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South Vietnam's Economy in the 1950s

Updated on November 17, 2017
Actually a South Vietnamese 1972 banknote, so sort of out of the discussion range.
Actually a South Vietnamese 1972 banknote, so sort of out of the discussion range.

In 1954, Vietnam was divided into two states, that of North Vietnam - the Democratic Republic of Vietnam - and South Vietnam, the State of Vietnam, soon to become the Republic of Vietnam. South Vietnam was a poor country, mostly agricultural, with only a scattering of industry, and devastated by war - if not to the same extent that the north was. What did the economic structure of Vietnam look like in these critical years?

The flag of the State and then the Republic of Vietnam.
The flag of the State and then the Republic of Vietnam.

Overview

South Vietnam's economy, when it is remembered at all, is thought of mostly in negative terms : a dysfunctional, corrupt, and largely stagnant economy which was unable to provide for the material prosperity required to pacify the country. This is both true in some ways, and false in others. Economically, South Vietnam in the 1950s grew at a relatively rapid pace (although the rapid growth in population also cut somewhat into this), but economic growth is not everything. South Vietnam's economy was held back in crucial sectors such as industry by both policy mistakes and fundamental shortcomings, and the substantial economic growth which did occur largely failed to stabilize its internal difficulties.

North Vietnam drove investment from under 10% of GDP to 20%, while in the South it remained a stable 8-10%, the government concerned about the political impact of a cut in the standard of living to secure higher economic growth. The ability to mobilize investment was also limited, as South Vietnam's banking network was limited, and practically non-existent in the countryside. South Vietnam's standard of living by regional standards was thus actually relatively high, due to a combination of more spending on consumption and foreign aid, but this did not manage to quell internal dissent, and intense disparities reigned over this consumption South Vietnam imported large amounts of consumer goods from the United States, often as part of aid programs, which fueled a growing gap between the cities and the countryside. Imports of American goods at effectively subsidized prices also undercut domestic production and traditional trade links (although French trade still remained prominent, resting at 25% in 1960 - 5% higher than the American 20%). Inflation however, was not a serious problem for the South Vietnamese government as the consumer price index essentially remained unchanged throughout this period : in this regards, the particular nature of the American foreign aid program worked successfully.

The government was mistrustful of capitalism, as Diem thought private enterprise selfish and materialistic : the principal reason to support it was for strategic objectives of "independence". As with other leaders of the era, the preference was to have industries nationalized : this served necessary political objective, and kept industry out of the hands of the Chinese or foreigners, and companies could instead be rewarded to appropriate political recipients. American and Vietnamese policy makers often disagreed upon the extent of government involvement in the economy, the Americans preferring private investment, while the Vietnamese government desired more state involvement. An example of this was a speech by Nguyen Ngoc Tho, the Vice President of the Republic, stating that :

"The Personalist [the name for the South Vietnamese economic philosophy] economic system aims at developing personal freedom, insuring human dignity and realizing social justice. On the one hand, we must avoid the liberalism of the Capitalistic system with its cyclical evils of unemployment and economic crisis; on the other hand, we must keep away from the Communistic system which calls itself socialism with its false and inhuman class struggle. The golden mean which brings about harmony between the human person and the organized society is the economic cooperation practiced under the organizational form of cooperatives which insure the public rights of the group as well as the private right of the individual while, at the same time, developing the community of life."

Such high rhetoric often failed to live up to practice in reality, but it did demonstrate that the South Vietnamese government was enamored with a corporatist sort of economy, instead of a liberal free enterprise system.

Both South and North Vietnam had economic development plans, but the South, less efficient and with an internal guerrilla war, could devote little resources to it, in contrast to the North's rapid consolidation. Technically, economic planning in South Vietnam was taken up by the National Economic Council, but power continued to be monopolized by President Diem.

A rice factory at Cholon, date unknown.
A rice factory at Cholon, date unknown. | Source

Industry

French policy in Vietnam, despite temporary flirtations under Albert Sarraut, did not encourage industrialization in Indochina : the French objective was to preserve Vietnam as a market for French exports, and as a source for raw materials. While some local industry had been created during the French period, such as the capability to repair local trains, a zing smelter, sawmills, industrial rice alcohol (although the introduction of this was hardly an un unblemished success, with significant opposition by the Vietnamese people for reasons of French monopoly, price gouging, poor quality, taste, and a host of other reasons at the turn of the century), rice milling, textiles, cement, and tobacco, most of it was in the north, at around 70% (alongside 90% of the workforce in modern industry). The north also had much more in the way of mineral resources and mining. In contrast, the south was a principally agricultural area, where the Mekong Delta had exported over 1 million tons of rice before the war. The South had only light industrial facilities, such as tobacco, alcohol, soft drinks, matches, sugar, and rice-milling. Immediately post-war, the South tried to build up industry in sectors previously dominated by the north, to replace this loss.

The Vietnamese government would not be particularly effective in its industrial polices. It lagged behind North Vietnam in 1955-1960 period, despite immense amounts of US foreign aid being provided ($322 million in fiscal year 1955): this foreign aid was used to ensure the stability of the regime rather than to secure economic growth : indeed, it might have even hindered economic development, by enabling the South Vietnamese regime avoiding the need to tackle difficult reforms to increase its popular support and legitimacy. The majority of economy aid, some 75%, was simply used for the military and security apparatuses. Security was limited in South Vietnam, due to ongoing warfare, and politics were shifting and unstable, inherently producing a negative business climate. This instability extended to the statistics realm, where information on production, savings, investment, were fragmentary : thus perhaps the various statistics cited throughout this article should themselves be taken with caution. The rule of law, so vital for economic growth, was essentially absent in Vietnam with rampant corruption , censorship, and political control by the Can Lao, Diem's party.

During the colonial era, the Chinese had controlled significant portions of the Vietnamese economy. Colonial economies have often had a group of ethnically different strangers who controlled significant parts of the economy not under White control, such as the Lebanese, Chinese, or Arabs (in Sub-Saharan Africa). 80% of the retail trade, and dominant positions of textile, foreign exchange, transport, and metal-working were under Chinese business control. This was countered by the Vietnamese government barring foreigner nationals from 11 economic categories, in September 1956 : Vietnamese nationality had to be acquired. This led to a further diminution of investment into the economy.

Industrial growth did appear fast; at 21% in these years (compared to 26% in Northern Vietnam), but South Vietnam was starting with an unfavorable level of industry anyway, as North Vietnam had more industry to start with and this industry grew at a faster pace. With vanishingly small amounts of industry present, very large growth rates could be sustained, without doing much to alter the make-up of the Vietnamese economic structure. Furthermore, South Vietnam had much more aid available and still failed to achieve the same growth rates : in 1956-1960 South Vietnam received foreign aid equivalent to 10% of its total GDP, while it was 4% in the north (a number which had admittedly fallen from 15% initially), but still had less economic growth.

Rubber was an important crop for foreign exchange earnings during this period in Vietnam.
Rubber was an important crop for foreign exchange earnings during this period in Vietnam.

Agriculture, Land Reform, and Food

South Vietnam at the time of independence was an agricultural part of the country, with the north possessing substantial mineral resources and a more developed industry, but in return a significant food deficit, while the south had major pre-war rice exports. Land under cultivation per capita was larger than in North Vietnam, standing at about .15 hectares per capita, and hence 1/4 larger. More than 90% of the workforce earned its living from agriculture, South Vietnam, with only 5% of the population in industry, and these mostly handicraft.

One of the most pressing problems in South Vietnam was the problem of land distribution. In South Vietnam, the land distribution of the Vietnamese countryside meant that much of the land was concentrated in the hands of landlords, and plantations. These plantations produced corn, rice, and rubber, with rice and rubber in particular being vital for export for foreign currency earnings. Conditions on these plantations were atrocious, and although they generated large amounts of wealth for the French (especially in rubber for companies like Michelin), exceedingly little of this went to the average Vietnamese people who worked there. Meanwhile, vast numbers of landless or land-deprived peasants controlled a minority of the land. This was combined with landlord extractions in the form of onerous rent payments, and intensely high interest usury. The vast influx of refugees from the Communist north further intensified these economic problems in the countryside.

Naturally, these difficult living conditions made life hard for Vietnamese peasants, who had to face heavy extortions from absentee landlords, and who lived without land of their own for many. This made them into natural allies of the Vietnamese communists, who promised land reform and gained the support of the peasants by this. In order to prevent this, Vietnam, with pressure applied by the United States, launched its own land reform program in 1957.

Alas, this land reform did not achieve a success in dealing with the problems faced. In 1960, 75% of the land was owned by 15% of the landowners, with 2% of the landowners owning 45% of the land. Land had had to be bought by the peasants, and naturally very few had the money for this, and only land holdings over 100 hectares would face confiscation : compare this to 3 hectares in the successful Japanese land reform, or 5 acres under the Viet Minh. Rent reduction, aiming to limit rent to 25% of the harvest compared to previous numbers which reached as high as 50%, often failed.

The result of these failed land reforms was only more resentment towards the government and dissatisfaction among the farmers : the Viet Minh after all, had redistributed land to the peasants. When the government retook territory that the Vietnamese had conducted redistribution in, they charged the peasants back-rent for the land that had been allotted to them. In some places Viet Minh control had lasted for the better part of a decade, producing an unbearable burden upon the peasantry.

Economically, while under French control, Vietnam had produced significant agricultural surpluses, these would be wasted by the new South Vietnamese government, which failed to achieve the same rice exports that the French did (although rubber production did expand, shifting from exporting to France to exporting to the US). Internal consumption instead was higher to deal with internal dissent, as noted in statistics below (and in addition to higher rice and sugar consumption, there was also greater availability of chocolate, coffee, tea, and fruit), but the problem was that the inherent political problems of the South Vietnamese regime meant that this higher level of consumption didn't actually defeat internal dissent.

Per capita rice and sugar consumption per year  in South and North Vietnam.
Per capita rice and sugar consumption per year in South and North Vietnam.

On all fronts, agricultural policy was a failure for the South Vietnamese government, except in benefitting landlords and the rich. Agricultural growth had occurred (with 1.6 million hectares of rice in 1953 increasing to 2.9 million hectares, and 2.1 million tons to 4.0 million tons in the same period) : indeed, it outpaced the North, where growth was at 5% per year from 1956-1960, compared to 7% in the same period in the south, but growth alone failed to resolve the deficiencies of South Vietnam's agricultural policies.

The Vietnamese railroad network : it suffered heavily during the war
The Vietnamese railroad network : it suffered heavily during the war | Source
The Dong Ha railroad re-inauguration in October 1960.
The Dong Ha railroad re-inauguration in October 1960.

Transportation and Trade

Transport had been wrecked in both North and South Vietnam by the war, and this too harmed post-war economic reconstruction. South Vietnam only had 900 kilometers out of 1,400 kilometers of railroads operational. South Vietnam did manage to restore service to the Saigon-Dong Ha railroad , which hadn't been operational since 1948, by 1960. The road network, previously at 11,700 kilometers before the war, had only been partly repaired.

Despite South Vietnam being independent, much of its trade continued to be directed to France. Its trade overall, had much larger imports than exports, and it ran a large deficit as a result : exports were equivalent to only around 33% of its imports. In value terms, by far the largest export was rubber at 62%, followed by rice, while it imported consumer goods, industrial machinery, and machinery and equipment. Before the war, there was much trade between North and South Vietnam, but this no longer operated afterwards.

Foreign Aid

South Vietnam was the second largest recipient of US aid, with only South Korea in front of it, and amounted to some 8% of total US economic aid in the second part of the 1950s A very small percentage of this was composed of goods and services provided directly, around 15%, while the vast majority came in providing dollars to the Vietnamese government to buy for imports. Most of this, as previously mentioned, went directly to the Vietnamese army. South Vietnam, with a limited internal tax base, mostly dependent on indirect taxes, relied extensively upon this American aid.

Foreign aid for Vietnam was structured in a particular way, out of a model built for the Marshall Plan. Vietnam's currency, the đồng, was indexed to the American dollar at a rate of 35 to 1 - a rate which was overvalued for the Vietnamese currency as it turned out. The actual free market exchange rate was probably somewhere around 60-1. A variety of alternative rates existed with 70-75 to 1, 95 to 1, and up to 120 to 1, for various types of trade with the US.The United States wanted to deliver foreign aid to Vietnam, but it faced the problem that if it simply injected dollars into the Vietnamese economy, it would fuel runaway inflation. Instead, aid was delivered through the Commercial Import Program, or CIP. US dollars were given to the Vietnamese treasury, and Vietnam then granted licenses to business people which would allow them to purchase these dollars at below-market rates, with Vietnamese currency. Then these businessmen imported American goods, while the Vietnamese treasury could use the dollar sales to provide currency to pay for their own expenditures. It was a brilliant invention, and helped minimize the inflationary aspects of foreign aid.

Brilliant that is, except when put in actual human hands. The intent of the foreign aid program was that it would be utilized to buy capital goods for building up the Vietnamese economy, developing it and enabling it to be self-sufficient. This didn't happen, and instead it mostly provided for the import of luxury foreign consumer goods. Thus, in South Vietnam, a country without any motor industry, the number of vehicles (including scooters, trucks, cars, and motorcycles) jumped from 22,000 to 100,000 between 1952 and 1960. So too, huge amount of textiles flowed in, as did typewriters and calculating machines. While this gave the Vietnamese government a popular base in the cities due to this largesse, the entire process was shackled by bureaucratic difficulties, corruption, and it led to an increasing divide between the countryside and the urban milieu. Even in cities, the gap between the nouveau riche that benefited from American aid and the quarter of the population that was unemployed in Saigon was dangerously visible. Simply pouring foreign aid into South Vietnam did little to help their economic performance.

A propaganda poster encouraging Vietnamese to move South, the top saying "Go South to avoid communism!" and the bottom "People of Southern Vietnam are welcoming with open arms Northern Vietnamese people."
A propaganda poster encouraging Vietnamese to move South, the top saying "Go South to avoid communism!" and the bottom "People of Southern Vietnam are welcoming with open arms Northern Vietnamese people."

Demographics and Education

South Vietnam's population grew markedly during the 1954-1960 period. from 11.6 million to 14.1 million - in contrast, North Vietnam only grew from 15.1 million to 16 million. Much of this was due to a natural rate of increase that stood at 2.5% per year, but South Vietnam also was the destination of 900,000 refugees from North Vietnam during 1954-1956, which strained South Vietnam's ability to receive them. Unemployment increased and reconstruction was delayed as a result. North Vietnam was the recipient of some 100,000 Viet Minh fighters who fled north.

This population lacked heavily in education, skills, and training. North Vietnam faced the departure of 15,000 French administrators, managers, and technicians, and their 15,000 trained subordinates, which they attempted to meet through Eastbloc technicians, and the import of technical data, planning advice, and training. South Vietnam had its own gaps, and $24 million of US aid was allocated to technical training, and overseas training approached 1,100 South Vietnamese participating in overseas training, mostly in education, agriculture, publich ealth, and public administration.

Foreign Perception

While not directly related to the statue of the South Vietnamese economy per se, one fascinating aspect concerning the era is what other nations thought about it. In particular, the most relevant of these is the united States. The US external intelligence agency - the CIA - had an attitude which was relatively rosy on aspects of Vietnamese policy which had failed, such as the land reform. A CIA report on the Vietnamese economy in 1961 indicated that "Whereas socialization of agriculture in North Vietnam has proved to be a difficult and uncertain task, forced on a reluctant and individualistic peasantry, agrarian reform in South Vietnam has met with substantial success. No information available to this date indicates widespread evasion by landlords of administrative corruption, and prices set for the land on the whole appear to be fair and within the ability of new owners to pay without hardship." Given that land reform has been seen as one of the key failings of the South Vietnamese government, the CIA's sunny optimism in such regards appears as a dreadful prelude to the constant US over-optimism during the Vietnam War just a few years later.

Conclusion

South Vietnam's economy is a lesson which both confirms and denies some American perceptions about that country during the era. It was hardly stagnant, and although it might have been poor by American standards, by regional standards it had a level of living which was not poor. But it was presided over by a government which was never able to capitalize on this and to bring about popular support and legitimacy, and American policy makers failed to recognize and act upon the challenges it had, and sometimes their very involvement simply made the situation worse. It is a lesson which should be remembered by Americans today : growth and wealth alone are not always the solution to national problems, American involvement often has unintended consequences... and the CIA's reports on subjects are often prone to inaccuracy.

Suggested reading:

A Comparison of the Economies of North and South Vietnam, Central Intelligence Agency Office of Research and Reports, December, 1961.

Adamson, R. Michael, "Delusions of Development: The Eisenhower Administration and the Foreign Aid program in Vietnam, 1955-1960", The Journal of American-East Asian Relations 5, no. 2 (Summer 1996) 157-182.

Trued, N., M. "South Viet-Nam's Industrial Development Center", Pacific Affairs 33, no. 5 (September 1960) 250-267.

People of Plenty: American Cultural and Economic Programs in South Vietnam1955-1963, by Mathew Maseur

Makinen, G. E. "Economic Stabilization in Wartime: A Comparative Case Study of Korea and Vietnam", Journal of Political Economy 79 no. 5, (November-December 1971), 1216-1243.

© 2017 Ryan Thomas

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