The death of Thaksinomics

 20 feb 2006

Whatever the fate of the prime minister, the approach to economic policy which became associated with his name is already dead and buried deep. A series of events over the last few weeks has made that very clear.

 Although the title of Thaksinomics caught on, the prime minister knows little about economics. Somkid Jatusripitak, Phansak Vinyaratn, and other advisers were  responsible for the ides. The fact that these people are now virtually invisible on the political scene is also richly symbolic.

 Of course, what exactly Thaksinomics is or was is not very clear. Thaksin himself never defined it. Policies shifted over time. Many observers gave their own meaning to the word. But if Thaksinomics meant anything, it must be the approach to the Thai economy which key people in the first Thaksin government talked about in 2001. It was trumpeted as something new. It promised to move Thailand in a new direction. As such, it deserved to have a name of its own.

That approach was born out of the reaction to the financial crisis of 1997. While there were lots of different interpretations of what caused the crisis, there was some consensus about its significance. It showed the Thai economy had become much more exposed to the global economy over the past decade, and hence dangerously vulnerable to trends, shifts, and panics.

 Also, the Thai economy had become heavily reliant on exports, mostly produced by multinational companies. Thailand contributed only its abundant natural resources and cheap labour. Under this model Thailand was trashing its environment, and keeping its own people poor in order to be competitive. Not a good long term strategy.

 The Thaksinomics solution was to boost the domestic economy, and move domestic production “up the value chain.” Even if the global economy continued to be turbulent, a bigger domestic economy would provide heavier ballast for stability. Thailand would stop over-exploiting its own people and resources, and start selling more high-value products embodying more expertise.

 The first Thaksin government launched this approach with three kinds of policies. First, it stimulated domestic consumption by running a classic budget deficit and by recycling dead assets in the financial system into consumer debt. For a short time, this policy was spectacularly successful.

 Second, it tried to stimulate entrepreneurship at every level of the economy. At the top, there was a project to identify the future growth sectors for Thai business by drawing on the expertise of the most expensive consultants in the world. In the middle were schemes to liberate small and medium enterprises through credit and support schemes. At the bottom, the OTOP scheme hoped to turn the under-utilised labour of the rural population into craft goods which would flood the world.

 The third thrust was to overcome poverty and boost incomes from the bottom up. The 30-baht health scheme announced a new era in which the state would provide real social support, and reduce household costs across the board. Government intervention in world agricultural markets helped to boost prices and put more money in farmers’ pockets. And government promised to eradicate poverty by whatever means necessary.

 This programme did have a vision. Thaksin, Somkid, and Phansak gave some rousing speeches on the theme in 2001-2. But over the intervening years, the vision has gradually faded like an old pakoma. Three events of recent weeks have shown the vision has now vanished.

 First, there was the collapse of the government’s anti-poverty drive. At the end of his week-long televised experiment at solving poverty in At Samat, Thaksin drew his conclusions during his Saturday morning radio broadcast. He said at length that solving poverty was important to the “foundation” of the economy. Then he ended by encouraging his audience, which he seemed to imagine as rich urbanites, to spend their weekends going into the countryside and dolling out charity.

 Over the week in At Samat, that was increasingly his personal solution – to reach into his pocket. Despite all the talk about poverty eradication, the government has not come up with any plan other than handouts. Now the government has run out of money, this approach has hit a brick wall. Most of the great social schemes announced in the last election campaign have gone nowhere. The only route left is to privatise the handouts. In short, the old feudal idea of charity. For this reason, the committee formed to continue the anti-poverty drive was filled with some of the richest businessmen in the country.

 The second landmark in the final death of Thaksinomics was the garage sale held to sell off the megaprojects to foreign investors. Just prior to this, Thaksin announced the thinking behind the Great Hop Forward. Thailand would surge ahead by using foreign technology and expertise because it was much better than what was locally available. This was a 180-degree reversal from the rhetoric of Thaksinomics 2001.

 The third landmark was the sale of Shin Corp – lock, stock and satellite ­– to overseas owners. In 2000-1, Thaksin had presented himself as the saviour of Thailand’s capitalism to distance himself from the Democrats who were “selling the country.” His family is now responsible for the single largest sale ever. On his Saturday radio programme, he lamely defended himself by arguing that the Democrats sold off Thai assets for only a fraction of their value, while at least his family got a good price.

 Why did Thaksinomics die? Perhaps it was too difficult. Perhaps it was easier to go with the global flow. Perhaps they never really believed in it.

 These three landmark events signal a larger fact: the trend of the Thai economy is not substantially changed since the era before the 1997 crisis. All the growth comes from exports. More and more, capital comes from outside. The current account deficit is widening. Labour shortage is putting pressure on wage rates. The sky is filling up with luxury condos.

 Thaksinomics is dead and buried, and it’s not clear where we’re headed.