To Become an Entrepreneur in Ho Chi Minh City
Abstract and Keywords
This chapter outlines how the Vietnamese state has structured a challenging investment environment for private firms with its control of land ownership, land use planning, and investment approval. Therefore, the cooperation of state bodies is instrumental for firms wishing to capture potential profits through land development projects. However, it is also argued that entry into the market was relatively open in Ho Chi Minh City and firms could develop the political connections and social networks necessary to realize projects. The possession of initial endowment of political capital does not adequately explain who became entrepreneurs nor who succeeded in the new market.
Sociability, Networks, and Political Connections
“I know where you were this morning,” the leader of one of the largest land development companies in HCMC told me. I was startled by this revelation, since I had not told him I had been interviewing another company that morning. I was not aware of any connection between the two companies because I had been introduced to them through different people. It was easy for foreign researchers to succumb to paranoia in Vietnam's restrictive research environment, but my informant relieved me of that concern with his cavalier forthrightness. Even though we had just met, he told me that he was an unofficial vice-director of the smaller company. He also explained the links of ownership between this large firm and several other companies, the percentage of government ownership in their company, how the industry was organized, and the political interests behind the networks.
Later that year, I arranged a meeting between one of my case firms and a group from the World Bank on a reconnaissance (p. 32 ) mission to recommend housing finance development projects to Vietnam. They were impressed by the professionalism and efficiency of the firm's staff. These Vietnamese seemed like the quintessential new capitalists. One of the older consultants commented to me, with gleaming eyes, “This is the future…” Meanwhile, I was struck again by the people who had shown up for our meeting. What he did not realize were all of the actors behind this meeting we had just had: the array of people who knew about it before it happened, the loose confederation of people who had come together to make the presentations, and the intricate web of people who keep projects in the company's pipeline.
Experiences like this throughout my time in HCMC made it obvious that in this market, the land developers are extensively networked and the state is intimately involved, especially with the largest companies. These accounts contradict the myth of the rugged, lone entrepreneur whose own personality traits and taste for risk have led to his new activities. In Vietnam, at least, investigating how the entrepreneurs could conduct business led to studying the other people with whom they worked.
Traditionally, one would think of such close relationships between firms, and between firms and government, as collusive and undesirable for a number of reasons. The lack of competition could lead to a wasteful use of resources and higher market prices, rendering housing out of reach for more people. It could also increase wealth inequality and inefficiency by giving special investment opportunities to those with political connections. Other literature, however, has emphasized the crucial role the state has always played in the formation of market economies by supporting specific firms (Amsden 1989; Evans 1995). Rather than thinking of capitalism as a natural outcome of individual interactions, we should recognize that capitalism requires the active participation of the state. Indeed, the lack of effective state engagement might help to explain why so many developing countries have not grown more rapidly. Furthermore, social networks within an industry have been identified as an important determinant of successful economic outcomes in the global (p. 33 ) economy because they can be important conduits for spreading market information, especially in developing industries (Saxenian 1996). While networks need to be strong enough to engender information sharing, in the more successful markets they also need to be open enough to new members to allow new information to enter and impel corrections and adaptations (Granovetter 1983). Social norms have also been used as a substitute for law in regulating economic transactions and enforcing contracts through peer pressure and reputation incentives (Ellickson 1991). But scholars argue whether such substitutions are sustainable in large, urban communities where social ties are reformed and social sanctions are not binding (Ellickson 1993). Nevertheless, Woodruff and McMillan found that firms in transition countries were able to create new trading partners beyond their original social networks without strong legal institutions, and that in Vietnam informal contracts between firms and their suppliers were prevalent, even though they were not practically enforceable by courts (Woodruff and McMillan 1999, 2002). Thus, there is disagreement in the literature about how to view the necessity and desirability of networks and political connections in market operations.
In the case of HCMC, political connections and social networks permeated all of the activities of the entrepreneurs. This is necessarily so because the state still retains considerable oversight of the economy and controls land use, so much so that most experts have assessed Vietnam as an impossible place to invest. It would be impossible if one were to follow a textbook model of business decision making. In order to appreciate the challenging economic environment in which the entrepreneurs were operating and why social networks and political connections were an important part of their work, this chapter first describes the large role the state has played in structuring the land development industry.
However, while the ability to work with the government was a prerequisite, political connections did not determine who became entrepreneurs. As other studies have found, those with political capital during the era of central planning did not (p. 34 ) necessarily become the new financial capitalists or fare well economically in transition. To address this issue, the remainder of the chapter makes observations about the social position of the first generation of land developers and where they came from. The next chapter will present a more detailed explanation of how they expanded their networks and found ways to work within the structural constraints and why some became more successful than others.
Constraints in the Economic Environment
“It's all about the land,” explained one key informant with steady eyes, early on in my fieldwork. I came to understand that as probably the single truest statement about real estate in Vietnam.
The prices for land started skyrocketing during the 1990–93 period. Firm #8's leader recalls, “Individuals were buying and selling land. In the morning you could make a deposit of 8 oz. of gold per square meter and in the afternoon you could already sell it for 30 oz. A few days later the price could be 200 oz. You could make a big profit in one project; pay 1 oz. of gold and sell at 700 oz.” The 1986 doi moi reform policies introducing Vietnam's economic sea change had gained unstoppable momentum. Now that people were officially allowed to buy commodities instead of receiving rations, population migration to cities and private trading increased. Although the 1993 Land Law, which first officially allowed the concept of private real property rights into the economy, had not yet been instituted, private land sales were occurring in a frenzy.1 Thus the law did not unleash the market, but rather signaled that the state would now allow it as it had in other transition cases (Gold and Bonnell 2002).
With the skyrocketing land prices, fortunes could be made, and were being made. The key was to find land that was undervalued because it was still at the beginning of the rapid appreciation curve and cheap enough to buy with one's own pool of (p. 35 ) financial capital and that of fellow investors. Besides flipping raw land back onto the market, even greater gains could be had by holding onto the land long enough to subdivide it into parcels and develop infrastructure and housing. The high demand for urban land created strong financial incentives for people to invest in land development projects.
But profit also depended on the ability to control the costs of development. The successful, professional firms explained it to me literally as a formula: land purchase costs could range anywhere from 30–50% of the total development cost; around 50–60% of costs were used for construction, primarily infrastructure development, and the remainder was spent on fees such as land taxes. Since construction costs are standard and taxes are fixed, the biggest variable for profit was the cost involved in obtaining land use rights. It was also the most critical, since the site's location provides most of the value to real estate.
The variability in land costs included the financial payment as well as the time it took to negotiate and make the agreement stick. Usually project sites in urban and peri-urban areas involve land that is already occupied by other citizens, so purchasing land rights entails compensating the current occupants to move off the land. In the urban periphery of HCMC during the early years of transition, these were usually farmers, because the land had previously been designated for agricultural use. Not surprisingly, with huge potential gains hinging on this transfer, everyone interviewed concurred that agreeing on land compensation was by far the most difficult step in project development, which is why it was “all about the land.”
This struggle for land control was not a private matter. The state shaped the context in which this land transfer was taking place, in both direct and indirect ways. Through state ownership, annexation, master planning, and the distribution of land use rights, the state determined where land conversion for private development could happen and the terms of transfer.
(p. 36 ) State Ownership of Land and the Stability of Property Rights
In Vietnam, one of the major pillars of the Communist revolution is that the state owns all land. However, during the economic transition toward a market economy, the state introduced private land use rights for a specific period of time, similar to China. For noncommercial holders of residential property, the right extends in perpetuity. For commercial entities, land use rights usually last for 25 years.2
To those accustomed to freehold land tenure systems, use rights might seem too weak a private property right to underpin commercial investment in real estate. Other mature market economies, such as Hong Kong and the United Kingdom, however, show that it is possible for leasehold land tenure systems to essentially function as private property rights for commercial investment (Bourassa and Hong 2003). But in Vietnam, the government not only owns all land in name but also directly controls much of the supply of developable land. As some of my case firms and key informants describe the situation, the private firms are allowed to get the leftover parcels of land that are not already being developed by the state.
Although it was not possible to obtain exact figures on all public landholdings in the urban periphery of HCMC, several key informants estimated that the state and state-owned enterprises control about 50% of the land in the periphery designated for residential development in the city's master plan. One of the largest of these is RESCO, a city-owned group that in 2001 consisted of 17 real estate companies and related services companies. In the beginning of transition, all private investors had to purchase land directly from RESCO. Of the roughly 44,000 hectares of land in the urban periphery I studied, between 1994 and 2000 RESCO developed 237 residential projects on 4,382 hectares of land, producing 135,216 units. RESCO had development control rights for 5000 more hectares, but only 1,664 hectares had even vaguely described projects planned for them. Of the 115 residential projects proposed, 88 had cost estimates that would (p. 37 ) require 3.45 trillion VND (roughly $238 million USD) in capital to develop them. With a net profit of 61 billion VND in 2000, RESCO clearly does not have the capital to fund these projects. In press interviews, RESCO representatives said that “the rest is to be mobilized from the community and various economic sectors” (Hong 2000). So while the state has a monopoly on land supply in HCMC, it needs the financial participation of the private sector.
But private participation was not forthcoming in the beginning of the transition period. Firm #1 reported that it was still risky to buy land for fear of state expropriation without fair compensation. Economic theory would suggest that because property rights were not very well articulated in the law or enforced by the court system that was still undeveloped and backlogged with cases, private land development organizations were inhibited from investing in land. Most of the firms I studied, however, had actively begun developing projects by 1998 and 1999, before further developments in the Land Law were released in 2003. And the majority of annual new housing was privately supplied by at least 1994 (HCMC Statistical Yearbook 1997).
While expropriation was still possible, it no longer had the same chilling effect on investment by the late 1990s. For one thing, firms observed the state's greater effort to limit arbitrary expropriation with the public display of master plans and more compensation for expropriation of urban land. For example, the state expropriated about one-half of Firm #2's project site in the Phuoc Long B ward of District 9 to build a road. The firm had originally bought this farmland in 1996 for 90,000 VND/sqm, and the state compensated them 60,000 VND/sqm. Firm #2's leader stated: “Before, the compensation rate was much lower. Compensation is always lower than the market price, but the price we received is acceptable because no infrastructure has been developed yet.” He did not complain of lost opportunity costs. Rather, he considered the lower compensation rate reasonable, and the company was able to recoup its losses by the rapid increase in value of the remaining area of land it still owned, which now had better transportation access. Expropriation (p. 38 ) also became less of a risk when firms found ways to avoid the situation and locate sites with low likelihood of expropriation through better information about public investment plans.
In addition to limiting state expropriation, well enforced and documented private property rights are supposed to support investment by reducing risks coming from other private citizens through multiple ownership claims and boundary disputes. While these do occur in Vietnam, they are not at a level that inhibited the formation of a market. Ironically, a large part of the stability of Vietnam's property rights situation comes from state ownership of land. The government exerts an overarching authority over all land use conversions, as official private land transactions involve an intervening step of returning the land use right back to the state. Furthermore, during the era of central planning, households were registered and not allowed much mobility, a situation that ended up providing an alternate means of documented tenancy at the beginning of transition. With such information, the extensive Communist bureaucracy, and in particular its lowest office, the ward, could arbitrate the majority of property disputes between private parties outside the purview of courts, as is further explained in chapter 4.
Thus, the developers operated in a context in which the state owned and actively controlled large portions of HCMC's developable land but also needed their financial participation. The risk of losing investments made in land through expropriation and property disputes started to decrease not through strengthening of legal property rights but through increased information about land development plans and more reasonable compensation.
The New Urban Districts on the Periphery
Another major change in economic conditions occurred when the state increased the supply of developable land. In 1997, the city decided to expand its urban boundary by incorporating 34,670 hectares of land on the periphery into five new urban districts in order to accommodate the city's rapid growth. The (p. 39 ) city had swollen by an additional one million people during the 1990s and land conversions had already been occurring on the periphery.3 The annexation of agricultural land meant that the land users in these areas would now be entitled to urban services. The city conducted education programs for the rural population to learn how to use urban facilities. But this annexation also meant that farmers who happened to be living within the new city boundaries would have to eventually relocate to make way for urban development.
The Chief Architect's office set the boundaries of the five new urban districts on the northern, southern, and eastern edges of the city (figure 2.1). Established in major cities by the Prime Minister in 1993 to exercise more control over rapid urbanization, this office wielded significant city planning powers in the beginning of transition (Gainsborough 2005). According to interviews with the head planners in HCMC's Chief Architect's Office, the decisions about new district boundaries were based on population density and whether the majority of the population was already engaged in urban employment.4 The new District 9 is quite a distance from the city center, however, and many of the wards within it are still primarily rural. Meanwhile, the western portion of the city was not annexed at that time, even though large commercial and residential projects were being developed in areas of the nominally rural Binh Chanh district that were closest to the city center. In fact, one of the most productive firms that I studied, a former state-owned enterprise, was developing 13–80 hectare residential and commercial projects in this area.
Besides increasing the supply of developable land and determining the relocation of the rural population, the designation of the boundaries had important effects on real estate market activities. For example, the land purchasing costs would be lower in non-annexed areas of the periphery; this classification was especially important for large-scale projects such as those occurring in rural district Binh Chanh. While land prices in urban districts were generally higher, they would not appreciate as drastically as when land is converted from agricultural to urban use.
Capturing the price differential in land use types was facilitated by the property rights status of agricultural land. The majority of agricultural landholders had been issued their land use certificates, the rough equivalent of land title, as the result of a major drive by the state. These certificates make it a relatively uncomplicated process to sell agricultural land. Meanwhile, the majority of urban parcels did not have the equivalent Building Ownership and Land Use Certificate (BOLUC), which combined housing and urban land tenure certificates into one document pursuant to Decrees 60 and 61, promulgated in July 1994 (DOLA 1998). By 2000 the disparity was significant, with only 5% of urban landholders having received their certificates while 85% of agricultural land holders possessed theirs (Dang and Palmkvist 2001). The distribution of the urban certificates was backlogged for many reasons, including more complicated land tenure clarifications, vagaries in district government capacity to issue them, and tax disincentives for registering (Kim 2004). (p. 41 ) In any case, the delay created a situation in which there was a shortage of urban land and housing with clear title, while most agricultural land was fully titled. This gap made it possible to capitalize on the difference if one could find a way to convert agricultural land into urban parcels with title.
The Master Plans
In addition to drawing the city boundaries, the Chief Architect's Office also designed the master plans for the city, determining the location of future residential development and other land uses. Some city planning authority, however, was decentralized to HCMC's 17 urban districts, which were instructed to make their own detailed master plans based on the Chief Architect's more general plan. The districts' detailed plans would indicate specific parcel boundaries where residential uses could be developed as well as the location of future tertiary roads, industrial centers, and other employment areas.
This decentralization was a major restructuring of intergovernmental authority, and it had critical implications for the new market. Districts functioned like bureaucratic fiefdoms in which district leaders could develop their own investment and economic development strategies. Their plans had the powerful effect of determining an agricultural parcel's future potential use and therefore market value. The change would also have dire consequences for farmers because according to regulations, they were supposed to pay a land use change fee of 40% of the land value set by the government, which most could not afford in addition to a 32% income tax for farming (Chinh 1999).
For my case firms, the detailed master plans were one of the primary considerations in choosing project sites. Knowledge about the master plans and the landholdings of public entities such as RESCO are necessary before specific private investment projects can be developed. And yet for much of the early transition period, the plans were formed in secret and were not easily accessible by the general public. While some district offices began to publicly post district master plans, most of these were (p. 42 ) still being developed and showed only part of their jurisdiction. By 2001, about 60% of the city area had detailed plans at 1:2,000 scale. I collected the available master plans of all five new districts as well as rural districts Binh Chanh in the west and Nha Be in the south. The plans reflect the districts' discretion over land use planning, as they were drawn at different scales ranging from 1:10,000 to 1:2,000 and employed different land use categories.
The uncertainties about the future city plans fueled a speculative real estate market. Firms reported potential windfall gains from insider information and correct guesses about areas slated for residential development and, in particular, areas in close proximity to future roads and highways. Firm #2's leader explained: “Information about government plans is important. The earlier you buy the more profit you make, especially if you buy before the plan is finished. Everything is simple after the master plan is finished and then the price is already high by the time the plan is completed.” Obtaining this information is not easy, however, because government bodies themselves will suddenly make changes in their infrastructure development plans.
Rather than implementing additional laws and policies, the state's most effective action in unleashing a firm's private investment was the construction of public works, in particular roads, highways, and bridges. Because the state announces many plans and policies that later are stalled or changed, the firms literally looked for concrete evidence of where public investment actually happens and development will be allowed. Among the firms I studied, this was the most important evidence the firms watched for in order to know when and where to invest in projects themselves. The plethora of legal and policy papers issued by the state had little influence on the firms. Instead of bulwarking legal property rights, the state stabilized the economic landscape and ordered the physical environment with more reasonable compensation rates, master plans, the incorporation of five new districts, and through the location of public infrastructure investments.
(p. 43 ) Distributing Rights to Develop Urban Land
But the master plans are a bit like the district's wish list. The government does not have enough resources to develop the infrastructure needed to make the periphery urban, and it cannot command private firms to build. While private capital investment was needed, any private firm attempting to obtain the development rights to a specific piece of land had to navigate a maze of government bureaus (see table 3.2). Among these, the key decision-making entities involve three offices. Based on the master plans, the city districts and the Chief Architect's Office coordinate to make the final decision on whether a firm can have development control of a particular site based on the firm's feasibility study. In addition to city and district governments, astonishingly, any development project requesting more than one hectare of land required approval from the Prime Minister's office.
In the beginning of transition, the steps involved in obtaining the various approvals were unclear, and proposals could be delayed for years. The private developers said they were viewed with suspicion and that the likelihood of approval was uncertain. But by the late 1990s, private developers were more accepted and the development process had stabilized. While state entities still enjoy faster approval than private firms, the differences in processing time began to decrease. Furthermore, HCMC started experimenting with expediting the processing of approvals with “one-stop” offices. Generally, all of the firms stated that the business environment had improved significantly and encouraged them to develop land projects, although expedited approvals were still a secondary factor compared to road construction and visible investment in neighboring parcels. Firm #1's leader gave an example: when his firm first bought a land parcel in 1997, project approval cost 300 million VND and lasted an indefinite period of time. By 2000, the fees had halved to 150 million VND ($10,345 USD) and it took 10 months for the project to be approved. These anecdotes confirm the policy literature that emphasizes that decreasing bureaucratic red tape can have (p. 44 ) a positive effect on the rate of private investment (de Soto 1989; Dowall and Clarke 1991).
However, approval processes became significantly more navigable when decentralization of planning authority increased the importance of the district government.5 As mentioned earlier, districts could now design the detailed master plan that played a powerful role in determining where development could occur. Furthermore, as can be seen in table 3.2, the district works with other government bodies at the crucial steps 3, 6, and 13, essentially acting as coordinators of urban land development within their jurisdiction. In practice, once the district government approves a project, they can help the proposal gain the other critical approvals.
Therefore, once a district approves a site for use by a particular developer, the property rights of the investor are fairly protected. The district officials in charge of urban development matters said that firms do not compete for land sites so much as apply for sites that have not already been claimed. It was a daily occurrence that investors would come to them to inquire about a site and find that it had already been approved for another project. This is because development right holders cannot sell or transfer their development options for a specific site directly to another private entity; they can sell and transfer the parcels only after they have been developed. Although a firm can share a portion of its project with another firm, the principal applicant must be responsible for developing the proposed project. In fact, a firm's land use right is conditional on their developing the specific proposed project. If they do not begin development within a certain time period, their right reverts to the state. In essence, the government is allocating specific parcels to specific groups in the conversion of land. Once this allocation has been decided, the farmer has no choice but to sell, and he must sell to one particular entity.
In summary, the demographic shifts of rapid urban population and income growth had created such a huge demand for land in HCMC that land transactions were unstoppable and ultimately condoned by the state. The state, however, (p. 45 ) constrained the supply of developable land through ownership, annexation, land use planning, and the administration of development approval. But they also lacked the finances to develop their own urban development plans. Meanwhile, land use right certificates had been widely distributed to agricultural land on the urban periphery, making it relatively easy to convert into urban land. With scarce supply and high demand for urban land, the potential for profit was great. Still, the pathways to realizing the possibility were unmarked and filled with many challenges. The state had structured a specific institutional framework in which decision making was not transparent and information about specific developable sites was often unavailable. Development authority was decentralized to the sub-city district governments, giving them more discretion in determining the land use of specific sites and a potential role in expediting intergovernmental approvals.
Social Position of the Case Firms
We can now see why social networks and political connections would be important to the work of land development firms. Without open market information and land use planning institutions, information would have to be gathered through private means. It would also be important to gain the support of the district governments in order to obtain investment approval and site control.
Given the importance of private networks, one might think only those who were state elites or related to state elites could become developers in HCMC. One path-dependent hypothesis proposes that political elites would build new economic institutions from previous institutions in such a way that they would become the new capitalist elites. However, in Vietnam, as in many other transition countries, the political cadre did not necessarily benefit during economic transition.6 Who then was the first generation of private land developers that emerged in HCMC? How did they enter the emerging industry and become (p. 46 ) real estate entrepreneurs? My fieldwork allowed me to rapidly trace the web of social networks in HCMC's newly emerged real estate market. Spending considerable time living in Vietnam and developing my own networks allowed me to situate the social position of various actors (see appendix). During that time I identified four types of private land development firms operating in HCMC, although one type was not officially registered anywhere (see table 2.1).
The four firm types reflect the background of the entrepreneurs and the evolution of the firm. For example, foreign joint-ventures emerged at the initiative of a foreign entrepreneur wanting to invest in Vietnam. Although the joint-venture would form a Vietnamese-named company and hire Vietnamese staff, the foreign partner in foreign joint-ventures usually played the more active part in project development, with the domestic partner being a state-owned enterprise that contributed land as its share in investment. In the beginning of transition, this arrangement was the only way for foreigners to invest in projects because of the legal restrictions that prohibited granting land use rights to foreigners.
Table 2.1 Typology of private residential real estate development firms in Ho Chi Minh City
Type of Organization
Flexible groups of part-time developers who hold other full-time jobs but join together to work on a specific project
Organizations with a name, office, and departments with specialized functions and full-time employees
Former state-owned enterprises that have been permitted to offer private investors stocks and to be managed privately
Foreign-owned companies that partner with Vietnamese investors to develop residential projects, among other investment activities
(p. 47 ) The other three firm types involved domestic entrepreneurs. Some state-owned enterprises were occasionally allowed to “equitize” during different periods of transition (and were sometimes brought back under government ownership again). In the real estate industry, these included state, city, or district construction companies that were allowed to have more autonomy in their operations and possibly take advantage of engaging in more profitable projects. While the state often still owned a controlling share, other citizens, including managers and employees, could become shareholders.
Some new, private real estate companies also started to form. These more typical, professional companies had names, offices, and full-time staff who regularly developed projects. They were different from the investor groups that I also found to be developing significantly sized projects in the urban periphery, although they were not listed anywhere. Investor groups were informal and flexible, in that members might belong to more than one, but each group was focused around the development of a specific project. The majority of a group's members would supply financial capital and occasionally land use rights, while a smaller core who had initiated the group's formation would develop and implement the projects.
There was some correlation between the types of firms and their initial endowment of political capital. Obviously, the equitized companies had the most, as they were still partly state-owned and continued to enjoy special access to land and faster development approvals. Also obvious is that the foreign joint-ventures started with the least, as they were newcomers in a previously closed economy. But the few extraordinarily large land development projects in Vietnam were developed by both the foreign joint-ventures and equitized companies. One might attribute this correlation to their capitalization and economies of scale. Yet this explanation provides only part of the answer, as there were also other firms of these types who could only do few or small projects and were not very successful. In fact, there was little correlation between initial political endowment and the number, size, or success of projects, as we will see in the next chapter.
(p. 48 ) The fact was that anyone who wanted to become involved with large real estate development projects had to develop political connections, because a variety of bureaus controlled access to land development rights and the focus of authority shifted between them over different periods of transition. The relevant issue for analyzing the emergence and success of firms is whether some types of people have better probabilities for developing useful political connections that will privilege their access to land and expedite their approvals. There were some possible characteristics that were not factors in determining who became an entrepreneur. These include attributes that Vietnamese might refer to in other contexts to situate people, such as sharing the same hometown, alma mater, military experience, and Communist Party membership. The people who worked together on projects varied in these respects.
There are certainly those for whom it would be highly unlikely to develop fruitful relationships with local government. For example, those with problematic political histories are discriminated against in educational and employment opportunities. But I did find that state actors were willing to form new working relationships increasing the pool of participants in the new market. This is in contrast to what happened in Hanoi, which will be discussed in chapter 6.
There were a few things the entrepreneurs in HCMC did have in common. They were all educated males, ranging in age from their 30s to their early 50s. These attributes imply that the entrepreneurs did not possess special knowledge about real estate development at the beginning of transition. Had they been older, they might have been able to draw on earlier market experience gained before Vietnam's Communist revolution. Many firms had key members who were or had been professors in the fields of economics or business, but of course they had not been trained in market economics when they received their advanced degrees in one of the Soviet Union countries. The firms often recruited key members who had had some type of previous construction experience, either in a state-owned company or an engineering occupation.
(p. 49 ) This demographic does fit with other studies of entrepreneurs in transition countries in eastern Europe and China. The younger population and those with cultural capital fared relatively better in the transition to a market economy than did the older and rural population. Eyal, Szelenyi, and Townsley (1998) found in their surveys of firms in Poland, Hungary, and the Czech Republic that a narrow political economy hypothesis does not hold. Specifically, those who had political capital and no cultural capital during the transition lost privilege and power, although those who had both were often the biggest winners. They attribute this distinction to the unique political context of Central Europe, where those who managed the transition came from an alliance of the new politocracy and opinion-making intellectual elites who promoted civil society and economic rationalism. In the new technocratic system, cultural capital became more valuable than political capital generated from old positions in the Communist Party or bureaucracy (Eyal, Szelenyi, and Townsley 1998).
Although the Asian transition did not undergo such major political reforms, we also find that political capital seems to generate declining returns as transition progresses and does not predict well who becomes and succeeds as an entrepreneur (Nee 1989, 1996). Whether we can attribute this shift to the nature of market economies themselves, this study cannot pursue. The framing of a duality between political and cultural capital seems overly drawn, however. In China as well as in Vietnam, political elites did amass private wealth, including land. But in my investigation, entrepreneurial firms consisted of members with both types of capital. The key was for those with either to find one another and form relations through new social networks. Because the economic environment was so challenging but the potential for profit so great, people who wanted to pursue land development projects needed and desired the cooperation of others.
Stark (2001) makes the point that the shape of a firm's networks depends on the development and availability of networks before the transition. For example, in his comparisons of (p. 50 ) the links of cross-ownership and investment in industrial firms in Hungary and the Czech Republic, he found that Hungarian firms after the transition were heavily networked directly with one another, which was a logical progression from the relationships enterprises had already developed with during the 1970s, when Hungary's brand of socialism loosened. Meanwhile, in the Czech Republic, firms might have links to the same banks and investment funds but no direct ownership ties with one another. Stark argues that this different structure of firm networks mirrors the lower degree of autonomy that Czech enterprises had to form relationships with one another during the Communist era and the relationships they were allowed to develop with industry and regional associations, which continue to be resilient in the post-Communist period (Stark 2001).
Stark's work focuses on the strategies of the managers of state-owned factories, whom he paints as risk-averse and coping with an uncertain environment. In the case of real estate in Vietnam, however, the development of new firms in a new industry required new networks. But perhaps HCMC did have an institutional inheritance that contributed to the formation of new networks that assisted the emergence and operations of firms. Even before the official doi moi reforms in 1986, Vietnam area specialists note that for pragmatic reasons, local governments and citizens could not and did not observe the central government's economic plans very closely but practiced considerable discretion in implementing them (Fforde and de Vylder 1996). Some characterize HCMC's government as especially cooperative with private business (Dapice et al. 2004). But others take issue with the characterization of HCMC as an exceptional reformer within the country, since its government elites siphon off state assets and practice gatekeeping as often as in other parts of the country (Gainsborough 2003).
In any case, I found that in HCMC social networks were amazingly open to new entrants and to new connections between existing networks. This egalitarian hypersociability certainly made it easier for me to do my research. People were chatty. They would talk to me and to my young assistants and (p. 51 ) to other people ranging widely in age, occupation, and social standing with an attitude of possibility. In my research and everyday transactions, I observed that people generally tried to work with one another, or could be persuaded to do so. It would be a rare occurrence that negotiation would stop altogether.
In this milieu of social networking, the entrepreneurs recounted to me their personal histories of how they came to be real estate entrepreneurs which indicated a blend of happenstances and structured privilege. An entrepreneur might mention knowing a ward official because of his status as a war hero, studying abroad, taking over a father's business, and so forth. But they would also usually tell stories of how they fell into real estate by tagging along with a friend on their first project. The point is that there were a variety of paths. One's initial endowment of networks and political connections were not determining factors. Rather, networks needed to be developed. And in HCMC, the development of networks and connections were facilitated by its culture, but were especially accessible to educated, sociable, younger adult males. The most convincing indicator of the open entry into the market is that hundreds of new firms formed. We will see in chapter 6 that this openness was not available in other parts of the country, where almost no private firms formed, and that one of the major differences between the regions is the openness of the social networks.
This chapter has described how large demographic shifts created a demand for urban land. The significant constraints on its supply by the state's land administration pushed potential profit levels for land conversion on the urban periphery even higher. But realizing the potential gain would be difficult for any would-be private entrepreneurs. This chapter suggests that HCMC's sociability helped individuals to build the social networks and political connections needed to work in a challenging economic environment in which information was limited and not transparent, to navigate the bureaucratic maze, and to make development projects happen. The next chapter will explain in greater detail how my case firms found ways to work within the structural constraints and which ones were successful.
(1.) These sales are not exactly informal land transactions in that the formalities, rather than being ignored, had not yet been defined. HCMC's real estate market is not best characterized as a dual formal and informal market. Rather, transactions exhibit a spectrum of official condoning through the stamp witness of ward governments, tax receipts, and building permits (Kim 2004).
(2.) The term is 20–50 years for agricultural land and 90 years for diplomatic land (Law on Land 2003).
(3.) Population figures for HCMC have been controversial because estimates have varied widely. For 2000, they range from conservative official figures of 5 million to estimates of over 7 million. As was the case in centrally planned economies, it is undesirable to have statistics that do not reflect policy targets. Yet it is also a difficult task to count unregistered migrants who have flooded the cities looking for jobs. One key informant, who helped implement the Statistical Office of HCMC's official census in 1999, claimed meticulous procedures, even counting homeless people on the streets. Whatever the total number, the official statistics state that HCMC added over a million people to its population in a decade. The Statistical Office of HCMC recorded a total population figure for the greater HCMC area of 3.64 million in 1989, increasing to 4.77 million in 1999. This growth was not even throughout the city, however. For the inner urban district areas, population grew by 21% during those 10 years. In the five new urban districts on the edge of HCMC, the Statistical Office counted an even more rapid population growth of 58% (485,965 to 768,236 people) and in the rural districts on the fringe of the city an increase of 73% (358,833 to 620,888) (HCMC Statistical Yearbook 2000). These statistics indicate high levels of land development pressure in HCMC's urban periphery.
(4.) Interview with Deputy Chief Architect Dr. Eng. Vo Kim Cuong, June 11, 2001.
(5.) As we will see in the next chapter, some firms were able to bypass the district government and work directly with the city and national governments.
(6.) In the former Soviet Union transition countries, policy advisors feared that if the politically powerful did not gain economically, the historic transition would reverse and the communist party would regain power. In order to ensure lasting transition, shock-therapy policy advice tried to destroy the old government institutions and import ones that might transform the incentives of people (Sachs 1995; Roland 2000).