NIKKEI ASIAN REVIEW
Junta prefers handouts to hard work building economy
As the Group of 20 leaders meets this weekend to assess the global economy, no topic is more pressing than the populist currents battering the world.
There is a certain poetry to this meeting taking place in Argentina, a place grappling with a history of anti-establishment leaders doling out short-term perks that trump common economic sense.
At the moment, though, Asia may present the most urgent case studies for the G20. Perhaps none more than Thailand, a volatile economy experiencing a dangerous populist resurgence.
This is ironic because the military government which seized power in 2014 is now resorting to policies it claimed to abhor: cash handouts aimed at scoring points with lower income voters, instead of modernizing the economy.
While the Brexit vote in the U.K. and Donald Trump’s shock election in 2016 dominate debates about populism, Thailand came first. It all started with the 2001 election of Thaksin Shinawatra, a billionaire telecom guru the impoverished masses viewed as a savior.
Like most populists before him, the Thaksin myth arose from the ashes of crisis. The fallout from Asia’s 1997 crash was still fresh when Thaksin took office. He promised to enrich Thais just as he had his family and shareholders.
Yet Thaksinomics amounted to doling out state largesse to rural communities, effectively buying their support to counter the doubts of urban elites. Rather than invest in education, foster innovation and create a level playing field for economic competition, Thaksin focused on weakening government institutions. He neutered any entity that might limit the dominance of his Shin Corporation and other conglomerates.
While the international media labeled Thaksin Asia’s Silvio Berlusconi, rural Thais rallied around their benefactor.
The first coup to emerge from Thailand’s rural-urban divide was in September 2006, ousting Thaksin. Though he has lived in exile ever since, he plays a largerthan-life role in Thai politics. He rallies his millions of supporters via Skype speeches and television interviews from Dubai and other far-flung locations.
Thailand never really recovered. In the eight years between Thaksin’s exit and 2014, Bangkok saw eight leaders come and go — including Thaksin’s sister Yingluck Shinawatra. In May 2014, junta leader turned prime minister Prayuth Chan-ocha became the ninth.
Since then, the man pledging to de-Thaksinize Thailand has given military governments a bad name. Coup leaders normally take over to restore order and often push through big reforms which government bureaucracies cannot.
Yet four-plus years of indecision and complacency suggest Prayuth and his men never quite had a plan. As the public braces for a possible election in February, many wonder what the anti-Thaksin putsch was all about — especially as Prayuth’s administration is resurrecting some of the worst tenets of Thaksinomics.
One example: a nearly $2.7 billion splurge on rural low-income households. “This package is nothing more than a populist policy,” complains Abhisit Vejjajiva, one of the eight leaders who governed between the Thaksin and Prayuth eras.
There were warning signs this ploy was coming, not least when the military government hired Somkid Jatusripitak, a key Thaksinomics architect, as an adviser. That move in August 2015 prompted much head-scratching. Now, Somkid’s influence — and, by extension, Thaksin’s — is ushering in a return to the short-termism Thailand cannot afford.
China’s rise demands that developing Asian economies build skills as well as infrastructure. The latter needs plenty of upgrading to keep Toyota, Mitsubishi Motors and General Motors in Thailand. Its “Detroit of Asia” status may not last as India, Indonesia, the Philippines and Vietnam vie for manufacturing jobs.
The bigger challenge is the one facing G-20 leaders 10,000 miles away in Buenos Aires: preparing billions of workers for the economy of tomorrow. That means investing more in education and training, reducing bureaucracy and corruption, lowering trade barriers and spreading the benefits of growth.
As the fallout from Trump’s trade war washes up on Thai shores, tourists are becoming scarcer. The economy unexpectedly stalled in the third quarter as exports and foreign arrivals fell. The 0.4% contraction from the previous three months was the weakest performance since the first quarter of 2014, just before the junta marched to power.
Exports, which account for 60% of gross domestic product, are in a tailspin. In September, overseas shipments plunged 5.2% year-on-year, the first drop in 19 months. Slowing Chinese growth is thinning tourism flows. That has Prayuth and his administration in a populist whirl, firing up the handout machine.
The military government has also responded by leaning on state-run enterprises for growth, exactly the opposite of what Southeast Asia’s secondbiggest economy needs. Between January and September, outlays by state entities jumped nearly 50% to $9.4 billion. The emphasis should be on supporting private enterprise to create the new higher-paying jobs that boost innovation and competitiveness.
That is true around the globe. Sadly, the G-20 is unlikely to devote ample time to devising strategies for economies from Argentina to Thailand. A top priority should be tackling supply-side constraints, not just demand-side priorities. Macroeconomic stability will eclipse the need to strengthen social safety nets, improve human capital and eradicate graft. Nor are G-20 leaders likely to find the backbone to demand that Trump and China’s Xi Jinping agree to a trade truce over dinner on Saturday.
For many, 2016 was the start of the populist backlash which G-20 officials meeting in Buenos Aires hope to calm. A common thread between the 2016 Brexit vote, Rodrigo Duterte’s win in the Philippines and Trump’s victory is large swaths of the population feeling left behind.
There are few better examples of the problem than Thailand. Nor are there many more obvious cases of a government fiddling as its economic potential fizzles.
The junta’s reliance on cash handouts is not building economic muscle or boosting wages. Mushrooming household debt is a damning economic indicator. At the end of March, it was 77.7% of GDP, shackling Thailand with the secondhighest burden in Southeast Asia, behind Malaysia. It may grow still further as the pain from Trump’s populist tariffs dwarfs the payoffs from Bangkok’s untimely populist U-turn.
As economists — and G-20 officials — scour the globe for lost-decade candidates, Thailand’s generals are making it too easy for them.
William Pesek is an award-winning Tokyo-based journalist and author of “Japanization: What the World Can Learn from Japan’s Lost Decades.” He was given the 2018 prize for excellence in opinion writing by the Society of Publishers in Asia, for his work for the Nikkei Asian Review.