When the leaders of the Pathet Lao, a communist guerrilla force established in Laos in 1950, took power in that country in 1975, the economy was in ruins. Two decades of fighting between royalist and capitalist forces on one side, and communist forces on the other, had resulted in great loss of life and widespread destruction of livelihoods and property. With the Pathet Lao siding with the North Vietnamese communist forces against the Americans during the Vietnam War, Laos became a target of American military action.
A massive bombing campaign conducted by the Americans between 1964 and 1973 aimed at cutting off the Ho Chi Minh Trail, a network of paths running through Laos and Vietnam, along which North Vietnamese soldiers and supplies passed, caused massive destruction and displaced almost one-quarter of the Lao population from their homes. At the same time, the end of the War in 1975 led to a massive flight of both capital and people.
Vientiane, the capital, had developed a booming economy during the War based on the provision of services to US soldiers. With the end of the War, this activity – and the US aid that had supported it – came to an end. To escape poverty and in some cases persecution, many Lao fled overseas (Thalemann 1997: 89; Stuart-Fox 1986: 99; Economist Intelligence Unit 2004: 7).