction between ideological (worldviews) and material factors (domestic and external pressures). Ho Chi Minh's diplomatic thought emphasized the single force of "combining the strengths of the nation with those of the era,"15 a notion originating in the Marxist concept of class contradiction. This belief system is itself based on the decisive role of internal factors, as well as the influence of external factors, both the character of the Vietnamese revolution and the prevailing global trends in the paradox "who will prevail over whom" (ai thang ai).16 This philosophical belief provides insight into Hanoi's interpretation and assessment of its position and the external environment at that critical juncture. In parallel with socialist orthodoxy, the Vietnamese art of diplomacy, as perfected by Ho Chi Minh himself, is also characterized by opportunistic maneuvering, that is, forecasting, creating, seizing opportunities, and analyzing the balance of power trajectory in order to predict opportunities, timing, and appropriate strategies and tactics.17 Hanoi's top leadership in the late 1970s consisted of members of both camps—General Secretary Le Duan and his ally Le Duc Tho, the pro-Soviet conservatives, and more moderate and economics-minded pragmatists led by Prime Minister Pham Van Dong and Deputy Prime Minister Le Thanh Nghi. Nonetheless, they were all deeply influenced by Ho Chi Minh's diplomatic thought.

A small list...

top leaders, especially Le Duan and Le Duc Tho, were known for their ideological rigidity and dogmatic adherence to Soviet-style socialism. Yet, they were also shrewd politicians who knew how to navigate the complex political landscape of the Cold War era. They understood the importance of balancing ideological purity with pragmatic considerations, especially when it came to national security and economic survival. In the late 1970s, as Vietnam faced a growing economic crisis and increasing pressure from China, Hanoi's leaders began to reevaluate their strategic priorities. They realized that the Soviet-style development model was not working and that they needed to adopt more flexible and pragmatic approaches to economic management and foreign policy. This shift in thinking, which eventually led to the Doi Moi reforms of the 1980s, was not solely driven by ideological considerations but also by the harsh realities of Vietnam's domestic and international environment.

       1975 to Mid-1977: Domestic Determinants of Vietnam's Foreign Policy

During a short period of near-total peace (1975 to mid-1977), Hanoi's leaders attempted to translate their national glory and new geopolitical importance as the victor in the war of resistance against the United States into an action plan to build a socialist industrialized Vietnam that the developing world would envy. After its historic victory in April 1975, the CPV made national unification and socialist transformation of the South a top priority, focusing on dismantling the remnants of the Nguyen Van Thieu administration. The increasing conflict between China and the Soviet Union put major structural pressure on Vietnam's international relations immediately following the 1975 victory. A 1975 internal report by the MOFA declared that maintaining Vietnam's policy of a balanced position between the Soviet Union and China while adhering to unity in the international socialist camp remained the best course for Vietnam's postwar foreign policy.18 Vietnam's victory, in Hanoi's view, proved to the socialist camp that the Soviet Union's and China's policies of peaceful coexistence with the United States were misguided and the great victory belonged solely to the Vietnamese revolution. Yet both China and the Soviet Union were quick to claim an important role in Vietnam's victory. In return, Hanoi expected both nations to continue to provide substantial aid for Vietnam's postwar reconstruction. However, after 1975 Beijing and Moscow were no longer enthusiastic about providing a huge amount of nonrefundable aid to Vietnam. They began to view economic cooperation with Vietnam as a matter of reciprocity and mutual interests.19

As senior Vietnamese diplomat Luu Van Loi put it succinctly, "We could obtain the assistance [in the form of loans to be repaid] only when our friends found the economic cooperation with us practically advantageous and when we could maintain their confidence in trade and cooperation."20 Soon after Vietnam was unified in 1975, Moscow demanded that the Soviet Union be the first country to establish an embassy in Ho Chi Minh City and be granted exclusive access to captured American weapons so as to study their technology while gaining access to the strategic naval base in Cam Ranh Bay. Initially,

Vietnam refused Moscow's navy access to Cam Ranh Bay, but it was finally granted at the end of 1978 when Vietnam was prepared to invade Cambodia. The Soviet Union also hoped to use Vietnam as a springboard to exert its influence in Indochina and Southeast Asia and roll back China’s influence in the region. Moreover, it desired to integrate Vietnam into the Soviet-led COMECON, but again, to Moscow’s disappointment, Vietnam was uninterested in establishing broad ties with the council at that time. Hanoi cited “the need to study the question of participating in the organization,” which was perceived by the Soviets as a lack of interest in establishing broad ties with the COMECON. Moscow also expected reciprocal economic cooperation from Vietnam (hop tac kinh te co di co lai), a key principle of economic relations between Vietnam and the Soviet Union after 1975.

Hanoi viewed China’s significant reduction in its aid to Vietnam as Beijing’s attempt to weaken Vietnam and limit its role in the region. In reality, China wanted to use aid diplomacy to lure Vietnam into its orbit and limit the Soviet Union’s influence, but Vietnam’s request for Chinese aid for postwar reconstruction was enormous. The Chinese historian Shu Guang Zhang observed, “Zhou Enlai, among other top PRC leaders, had shown serious concern over the ever-growing requests for aid from Hanoi and indeed tried to dissuade the Vietnamese from relying on China’s aid in its postwar economic reconstruction, which gave rise to mixed feelings among the DRV leaders.” Hanoi asked Beijing to provide material aid worth 1 billion renminbi (RMB), including 100,000 tons of steel, 750,000 tons of fuel, 150,000 tons of fertilizer, 250,000 tons of coal, 100,000 tons of cement, 22,000 tons of thread, 2,200 vehicles, 300 train cars, 5 fishing boats, 350,000 tons of staple foods, and a few other consumption goods. To Hanoi’s awful disappointment, Beijing only agreed to a loan of 100 million RMB (approximately US$50 million) to be used to import Chinese goods in addition to expanding the capacity of three China-aided projects (the Dap Cau power plant, Bac Giang fertilizer factory, and But-son cement factory). This was an interest-free loan to be repaid with Vietnamese goods between 1986 and 1995. Premier Zhou Enlai and Vice-Premier Li Xiannian made it clear to Hanoi on several occasions that Chairman Mao Zedong and the Chinese Party Central Committee had made this decision after thorough deliberations. Zhang wrote, “On his deathbed he made this decision after thorough deliberations to try to the end of his life that in 1975, Zhou Enlai met with the Le Duan delegation to try to convince them that China would continue to supply Hanoi with economic aid despite the almost unbearable burden of assisting the DRV’s anti-American war, as long as the two countries remained close friends.

More than a year before the Fourth Party Congress in December 1976, General Secretary Le Duan led a state delegation on an official two-month trip.

(September 22 to November 22, 1975) to eight socialist countries, including the Soviet Union and China, to negotiate for economic assistance in support of the unified Vietnam’s first FYP (1976–80). The delegation first visited China, on September 22–28, with the goal of improving Sino-Vietnamese relations, but the Chinese leaders warned that if Vietnam continued its pro-Soviet foreign policy it would not find support from them. Le Duan ignored Beijing’s warning, and in fact detested China’s “big brother” attitude toward Vietnam.

Le Duan’s successful trip to the Soviet Union and Eastern Europe resulted in pledges for 1.730 billion rubles in long-term loans from the eight socialist countries, including 946 million rubles for industrial projects and 695 million rubles to cover the import-export trade imbalance. The Soviet Union’s pledge accounted for 844 million rubles (350 million rubles for heavy industrial equipment and machinery and 494 million rubles for raw materials), or about 50 percent of the total financial assistance from the eight countries. The Soviet Union and Eastern European countries agreed to charge Vietnam much lower than the market price for industrial equipment, estimated at between 80 and 180 percent below the international market prices. Hanoi’s leaders viewed this as very advantageous to Vietnam, but far from replacing China’s generous nonrefundable aid during the war.

By comparison, China pledged Vietnam loans worth 200 million rubles to be used to import raw materials in 1976, only a quarter of the Soviet aid pledge, and Beijing used international market prices for these transactions.28 During the war China had delivered nonrefundable aid worth 1.2 billion rubles (5.235 billion RMBs) in 1971-75.29 Thus the combined aid and loans from the Soviet Union and other Eastern European countries for Vietnam's first FYP only amounted to around 50 percent (860 million rubles) of the wartime aid it received from China. In Hanoi's thinking, after 1975 the Soviet Union and the Eastern European bloc fell far short of replacing China's generous aid.30 While the Soviet leaders urged Vietnam to substantially increase its exports in order to reach a balance in exports and imports, they made it known to the Vietnamese leaders that the COMECON would be willing to provide a long-term loan of more than a billion rubles for the next FYP (1981-86) on the condition that Vietnam become an official member of the organization.

Although Beijing rapidly reduced its aid to Vietnam to an insignificant level after 1975, the aid pledged by China before 1975 was so significant that Hanoi strove to persuade Beijing to resume it in the ensuing years. Out of the 800 million rubles for industrial equipment that socialist countries had pledged before 1975, which Hanoi hoped to use to support its 1976-80 FYP, China was expected to deliver 475 million (never delivered due to the deterioration of

Sino-Vietnamese relations in 1977-78) and the Soviet Union 200 million. Thus, in Hanoi's view, China's aid still played an important role in Vietnam's postwar economic reconstruction, which began in December 1976, although the Soviet Union clearly was the most important source of investment capital and technological know-how for the industrialization and modernization of Vietnam's socialist economy.

In 1975 Hanoi's leaders were highly confident, almost to the point of self-delusion, that Vietnam's important geopolitical position in the South China Sea and Southeast Asia and the vast economic potential of a unified country-a young population and rich natural resources—would persuade many countries to establish economic relations with it. This belief was reinforced by the impressions of the Le Duan delegation during its first major trip to negotiate economic relations with socialist countries after unification in 1975.33 However, the socialist camp, which served as the main prop for Vietnam's resistance against the United States during the Vietnam War and its national reconstruction in the first two years (1975-76) after the liberation of the South, was still deeply divided as the differences between the Soviet Union and China were still acute, especially in international relations.

After 1975 Hanoi strategically ranked countries in three ideological categories: (1) socialist, (2) nationalist, and (3) capitalist.34 The economics-minded leadership led by Prime Minister Pham Van Dong and Deputy Prime Minister Le Thanh Nghi desired to expand Vietnam's economic relations beyond the socialist camp in order to achieve the paramount objective of socialist economic development outlined in its first FYP without causing collateral damage to its main support from the socialist camp. General Secretary Le Duan, the leader of the conservative camp, stressed the importance of "combining economy with national defense" in his political report to the Fourth Party Congress in December 1976 and placed the tasks of building the technical and material basis of socialism to strengthen national defense at the center of the FYP.35 In his political report, Duan stated that to prevail in the struggle between socialism and capitalism, "We must carry out the three revolutions in the relations of production, science, and technology and ideology and culture," emphasizing that "the technical-scientific revolution is key to demonstrating the superiority of socialism to capitalism." Clearly Le Duan viewed economic relations through the "two-camp" lenses.

However, the pragmatic economics-minded leaders within the inner circle of the executive (Prime Minister Pham Van Dong's cabinet) believed that the international socialist camp was no longer the only source of support—though.

it was still the main prop—for Vietnam's FYP. They advocated expanding Vietnam's economic relations with nonsocialist countries while firmly adhering to the socialist camp politically and ideologically. With the urgency of economic reconstruction in the North, socialist transformation in the South, and no major war to fight, the conservatives yielded to the pragmatic leaders on economic relations with the United States. For the first six months of 1975, the MOFA evaluated the US attitude toward Vietnam, beginning with negotiations to normalize relations with the United States. While Washington declared its intention to impose economic sanctions on Vietnam, Hanoi took it as a positive sign when Washington passed along a diplomatic note via the Vietnamese embassy in Paris on June 12, 1975, expressing the possibility of establishing relations with Vietnam coupled with the fact that a number of American companies were already exploring the potential for doing business in Vietnam.37 Hanoi certainly envisioned a broad-based foreign economic policy when in May of that year sixteen capitalist countries, including France, Sweden, Japan, and Norway, publicly criticized the US sanctions against Vietnam and explored economic cooperation with it. Such signaling by the West confirmed Hanoi's conviction that a unified Vietnam had great political and economic potential to establish economic relations with capitalist countries.38 In addition, Vietnam began to explore building economic relations with Thailand, Indonesia, and other members of ASEAN and prepared its entry into the Non-Aligned Movement (NAM). Finally, the MOFA was instructed to prioritize Vietnam's membership in international organizations like the International Monetary Fund (IMF) and World Bank and organizations affiliated with the United Nations, such as the United Nations Conference on Trade and Development (UNCTAD), which it believed would help secure tangible national interests beyond the international community's recognition of a unified Vietnam.39 Such deliberate efforts were further indicative of the pragmatist leaders' vision of Vietnam's future beyond the socialist camp.

In the second half of 1976 the domestic and international situation changed rapidly, resulting in the onset of an economic crisis and escalating border conflicts with the Khmer Rouge and China, leaving Vietnam in a uniquely uncertain situation in which peace coexisted with the potential outbreak of armed conflict with its neighbors Cambodia and China, prompting the leadership to set two strategic tasks: successfully build socialism and be prepared to defend the socialist fatherland.

To rapidly increase Vietnam's industrial production and extract technological know-how to speed up its socialist industrialization, one of the main objectives of the FYP, from 1975 to 1977, Hanoi increasingly relied on foreign specialists, especially from the Soviet Union and Eastern European countries, and sought to emulate their most advanced technology, while relying far less on Chinese specialists and China's less sophisticated technology. In Vietnam, foreign specialists from socialist countries accounted for 90 percent of the total number of foreign specialists from twenty countries in 1976 and 85 percent in 1977.

The number of Soviet specialists increased from 19 percent (4,395) in 1975 to 23 percent (3,147) in 1976 and 27 percent (3,234) in 1977 while the number of Chinese specialists dropped sharply from 39 percent (1,719) in 1975 to 5 percent in 1976 and 3 percent in 1977.

As a result of China's unilateral takeover of some islands in the South China Sea in 1974, anti-Chinese sentiment in Vietnam had become widespread by 1977, accelerating the flight of Chinese specialists. The deterioration of Sino-Vietnamese relations prompted Beijing to reduce the number of foreign specialists it sent to Vietnam. But it was Beijing's decision to cut off nonrefundable aid to Vietnam, not the return of Chinese specialists, that undermined Vietnam's economic reconstruction efforts. Hanoi attached greater value to Soviet technological know-how than to that of China, a policy directly lifted from the technical-scientific revolution (one of the three resolutions) that Le Duan stressed as "key" for the socialist victory over capitalism in his political report to the Fourth Party Congress in December 1976. Here socialist ideology was clearly intertwined with material interests, emulating the most advanced technology from the most advanced socialist great power, the Soviet Union, and then engineering a shortcut to apply it to socialist industrialization.

Hanoi's economic diplomacy was also deployed to fully absorb Soviet technology. In 1977 it increased its efforts to provide good living conditions for Soviet specialists who undertook industrial projects and trained Vietnamese technicians and engineers. Vietnamese officials were instructed to build close working relationships with Soviet specialists. In early 1977 the MOFA organized the first national conference on foreign service tasks at the city and provincial levels with the goal of improving working relationships with foreign specialists at the local level, especially in the newly liberated regions in the South. 48 In 1978 Hanoi increased its spending on foreign specialists by 44 percent to focus on eighteen agricultural and irrigation projects and fifty important industrial bases. It planned to substantially increase the number of Soviet specialists in 1978,49 in part because the regime's oppressive policies had led to the exodus of a great number of experts and technicians, many of them ethnic Chinese. 50 In comparison, Vietnam spent on average 800 VND (US$88) for one Chinese specialist per month, compared to 2,200 (US$ 244.50) for every Soviet specialist and 2,400 to 3,200 (US$ 266.50-355.50) for every East European specialist. 51 Soviet and Eastern European engineers were allowed to bring their wives and families, although privately the Department of Foreign Specialists complained about the added cost.52 In 1978 the Department of Foreign Specialists mobilized 2,500 Vietnamese cadres to provide direct services to foreign specialists working in Vietnam.53 Clearly Hanoi's objective was to effectively. learn and use the skills and technology of these Soviet and Eastern European specialists for Vietnam's economic benefit and to improve its scientific and technology base.

Mid-1977 To Early 1978 : 

The Impact of The Economic Shock

In the MOFA's internally circulated report on foreign policy for the first six months of 1977, top Vietnamese diplomats definitively attributed the Soviet-led COMECON's suspension of industrial projects for Vietnam's FYP and rejection of its emergency aid request to address the food and fuel crisis to Vietnam's political position, specifically its refusal to officially join the COMECON and side with the Soviet Union. 55 It was also clear from that report that Moscow applied measured pressure by keeping Hanoi's hopes for substantial economic cooperation with the COMECON alive. Unless Hanoi officially joined the organization, the Vietnamese would not receive any generous aid packages from the Soviet bloc. Moscow expressed its intention to expand economic cooperation with Vietnam, stressing specific projects, but it denied Hanoi's request for emergency aid of 200,000 tons of fuel and 200 million rubles for the importation of consumption goods. 56 Moscow applied this pressure at a time when Beijing had suddenly suspended all material aid pledged during the previous decade, 1965-75, partly in response to the failure of provincial-level negotiations to resolve Sino-Vietnamese border disputes. 57 Clearly, Beijing was imposing economic sanctions to force Vietnam to make concessions regarding the territorial dispute and to increase the cost of Vietnam's tilt toward the Soviet Union. Simultaneously, Khmer Rouge attacks in southwestern Vietnam in April caused significant destruction of property and loss of life in a number of southern provinces bordering Cambodia.

A small list ...

By late 1977, Vietnam found itself in a uniquely uncertain situation in which peace coexisted with the potential outbreak of armed conflict with its neighbors Cambodia and China, prompting the leadership to set two strategic tasks: successfully build socialism and be prepared to defend the socialist fatherland.

By late 1977, Vietnam's normalization talks with the United States were on the verge of collapse because Washington had rejected Hanoi's demand for war reparations worth nearly US$5 billion. The Vietnamese pragmatic leaders' attempt to draw capital and investment from the West was met with delay and disappointment. In an attempt to court economic investment and technological transfer from the West, in late April 1977 Prime Minister Pham Van Dong made his country's first official visit to France with the aim of initiating economic (not political) relations with the West. Hanoi hailed Dong's visit as a diplomatic and political success, but it failed to yield any concrete economic deals. Hanoi also hoped to normalize relations with the United States in 1977 when the new administration under President Jimmy Carter expressed a serious interest In moving forward with the normalization process. As to why normalization failed in 1977, Tuong Vu points to the Vietnamese communist leaders' anti-imperialist ideology, placing the blame for the failure on the doorstep of the Vietnamese Communist leaders.58 However, such an explanation is incomplete because it ignores the material factors at play. From a negotiation standpoint, Hanoi viewed the normalization process as the politics of reciprocity on top of a moral argument. Certainly Hanoi's anti-imperialist ideology and identity are a given, but their geostrategic and economic importance in 1977—which in retrospect can be seen as exaggerated and self-delusional—was also real in the Vietnamese leaders' minds, and their underlying objective was primarily economic and secondarily political when the negotiations took place. In fact Hanoi was badly in need of economic assistance in 1977. Given Vietnam's perceived geostrategic importance, its economic potential for American companies, and the assistance it was providing Washington with prisoner of war and missing in action (POW/MIA) issues, Hanoi's leaders believed they had the leverage to demand a large monetary reparations package. In the bilateral meeting in Paris on May 3-4, 1977, Assistant Secretary for East Asia Richard Holbrooke informed Vietnamese Vice-Minister Phan Hien that in addition to US$5 million in private humanitarian aid to Vietnam, despite the embargo, indirect aid after normalization might be possible. However, Phan Hien insisted that the United Statescarry through on President Nixon's commitment of $3.25 billion in grant aid and $1.5 billion in commodity aid. 59 In a top secret memo to the Party CentralCommittee in December 1977, Politburo member and deputy prime ministerLe Thanh Nghi, who was also chairman of the State Planning Committee, la-mented that Vietnam was annually losing US aid to the Republic of Vietnam worth $1 billion, unemployment was estimated at over three million people, and myriad social problems had arisen since 1975.

One of the major factors that blocked US-Vietnam normalization was the issue of war reparations to which the Vietnamese believed they were entitled. Foreign Minister Nguyen Co Thach insisted on reparations worth US$4.7 billion as a precondition for the normalization of US-Vietnam relations in 1977. This demand created a problem for the Carter administration because the US Congress would not approve such a deal, and a major geopolitical shift (the China factor) in great power politics derailed the US-Vietnam normalization process.

The twists and turns of the subsequent negotiations from December 1977 to September 1978 revealed two indisputable facts. First, Hanoi showed greater flexibility than Washington, relaxed its demands, and finally agreed to unconditional normalization. Second, it was Washington's priority of strengthening the Sino-US alliance, in alignment with Deng Xiaoping's priority of normalizing.

China's relations with the United States (as opposed to the Soviet Union), that prompted the Carter administration to shelve the normalization of US relations with Vietnam. After meeting US secretary of state Cyrus Vance on August 24, 1977, Deng Xiaoping viewed the Sino-American alliance not just as a counterbalance to the Soviet threat but as an opportunity to access the capital and technology needed to modernize China's economy. 62 As senior diplomat Tran Quang Co, in charge of North America at the MOFA at that time, recalled, in early 1978 Washington had already decided to embrace the Sino-American alliance to oppose to the Soviet Union, and it shelved normalization with Vietnam. 63 Citing Tran Quang Co's memoir as further evidence that Hanoi's anti-imperialist ideology was the main cause of the missed opportunity to normalize relations with the United States in 1977, Tuong Vu contends that the thinking of the Vietnamese Communist leaders simply did not prepare them for that, 65 suggesting diplomatic rigidity or "too little too late" flexibility in the context of rapidly evolving great power politics. Hanoi's ideology of anti-imperialism, though influential after 1975, hardly reduced the material (Hanoi's demand for massive war reparations from the United States) and structural (the convergence of Sino-American strategic interests) pressures on Vietnam that ultimately derailed the US-Vietnam normalization talks in 1977-78.

It was Hanoi's demand for $3.25 billion of US aid for postwar economic reconstruction in exchange for its cooperation with POW/MIA issues and American companies' access to economic opportunities in Vietnam that initially blocked normalization, and the United States' strategic alliance with China against the Soviet Union dealt the final blow to the normalization process in early 1978. According to Desaix Anderson, who was an American diplomat involved in the normalization process, it was Nguyen Co Thach who pushed a demand for the US$3.25 billion process, it was Nguyen Co Thach who pushed a demand for the US$3.25 billion that President Nixon had offered to provide as part of the Paris Peace Accords (PPA). However, no American administration was obligated to pay this amount after North Vietnam violated its commitments under the accords. 66 Hanoi's release of Nixon's secret letter to Prime Minister Pham Van Dong, containing his promise of US$3.25 billion in grand aid and $1.5 billion in commodity aid, led to the passage of legislation by the US Congress prohibiting the Carter administration from negotiating reparations. 67

In the third round of negotiations between Richard Holbrook and Phan Hien in December 1977, Hien proposed that normalization should occur first, leaving the issue of reparations to a later discussion. In the summer of 1978, as a gesture of flexibility, Hanoi turned over the remains of fifteen more American soldiers to a visiting US congressional delegation led by Congressman Sonny Montgomery. On September 22, 1978, after Richard Holbrook threatened to end talks twice during a meeting, Vice-Minister Nguyen Co Thach agreed to normalization without conditions. While awaiting the official signing scheduled for early October, national security adviser Zbigniew Brzezinski convinced President Carter to postpone normalization with Vietnam to avoid offending the Chinese. 68 Evidently the material factors played a major role in derailing the US-Vietnam normalization negotiations. In addition to the barrier to the US-Vietnam normalization process, Hanoi's lead negotiator (Nguyen Co Thach), by imposing a war reparations condition unacceptable to the Americans, affected broader strategic calculations (i.e., the Sino-American alliance) in Washington, and Beijing derailed Vietnam's efforts to normalize its relations with the United States.

Between mid-1977 and March 1978, the rapid deterioration of Sino-Vietnamese relations on the security front coincided with Beijing's drastic cuts in aid to Vietnam. The border negotiations between the two governments from October 1977 to March 1978 not only failed but the MOFA leaders who conducted the negotiations concluded that the Chinese were threatening the Vietnamese side with the use of force over the territorial disputes. The MOFA reported to the Politburo that Beijing's real motive was to expand its territorial claims along the border at Vietnam's expense while proposing negotiations to demonstrate its goodwill. 69 China's economic sanctions against Vietnam for building closer relations with the Soviet Union were intensified, worsening Vietnam's economic crisis. 70 Although Vietnam's economic crisis manifested itself in late 1977, its origins can be traced back to Vietnam's "DRV" model of central planning and its wartime reliance on foreign aid for over two decades.

The first FYP (1976-80) for the unified country was the most significant national policy in the postwar era, a product born out of monumental research by Vietnam's best and brightest economists and experts selected from all fields, along with three rounds of deliberations by the Politburo of the Party Central Committee before it was presented to the Party Central Committee in October 1976. On December 14, the Fourth Party Congress set forth the strategic tasks and objectives of the plan, which had two fundamental goals: (1) to build the material and technical bases of socialism and put in place a new economic structure to boost industrial-agricultural productivity; and (2) to improve the material and cultural life of the proletarian class, that is, peasants and workers.71

The plan required resource balancing among (1) industrialization and agriculture, (2) central and local economies, (3) the economy and national defense, and (4) domestic and foreign economic relations.72

The Twenty-Fifth Conference of the Party Central Committee in October 1976 set agricultural production as a top priority of the FYP, stressing the goal of producing twenty-one million tons of food grains by 1980, more than one million hectares of industrial crops, and more than one million tons of meat, clearing an additional one million hectares of rice paddies, transferring a few million laborers from the delta and cities to New Economic Zones (remote virgin land to be cleared for agricultural production), and speeding up the process of mechanization in major rice-producing regions to yield an annual average crop increase of 8 to 10 percent. The strategic objective was to end food shortages in three years, by 1979.73 Hanoi's economic planners expected to provide employment to seven million people by 1980. 

Besides the economic potential of 22 million young laborers, Hanoi's top economic planner—Deputy Prime Minister Le Thanh Nghi, who was also a Politburo member and chairman of the State Planning Committee—stressed the untapped potential of the technological revolution to increase productivity and called on his colleagues to pay special attention to technology in developing a long-term strategy for economic development and national defense. 75 This required importing technology from other countries, especially the Soviet Union and the nations in the West, because Vietnam did not have the ability to develop modern technology on its own. Emphasizing Vietnam's insufficient technological base for its economy, Le Thanh Nghi lamented to his colleagues during a debate over the FYP on November 30, 1976, that even if Vietnam could make the most efficient use of its existing resources in this area, this would only yield an annual average per-person allocation of 58 kilowatts of electricity, 140 kilograms of coal, 3.5 kilograms of steel, 16 kilograms of cement, 8 meters of fabric, 2 kilograms of paper, and 500 kilograms of staple foods. But actual productivity was even lower than that. 76 The national output could not keep up with an increase in population of 1.5 million people per year. 77 Vietnam lost a billion dollars' worth of nonrefundable foreign aid per year that had been provided mostly by China and the Soviet Union during the war of resistance against the United States from 1965 to 1973. 

However, Hanoi's leaders were highly optimistic at the end of 1976, believing that the traditional patriotism of the Vietnamese people, the combined strength of a unified Vietnam, and a people united in their belief in the party's farsightedness and Marxist-Leninist ideology after their victory over the United States would enable Vietnam to overcome the challenges the country faced. Besides the heightened spirit of national unity, Hanoi's top economic planners looked to exploit Vietnam's national resources. Hanoi's top economic planners looked to exploit Vietnam's national resources, a united Vietnam had diverse national resources, including oil deposits that could be used to develop the energy and various other industrial sectors, that could be used to develop the energy and various other industrial sectors, a total of five million hectares of rice paddies (which could be expanded to eleven million over time), fifteen million hectares of resource-rich forests, an annual extraction of several million tons of seafood from its seas, a labor force of nearly twenty-two million people, and a growing number of educated and skilled cadres and workers. 80 The political and economic potential of a united Vietnam, these economically minded leaders believed, would further create favorable conditions for expanding the country's economic relations and extracting technical know-how from sources beyond the socialist countries.

The strategy of Hanoi's top economic planners at that time was to combine the country's internal strengths—that is, socialist ideology and traditional Vietnamese nationalism—with national resources at the center of the party-state's plan to mobilize national power and its projection of influence in international relations by leveraging its geopolitical significance in the region. In his address to the first meeting of the newly established Central Economic Zoning Commission (Uỷ ban Phân Vùng Kinh Tế Trung Ương) on October 1, 1977, the chairman of the State Planning Committee, Le Thanh Nghi, emphasized that the main duty of the commission was to "reorganize and redistribute production forces and material resources to enhance people's living conditions in localities and regions across the country; to advance the party's policy of building socialism, first and foremost the policy of socialist industrialization; to create a modern agricultural-industrial economic system, prioritizing heavy industry development, appropriately relies on the bases of agricultural and light industry development; and to a develop central economy while simultaneously building the local economy."

In December 1977, the Party Central Committee held its Third Plenum to assess the achievements of the previous two years (1976-77) of the FYP and to draw up a plan for 1978. On December 6, Politburo member and deputy prime minister Le Thanh Nghi, on behalf of the Politburo, delivered a three-part analysis of the "state of the economy" to the Central Committee for further debate. Nghi reported, "Although our country's foundation has developed, progress has not caught up with our country's demands. ... Our economy is facing enormous difficulty and instability in 1977."83 In 1977, although 22.1 million out of a total of 23.5 million laborers were employed, productivity was very low, yielding an annual income per person of 840 VND (approximately US$305 at that time). Le Thanh Nghi went on to describe the extent of economic hardship in terms of statistics. There was a severe shortage of staple foods and consumption goods. The state rice reserves were gone, and Vietnam had to import 1.1 million tons of rice. But even this was not enough to meet the national demand, greatly undercutting the plan to redistribute the labor force to designated production sectors, including irrigation, fishing, logging, and export-crop farming. Vietnam's transportation system was clogged, which significantly slowed production. 

capacity, construction, and the movement of goods and people across the country. The transportation sector was extremely weak in 1977, operating at only 47 percent of its capacity in 1964 before the Vietnam War. A severe lack of building materials hampered the rising demand for construction. Vietnam continued to suffer from a huge trade deficit. With loans and financial aid from foreign countries, it could only meet 63 percent of its 1977 budget. Its gross national product had only increased by 2 percent in 1977, far too small a margin given the rate of population growth.

Any progress had to be measured against 1974–75, when Vietnam’s postwar economy was at its lowest point and experienced natural disasters beyond the leadership’s control. As Le Thanh Nghi told his colleagues at the Third Plenum of the Party Central Committee in December 1977, “In 1974–75, our economy was in the situation of ‘lam khong du an, thu khong du chi’ or ‘We don’t make enough to eat and don’t earn enough to spend.’”85 According to Nghi, Vietnam’s exports amounted to only one-sixth of its imports at that time. Besides the economic devastation of the prolonged war, Vietnam had to fill the void of a billion dollars that the United States had provided to the Thieu government of the Republic of Vietnam (the US ally) annually and the approximately 400 to 500 million rubles of nonrefundable aid from the eight socialist countries, including China and the Soviet Union, which punched an enormous hole in the country’s economic foundation in the postwar era. In addition, more than three million people were unemployed and the country was beset with extremely serious social ills (te nan xa hoi in Vietnamese), including prostitution, crime, drug addiction, social and political instability, and the monumental tasks of national unification. In 1977 a prolonged drought created extraordinary difficulties for the economy because 50 percent of the country’s national revenue came from the agricultural sector.

Under the socialist dictatorship of the party, mass mobilization became a solution to economic problems. One million hectares of rice paddies were cleared for cultivation in 1976–77 and 140,000 hectares in 1977 in spite of the drought.86 This achievement would not have been possible without large-scale forced labor under the Vietnamese Communists’ version of thought reform (cai tao tu tuong), programs lifted directly from the party’s ideological and cultural revolution championed by the conservative leader Le Duan.87 The industrial output for 1976–77 increased by 12 to 13 percent in spite of a severe lack of fuel, raw materials, and spare parts; basic construction increased by 30 to 40 percent, indicating a fast-growing sector of the economy. In 1977 Vietnam was able to produce enough basic consumption goods, and the export-import ratio  increased from 20 percent in 1975 to 28 percent in 1976 and 31 percent in 1977. National revenue in 1976 covered 54 percent of the annual budget, which increased to 73 percent in 1977.88 To the country's leaders, this achievement demonstrated the power of the Vietnamese Communists' revolution and mass mobilization of Vietnamese workers and combatants under the correct proletarian dictatorship of the party. Thus, in 1976–77, Hanoi's leaders, both the conservative and the economically minded, were steeped in their belief in socialist ideology and the power of authoritarian mobilization to solve economic problems.

The Deep Crisis of 1978 and New Thinking

Throughout 1977, the economic crisis was apparent at all levels and across many sectors of Vietnam's economy, with the most severe shortages occurring in food grains, staple foods, construction materials, energy, and hard currency. The main question at the heart of the debate at the Party Central Committee's Third Plenum in December 1977 was why the economy was stagnating. For top economic planners like Le Thanh Nghi, besides the proximate causes of the crisis—including the aftermath of the war, the reduced levels of foreign aid, and natural disasters—the wartime dependence mentality (old thinking) was also a major hindrance to progress. Nghi declared there were two main causes involving the party bureaucracy from the center to local authorities: (1) a lack of creativity and motivation and heavy reliance on the outside, a reference to local production units' dependence on the central government and foreign aid; and (2) carelessness in the execution of one's duties, meaning a lack of attention to quality and the failure to take responsibility for one's work.

In December 1976, as optimistic as his deputy Le Thanh Nghi, Politburo member and prime minister Pham Van Dong reminded party members to always remember Ho Chi Minh's teaching, which Pham Van Dong took as an instruction: "I do not fear scarcity, I only fear inequality; I do not fear poverty, I only fear the people having unquiet minds" (khong so thieu, chi so khong cong bang; khong so ngheo, chi so long dan khong yen). For 1978, the party set solving the food shortage as its top priority, attempting to produce 16.5 million tons of food grains, 3.5 million tons more than in 1977, to be used as reserves.

To achieve this objective, the government increased the budget for the agricultural sector to 33 percent of the total national budget for 1978. This was a substantial increase compared to the 16 percent spent on agriculture in North Vietnam during 1955-75. As in the past, the funds were concentrated in two areas—large-scale irrigation schemes and state farms—both of which produced​​​  diminishing returns. As economists Melanie Beresford and Dang Phong observed, "Expansion of irrigation schemes into less suitable areas tends to produce diminishing returns to investment, when higher returns might have been obtained from other sorts of investment such as high yielding varieties, fertilizer, [and so on]... Investment goods [tractors and other machinery] sent to the cooperative agricultural sector were often inappropriate to the needs of farmers, particularly given the shortages of necessary inputs such as fuel and fertilizer, lack of adequate repair facilities and so on." 

One-third of the total quantity of cement and steel were to be designated for basic agricultural construction and irrigation; approximately 30 percent of machinery and 20 percent of imported spare parts and equipment would be directly used to service agricultural production. For 1978 Vietnam required 4,325 heavy-duty tractors, 6,200 small tractors, 80 excavators, 70 pieces of machinery for irrigation, and many other types of equipment for agriculture.93 But it could guarantee only 1.1 million tons of fertilizer and 740,000 tons of manure. Thus it needed to secure loans with which to import fertilizer to meet the goal of 2 million tons for the agricultural sector.94 For example, 900 tons of rice per day were to be allocated to Ho Chi Minh City (the economic hub) and 500 tons to Hanoi (the capital). This quantity of rice would be sufficient for the large numbers people who would be moved to the New Economic Zones, as well as for housing, construction, forestry, industrial crop regions, logging export sectors, animal husbandry, and fishing. 

One of the consequences of Vietnam’s economic stagnation in 1977 was that capital investment in its industrial sector in 1978–80 was greatly diminished, compelling it to consider officially joining the Soviet-led COMECON in mid-1978. Out of a total budget of 5.91 billion VND (US$2.15 billion), the Politburo allocated 2.8 billion (47.5 percent of the total budget) to agriculture, forestry, fishing, and the manufacture of consumption goods. Since 1.984 billion (33.7 percent) was used for agriculture and irrigation, this left only 1.839 billion (31.1 percent) for the industrial sector, which derailed Hanoi’s FYP goal of modernizing and industrializing the economy. As Le Thanh Nghi told his colleagues at the Central Committee’s Third Plenum in December 1977, “During this five-year plan, our industrial development has not made much progress. We have to make greater efforts to create favorable conditions to expand our industrial capacity in the next five-year plan (1981–85).”96 According to Beresford and Phong, out of a total of 378 projects using imported equipment begun during the FYP, only 28 percent were completed in the end, and many of these were unable to function due to shortages of raw materials or lack of power.

The weakening of the industrial sector provided an impetus for Vietnam to join the COMECON in mid-1978 in order to obtain modern industrial equipment and technology from the Soviet bloc.

By mid-1978, the economic crisis worsened dramatically, prompting Hanoi's top economic planners to search for emergency solutions. In the first quarter of 1978, in Hanoi's view, economic management, leadership, and organization for implementation of the economic plan still suffered from many serious problems, which were stifling progress. In April 1978, the Council of Ministers met to assess the causes of these problems. They concluded, "Our economic situation now is very difficult—certain sectors have gotten worse than in previous years. Although natural disasters such as drought and foreign aid reduction were contributing factors, the main reason was our shortcomings in economic management and organization due to which we failed to execute our plan. And every field, level, and each one of us is partly responsible for this lack of progress."

During a three-day conference in May attended by representatives from the central government and provincial and city authorities, the chairman of the State Planning Committee, Le Thanh Nghi, who was also deputy prime minister and a Politburo member, expressed serious concern in his opening remarks that "economic productivity during the first quarter of 1978 was in general low, and lower than that of the previous year, especially in the area of [the state] purchasing food grains and other agricultural products from [peasants], causing chaos in the market and enormous difficulties for people, especially government employees. We need to pay attention to the Mekong Delta [in southern Vietnam]; this is the region where food production per person is the highest in the country, but the government received the lowest amount of food grains from this region." This was because a large quantity of rice was sold on the black market for a much higher price than the state offered and the black market itself had been taken over by the increasingly corrupt practices of state bureaucrats through the country.

For 1979, Hanoi focused on agriculture, increasing exports, and importing of advanced industrial equipment and raw materials to improve the quality of export products. First, the most important mission was to meet the country's most basic needs, especially for food and consumption goods to support productivity and people's livelihoods. Top economic planners set a target of increasing the production of staple foods from 16 million tons in 1978 to 18.5 million tons in 1979. Hanoi's second priority was to concentrate on increasing exports in agriculture, forestry, fishing, and light industry, targeting a ballooning export market worth 600 to 650 million rubles, 50 percent more than in 1978. Hanoi's third objective was to build up the material and technological base of the economy, especially electricity, machinery, metallurgy, construction materials, and transportation, in the coming years.

However, achieving these three objectives would be no easy task without hard currency and additional financial aid from the Soviet Union and other COMECON countries. According to Beresford and Phong's estimate, between 1975 and 1978 Vietnam had already accumulated a $1.4 billion of debt owed to COMECON countries, almost equal to the total debt of the previous two decades.106 This was because, although after 1975 the socialist bloc agreed to continue aid on an expanded scale, the proposed nonrefundable aid dropped from an average of more than 60 percent in the decade prior to 1975 to around 43 percent in 1977-79.107 Top Vietnamese planners knew that the economic imbalance had widened rather than narrowed on many fronts, including food supplies, electricity, construction materials, transportation, consumption goods, hard currency, the budget, and the export-import ratio. In the south, material goods left behind by the Thieu regime had been used up, and most of the industrial equipment had broken down or was badly in need of repair or replacement.107 The population grew by 1.3 million in 1978, increasing the demand for food and consumption goods.

In addition to inefficient management, low labor productivity, and shortages of raw materials and spare parts due to sharp cutbacks from wartime levels of foreign assistance, escalation of the armed conflict with the Khmer Rouge in the southwest and China in the north resulted in a huge diversion of investment resources to a major military buildup in 1978. Vietnam's armed forces suddenly increased from 770,000 to 1.5 million soldiers and personnel in that year.108 According to the MoD's official records, the total number of troops in 1978 increased by 18 percent compared to 1976. The 1978 defense budget suddenly increased by 44 percent, and expenses for equipping new recruits increased by 24 percent over the 1977 budget.109 More than 200,000 military personnel who had been transferred to undertake economic projects beginning in mid-1976 were mobilized for war in early 1978, stalling Hanoi's plan to rely on the armed forces to make a major contribution to the economy.110 The Fourth Plenum of the Party Central Committee issued a resolution in June 1978 to urgently mobilize a large number of Vietnamese civilians to build border defense belts in the southwest and north. The cost of the border conflict with the Khmer Rouge by mid-1978 was high: 45,000 injured soldiers treated at mobile military clinics at the border; 9,000 more seriously injured soldiers transported to Hanoi for treatment; and 9,000 tons of grain, 690 tons of food, and 25,000 tons of fuel used to fight the Khmer Rouge.

Politburo member and deputy prime minister Le Thanh Nghi used the term "mat can doi lon" (enormous imbalance) to refer to Vietnam's transportation problems at the Third Plenum of the Party Central Committee on December 6, 1977.112 Vietnam's transportation capacity in 1977 was 47 percent of its 1964 capacity.113 The Ministry of Transport came under additional pressure as Vietnam prepared for war with Cambodia and China in 1978. The country's transportation infrastructure was strained as resources were diverted from economic projects to the movement of troops, ammunition, food, medicine, and other military equipment as the border war with the Khmer Rouge and armed clashes with the Chinese rapidly increased in early 1978. From June to December 1978, 5,079 vehicles with the capacity to transport 15,569 tons per day were used for the war with the Khmer Rouge and the subsequent invasion of Cambodia. 

The economic and national security crises affected Hanoi's strategic thinking on its domestic and foreign policies. In the spring of 1978, the failure of the FYP left the CPV in a legitimacy crisis in the wake of a growing economic, social, and political crisis. At the same time, the economic policy of opening to the West had also failed, and border disputes with Cambodia and China were unresolved. As the domestic crisis deepened, Vietnamese leaders were compelled to change their domestic and foreign policy strategies in preparation for war. At the national level, they attempted to shake the party apparatus out of its wartime dependence mentality and instill self-reliance. Internationally, they shifted from broad-based foreign relations to membership in the COMECON in June 1978 and a strategic alliance with the Soviet Union in November. Thus, Hanoi attempted an internal balancing act by making the best use of scarce resources and reorganizing economic life in the service of national defense and an external one by siding with the Soviet Union against China, reversing the course set by the Fourth Party Congress in December 1976.

At the May 12 conference with party leaders of the central government, provinces, and cities, Le Thanh Nghi vehemently declared the need to “attach special importance to economic efficiency... [We] must eradicate the attitude of using production quantity and speed to project an image [of achievement] while we neglect product quality and value, which reduces economic efficiency.”114 Next Nghi pointed the finger at the provincial authorities.

Many local authorities still do not see the importance of managing the economy according to state planning; disobedience of the state’s quotas is quite widespread. For instance, concerning expenses for the cost of producing agricultural products for 1978, many provincial authorities, especially in the south, set lower quotas for their subordinate production units than those determined by the

central government. But they demanded greater investment in terms of funding and material resources from the central government. Regarding basic construction investments, many provincial authorities at their own discretion altered the central government's investment plan by exaggerating the resource need by 10 to 35 percent above the actual resource requirement to meet the target set by the central government in Hanoi. 

The shift to the new thinking occurred during the Politburo's internal debate about the 1978 economic plan prior to the presentation of its decision in a report by Le Thanh Nghi to the Third Plenum of the Party Central Committee in early December 1978.116 At the Conference of the Central Committee of the CPV held on December 6, 1977, Nghi stressed the need to "renovate (Doi Moi) methods of [economic] planning" systematically in order to "give up the old and familiar ways of doing things for many years,"117 referring to central planning, and to build effective economic planning from the bottom up. The central planners were to lead and coordinate economic planning and provide expertise, but the planning itself would be done by local officials to reflect the reality of local capacity. On May 12, 1978, in his meeting with leaders of the central, provincial, and city authorities, Le Thanh Nghi instructed, "We must do better in economic planning from the bottom up. We need to delegate control from the central to the local level. Democratizing the economy [economic] planning means that we will concentrate on democratizing the [economic] planning."118 In a self-criticism, he frustratingly admitted, "Up to now, the work of bottom-up [economic] planning has not been good; that is an important cause of poor planning."119 We must work from the bottom up in the spirit of "Doi Moi or renovation" as set forth by the Decision of the Third Conference of the Central Committee of the CPV so that we can create real change in [economic] planning. On the first day of the conference, Le Thanh Nghi talked at length about doi moi tu tuong chi dao (renovating the guiding ideology) in economic planning.

What did the Politburo’s reference to the Doi Moi of “planning as a guiding ideology” (tu tuong chi dao) from 1978 onward really mean? Certainly this was a precursor to the watershed transition from a centrally planned to a market economy, as the 1986 Doi Moi entailed, based on assessment from the top down and planning from the bottom up. It meant, rather, a shift from a top-down approach to economic planning (the old way) to a bottom-up approach (the new way). According to Le Thanh Nghi, in the process of debating what went wrong with the FYP and discussing the 1978 plan at the Politburo of the Central Committee of the CPV and the Council of Ministers, the leadership came to a deeper understanding and concluded that the real obstacle to the realization of the FYP lay in the guiding ideology—that is, that the party needed to instill the ideology of self-reliance (exploiting natural resources and labor to create economic value, cutting waste and unnecessary projects, and expecting less foreign aid) in addition to the three revolutions in the relations among production, science and technology, and ideology and culture).121 Nghi described the guiding ideology of self-reliance as follows:

First, we must rely on the most valuable and abundant source of investment, that is, the labor force, in conjunction with exploiting land, forest, sea, and other natural resources, and material-technological bases in our country to create economic value. Second, we must endeavor to procreate our capacity and unleash the hidden economic potential in our country and proactively take initiatives based on what we have to broaden our economic relations with foreign countries. Simply put, we must rely on our own energy, beginning with what we have, to develop economic plans; we should not rely on or expect assistance from the outside (foreign aid) to alleviate our economic difficulties and shortages. We must shelve or postpone certain industrial projects that we need but cannot afford or do not have the ability to build by ourselves at this time. We should not force ourselves to borrow too much from foreign countries. We need to know when to step back and wait for more favorable conditions.

The question of how to maximize economic output based on the abundance of labor, land, and national resources, as well as how to reduce foreign debt resulting from a rapid rise in the demand for imported raw materials, spare parts, equipment, and investment capital, lay at the heart of the rethinking of the basic guiding ideology of economic planning and management at the top level of the Vietnamese leadership and the Politburo of the Party Central Committee in December 1977. Based on the country’s economic performance approach in 1977, top economic planners came to view the top-down central planning approach as an inefficient mechanism for developing and optimizing the potential of Vietnam’s enormous labor force of more than 22 million. Planners like Le Thanh Nghi believed this was because for many years the central planners, including himself, had followed the “old way” (duong mon cu). Since the 1960s the central planners had set production targets for local production units based on the available material resources, equipment, staple foods, consumption goods (in conjunction with Vietnam’s ability to import these items), use of labor, land, other natural resources and the existing material and technological resources at each locality.

This wartime mentality led to a situation in which leaders of local production units inherently “expected and relied on outside assistance” to supplement a variety of economic shortages, and as a result Vietnam became increasingly dependent on foreign loans to meet a large portion of its need for spare parts and equipment.124 The most important reason for the poor economic performance and ineffective management, the Politburo concluded, was that these local economic managers still followed the wartime habit of relying on nonrefundable aid for importing raw materials, spare parts, and equipment and lacked a “proactive, creative, and self-reliant mentality.”124 This conclusion was driven in large part by the debt accumulated in 1976-77 and the decision not to seek further credit from the West beginning in 1978.125 According to the new guiding ideology of economic planning, the leaders of each production unit or sector were to create their own production, technological, and financial investment plan with guidance from the central government agencies, especially the State Planning Commission, and to use the locally available labor force and resources to ensure self-sufficiency. Any surplus was to be sent to the state. The local economy (kinh te dia phuong) and central economy (kinh te trung uong) were closely linked as one national economy, but local authorities were granted more control over their local economy in 1978; under the stewardship of the central government, they assumed primary responsibility for ensuring that the basic needs of the populations in their jurisdictions were met.  In a top-secret memo to the Party Central Committee's Third Plenum in December 1977, Le Thanh Nghi declared, "We must take the district as the compass (lay huyen lam dia ban) for balancing and managing the labor force in rural areas."126 Although the importation of equipment still occupied an important place in the economy, any import plan had to match the ability to pay, and imported equipment would henceforth be treated as a "reserve" (du bi) for development and construction projects beyond the target.127 Local managers and leaders of production units were to be instilled with the new thinking of stepping up their efforts and taking initiatives to ensure that they had sufficient raw materials for production. They were instructed to not depend on imports of raw materials by the cash-strapped central government. By way of example, Nghi stated:

If local leaders do not have enough machinery, they must rely on manpower to produce raw materials locally, be economical with food grains or save them for more productive sectors of the economy, increase efficiency in the use of their equipment, and so forth. For instance, the Politburo raised the issue of tractor usage. Tractors, if properly taken care of and repaired in a timely manner, could be used for two to three shifts a day. Cumulatively, these economical efforts

would double their usage capacity and as a result reduce the need to import tractors while still meeting the target of mechanizing our agricultural sector. As another example, local leaders could lead a mass movement to raise animals, especially pigs and cows, to increase the production of phosphate fertilizer and offset the shortage of chemical fertilizer in 1978. 

Regarding food shortages, the Politburo instructed authorities at the provincial and district levels to cut down on waste and unneeded food so as to funnel these scarce commodities to the most economically productive sectors. For example, a larger quantity of food grains was to be set aside for the state plan to bring people in to clear farmland in the New Economic Zones, build irrigation systems, construct houses, plant and tend export crops, raise animals, and develop the fishing industry. As another example of increasing consumption goods domestically, bamboo, rattan, and other materials could be used to make furniture and other household tools, because Vietnam suffered from a severe shortage of timber and nationwide production could only meet 30 percent of the national demand in 1977. Furthermore, Hanoi expected to increase exploitation of Vietnam's natural resources and export of Vietnamese workers to the Soviet Union and Eastern Europe to earn currency that could be used to import raw materials, spare parts, and modern machinery.129 Clearly, the overall goal was to increase national self-sufficiency through the exploitation of national resources and therefore reduce the country's dependence on loans from foreign countries. Loans were to be used to import modern technology and machinery for economic development, not food and consumption goods. The evidence uncovered in internal documents of the Vietnamese government at that time lends support to Beresford and Phong's conclusion that "by the end of the 1970s, the combined effects of crisis in the planned sector, impending changes in the conditions of Soviet aid, increased market-oriented activity and political pressure for reform had created the conditions for a fundamental process of institutional change to begin." 

As Vietnam entered a new period of “peace coexisting with the potential outbreak of war” with Cambodia and China in 1978, the idea of delegating economic planning to local authorities to ensure local economic subsistence gained a stronger foothold. On January 24, 1978, the Politburo issued Directive 33-CT/ TW to concentrate on “the district as the main agricultural-industrial unit, as well as the firm fortress of national defense.”131 From then on, the central government vigorously delegated more economic planning responsibility to provincial, city, and district authorities because, Hanoi believed, these local authorities would improve economic efficiency and self-reliance as they had direct knowledge of their labor force, land, natural resources, and production capacity. The central government was to provide guidance to provincial and district authorities as they developed their own plans, and it would set a realistic quota for each local authority’s contribution to the central economy. 

In 1978 the CPV was in the midst of a deep economic crisis precipitated by domestic and external forces. Domestically, the crisis stemmed from both a deliberate attack on private ownership in southern Vietnam, especially in Ho Chi Minh City, which was dominated by ethnic Chinese, and the failing centrally planned economy, which was suffering from severe shortages of everything from raw materials to food and consumption goods. In response to the worsening economic crisis, the campaign against private ownership in the south, inspired by Le Duan’s concept of “the right to collective mastery (quyen lam chu tap the),”133 was intensified in the spring of 1978. And the Chinese business class was deliberately targeted for economic repression. According to Tran Phuong, a close associate of reformist leader Nguyen Van Linh, Le Duan desired to “immediately solve the Chinese problem” in Ho Chi Minh city. He decided to replace Nguyen Van Linh with Do Muoi in early 1978 because he believed Muoi would be more amenable to banning participation in commercial activities by ethnic Chinese residents, at that time estimated to number more than half a million Chinese residents of Ho Chi Minh City and dispersing them in provincial towns.135 Le Duan even instructed the Ho Chi Minh leadership to immediately deport all Chinese residents from the city as Sino-Vietnamese relations further worsened that year.136 In the south, of the 28,787 families designated as business compradors to be subjected to “reeducation,” 2,500 had made contributions to the Vietnamese revolution.137 Externally, the intensified conflicts with the Khmer Rouge and China and the reduction of foreign aid from the Soviet Union and other COMECON countries, as well as natural disasters, especially floods,138 deepened the economic and sociopolitical crises, creating a cycle of perpetual crisis and paralysis.139 In September and October 1978, Vietnam suffered the most severe flooding in its recent history, during which it lost 3 million tons of rice, 500,000 houses, and 10 to 20 percent of its domestic animals, including cattle. 

1978

The Party’s Legitimacy Crisis

The crisis of 1978 and its sociopolitical impact on Vietnamese society undermined the legitimacy of the CPV. In 1978 top party leaders became aware that widespread corruption and self-interested behavior by party officials who deliberately exaggerated their resource needs to meet the output quotas set by the party were harming Vietnam's economy. For instance, local cadres at the district and city levels ballooned their budget and resource needs in their economic production proposals to the central government in order to easily meet the targets set by Hanoi. While meeting those targets earned local party leaders promotions and better living standards for their families, such practices further perpetuated economic inefficiency and wasted vital resources. Top economic planners like Le Thanh Nghi proposed a number of measures, mostly adding more layers of party and state control to the existing bureaucratic gridlock, hoping to increase labor productivity, cut down on waste, conserve resources, and eliminate corrosive phenomena141 such as corruption, bribery, embezzlement of state property, and abuse of power. These were simply incremental changes, but the evidence shows that Hanoi failed to put a stop to the corrosive effects of the corruption, self-serving behavior, and wasteful practices of many local party leaders.

Throughout 1978 the economic crisis had serious political consequences for relations between the party and the people, causing popular resistance to the party’s policies, self-preservation behaviors of many party members at the local level, and rampant corruption across the party apparatus. In Vietnam under Communism, 1975-1982, Van Canh Nguyen documented in detail the basic causes of graft and corruption in Communist Vietnam. He pointed out that these nonsocialist practices became widespread because wages and salaries were pegged so low that nobody could live on them. According to the official scale for 1978, in Ho Chi Minh City unskilled factory workers were paid 30 VND a month (a little over US$3), beginning high school teachers 40 dong, clerks employed by cooperatives 40 dong; engineers 60 dong, and doctors and pharmacists 70 dong. Even a government minister in Hanoi was paid only 215 dong.142 The official price of a kilo of rice in 1978 was 0.45 dong, but it sold for 6 in a black market in Ho Chi Minh City. 

In 1978, the socioeconomic and political crises resulted in rising corruption, daily popular resistance to the party-state, and the mass exodus of an estimated 250,000 Vietnamese people from the country who played critical roles in the economy. These all converged in 1978, posing a grave threat to the party’s legitimacy. From January to September, the Supreme People’s Procuracy, also known as the People’s Prosecutor,144 was instructed to aggressively (1) promote workers’ collective ownership (quyen lam chu tap the); (2) meet the goals of the 1978 economic plan; (3) strengthen national defense; (4) eradicate private ownership and markets; (5) strengthen sociopolitical order and security; (6) carry out  Politburo's Resolution 228 and the prime minister's Directive 159 regarding the crackdown on party and government officials' abuse of power and corruption, which tarnished the reputation of the party and government; and (7) crack down on transgressions against collective interests and peasants' livelihoods at various cooperatives across the country. For the first nine months of 1978, to protect workers' collective ownership, the People's Prosecutor pursued corruption, abuses of power; and embezzlement of collective properties at 1,036 economic units at the local level, including 426 district-level administrative headquarters, 105 production units (agricultural, manufacturing, and logging), and 505 cooperatives. The People's Prosecutor arrested 1,735 "bad elements" and removed 717 others from the state apparatus. In addition, to support the 1978 economic plan, the People's Prosecutor conducted investigations at 979 economic units and instructed 727 other units to conduct internal investigations in 282 districts of 25 provinces and cities, totaling 1,706 economic units. The result was that 1,129 units were instructed to correct a total of 2,227 violations of the central government's policies and regulations, 2,923 cases of infractions on socialist properties were prosecuted, and 2,035 out of 2,709 cadres involved were also prosecuted. In addition, reportedly provincial People's Prosecutors in 37 provinces and cities and 328 districts prosecuted 2,985 economic cases, including 558 cases of corruption and 1,365 cases of embezzlement of socialist property. All this public corruption went on for several years while peasants and workers lived under harsh conditions in which food was scarce and soldiers were sent to do farm work after the war. The CPV was internally corroded and on the verge of plunging into a political crisis.

By mid-1978, Hanoi's search for solutions to the economic crisis on its own terms reached an impasse.

As Ngo Vinh Long has documented, per capita availability of rice declined precipitously each year from 15.4 kilograms per month in 1976 to 11.6 in 1978.

In 1978 Vietnam's food crisis was so dire that even households of the victorious Vietnamese army faced food shortages.At the beginning of 1978, the growing economic crisis compelled the Hanoi leadership to search desperately for solutions, only to find that there was little it could do domestically, and escalation of the armed conflict with the Khmer Rouge and China in late 1977 and the spring of 1978 left Vietnam with no choice but to formally join the COMECON and sign an alliance agreement with the Soviet Union.On July 20, 1978, in his explanation of Vietnam's decision to join the COMECON to a joint conference attended by key members of the Council of Ministers and the Party Central Committee, Le Thanh Nghi spoke very highly of the leading role of the Soviet Union in the socialist economic bloc and the tremendous potential benefits to Vietnam from Soviet economic and technological power, as well as the Soviets' large reserves of fuel, raw materials, and industrial equipment, including oil, gas, iron and steel, electrical energy, fabric, aircraft, machinery and heavy transportation vehicles, and defense equipment.  Nghi cited two main reasons for the Politburo's decision to officially join the COMECON.

• First, all the Soviet pledges of material aid, including building the national north-south railroad, seven major industrial projects, and research on the mechanization of agriculture and so forth, have been delayed because Vietnam refused to officially join the COMECON from 1977 to mid-1978. Second, when China publicly adopted an anti-Vietnam policy in late 1977, the Politburo saw the need to join the COMECON and publicly disclose our political position and viewpoint, which was important to the organization if we were to obtain support and assistance from the Soviet Union and other members of the COMECON, as well as additional backing for Vietnam's resistance against China and the United States, which sought to weaken and do harm to Vietnam. 

According to Nghi, in the short term Vietnam requested that the COMECON increase its assistance for economic reconstruction and development and the building of the material and technological basis for socialism. In particular, Hanoi requested assistance from the COMECON for the following: (1) to begin work on the seven industrial projects it had pledged in principle to support during Le Duan's visit to Moscow in November 1975; (2) to speed up the mechanization of the agricultural sector in the northern delta; (3) to enlarge the railroad connecting Hanoi and Ho Chi Minh City; (4) to help build and provide materials and equipment to complete forty-nine industrial projects for which China had recently cut off aid; and (5) to provide raw materials and goods such as coal, fuel, and thread that Vietnam had once imported from China.

The COMECON promised to study Hanoi's request immediately at the organization's thirty-second conference held on June 27-29, 1978, in Bucharest, Romania. 

Nghi's explanation provides direct evidence of Hanoi's strategic thinking about the nexus between Vietnam's domestic priorities and foreign policies and the shift away from pursuing a balanced foreign policy toward the Soviet Union and China and a broad-based foreign economic policy and negotiating strategies for a peaceful resolution of border conflicts from 1975 to 1977 and an overt military confrontation with China. The nexus between domestic crises and national security threats with China. The nexus between reconfiguration of its domestic and foreign policy strategies.

From 1975 to mid-1977 the CPV leadership's objective of building a prosperous, modern, and industrialized socialist state was paramount, even subordinating national defense to economic priorities during peacetime, and a rather broad, based and independent foreign policy and diplomacy were articulated and pursued to support the party's economic development agenda as set out at the Fourth Party Congress in December 1976. A significant amount of resources and energy was committed to economic statecraft and negotiations to solve border disputes with China, Cambodia, and Laos during this period. However, from late 1977 to mid-1978, the combined political pressure of the economic crisis at home and failure in foreign policy and diplomacy abroad compelled Hanoi to reverse its strategy by now subordinating economic development to national defense in a new period of "peace coexisting with the potential outbreak of war with Cambodia and China." The idea of "combining the economy and national defense" (ket hop kinh te va quoc phong) was translated into a national campaign to turn every district into a firm economic and national defense fortress in preparation for war. Toward that end, central economic planning (old thinking) gave way to local planning (new thinking). In preparing for war with Cambodia and China, Hanoi's decision at the Third Plenum of the Central Committee in December 1977 to decentralize economic planning- though only incrementally at this point-by allowing local authorities to draw up their own, more realistic plan was to serve as the beginning of an economic reform process. During this period, Vietnam failed to normalize relations with the United States, to solve border conflicts with Cambodia and China, and, more important, to maintain a balanced position between China and the Soviet Union due to the pressure of the Sino-American alliance against the Soviets. This failure profoundly affected Vietnam's economic and national security. It was in this context that Hanoi decided to shift from pursuing a broad-based foreign policy and steering clear of entanglement in the Sino-Soviet conflict to joining the Soviet-led economic bloc and concluding a tacit military alliance with the Soviet Union in late 1978. Domestically both the economically minded leaders and the conservative leaders in Hanoi came close to a common view in 1978 that Vietnam's alliance with the Soviets would help address both the worsening economic crisis and the threat the Sino-Cambodian alliance posed to the country's territorial sovereignty. 

To Hanoi's leaders, in the first half of 1978 they were confronted with three major threats to the legitimacy of the CPV: (1) an economic decline worsened by inefficient economic management, public corruption, and other self-interested behavior by both provincial authorities and district officials; (2) the soaring cost of the border war with the Khmer Rouge in Cambodia and the general mobilization of troops in preparation for a two-front war with Cambodia and China; and (3) the withdrawal of aid from China followed by economic sanctions against Vietnam and the Soviet Union’s significant reduction in nonrefundable aid after 1975. It was abundantly clear to Hanoi by mid-1978 that the three entwined problems had created a major national security crisis that could undermine the CPV’s legitimacy if it were not resolved quickly. To address the first problem, Hanoi’s leaders, driven by what they had learned from the ineffective top-down economic management of previous years, relaxed the Soviet-style central planning by allowing a bottom-up economic planning approach as a cornerstone of what they referred to as “renovation of economic management” (doi moi quan ly kinh te) whereby local economic units at the provincial and district levels made the plans and the central government provided investment resources. Simultaneously the government embarked on a nationwide crackdown on public corruption across the party-state apparatus, which had severely eroded people’s trust in the party and caused rising popular resistance to the socialist system. Hanoi’s goal was to ensure that each district would become a self-reliant economic unit and give any surplus to the central government. As 1978 marked the beginning of a new period of “peace coexisting with the potential outbreak of war” Hanoi’s leaders embarked on a strategy of turning every district into a firm economic and national defense fortress. Documentary evidence from the Vietnamese archives, as presented in this chapter, illustrates the domestic-external determinants of Hanoi’s foreign policy behaviors, the utility of the party-state’s socialist ideology and identity in making use of national resources, and the shift in Vietnam’s foreign policy orientation in service of its domestic economic and national security priorities.