The Republic of Vietnam never paid for itself. Between 1955 and 1975 the United States provided something in the order of 26 billion dollars in economic and military aid, and in most years American assistance covered more than half of all government expenditure and the great bulk of the import bill. No account of why the state failed to command loyalty can avoid this, because the mechanism by which the money arrived shaped everything else.
The instrument was the Commercial Import Program, and it was ingenious in a way that turned out to be corrosive. Washington gave dollars to Saigon importers, who bought American goods; the importers paid for those dollars in piastres, and the piastres went to the South Vietnamese government as revenue. Aid thus financed the budget without printing money, and it did so while filling the shops with consumer goods.
What the mechanism did
It held inflation down for a decade, which was its purpose and which it achieved. It also did four other things.
It made the import licence the most valuable object in the country. Whoever decided which firms received dollars at the official rate controlled a subsidy worth many times its face value on the black market, and the officials who made those decisions became rich. Corruption in the Republic was not a moral failing of particular men; it was the predictable output of a system that put an enormous rent in the hands of the licensing authority.
It hollowed out domestic manufacture. Cheap imported goods, subsidised by an overvalued official exchange rate, made local production uncompetitive in its own market. The Republic industrialised very little in twenty years.
It concentrated the benefit in the cities. The peasantry, which was most of the population, saw the goods in the market towns and the villas going up in Saigon, and understood correctly that the government's money came from somewhere other than them and went to somebody other than them.
And it made the whole structure contingent on a foreign legislature. When American aid was cut after 1973, nothing in the economy could take up the slack.
The boom and the shock
The arrival of half a million American servicemen from 1965 produced a second economy on top of the first. Base construction, port work, laundry, bar service and prostitution employed hundreds of thousands, at wages that made government service and farming look absurd. A bar girl in Saigon could earn several times a district official's salary; an interpreter could earn more than a colonel.
Inflation, which the import programme had contained, went to over 30 per cent a year by 1966 and stayed high. Rice had to be imported into a country that had been one of Asia's great rice exporters before the war, partly because of the fighting and partly because price controls made growing it for sale unattractive.
The withdrawal after 1969 then removed that second economy almost overnight, and the 1973 oil shock quadrupled the fuel bill of an army built around helicopters and trucks. By 1974 ARVN units were rationing artillery shells and grounding aircraft for want of parts, while American aid fell from 2.3 billion dollars to 700 million.
Land to the Tiller
The one reform came in March 1970, when President Thiệu signed the Land to the Tiller law. It abolished tenancy outright, capped holdings at fifteen hectares, bought out landlords with government bonds, and gave title to the people actually farming the land. Something like a million hectares changed hands and around 800,000 families received titles. Tenancy fell from around 60 per cent of farmland to under 10.
By every measure it was the most effective land reform in Southeast Asia outside Taiwan, and it worked: rice production rose sharply, and the National Liberation Front lost one of its most effective recruiting arguments in the delta.
It came fifteen years too late. Diệm's own land reform of 1956 had been feeble — a cap of a hundred hectares, compensation to landlords, and in many districts a restoration of landlords the Viet Minh had already expelled, which turned peasants who had been given land into tenants again. That failure had been the insurgency's best gift, and by 1970 the war had moved from the villages to the main-force units, where land titles could not reach it.
The reckoning
It is possible to argue that the Republic's economy was never meant to be self-sustaining, that it was a war economy in a country at war, and that comparing it to a peacetime state is unfair. South Korea and Taiwan also received very large American subsidies in the same period, and both used them to build industries.
The difference is what the money was spent on and who controlled it. Seoul and Taipei directed aid into export manufacture through states that were authoritarian, competent and comparatively clean. Saigon directed it into consumption through a state that was authoritarian, factional and demonstrably not clean, in the middle of an insurgency.
When the aid stopped, one set of countries had factories and the other had nothing. That is the economic epitaph of the Republic of Vietnam, and it is not a story about Vietnamese incapacity — it is a story about what twenty years of subsidised imports do to a state that has to fight for its existence at the same time.
End of Chapter III