Why the Next Asian Tiger Remains a Cub

For nearly two decades, Vietnam has been seen as a likely successor to the "Asian tigers," a handful of countries including South Korea, Taiwan, Hong Kong, and Singapore that successfully and spectacularly industrialized during the late twentieth century. In the 1990s, it was widely thought that the Asian tigers' success was due to their Confucianism—and since Vietnam was as Confucian as the four Asian tigers, the country was fully prepared for an economic take-off. Although today belief in the Confucianism thesis has faded and Vietnam has yet to tell a success story, the country stays high on the radar screen of international investors. Vietnam is now given the respected title of an "emerging market" and, according to a study by Goldman Sachs, exhibits "both the potential and the conditions" to rival some of the current major economies.¹

This new expectation is based on an analysis of benchmarks that growth literature has identified as determinants of economic growth. These benchmarks, collectively termed by Goldman Sachs as the "growth environment score," range from macroeconomic health to technological capabilities, human capital, and political conditions.² Although the intuition that supports this expectation may prove right, the Goldman Sachs projections, which also underlie the now popular concept of the BRIC countries (Brazil, Russia, India, and China), suffer from an analytic weakness—this analysis relies too much on short- and medium-term variables to forecast long-term trajectories. The indices of Vietnam's macroeconomic stability, for example, have deteriorated sharply since the release of the 2007 study. Behind the façade of Vietnam's high-growth rates, there lurk dismal inefficiencies.³

Can Vietnam still join the top twenty economies in the coming decades? Can it write a success story similar to those of the Asian tigers? To answer these questions, a study of the institutional, cultural, historical, and political aspects of the country's business environment may be better than a quantitative study that relies on indicators of Vietnam's macroeconomic and technological situation. Lan Nguyen's Guerilla Capitalism provides such qualitative research. It is a magisterial study of both the rules of the business game and the behavior of state-owned enterprises (SOE), which are the dominant economic players in Vietnam. For Nguyen, the business environment is a socially constructed reality that is weaved by habits and beliefs, ideas and values, practices and norms, institutions and ideologies, and laws and policies. Some parts of this reality can be changed overnight (for example, laws and policies), but the bulk of it can only be changed incrementally. Some parts (for example, ideology) are embedded in other parts (for example, policies and practices); and what people are doing today depends much on what was done in the past. This conception of the business environment, even though not comprehensive, allows Guerilla Capitalism to give deep insights into the economic potential and conditions of Vietnam. Although Nguyen does not make predictions, his book provides a good starting point for long-term forecasts about Vietnam's economic performance.

Guerilla Capitalism is both solid and theoretically innovative. Nguyen took on the tough task of integrating insights from different theories into a coherent framework of analysis, and he succeeded. The insights range from János Kornai's soft budget constraint to Richard Cyert and James March's principal-agent problems and Max Boisot and John Child's transaction-governance structures, Geert Hofstede's cultural dimensions, and institutional theory, just to name a few examples. These insights are not adopted at face value but rather are carefully evaluated and then selectively integrated into a comprehensive theory of organization. The analytical pivot of this theory is Douglass North's institutional matrix. Shaped by culture, politics, and history, this matrix includes formal and informal rules of the game, which in turn shape the pattern and internal structure of the firms. With this approach, Nguyen is able to show how ideas and values work in institutions and rules without reifying the former.

Nguyen also refuses simple thinking...