There has been an increase in the number of young companies in Vietnam. Tom Davenport, the director of the Mekong Project Development Facility (MPDF), is optimistic about finding companies suitable for the facility's help preparing business plans and qualifying for commercial loans or development aid. "Today there are probably 2,000 or 3,000 companies in Vietnam that are potential candidates," he says. "Two years ago it was half that number."

But the MPDF, a $25 million World Bank initiative, can only help so many of these companies at a time. The government could give all of them a push by easing regulations, but to date it has been more interested in expanding the role of state-owned enterprises (SOEs). Indeed, from 1990 to 1995, the domestic private sector's share of output declined, from 67% to 58%, according to the World Bank.

But while the output of state firms has risen, economists continue to look to the private sector for job creation, given the serious inefficiencies of state enterprises. "Private companies are the only source of serious growth," says Kazi Martin, a World Bank economist based in Hanoi. "They're also a yardstick against which to measure the performance of SOEs."

Although former Communist Party leader Do Muoi said he wishes for SOEs to stand as "the backbone of the economy," the Party has had trouble offering much, aside from jobs, which themselves may be threatened if current conditions persist. State media reported that just 300 SOEs of 6,000 contributed profits to state coffers in 1997; as many as half lost money last year. While in 1990 SOE taxes represented almost 60% of government revenues, in 1996 they accounted for just 41%.

It is because of the SOE's poor performance that economists from the World Bank and elsewhere are looking to the private sector to drive Vietnam's growth. These economists are quick to dismiss ideological issues, saying that there is nothing inherently wrong with state enterprises or anything inherently better about private enterprise. The catch is that there is simply no example in the world of a successful economy based on SOEs.

Even economies such as Singapore's, where government ministries and state-owned companies have played a significant role in leading growth, private enterprise is present and considered key to that success. "Singapore Airlines is majority state owned, and it is successful," acknowledges Davenport. "The goal is efficient allocation of resources. And it has been found that stimulating the private sector stimulates efficient allocation, even among SOEs."

Davenport and others cite Taiwan and Japan as role models for SME growth based on industrial exports. In Taiwan, liberal regulation allowed SMEs to flourish, and by 1986 there were over 57,000 private manufacturing firms employing a total of 2.3 million people. In Vietnam in 1995, there were only 1,776 private manufacturing firms of a comparable size, employing just over 100,000 people. Given that Vietnam's population is four times larger than Taiwan's, it's hard not to conclude that the potential of private enterprise is being kept locked up.

One of the most practical obstacles to private sector growth is the inability to finance growth. In 1995 state enterprises held about 90% of registered capital in the manufacturing sector. The government claims that bank credit is split evenly between the state and non-state sectors, but some economists suspect that much of the lending to the private sector consists of small loans to farmers, not financing for manufacturing firms to make capital investments.