Black market American goods, Ho Chi Minh City
Courtesy Bill Herod

Scrambling to buy plastic waterÍÍÍÍ containers in Hanoi
Courtesy Bill Herod

Hanoi pen merchant uses hypodermic needle to insert ink into used ballpoint pens
Courtesy Bill Herod

The control and regulation of markets was one of the most sensitive and persistent problems faced by the government following the beginning of North-South integration in 1975. The government, in its doctrinaire efforts to communize the commercial, market-oriented Southern economy, faced several paradoxes. The first was the need both to cultivate and to control commercial activity by ethnic Chinese in the South, especially in Ho Chi Minh City. Chinese businesses controlled much of the commerce in Ho Chi Minh City and the South generally. Following the break with China in 1978, some Vietnamese leaders evidently feared the potential for espionage activities within the Chinese commercial community. On the one hand, Chinese-owned concerns controlled trade in a number of commodities and services, such as pharmaceuticals, fertilizer distribution, grain milling, and foreign-currency exchange, that were supposed to be state monopolies. On the other hand, Chinese merchants provided excellent access to markets for Vietnamese exports through Hong Kong and Singapore. This access became increasingly important in the 1980s as a way of circumventing the boycott on trade with Vietnam imposed by a number of Asian and Western Nations.

The second paradox lay in the role markets played in economic planning. State plans depended upon complex and interrelated flows of industrial and agricultural commodities, mediated by state markets at fixed prices. For example, predetermined amounts of food had to be produced and made available to coal miners, who were required to increase production of fuel for thermal power plants, which would in turn supply energy to fertilizer factories and machine shops. Production of fertilizer and small machines--for example, irrigation pumps and insecticide sprayers--would close the circle by providing planned levels of inputs necessary to increase agricultural production. Production campaigns under the guise of encouraging volunteerism--heroic efforts for the development of the fatherland--were to be used to keep production at quota levels at every part of the cycle. By the late 1970s, however, this plan had failed conspicuously. Although inhibited by controls and the exodus of numerous Chinese in the late 1970s, the private market remained active (see Ethnic Groups and Languages , ch. 2). Enterprises working under the Second Five-Year Plan found themselves competing for needed inputs in the private sector. Prices in the free market were 100usuallylly well above those set by the plan, but privateÍÍÍÍ markets often were the only source for needed goods. Bottlenecks and shortages persisted, aggravated by the tendency of low-level managers to stockpile above-quota production against future levies or simply to sell production on the private market. Repeated failures to improve harvests caused food shortages to approach crisis proportions and forced the government to back away from its attempt to mold the South into the North's economic image. After 1978 the government moderated its crackdown on private commerce in the South to allow some commercial activity, including reinvestment of private profits. By 1979 the share of state-owned commerce in Ho Chi Minh City had declined to 27 percent, compared with 54 percent for the country as a whole.

A major problem for the leadership was the structure of the economy in the South. Nationalization had little effect on the small-scale manufacturing that characterized much of production. Moreover, commerce was a principal occupation in the major cities. While state stores were established as part of a new government-controlled distribution network, private vendors were able to compete effectively with them by offering to pay more to suppliers and by providing customers with better and otherwise unobtainable goods in exchange for higher prices. Hanoi's orthodox communist leaders viewed this activity in a time of shortage as speculation, hoarding, and monopolization of the market.

At roughly the same time that the government intensified the collectivization drive, it launched a campaign in the South to transform commerce into a largely public-sector activity. Private shops were closed, merchandise was redirected to state channels, and merchants were shifted to production work. At the peak of the transformation drive in 1978, state-sponsored commerce in Ho Chi Minh City reportedly accounted for 40 percent of retail sales. The government's crackdown on private traders initiated an unprecedented exodus of ethnic Chinese, who made up many of their number. The market dislocation also increased hardship in the South, which, along with unpopular resettlement policies, convinced many Southerners to flee. Not only did the government's program deprive the South of the services of some of the more capable members of the middle class, but the escape of many Southerners by sea provoked a shortage of fishing boats and a decline in the fish catch, a principal source of foreign-exchange income.

Through 1986 and 1987, official policy toward unofficial markets continued to alternate between restrictive and liberal approaches. Restrictions included licensing and tax regulations and proscriptions against reinvestment of profits. In periods of relaxation, these restrictions were eased local organizations were given greater autonomy in setting prices for locally produced goods and unofficial markets were permitted to flourish.

Lenient policies reflected official awareness that both production and distribution remained to some degree dependent on the unofficial market. In agriculture, for example, the "family economy" continued to account for an important share of peasant agricultural production. The state plan for industrial production recognized the existence and importance of the unofficial market in the "dual quota planning" system. Under this program, introduced in 1985, enterprises that met plan quotas were allowed independently to plan, finance, produce, and privately market surplus goods on the unofficial market. In 1986 state enterprises in Hanoi reportedly were unable to meet their budget contribution quotas because of the high cost of purchasing goods on the unofficial market. Many organizations not authorized to trade continued to do so, however, and the available goods on the official, "organized" market remained well below quotas.

Data as of December 1987