After the military victory, Vietnam’s socialist model began to collapse. Cut off by US-led trade embargos and denied reconstruction aid, it plunged into poverty. Now its economy is booming – but so is inequality and corruption

Early one morning in February 1968, when the fighting in central Vietnam had reached a new level of insanity, a group of South Korean soldiers swept into a village called Ha My, a straggly collection of bamboo huts and paddy fields about an hour outside the city of Danang. They were from a unit called Blue Dragon, which was fighting alongside the Americans, attempting to suppress the communist uprising.

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For weeks, they had been herding farmers and their families into a crowded compound that the Americans called a “strategic hamlet”. By taking the farmers out of their villages, they hoped they could starve the communist guerrillas of food and shelter. And for weeks, the farmers and their families had been escaping, trailing back to Ha My, loathing the captivity of the strategic hamlet, needing to farm their land. Now, the Blue Dragon soldiers had had enough.

In the hour that followed their arrival, the Koreans herded the waking villagers into small groups and then, methodically, opened fire. An hour later, they had killed 135 of them. They then burned their homes and bodies, and bulldozed the whole mess into mass graves. For years the truth lay buried, too.

Now there is a monument to that massacre, built 30 years later at the expense of Blue Dragon soldiers who came back offering genuine remorse. But there is something wrong. The monument stands proud, as big as a house, with ornate roofing that shelters two collective tombs and a large gravestone carrying the names of the adults and children who died. But there is no explanation for their deaths.

The villagers say that when the monument was first built, the back of the gravestone displayed a vivid account of what happened that day. One even has a copy of the words, which turn out to be a powerful poem recalling the fire and blood, the burning flesh, the bodies in the sand: “How painful to see fathers and mothers collapse into pieces beneath the flames … How terrifying to see children and babies screaming and crying, reaching out, still suckling on the breasts of dead mothers … ” But, the villagers say, some South Korean diplomats paid a visit before the official opening and complained about the poem; instead of standing up to them, Vietnamese officials ordered that it be covered up with a tableau of lotus blossom. A Korean anthropologist, Heonik Kwon, who was studying Ha My at the time, recorded one villager saying this denial of the truth was like a second massacre, “killing the memory of the killing”.

Why would the Vietnamese compromise like that? Why would the people who won the war allow the story of that war to be defined by the losers?

The villagers say the answer is simple: South Korea had become one of the biggest foreign investors in their economy, and had offered to pay for a local hospital if the massacre poem was concealed. So the Vietnamese authorities agreed; they could not afford to resist. And there is the heart of what has happened to Vietnam since the war ended 40 years ago, on 30 April 1975.

A month spent travelling there at the beginning of this year – talking to farmers, intellectuals, academic specialists and veteran fighters from both sides of the line – revealed numerous falsehoods and compromises that have been forced on the Vietnamese people by the powerful in pursuit of profit. The US has succeeded in promoting a false account of the cause and conduct of its war. In spite of losing the military conflict, the Americans and their allies have returned with the even more powerful weapons of finance, forcing the Vietnamese down a road they did not choose. Now, it is their leaders who are telling the biggest lie of all.

Facebook Twitter Pinterest US army helicopters provide covering fire for South Vietnamese troops as they attack a Vietcong camp near the Vietnam-Cambodia border in March 1965. Photograph: AP/Horst Faas

Nguyen Hao Thu, aged 90, lives in a bright and beautiful flat in Hanoi. She chatters like a bird in fluent French and broken English, describing how, as a young woman, she saw her country crushed between two powerful enemies. First, it was the French who refused to let go of their colony at the end of the second world war. In 1946, aged 21, Thu took to the jungle and joined the guerrilla struggle, specialising in mixing acid, saltpetre and alcohol to make gunpowder: “I was very happy in the forest. With the powder in the bomb, you can – pop! – realise our dream.”

And that dream was not simply nationalist, to expel the foreign invader. It was specifically communist and revolutionary. Thu recalled a childhood during which the French took away her father, a kindergarten teacher; she used to bring food to him in jail when she was just seven years old. “I hated all the people who wanted to fight and occupy Vietnam. In my mind, I became communist,” she said. Her family were comfortably middle‑class, but during the 1930s, she said, their home was used as a meeting place for the underground Vietnamese Communist party. She remembered reading Marx and Lenin and how, when she was 16, the French executed one of her friends. “Sincerely, I am communist.”

Le Nam Phong is nearly as old as Thu. He was 17 when he signed up as a common soldier to fight the French in 1945. He spent the next 30 years at war, rising to become a lieutenant general in the army of North Vietnam and a key figure in the eventual destruction of the US military machine. Sitting outside his comfortable home, slicing a mango on a warm evening, he remembers his own revolutionary motive: “Socialism? Yes, of course. The purpose of all the fighting was to build a socialist society, to gain freedom and independence and happiness. During the first days against France and against the US, we already had in mind the society we wanted to create – a society where men would not exploit other men; fair, independent, equal.”

We already had in mind the society we wanted – one where men would not exploit other men: fair, independent, equal

This is where the US’s own account of its behaviour begins to fall apart. The American version of events has it that when the French were defeated in 1954, the US army became involved in order to protect the nation of South Vietnam from the threat of a takeover by communists from North Vietnam. The reality is that the French had alienated people all over Vietnam, driving them into the arms of Ho Chi Minh’s Communist party. And, more important, there were no two separate nations. In 1954, in spite of the victory of the Vietnamese army, France and its western allies hung on to power in their southern stronghold. At an international convention in Geneva, all sides then agreed that the country should be divided – temporarily – into South Vietnam and North Vietnam, until July 1956, when an election would deliver a new government for the nation as a whole.

The then US president, Dwight Eisenhower, later admitted that if that election had been allowed to take place, some 80% of the Vietnamese people would have voted for Minh and the new socialist society – and the Vietnamese we spoke to concurred. But the US would not allow it. Instead, they turned to a notorious CIA officer, Edward Lansdale, who proceeded to use a dexterous combination of bribes and violence to install a new government in Saigon, headed by the Catholic politician Ngo Dinh Diem. He was autocratic and nepotistic, but anti-communist and pro-American. In October 1955, Lansdale rigged an election in the South to make Diem president. The national elections were cancelled. The “temporary” division now became a prolonged pretence that Vietnam really was two different countries, the South as the passive victim of invasion from the North.

* * *

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At first, the US, which had been funding the French war, was content to pour money into South Vietnam’s army, and to send its own troops only in the guise of “advisers” – 16,300 of them. By March 1965, it was sending its own men into combat. At the peak of the fighting, in 1969, the US was using 550,000 of its own military personnel, plus 897,000 from South Vietnam’s army and thousands more from South Korea and other allies. By the time the war was over, the number of dead was beyond counting, possibly as high as 3.8 million, according to a study by the Harvard Medical School and the University of Washington.

The British foreign correspondent James Cameron described US actions as “an offence to international decency, both disgusting and absurd”. Writing in 1965, he looked back at the path to war: “It was clumsy and cruel and thoughtless and without consideration. Step by step, the west blundered and floundered into a dilemma they never completely comprehended and never in fact sought: from the very beginning, they argued in cliches.”

The violence of those years still lives with those who suffered its grand assault. In a small house in Saigon, as many Vietnamese still call Ho Chi Minh City, a former member of the communist guerrillas remembered the US bombers roaring down on their jungle camp, and how he and his comrades hid in shallow foxholes: “We had very strong rice wine. If you drink it, it would bring tears to your eyes. We used to call it ‘tears of the motherland’. It stopped us being frightened.”

The US dropped more high explosives on Vietnam than the allies used on Germany and Japan together in the second world war. It also dropped napalm jelly, which stuck to its victims while it roasted their skin; white phosphorous, which burned down to the bone; fragmentation bombs, which hurled ball bearings and steel shards in all directions; and 73m litres of toxic chemicals, including 43m litres of Agent Orange, which killed vegetation and inflicted illness on those who were exposed to it.

Infamously, the US also bombed Hanoi – a city full of civilians with no air force to defend it. A woman who was eight at the time remembered wearing a leafy branch on her back as flimsy camouflage against F-111 bombers flying at twice the speed of sound. A man who worked on an anti‑aircraft battery says he went home after a night of fruitless defence to find his neighbourhood obliterated: the only sign of his son was a dismembered leg, which he identified by a scar.

On the ground, the US assault was just as powerful. In a village in the Mekong delta, a peasant farmer in her late 60s sat peacefully in her home, with its floor of baked mud. She remembered the day her mother in law, who was working in the fields nearby, made the mistake of running when a US helicopter thundered down towards her: a missile caught up with her and smashed her to pieces against a coconut tree. “We had to go to collect her. We had to pick up her teeth.” The helicopter gunships killed three of her brothers as well, she said. All these years later, she added, she still has trouble sleeping, and is full of fear if she hears any sound that could possibly be a helicopter.

Facebook Twitter Pinterest A US paratrooper guides a medevac helicopter down to pick up soldiers injured during a five-day patrol in Vietnam in April 1968. Photograph: AP/Art Greenspon

Many Americans now believe that the notorious massacre of villagers at My Lai was a unique or rare event, but the journalist Nick Turse found a different picture in the US National Archives in June 2001. He discovered files that recorded the findings of a secret US task force, the Vietnam War Crimes Working Group. They showed that the army had substantiated more than 300 claims of massacre, murder, rape and torture by American soldiers.

Turse then visited Vietnam. In his book, Kill Anything That Moves, he describes trying to find the site of an incident from the files in which 20 women and children were said to have been killed in a hamlet in the central highlands. Following local people, he says, he stumbled across memorials to five other massacres in the same small area: “I’d thought that I was looking for a needle in a haystack; what I found was a veritable haystack of needles.” He concluded that a combination of racial indifference to the life of mere “gooks”, official pressure to raise the number of “kills” and the designation of rural areas as “free-fire zones” meant that “killings of civilians were widespread, routine and directly attributable to US command policies”.

Those who survived were sometimes taken prisoner and subjected to harsh abuse. In 1970, a group of US congressmen visited the notorious Con Dao prison. There they found men and women shackled in “tiger cages”, starved, beaten, tortured and reduced to eating insects. In spite of the uproar when this was reported, the prison stayed open.

* * *

Until a couple of years ago, journalists from one of the big newspaper groups in Saigon used to stop to buy their coffee from an amiable woman who spent each day on the pavement in front of their office. Few of them knew her name. They used to call her the Coffee Lady. She has her own small story about the war, but mostly she has a story about what has happened since peace came. This is the context in which the Vietnamese Communist party now tells its lies.

She remembers Liberation Day: the wild rejoicing because the war was over; the sheer pride that communist forces had beaten what everyone said was the biggest army in the history of the world; the hopes for a better life. There was fear, too. There were rumours of violent retribution and looting. The Coffee Lady was worried about crazy people picking up the guns she could see lying in the street. And she was sad, for a very personal reason.

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A few years earlier, she had worked as a waitress on a US base at Vung Tau, on the coast near Saigon, and there she had met a soldier called Ronald. He came from New York and he flew surveillance missions over Vietnam and Cambodia. They fell in love. At short notice, he was sent back to the US, but for a while he carried on writing, and he told her that he would sponsor her to join him. Then he went quiet, and she came to understand that there was no chance he would come back for her. Scared that the new regime might be angry, she burned Ronald’s letters and never heard from him again. Years later, now aged 64, grey-haired and calm, sitting quietly outside a Buddhist pagoda, she can still feel the sadness.

The Coffee Lady belonged to neither side in the conflict. She was simply a Vietnamese woman, in love with an American man and in search of a decent life. Liberation Day did not bring easier times. At first, she found work in one of the new cooperative factories. There, she sat bowed over a sewing machine for 11 hours a day, earning nothing more than a ration card that entitled her to small amounts of low-quality rice and even smaller amounts of meat. For years, she shared a tiny house with her brother, who spent his days in another textile workshop. The economy ran into a decade of depression. “Life was tough for ordinary people,” she said.

The US left Vietnam in a state of physical ruin. Roads, rail lines, bridges and canals were devastated by bombing. Unexploded shells and landmines littered the countryside, often underwater in the paddy fields where peasants waded. Five million hectares of forest had been stripped of life by high explosives and Agent Orange. The new government reckoned that two-thirds of the villages in the south had been destroyed. In Saigon, the American legacy included packs of orphans roaming the streets and a heroin epidemic. Nationally, the new government estimated it was dealing with 10 million refugees; 1 million war widows; 880,000 orphans; 362,000 war invalids; and 3 million unemployed people.

The economy was in chaos. By the time Liberation Day arrived, inflation was running at up to 900%, and Vietnam – a country full of paddy fields – was having to import rice. In peace talks in Paris, the US had agreed to pay $3.5bn in reconstruction aid to mend the shattered infrastructure. It never paid a cent. Adding insult to penury, the US went on to demand that the communist government repay millions of dollars borrowed by its enemy, the old Saigon regime. Vietnam desperately needed the world to provide the trade and aid that could turnits economy around. The US did its best to make sure it got neither.

As soon as it had lost the war, the US imposed a trade embargo, cutting off the war-wrecked country not only from US exports and imports, but also from those of other nations that bowed to American pressure. In the same way, the US leaned on multilateral bodies including the IMF, the World Bank and Unesco to deny Vietnam aid. The US acknowledged that Agent Orange was likely to cause serious illness and birth defects and paid $2bn compensation – but only to its own veterans. The Vietnamese victims – more than 2 million of them – got nothing.

Facebook Twitter Pinterest South Vietnamese soldiers escort terrified children after a napalm attack in June 1972. Photograph: Nick Ut/AP

It is not clear how any economic model could have survived this hostile encirclement. Inevitably, Vietnam’s socialist project began to collapse. It adopted a crude Soviet policy that forced peasant farmers to hand over their crops in exchange for ration cards. With no incentive to produce, output crashed, inflation climbed back towards wartime levels, and the country once again had to import rice. In the early 1980s, the leadership was forced to allow the peasants to start selling surplus produce, and so capitalism began its return. By the late 1980s, the party was officially adopting the idea of “a market economy with socialist orientation”.

It was this shift that allowed the Coffee Lady in 1988 to leave the textile factory to become a trader. Each morning, she says, she would get up at 4am to prepare coffee in time to travel across the city. By 5am, she was sitting on a small chair outside the newspaper office. Change was all around her during the 1990s. Foreign investors were allowed to come in and private businesses were encouraged – free trade, free markets, profits for some, wages for others. Behind the scenes, the government was sending signals of compromise to Washington. It stopped asking for the $3.5bn reconstruction aid or compensation for Agent Orange and war crimes. It even agreed to repay the old Saigon regime’s war debt of $146m. By 1994, the US was appeased and lifted the trade embargo that had been throttling Vietnam for nearly 20 years. The World Bank, the IMF and other donors began to help. The economy started growing by up to 8.4% a year, and Vietnam was soon one of the world’s biggest exporters of rice.

Crucially, throughout the 1990s, there were still strong factions within the Communist party that defended socialism against the new tide of capitalism. In spite of the economic chaos, they had succeeded in engineering a dramatic reduction of poverty. When the war ended, 70% of Vietnam’s people lived below the official poverty line. By 1992, it was 58%. By 2000, it was 32%. At the same time, the government had constructed a network of primary schools in every community, and secondary schools in most; it had also built a basic structure of free healthcare. For a while, the socialist factions still had enough political muscle to direct the new capitalist vehicle. Three times during the late 1990s, the World Bank offered extra loans worth hundreds of millions of dollars if Vietnam would agree to sell its state-owned companies and cut its trade tariffs. Each deal was rejected.

Three decades after the communist victory, Vietnam was part of the global capitalist economy. The west had won after all

But from 2000, the rate of change accelerated and the political balance shifted. Reflecting persistent pressure from international donors and foreign investors, Vietnam now approved the sale of its state-owned companies. It also struck a trade deal with the US, and finally hit a peak in 2006 when it was given membership of the World Trade Organisation, which meant it could reap yet more foreign investment and aid. Three decades after the communists emerged as victors in the war, it was now a fully integrated member of the globalised capitalist economy. The west had won after all.

On the pavement in Saigon, the Coffee Lady watched all of this unfold, and yet she saw no change in her life. “I earned the same, lived in the same room,” she says. “There were more things in the shops, but the prices kept going up. The country changed, but not for people like me. The people who had connections got richer.” All throughout these years, she had stuck with the same brand of Vietnamese-made coffee, Trung Nguyen. While she remained poor, the man who owns that company rode the new tide of free enterprise and is now reckoned to be worth $100m.

* * *

In an office across the city sat Nguyen Cong Khe. For years, he edited Thanh Nien, the newspaper that was based in the building outside which the Coffee Lady plied her trade. During his editorship, Khe upset some powerful people, disclosing links between a Saigon gangster and senior officials, then publishing the story of a huge scandal that implicated some very well‑connected families in the theft of public funds. That was risky. Vietnam runs a clumsy system of official censorship, calling in editors every week – on Tuesdays in Hanoi and Thursdays in Saigon – to tell them what to cover and what to conceal. For his efforts, in 2008, Khe was sacked.

In November last year, Khe took another risk by using the New York Times to call on his government to allow a free press. Sitting in the office where he now runs a news website, he went further. Insisting that his name be attached to this appeal, he said what others will say only behind one hand: that the leadership of the Vietnamese Communist party have become traitors to their own cause.

“At the very outset, those who made the revolution installed a government [that] had a very good intent to develop the country and to be prosperous in the fairest way, but things went wrong somewhere. Those who joined the revolution, who swore to be transparent – eventually they betrayed their commitment and their ideology.”

Khe was himself part of the revolution. As a student in the early 1970s, he agitated against the Americans and spent three years behind bars. He was a party member for years. He understands why the leadership turned to the tools of capitalism to kickstart the economy, but he has seen the dark side of the neoliberal coin – the corruption and the inequality.

You can see it on the streets. Despite its dark past, Saigon has boomed into a seething mass of commercial activity. But it is, nonetheless, a city in the developing world, with signs of poverty on every side. And then there is Dong Khoi Street – an island of self-indulgent wealth where the new elite can buy a T-shirt from Hermes for $500, a watch from Versace for $15,000, or a dining-room table with four chairs covered in gold-leaf calf skin and stuffed with goose feathers for $65,000. And on the corner, the Continental Hotel sells meals that would cost a week’s pay for a worker, in a restaurant called – with one final slap in Ho Chi Minh’s face – Le Bourgeois.

Khe reckoned that for every $10 assigned to any public project, $7 is going into somebody’s pocket. Really? So 70% of Vietnam’s state budget is being stolen? That would be a theft of staggering proportions. We spoke via a translator. He nodded, and twisted one hand in the air: “Between 50 and 70%.”

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Transparency International last year reported that Vietnam is perceived to be one of the most corrupt countries in the world, doing worse than 118 others and scoring only 31 out of a possible 100 good points on its index.

Nobody claims that the corruption is new. There is a well-established tradition of public officials in Vietnam selling their influence and favouring their families. But the allegation is that it has hit new levels under the current leadership. People say that the problem was boosted specifically by the privatisation of Vietnam’s huge state-owned companies and the opportunities that provided some politicians and officials to appoint themselves and their families as executives. The British academic Martin Gainsborough, who spent years in Vietnam doing fieldwork for his research on development in south-east Asia, wrote: “Rather than being inspired by reformist ideals, officials have been motivated by much more venal desires … What we often refer to as ‘reform’ is as much about attempts by rival political-business interests to gain control over financial and other resources.”

For three months recently, an extraordinary website published detailed allegations about the behaviour of named members of the Vietnamese power elite. The site called itself Chan Dung Quyen Luc (“Portrait of Power”) and backed up its claims with documents, audio and video footage. It has never been verified, but observers speculated that it was the work of a very powerful politician using inside information to try to damage rivals. It claimed to provide glimpses into a secret world of theft.

The site attacked one very senior figure, claiming that a local official had delivered a suitcase containing $1m in cash to his home, as a result of which he had agreed not to collect $150m of tax due from a property company who were involved in a “giant development”. The company had then given him and the local official free villas. The site went on to finger two leading politicians, claiming that one had blocked the prosecution of a corrupt banker and was now receiving healthy backhanders; and that the second had diverted $1bn from a state company into the bank account of his sister, who was now running 20 different businesses. It also accused a senior military figure of using his son’s company to sell army land for personal profit. In his case, the website displayed a letter from bank employees who claimed he was part of an “extremely large-scale corruption network”, with bank accounts worth millions of dollars.

From time to time, the state acknowledges corruption and cracks down. In high-profile trials at the end of last year, four executives from former state-owned companies were sentenced to death for bribery and fraud; two others were sentenced to life in prison. Khe does not believe these trials are tackling the scale of the problem. He shrugged: “We traded millions of lives for independence and equality. When I was in prison I imagined the country would be clear of corruption after the war, but it didn’t happen. The development of the country should proceed, so we don’t go against those who make money legitimately. But we can’t allow those who make illegitimate money to continue to make poor people poorer.”

We traded millions of lives for independence and equality. I imagined corruption would end after the war, but it didn’t

There he hit the most painful nerve. Despite its earlier track record of spreading economic success quite evenly, Vietnam no longer stands up for the poor as it once did. A 2012 report for the World Bank noted that “inequality is back on the agenda”. Between 2004 and 2010, income for the poorest 10% of the population fell by a fifth, it found, while the richest 5% in Vietnam were now taking nearly a quarter of the income.

The worst of this inequality is in the rural areas. Millions of farmers have been driven off their land to make way for factories or roads. In the early 90s, nearly all rural households (91.8%) owned land. By 2010, nearly a quarter of them (22.5%) were landless. A relentless tide of poor peasants has poured into the cities, where they have been joined by hundreds of thousands of workers who have been made redundant as the private owners of the old state-owned companies set about cutting costs. This wave of men and women has swirled into the “informal sector” – hidden away in sweatshops in private houses or sitting trading on the pavements – and into the sprawling network of new industrial parks and export‑processing zones.

In the informal sector, there is no protection at all. In the industrial areas, protections have become noticeably weaker. Prof Angie Ngoc Tran is a specialist in the study of labour in Vietnam. In her book, Ties That Bind, she explains how the country’s labour code – which was once famously progressive – has been watered down, partly as a result of lobbying by groups such as the US Chamber of Commerce. The state-sponsored unions have been weakened and have never called a strike. Tran concludes: “With the surge of capital entering Vietnam by way of foreign investment and the privatisation of state-owned enterprises, the state is becoming less and less of a government acting on behalf of the people. At times, some state organs and institutions are in alliance with the capitalists.”

Every worker is guaranteed a minimum wage. Originally, in 1990, this was set at a level that matched the “living wage” – meaning that it covered the essentials of life. But over the years, for fear of losing foreign capital, the government has allowed it to be cut, frozen and overtaken by inflation, with the result that by April 2013, the government’s own union was protesting that wages now covered only 50% of essential costs. Most city workers, the federation said, were “destitute and physically wasted away … They rent cheap, shabby rooms and cut daily expenses to a minimum … suffer serious malnutrition and other health risks.”

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Meanwhile, healthcare and schooling are no longer free. The World Bank report noted that “incomes are beginning to matter more for determining access to basic services”, and that the government was spending considerably more on hospitals for the better off than it was on communal health centres for the poor.

Vietnam is by no means a basket case. Its recovery from war is close to miraculous, particularly in cutting back poverty while developed nations such as the UK were increasing it. But the reality now is that it has ended up with the worst of two systems: the authoritarian socialist state and the unfettered ideology of neoliberalism; the two combining to strip Vietnam’s people of their money and their rights while a tiny elite fills its pockets and hides behind the rhetoric of the revolution. That, finally, is the biggest lie of all. Victorious in war but defeated in peace, the claim by Vietnam’s leaders to be socialist looks like empty propaganda. In the words of one former guerrilla who risked his life for this: “They are red capitalists.”

• Additional research by Calvin Godfrey. Follow the Long Read on Twitter: @gdnlongread