AMID the bustling trade and raucous traffic of the Vietnamese capital, innumerable banners exhort citizens to “Celebrate the Spring, Celebrate the Party.” These days, Hanoians do not have much to celebrate. Not long ago, Vietnam was one of the developing world's pin-ups. Now it is lagging badly.

The most immediate concern is inflation, which last year rose to above 20% for the second time in three years (see chart). Vietnam now has Asia's highest inflation rate, a fact that government censors have asked local journalists to stop reporting. Thousands of businesses have gone bankrupt, property prices have collapsed and banks and state-owned enterprises (SOEs) are riddled with bad debts. The reversal has been sudden. Vietnam's GDP increased by more than 8% a year from 2003 to 2007, when the country attracted a surge of foreign investment. Now the World Bank is predicting that growth will average 6% a year in the five-year period up to the end of 2012. McKinsey, a consultancy, argues that unless Vietnam boosts its labour productivity by more than half, growth is likely to dwindle to below 5%. That will be well short of the government's target of 7-8%. As McKinsey argues, “the difference sounds small, but it isn't.” By 2020, Vietnam's economy could be almost a third smaller than it would have been had economy continued to grow at 7% a year. Everyone, even communist leaders, agrees on the main reasons for the slowdown. The poorly run, corrupt and wasteful SOEs, which account for about 40% of output, weigh the economy down. The formula of low-wage, low-cost manufacturing no longer works as it once did. Countries such as Cambodia and Bangladesh now undercut Vietnam in cheap manufactures. Yet the country has failed to move up the value-chain into more productive activities and higher-tech goods. Frustratingly, however, realising this and doing something about it seem to be two different things in the minds of Vietnam's communist rulers. A few optimists were hoping for changes at a three-day meeting of senior party cadres last month. Alas, there was a lot of breast-beating and little else. Nguyen Phu Trong, the general secretary of the Communist Party, urged the party to reform if it wanted to avoid an existential threat. But although his speech was made public, the rest of the meeting—in time-honoured fashion—took place behind closed doors.

Calls by the party to reform or die are not new. “They've been saying that for 20 years,” says Carl Thayer, an expert on Vietnamese politics at the Australian Defence Force Academy in Canberra. What is missing, now as in the past, is any detailed plan about how to implement reforms such as restructuring the clunky state-owned sector, streamlining public investment and improving transparency. Nine executives from Vinashin, a debt-ridden state-owned shipbuilder, went on trial on March 27th charged with mismanaging state resources. It is the biggest case of its kind for several years, but the politicians who encouraged and financed the company's grandiose expansion, including the prime minister, are not likely to be held to account.

Even if there were a change of mind at the top, it would still be difficult for leaders to implement change throughout the system. Power in Vietnam is more dispersed than in neighbouring China, and vested interests in business and politics are bigger obstacles to change. Moreover, whereas China's Communist Party has had some success in reinventing itself as an Ivy League-style networking club for the elite, its comrades in Vietnam appear stuck in the past. The legitimacy won by military victories more than a generation ago is fading into distant memory, and Vietnamese leaders' claim to economic competence is increasingly difficult to sustain.