Vietnam has made a remarkable transition since 1989 from a centrally planned industrial sector dominated by administrative allocation of inputs and outputs to an industrial sector governed mainly by market forces. Furthermore, Vietnam accomplished this transition while avoiding the sharp fall in GDP and industrial output that occurred in so many other centrally planned economies. In the 1980s Vietnamese exports covered less than half of the country’s relatively small import requirements and virtually no Vietnamese industries were capable of selling their products in the demanding markets of Europe and North America. Twenty years later Vietnamese exports are twenty fold what they were in the 1980s and industrial products sold around the world are the largest contributors to these export sales.

Much of the success in industrial development to date has been the result of government decisions to remove barriers to entrepreneurial efforts for both foreign direct investors and more recently for domestic private investors. The first barriers to fall were the restrictions on imports and access to foreign exchange. These steps were followed by policies designed to create a favorable environment for foreign direct investment. More recently the most important step has been the passage of two enterprise laws that effectively removed many of the obstacles in the path of domestic private entrepreneurs leading to a boom in private industrial development activity. State owned industries also grew during the past two decades at a fairly rapid pace although one slower than that of FDI industries and, more recently, domestic private industry. In recent years there also has been a large scale move to equitize many state owned firms and in some cases this has led to the creation of corporations truly independent of state control while in other cases the state has retained majority control. From our estimates of the performance of these two corporate types based on a sample of 209 firms equitized in 2002 and 2003, it is clear that the firms where the state retained control performed significantly below the levels achieved by firms that became truly independent of state control.