(The folowing excerpts are taken from a report which Arthur Smithies. Ropes Professor of Political Economy and Master of Krikland House, submitted to the Institute for Defense Analyses earlier this year. A story discussing the report appeared in the October 8 issue of the Crimson.)

Economic Development in Vietnam: The Need for External Resources

I. Military Security and Economic Development

Economic prospects and possibilities in Vietnam depend critically on the military situation, on the degree of military security that is achieved under Vietnamization, as American forces withdraw.

At one extreme military security may be sufficient to permit the economy to operate under market forces and to be oriented toward the world economy with respect both to trade and the use of foreign capital.

The other extreme would involve full incorporation in the economy of North Vietnam. Its economic technique would be central planning and control; and it would presumably have to rely on the communist bloc for external resources. Also under this arrangement, there is little doubt that the south would be exploited by the North. It would play the role that the agricultural sector has played in Russia and other communist countries.

This report will proceed on the assumption that the first alternative, which is clearly preferable, is also feasible.

That degree of security, however, can only be achieved at very considerable cost. At present, Vietnam, with a population of less than 20 million has 1.2 million in the armed forces, with more than half of them in the regular army on a full-time basis. That makes the RVNAF the fourth largest army in the world, and far larger than that possessed by any other under-developed country in the free world, including India.

There seems no likelihood that negotiation with the North can result in rapid or early demobilization of this force. The best planning assumption seems to be military stalemate and withering away of the war, a process that can last for a decade or more (unless an international body undertakes to keep the peace in Indo-China by maintaining a military presence there).

I shall assume therefore that such economic development as can occur, must occur in the context of continued mobilization. A "post-war period" in the sense of full demobilization seems too remote to provide a realistic basis for planning. Clearly the need to maintain large military forces will have a profound bearing on the external resources required by Vietnam. Military equipment will be provided directly by the United States as military assistance. This is what has been done hitherto and what is still done in Korea and Taiwan. It is also the way North Vietnam is supplied by China and Russia. The cost that falls on the Vietnamese economy, and is financed through its budget is the pay and subsistence of the forces. This paper is concerned with the external assistances needed to enable the economy to sustain that burden, and to achieve some measure of economic development as well.

II. The Nature of the Economy and Economic Consequences of the War

Were it not for the effects of the war, there would be nothing very surprising about Vietnam's economy, apart from the extraordinary fertility of the Mekong Delta. Apart from that its resource endowments are moderate. It has abundant fish; and extensive forest resources. It has no minerals and no power sources (other than limited hydroelectric power). All that of course could be transformed if oil were discovered and produced.

Vietnam has acquired the handicaps and the advantages of the French colonial tradition. That tradition, with its emphasis on French cultural value and French centralized administrative methods may well produce a balance of handicaps over advantages.

The population is hardy and vigorous, particularly those that have come from the North. The Chinese influence and incessant wars over the centuries have produced hardier human stock than has Cambodia, Thailand and other countries that have been subject to Indian influence.

Were it not for the war, economic development in Vietnam could proceed in terms of the leisurely modernization of a country producing plenty of food for its population and earning foreign exchange through the exports of its rubber plantations.