Crony Capitalism And Its Ties With The Vietnamese State

A dangerous variant of capitalism in Communist Vietnam.

Lee Nguyen

What is Crony Capitalism?

Crony capitalism is a concept familiar to most political science and legal researchers.

The term is a combination of two components:

• Capitalism: an economic model where private property is paramount wherein the State ensures that economic activities operate based on a free competitive environment and freedom of ownership. Likewise, economic actors are free to pursue their interests.

• Cronyism: a type of behavior present in some states in which profits, advantages, power, or valuable information are distributed to relatives, friends, or other entities trusted by the political elite. It is accomplished by undermining standards of fairness or transparency.

Thus, we can understand crony capitalism as an economic model where private property rights and business freedom are protected. However, the State does not guarantee a competitive environment. Instead, it creates favorable opportunities for certain economic actors who have political, familial, or social connections with those holding positions of power in the government.

This can be done through various ways: policies, legislation, registration barriers, communications, temporary market monopolies, and the like.

Crony capitalism often exists in developing countries.

This can be observed in the case of Viet A's COVID-19 test kit scandal. In going through the licensing and registration process, the central government supported this company by [1] making them the sole contractor in the country, [2] giving this company complete control to dictate the price of their test kits, and [3] praising Viet A in both the state media and government agencies. We can see glimpses of cronyism in the Vietnamese government’s dealings with Viet A, even though the specifics are not entirely clear.

Phan Quoc Viet, general director of Viet A Corp (left photo), and those who have been under investigation in Viet A's scandal. Source: Nguoi Lao Dong Newspaper

How is Crony Capitalism Different from Bribery?

Suppose we assume that crony capitalism is a system of entangled interests between business entities and powerful individuals in the State. How is it different from other forms of systemic corruption such as bribery?

In the Viet A case, commissions worth tens of billions of Vietnamese dong were given to the heads of provincial centers for disease control; such incidents were often emphasized in the press as the most obvious sign of the company’s wrongdoing. However, the way Viet A Corp. is favored by the state and poised to become a leading enterprise in the country by making it the sole supplier of test kits indicates more than simple bribery.

According to many academic studies, this is one of the three fundamental differences between crony capitalism and bribery. [4]

First, the crony capitalism model is based on trust, political loyalty, kinship, and other social relationships. This term refers to the relationships and interests between the upper or privileged classes.

Meanwhile, bribery focuses solely on the exchange of economic benefits and can occur in all classes of society, especially at the middle and lower levels.

Second, cronyism and crony profiteering activities are often associated with the monopoly of a particular industry or the entire economy. For instance, the government introduces barriers to entry into an industry or market through red tape or by prolonging the licensure acquisition process.

Bribery, on the other hand, is more firm and case-specific. In other words, the benefits from bribery are attained through singular instances or by case-by-case transactions and do not necessarily affect the entire market.

Finally, we must understand that crony capitalism and bribery’s interests and political motivations are very different, leading to other consequences.

Bribery is more conspicuous, and the consequences are easier to prove. In the act of bribery, it is much easier to determine who receives the money or benefits from an under-the-table transaction.

Meanwhile, crony capitalism encompasses a whole system of cohesive interests between business entities and individuals making regulatory decisions; it transcends simple monetary transactions.

Do Anh Dung (left), chairman of Tan Hoang Minh Group, has stirred public opinion by withdrawing after winning the Thu Thiem land plot auction. Trinh Van Quyet, chairman of FLC Group, is the person shaking his hand. Source: cafebiz.vn

Decisions can be made in the name of market quality control, fighting for the interests of consumers, gaps in the capabilities of sector participants, and the like.

In an emerging market with minimal transparency, such as Vietnam, the rise of businesses is more or less related to the process of cronyism, which ordinary people often mistake for the talent or ability of enterprise leaders.

Specifically, real estate businesses always deal with land-related officials; the import and export industries of rice, timber, or seafood always have agreements with the government regarding quotas or import-export processes and standards; media or retail ventures are plagued with cronyism issues related to licensing or procedures.

But in the end, both bribery and crony capitalism are just different manifestations of corruption in the State.

Does the Concept of "Crony Communism" Exist?

Legal and political scholars do not recognize the concept of crony communism for many reasons.

The capitalist economic model has a constitutional separation between state agencies and economic activities.

Capitalism argues that state intervention will deprive itself of the values it most cherishes – private property rights and free enterprise. As a result, government agencies and officials are often controlled or excluded from lucrative economic activities. Cronyism deforms the capitalist economic model and thus becomes a distorted variant.

In contrast, the communist economic model is one where the government holds full power in economic decisions. State officials and their crony relationships play a crucial role in distributing economic benefits.

Thus, cronyism is seen as a characteristic of the communist economic model. Attaching the word "crony" to communism is redundant.


This article was first published in Luat Khoa Magazine on January 12, 2022. The English translation is done by Lee Nguyen.


References

1.  Ngọc Dung. (2021, December 22). Vụ án “thổi giá” kit xét nghiệm của Công ty Việt Á: Bộ Y tế làm đúng quy định? https://nld.com.vn. https://nld.com.vn/thoi-su/vu-an-thoi-gia-kit-xet-nghiem-bo-y-te-lam-dung-quy-dinh-20211221210847235.htm

2.  Bách An, P. T.-. (2021, December 21). Kit test của Việt Á được Bộ Y tế giới thiệu cho các địa phương thế nào? PLO. https://plo.vn/thoi-su/kit-test-cua-viet-a-duoc-bo-y-te-gioi-thieu-cho-cac-dia-phuong-the-nao-1034810.html

3.  Hằng T. (2021, December 20). Bộ KH-CN gỡ thông tin “bộ kit xét nghiệm Covid-19 của Việt Á được WHO chấp thuận.” Báo Thanh Niên. https://thanhnien.vn/bo-kh-cn-go-thong-tin-bo-kit-xet-nghiem-covid-19-cua-viet-a-duoc-who-chap-thuan-post1413467.html

4.  Aligica, P. D., & Tarko, V. (2014). Crony capitalism: Rent-seeking, institutions, and ideology: Crony capitalism. Kyklos (Basel), 67(2), 156-176. https://doi.org/10.1111/kykl.12048 và Harstad, Bard and Jakob Svensson (2011). Bribes, lobbying, and development. American Political Science Review. 105(1): 46–63.

PoliticsVietnamese Communist PartySociety