How has Vietnam transformed from a country undergoing a socialist revolution in the 1970s to having what we call a “red crony capitalist system” today? What is the main dynamic that has shaped this transformation? In answering these questions, this chapter builds on the rich scholarship of the history, politics and political economy of Vietnam’s market reform. By reviewing developments in Vietnam as the country slowly evolved from its socialist system of the war and revolutionary period, we locate the cause of the reform in the comprehensive crisis facing socialist Vietnam in the late 1970s and early 1980s when the revolutionary regime sought earnestly to realize its utopian dreams. Originally a temporary solution to a crisis, market liberalization came to acquire a dynamic of its own, releasing vast social and economic potential. Yet, as we argue, the determination of the ruling Vietnamese Communist Party (VCP) to protect its power and privileges has restrained those potentials considerably while being itself corrupted by emerging socio-economic forces, leading to the rise of red crony capitalism and a looming legitimacy crisis confronting the party today. By “red crony capitalism”, we mean the prevalence of close family and other forms of political connections between Communist Party members and business owners.

The chapter is arranged in five sections. The first two address the ideological, political and economic context of the reform, beginning with a brief review of the careers of the first generation of communist leaders from the late 1920s who were still at the helm of the Vietnamese state in the late 1980s. Their socio-economic vision was profoundly shaped during the protracted revolution they had led, and that vision played a decisive role in guiding the developmental course of the first post-war decade in Vietnam. During that decade, the VCP sought to establish the socialist system in the South in the same way it had done in the North since 1954. This forced march to socialism led to a profound political, social and economic crisis. Even with generous help from the Soviet bloc, Vietnam was in a dire situation in the early 1980s as already poor economic production and living standards continued to worsen.