Patriot Realm

As Australia faces economic collapse, and leaders like Donald Trump and Javier Milei take bold steps to revive growth and self-reliance, it’s worth asking: what actually lifts a nation out of poverty?

Vietnam might seem like an unlikely teacher -  a war-torn, socialist country that once held the dubious title of “poorest in the world.” But its story is one of the most extraordinary economic turnarounds in modern history.

And it confirms something a Scottish philosopher wrote almost 250 years ago.

In 1776, the same year the United States declared independence, Adam Smith published The Wealth of Nations. He argued that prosperity doesn't come from kings, bureaucracies, or foreign aid. It comes from free people engaging in voluntary exchange, supported by basic justice and low taxes. He called this the work of the “invisible hand” -  the idea that markets, left mostly to themselves, would generate wealth far more efficiently than governments ever could.

His formula was simple and timeless:

“Little else is required to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice.”

It sounds almost too simple. But Vietnam, of all places, proved him right.

A Child’s Memory of Hunger

Phung Xuan Vu was just eight when he lined up at a food distribution centre with his brother. His stomach ached from hunger. His biggest fear? Losing the voucher that might be his only meal.

“The officials were not friendly,” Vu recalled decades later. “We felt we had to beg for food that was rightfully ours.”

Vu’s family wasn’t the poorest. They owned a bicycle .... a rare possession. But hunger was still constant, and rations were often a cruel joke. Children waited hours in the heat, only to receive rice mixed with stones,  a trick to fool the scales. “We were angry,” Vu said. “But what could we do, as children?”

How Vietnam Became the Poorest Nation on Earth

Most know Vietnam through the lens of war, with history often ending in 1975 when Saigon fell. But in the decades that followed, something far worse took hold... poverty on a devastating scale.

After the war, President Ho Chi Minh had promised that victory would let the socialists build “a land ten times more beautiful.” Instead, Vietnam descended into economic misery. Collectivisation failed, just as it had in Stalin’s Russia and Mao’s China.

Vietnam’s Second Five-Year Plan (1976–1980) targeted 8–10% agricultural growth. Instead, output barely grew at 2%. A quarter of farms in the South were collectivised, and rice production dropped so sharply that by 1980, the country couldn’t even feed itself.

Nationalisation followed -  first foreign businesses, then all industries. 

By 1980, Vietnam was the poorest country in the world, even poorer than Somalia and Ethiopia. Eight out of ten Vietnamese still lived in poverty in 1993.

Foreign Aid: A Failing Formula

Vietnam's story also shows us what doesn't end poverty.

Despite decades of global aid efforts, countries like Burundi, Congo, and Somalia remain mired in poverty, many in the same position they were 25 years ago. Yet these are the nations that receive the most foreign aid.

Why? NYU economist William Easterly offered one explanation in his 2006 book The White Man’s Burden. He argued that aid feeds bureaucracies, not people. He pointed to Tanzania, which after receiving billions to fix its roads, was still left with crumbling infrastructure, but thousands of donor reports and swelling government offices.

Development workers often talk down to locals, pushing analysis over action. One aid expert even insisted that a village didn’t need a dam -  just better data collection and training.

Zambian-born economist Dambisa Moyo went further in her book Dead Aid, arguing that $1 trillion in aid had actually made Africa poorer. “The notion that aid has alleviated poverty is a myth,” she wrote.

A Different Path: How Vietnam Escaped Poverty

Vietnam took another road... not by design, but by necessity. As Soviet support collapsed in the 1980s, aid dried up. Meanwhile, collectivist policies were grinding the economy to a halt.

Farmers were paid by the day, not by output. There was no reward for effort, and little incentive to work hard. Productivity collapsed. But something else began to happen: the people, desperate to survive , started breaking the rules.

Families and local officials turned a blind eye to bans on private trade. Unofficial contracts (“khoan chui”) and gray-market transactions began to flourish. This underground economy was called “fence-breaking”  and it worked.

By the mid-1980s, Vietnam’s leaders could no longer ignore the obvious: the black market was feeding the people. So, in a remarkable shift, they embraced it.

In 1986, at the Sixth Party Congress, the Communist Party launched Đổi Mới ... a “renovation” campaign to legalise what was already happening in the streets and farms. More importantly, they admitted past mistakes, openly acknowledging that central planning had failed.

From 1987 onward, reform came fast:

• Price controls and subsidies were scrapped

• Private hiring was legalised

• Customs checkpoints were abolished

• Seized businesses were returned to private owners

• Foreign investors were invited in with protection from expropriation

Later reforms introduced limited property rights and expanded trade with capitalist nations. By 2001, Vietnam signed a trade deal with the U.S. In 2007, it joined the World Trade Organisation.

Today, Vietnam’s exports are high-tech: phones, computers, electronics. Poverty has fallen from 80% to under 4%. From 1990 to 2022, per capita GDP jumped from $2,100 to over $11,000.

Smith’s Invisible Hand Still Works

Vietnam isn’t a libertarian dreamland. It ranks 59th in economic freedom, ahead of France but below Belgium. Nor is it a wealthy country yet, sitting between Ukraine and Paraguay in per capita GDP.

But that’s not the point.

Vietnam was once the poorest country in the world. What changed wasn't foreign aid, international summits, or brilliant technocrats. It was the people ... finally allowed to act on incentives and trade freely.

The results speak for themselves.

As Adam Smith put it long ago, “Little else is required to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice.”

Vietnam’s miracle proves the point. Free markets, not handouts, end poverty. Even Bono -  not exactly a right-wing economist -  once admitted, “Entrepreneurial capitalism takes more people out of poverty than aid.” ( Bono is the stage name of Paul David Hewson, an Irish singer, songwriter, and activist, best known as the lead vocalist of the rock band U2. Born in Dublin in 1960, Bono rose to international fame in the 1980s as U2 )

He’s right.

If we truly want to help the next generation avoid the hunger and humiliation Vu experienced as a child -  queuing hours for a handful of rice -  then we need to stop obsessing over foreign aid, and start championing economic freedom.