The Economics of Thailand's Thaksin is Catching On

In political terms, Thaksin Shinawatra is all but a spent force. Two weeks ago Thailand's former prime minister slipped quietly abroad to the safety of his mansions in the United Kingdom, ending expectations that his triumphant January homecoming from exile after his ouster in a bloodless coup in 2006 might presage his return to national politics. Thaksin justified his flight saying the string of corruption and other charges now working their way through the Thai courts "have been prejudged to get rid of me and my family." The self-made billionaire's surprise exit triggered fierce debates over the validity of the charges he faces, whether Bangkok should pursue extradition and the future of Thaksin's political machine.

Yet almost nothing has been said about Thaksin's most enduring legacy: a bottom-up approach to economics with widespread appeal across the developing world. In a bit of shameless self-promotion, Thaksin branded that strategy "Thaksinomics," billing it as a plan to elevate his primary constituency—rural Thais—from poverty. Implemented after he won office back in 2001, Thaksin's initiatives quickly reversed the devastation wrought by the 1997–98 Asian financial crisis and made Thailand's fast growth the envy of Southeast Asia. Today, similar schemes are ramping up across developing Asia to address the issues that plagued Thailand in the late 1990s and now threaten the entire region: overdependency on export markets, unequal development at home and yawning rich-poor income gaps.

Critics decried Thaksin's programs as bald pork-barrel populism, but skeptics quickly became converts as rural debt holidays and village-level business loans energized grass-roots manufacturing and services, and improvements to Thailand's weak social safety net—particularly the creation of a nearly free system of basic medical care—liberated rural households to save less and spend more. Thaksin called it "dual track" development, building a vibrant local market alongside the export sector, and it worked.

Yes, public debt rose, but the boost in growth and tax revenues more than compensated. Thailand's economy expanded by nearly 6 percent a year from 2001 to 2006, dependency on foreign investment and exports decreased and the country's income gap actually narrowed during a period when the distance between the haves and have-nots widened virtually everywhere else in Asia.

The logic of Thaksin's approach—that access to capital, employment opportunities and basic social services can transform disadvantaged regions into growth engines—is now accepted wisdom. Indonesian President Susilo Bambang Yudhoyono has followed it in his support for poor households hit hardest by a rollback in fuel subsidies. India's Manmohan Singh has created millions of rural jobs; his ultimate growth goals very much echo Thaksin's. In the Philippines, President Gloria Macapagal Arroyo once declared, "I am an unabashed disciple of Thaksinomics." And since 2006, when China unveiled a sweeping plan to redirect state investment to create a "new socialist countryside" in the hinterland, Beijing has repealed farm taxes, channeled millions to rural enterprises and otherwise sought to revitalize poor interior provinces (China reportedly sent a team to Thailand to study Thaksinomics back in 2003).

Chinese leaders reaffirmed the importance of what President Hu Jintao calls "harmonious" growth when the National People's Congress met last March, and in recent weeks Chinese and foreign analysis have suggested that Beijing soon could unveil a massive fiscal stimulus package targeting disadvantaged sectors of the economy.

As the Asian leader who pioneered "dual track" development, Thaksin might have climbed the pantheon of great economic thinkers if not for a massive political blunder. In late 2005 he sold his family's telecom conglomerate to the investment arm of Singapore's government for a cool $1.9 billion tax-free; the deal proved to be a bridge too far even in Thailand's crony-tolerant political culture. In response, a coalition of old business elites, opposition political parties and elements of the military demanded his resignation and staged marathon street protests that paralyzed Bangkok for months. On Sept. 19, 2006, Thailand's military staged its 13th coup since 1945, grabbing power while Thaksin was in New York to address the United Nations.

The junta initially tried to roll back Thaksinomics in favor of Buddhist-inspired self-sufficiency. The backlash was so swift, however, that the generals quickly reversed course and even made Thaksin's $1-per-visit health scheme free. Thailand's new government has followed suit with tax cuts for fuel, free electricity and water for small households and even free bus and rail travel. Finance Minister Surapong Suebwonglee says the programs will boost Thailand's annual growth to 6 percent and could cut household expenses by some $350 a year on average. "The ones who introduce these policies get votes, and the ones who take them away lose votes," says Nitinai Sirismattakarn, an independent economist.

But that only partly explains their popularity. The other draw, as Thaksin's record well illustrates, is that smart dual-track policies actually work.