If you want to understand the future of global tech business, look to Vietnam, says Long S. Le, a lecturer in management and director of the International Business minor at the Leavey School of Business.

Now among America’s seven largest trading partners, the Southeast Asian nation best known for exporting textiles and garments has become a major player in high-tech products, the latter soaring from 13 percent in 2010 to 42 percent in 2020.

Time has healed many wounds from the 20-year conflict that began in the mid-1950s, and so has geopolitics. As U.S.-China trade relations grow more fragile, Vietnam is increasingly viewed as a more stable supply-chain base for tech companies like Apple, Microsoft, and Nvidia, both for less costly labor and as a hedge should China interfere with their businesses.  

Le, whose South Vietnamese family fled the war-torn country in the early 1980s, has keenly studied the economic resurgence that has pushed his ancestral home from an impoverished to middle-class nation. We talked with him about his recent article on Vietnam’s race to become the next “Asian tiger” of rapid industrialization, and how success for the “Land of the Blue Dragon” depends on walking a high-wire between the world's two largest superpowers. 

Vietnam and China are both one-party Communist countries run as state capitalist economies, but the U.S. does business with both. What’s the difference between the two, and how might Vietnam’s success in tech impact the United States? 

We often compare countries from a binary framework of democracy and autocracy. One system promotes economic development through privatization (the U.S.), the other through state capitalism (China). Up to now, the thinking was it’s limited to one or the other. But in the current environment, there are certain countries like Vietnam that have benefited from this difference quite a bit by working with both sides of the binary.

China colonized Vietnam for more than 1,000 years. They have done certain things that the Vietnamese believe are big brother bullying and basically exploited them. So that historical culture is still very evident in Vietnam. In terms of social and cultural issues, Vietnamese citizens prefer the United States much more than they do China. Vietnamese citizens are very skeptical of China, and they don't like the Vietnam government’s close relationship with China.

Vietnam would like China to be a “benevolent big brother,” in which when China is strong, Vietnam can become stronger. But Vietnam has also been clear with China that they are not going to side with China totally, and they are not gonna side with the U.S. That has been their Swiss policy from day one, and it works well. 

Why is the rise of state capitalism around the world important?

Starting in the 1980s, a lot of scholars began to identify countries in the context of state capitalism, in the sense that the state has some level of intervention. The question is whether that intervention is threatening or not, and whether it’s considered a bad thing versus privatization, which is considered a good thing.

China’s state capitalism is seen as threatening to the U.S., and it gives state capitalism a bad name in the U.S. and with other Western powers and institutions like the World Bank and the World Trade Organization. That’s because under state capitalism, important economic sectors are state-run, and thus protected from domestic and foreign competition and government scrutiny.

But many countries that adopted state capitalism have had a different historical, cultural and political development. State capitalism in China and Vietnam has led to impressive progress towards university health coverage via government-led health insurance reforms. Similarly, China and Vietnam have made education a national priority. Vietnam has a literacy rate over 90 percent. 

You note the many benefits of state capitalism, but it also contributes to human rights abuses. How do you square that?

I would say that as U.S. companies come into foreign countries, those companies are more conscious of human rights than East Asian (i.e. South Korea and Japan) firms in Vietnam. 

One big benefit to U.S. investment in Vietnam is that investment in human resources is much higher now because Vietnam wants a workforce that is better educated and trained. And in terms of taking people out of poverty, China is number one, and Vietnam is number two. Of course, lifting people out of poverty is not correlated with greater human rights in Vietnam and China. For Vietnamese civil society, this is the biggest challenge. Some activists will seek better human rights within the system, while others will engage in public protests.

In terms of climate change and environmental issues, Vietnam is open to learning from the U.S., Japan and the EU, including addressing these issues that disproportionately affect the poor.

Can you talk about other countries from the East that have relied on state capitalism to catch up to countries in the West? 

Japan, South Korea, and Taiwan have been using this to catch up to the U.S., and they have done quite a good job. For example, back in the day, you had Japan focusing on car manufacturing. And in the 1960s and 70s, the biggest export from Taiwan, a very small island, was sugar. Today, the biggest commodity in the world from Taiwan is advanced chips. 

But all those industries require government subsidies and collaboration and partnership with companies. The same is true in the world’s Northern and Southern Hemispheres, where democratic countries like Chile and Brazil are using state capitalism, though they have not yet caught up to the United States. 

What’s necessary to make state capitalism work?

In democratic countries like Japan, or in Taiwan, state capitalism works because both have a very strong, stable government, with a strategy that initially subsidizes industries to allow them to catch up. In countries like Vietnam, which is a one-party system, state capitalism works if you make the right decisions and can execute them. Then it’s sort of like running a corporation or a business that has a good CEO who makes all the right decisions, and it does well. 

Vietnam created a state capitalism that is not threatening to the global trading system, and is not threatening in terms of foreign companies. And it’s not really threatening in terms of domestic companies. At the same time, it is still an autocracy and in terms of international business, it promotes a market economy. But in its greater strategic alliance with the U.S., Vietnam has been urged to end its non-market economy to become a market-oriented economy. If that were to happen, Vietnam would be one of just a few single-party led governments, like Singapore, to have that label.

What does history tell us about the framework of state capitalism?

If you look at countries in Latin America, particularly in the ’70s, ’80s and early ’90s, when Latin American countries basically decided to align with the United States, or were forced to follow whatever the Washington D.C. consensus wanted them to do, that didn't get them anywhere, really. So now countries like Mexico, Chile, and Argentina are basically saying, “We want to trade with the United States. That's important. But that can't be all. There is the rise of China, and the EU, and we’re not going to do things the way we did where we basically did everything the U.S. would tell us to do.” 

In certain sectors, particularly the chip industry under the Biden Administration, you’re seeing the U.S. saying, “We're going to bring Taiwanese chipmaking companies to the U.S. And we’re going to make sure that our companies are not allowed to ship any equipment or components to China because chips are seen as a national security interest.” How realistic is this approach? 

It’s creating a potential Cold War for middle power countries that now have to pick sides: Do you want the United States? Or do you want China? But countries like Mexico and Vietnam are basically saying, “No, this is not beneficial for us. We benefit more when we have an international system where the U.S. and China are competing, but they are also collaborating.” 

What you’re seeing today with China and the United States is that the  competition is getting so fierce that the collaboration and the common ground that they had is basically just going away. And the fear is that if you push that approach too far, then you’re basically creating a binary supply chain, one for the U.S. and one for China. One economy for the U.S., one for China. It’s a zero-sum game, and that’s not good for international business.