1/09/2008

Economy : The principles of Thaksinomics

Thaksinomics is all the rage

Chang Noi’s article in The Nation on January 05, 2004

Recently Chang Noi attended a gathering of international economists (IMF etc) and financiers discussing trends in the Southeast Asian region. They could not stop raving about Thaksinomics. Three years ago, such people greeted Thaksin’s election and policies with extreme scepticism or outright contempt. It was populism and cronyism and would run straight off the rails. The reasons for their religious conversion are of course obvious: the GDP growth rate and the doubling of the stockmarket index. International economists are growth groupies, and financiers can forget everything when an index just goes up and up.


But if Thaksinomics is about to make the leap from cute vocabulary to transferable theory, we need to know what it is. That is not so easy. After all, Thaksin first talked about rejecting the Asian model of export-led growth and foreign investment, and looking inward for a new model of internal dynamism. Only months later, his people were promoting export growth, and trawling the world for investment. What then is Thaksinomics in deed not word?

Chang Noi would like to suggest two principles: Growth First and Growth Anyhow; and Social Peace and Political Control.

Growth First means that the priority is not structural change in the economy (such as shifting away from an “Asian model”), or social goals such as greater equity. Rather, Growth First means we are back to business-as-usual.

Growth Anyhow means the strategy has to shift with the times, and adjust to the immediate problems. Here the Thaksin government has gone through three stages which are incremental rather than discrete.

In the first stage, the goal was simply to kick the economy back to life through the Keynesian stimulus of budget spending. This of course is nothing new. Indeed the Democrats had already done it with the help of the IMF and Japan. Thaksin’s problem was that there were few funds left to sustain this policy. As a result, he resorted to quasi-fiscal measures – using dormant assets in government (and private) banks to augment the stimulus through credit. This is also nothing new in Japan, where the method has been used for 50 years. But it was new in Thailand. It made a lot of sense because the banks were awash with liquidity, and world interest rates very low. The government simply had to invent schemes for dishing the money out – village funds, OTOP, people’s banks, cheap computers, free bicycles, cheap housing, discounts on real estate financing, and whatever.

But it was only mildly successful for many reasons. The stimulus created demand but the demand did not turn into investment because the banking system had collapsed. Moreover, reality is that the Thai economy is very externally oriented. And foreigners were getting very nervous about the talk of “looking inward”. This led to the second stage of “dual track” policy, which was a concerted attempt to boost the old external economy of exports, tourism, and foreign investment. Trade missions went here. Investment roadshows went there. Tourist promoters went everywhere. Foreign investors were told that the populist programmes were not “inward” at all but designed to make their consumers richer, their workers happier, and their profits higher. Thaksin talked up the economy by predicting growth and effusing confidence in a way which perfectly understood the psychology of international finance.

It was quite successful. Helped by the low baht and high Chinese growth, but certainly boosted by well-targeted trade promotion, exports turned sharply upwards. The trawl for foreign investment was less successful because of a downward cycle and the dazzling attractions of China. Instead Thailand just got a return of speculative funds. These ramped up the stockmarket and property values. High exports and revalued assets were enough to make the 2003 GDP rate look good.

But really, there was still no sign of life in investment, and hence we are into stage 3. This has two plans to induce investment. The first is massive government spending on infrastructure. This makes sense because government capital spending for the last five years has been very low, and because such spending in the past helped Thailand attract foreign investment. The second part is the various attempts to expand local capitalism – OTOP, converting assets to capital, land distribution, underground to aboveground, CEO-governor-led provincial development, and so on. We will probably have more quasi-fiscal measures to pay for all this.

The second principle of Thaksinomics is investment in Social Peace and Political Control. There is a genuine attempt to distribute government funds to create, in Thaksin’s words, a “social cushion”. At the same time, civil society is systematically muzzled, intimidated, and controlled. As Somkid boasted last week, “we have no demonstrations or social turmoil”.

Political Control is a major investment. At a very rough guess, the costs of running Thai Rak Thai is around a billion baht a year. The 200,000 baht a month allowance to 300 MPs is already 0.72 billion, and overheads and expenses must make up the rest. Ensuring re-election could cost at least as much again. Of course, this is a relatively modest fraction of the increased incomes and asset values of the businesses associated with the government. All this is part of the real Thaksinomics.

The other major innovation of Thaksinomics is handling the national economy like a business. The old methods of development economics and growth economics are in the bin. Of course the government has a team of macroeconomists in the backroom to keep an eye on the ratios, but their role is monitoring not policy-making. The real policy-makers look on national resources in the same way an entrepreneur evaluates his business assets. Workers will be assigned where they can add more value. Sleeping assets can be mobilised to deliver more profit. The outside world is a market with opportunities and threats. Democracy is simply a commercial tool on the same level as branding. Civil society is something to be neutralised, like regulators.

That’s Thaksinomics, and for the moment, on its own terms, it works.



No comments: