April 30 marked the 33rd anniversary of Saigon's fall to the North Vietnamese Communists. The former capital of South Vietnam is now called Ho Chi Minh City, a name that better reflects Vietnam's past than its present and future. As John O'Sullivan has observed, "A Martian landing in Saigon or Hanoi today with no knowledge of history since 1970 would assume that the South must have won the war. These cities have all the boutiques and designer labels of London or Venice--and more homegrown entrepreneurial vitality than both."

Though it is much smaller than China, and thus gets far less global attention, Vietnam has become one of the developing world's great economic success stories. Over the past two decades, it has transformed itself from an impoverished basket-case into a robust Asian tiger.

Just look at the numbers. Vietnam's economy has grown by more than 8 percent for three straight years. Since the government launched its doi moi economic reforms in 1986, tens of millions of Vietnamese have emerged from abject poverty. By the end of 2007, the World Bank reports, Vietnam's stock market capitalization had "reached 43 percent of GDP," compared to only "1.5 percent two years earlier." Meanwhile, "foreign direct investment commitments almost doubled" in 2007, "non-oil exports grew by 27 percent," and "international reserves increased by over $10 billion to $21.6 billion, equivalent to 30.2 percent of GDP or 3.3 months worth of imports." The country's leaders seem eager to expand foreign trade (Vietnam officially joined the World Trade Organization last year), boost investment opportunities, and support private entrepreneurship.

"Vietnam is racing to be more like the United States every day," says Daniel Griswold, a trade policy analyst at the Cato Institute. In recent years, its fast-growing information technology sector has played a key role in luring foreign capital and spurring further liberalization. Truong Gia Binh, the CEO of Vietnamese software giant FPT, may well be the country's richest person. "The opening up of Vietnam because of technology is remarkable," says Carl Thayer, a Vietnam expert at the University of New South Wales at the Australian Defense Force Academy. Moving forward, Thayer reckons that "Vietnam is going to keep opening and opening and opening."

To be sure, it remains a developing country with big swathes of rural poverty. Still, Vietnam's long-term progress is extraordinary. "As recently as 1993, 58 percent of the population lived in poverty, compared to 37 percent in 1998 and 29 percent in 2002," the World Bank has noted. "This amounts to halving the share of poverty in less than a decade. Or, put differently, almost a third of the total population was lifted out of poverty in less than ten years." Indeed, "by 2002, its poverty rate was substantially lower than that of other countries at the same development level. Thus, the 'speed' at which poverty was reduced in Vietnam was much faster than the average speed across developing countries."

The Vietnamese miracle traces its roots back to the mid-1980s, when the country was paralyzed by an economic crisis. "It was basically an emergency situation," says Edmund Malesky, a Vietnam expert at the University of California, San Diego. In 1986, the Communist party decided to embark on a bold path of market-oriented reform. Hanoi moved gradually to de-collectivize agriculture, loosen restrictions on free enterprise, enlarge the private sector, liberalize prices, and promote foreign trade and investment.

"It really helps when you can see the other system fail abjectly," says Malcolm Gillis, board chairman of the Vietnam Education Foundation. The post-1986 Vietnamese reforms were similar to those embraced by China after 1978. As Malesky points out, Vietnam already had a significant non-state sector prior to 1986. For years, individual entrepreneurs had been plugging the gaps in a central planning regime. The country had also permitted experiments with local markets selling agricultural products.

Today, Vietnam boasts a vibrant urban economy. "The middle classes of the Socialist Republic of Vietnam have taken quite well to capitalism," Reuters reported in November 2006. "Whether it is families dining at fancy restaurants, businessmen buying luxury cars, or people shopping for vanity items, conspicuous consumption is popular, especially in Ho Chi Minh City and Hanoi."

Foreign direct investment (FDI) in Vietnam surged in the early 1990s, declined during and after the 1997-98 Asian financial crisis, and has simply exploded over the past few years. It reached a record level in 2007. In its latest FDI Confidence Index, the consulting firm A.T. Kearney ranked Vietnam as the world's 12th most attractive destination for FDI, which was Vietnam's "highest ranking ever" in the Index.

"I just find the place alive," says Gillis. "Alive with innovation." The importance of demography can't be overlooked. It is estimated that more than two-thirds of Vietnam's 85 million people are below the age of 35. Such youthfulness "makes for a very dynamic country," says Raymond Burghardt, who served as U.S. ambassador to Vietnam from 2001 to 2004.

The youth factor also helps explain why Vietnam has become so pro-American. Most Vietnamese have no real memory of the war. But they do recognize how U.S. investment has helped their country, and, as Malesky puts it, their "aspirational ethos" encourages a positive view of U.S. influence. Young Vietnamese also seem enamored of American popular culture.

"The admiration for the U.S. is on the soft-power side," says Thayer. "America has enormous appeal." When Microsoft founder Bill Gates visited the country in April 2006, he got a hero's welcome. In certain Hanoi bookstores, says Burghardt, "there's a whole section devoted to Bill Gates." Burghardt reckons that Vietnam is now among the most pro-American countries in Southeast Asia. "There are people who are bitter towards us," he admits, "but it is a remarkably small percentage."

After the Soviet Union collapsed, Hanoi made the pragmatic decision to bolster its diplomatic connections in Southeast Asia and normalize relations with the United States. The U.S. and Vietnam signed a bilateral trade agreement in 2000, and two-way trade has since ballooned. There has also been significant progress on bilateral security cooperation. The Vietnamese are worried about China's growing regional influence, says Burghardt. At the same time, they don't want to be seen as joining the U.S. in an "anti-China" alliance.

"They're definitely triangulating now," says Malesky, in hopes of maintaining close links with both Washington and Beijing. The issue of those Vietnamese who were harmed by the wartime defoliant Agent Orange (which Burghardt calls "the last ghost left over from the war") remains a sore point for Hanoi. Still, Burghardt says he is "basically optimistic" that U.S.-Vietnamese relations "will continue to improve."

Of course, as long as the Vietnamese government remains a one-party dictatorship that persecutes democracy advocates, independent journalists, religious worshippers, and ethnic minorities, the process of upgrading bilateral relations will be hampered. Hanoi recognizes this, and in recent years it has taken steps to assuage U.S. concerns. In November 2006, the State Department removed Vietnam from its list of the worst abusers of religious freedom. But many activists felt that was a mistake. Earlier this month, the U.S. Commission on International Religious Freedom released a report arguing that, while Vietnam has made "noticeable progress," the Bush administration acted prematurely in changing the country's designation.

In its latest survey of freedom around the world, Freedom House gave Vietnam its lowest rating (a 7 out of 7) for "political rights" and its third-lowest rating (a 5 out of 7) for "civil liberties." The latter score put Vietnam ahead of China but behind Malaysia, Singapore, and Thailand. Overall, Freedom House classified Vietnam as "not free."

"This is still a Leninist political system," says Burghardt. Though the country's dissident movement is courageous, its ranks are small. Vietnam has nothing approaching the "volatile intellectual atmosphere" that China had in the late 1980s (prior to the Tiananmen Square massacre). "People are quite proud of what the country's done," Burghardt explains, and they give the ruling party credit for overhauling the economy and improving living standards.

Interestingly, Malesky says that Vietnam has been more ambitious than China in experimenting with "intra-party democracy." He also says that the government bureaucracy is more independent of the Communist party in Vietnam than it is in China. However, China has done more to promote legal reform.

"There's a considerable group in Vietnam that still fears peaceful evolution," says Thayer. "There's still an ideological residue that hasn't gone away." He emphasizes that "the Communist party is not unified," with some members more sympathetic to liberalization than others. As the economy changes, more and more Vietnamese will enter the middle class and the ranks of private entrepreneurs will continue to swell. "These people are going to demand a say in political decision-making," Thayer argues. "The system cannot deny their voice."

Maybe--but how long will it take? In a recent report on Vietnam, Economist correspondent Peter Collins wrote that "even as the government tolerates a wide range of outside influences, it still tries to keep control over all things political and cultural." As Burghardt says regretfully, "real political reform is going to be very slow in Vietnam."

Duncan Currie is managing editor of The American.

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