The New Strongmen; Economic Rule: A fresh breed of leaders has put state control back in style, and with surprising success. Can it last?

Byline: Stephen Glain

Mahathir Mohamad must be smiling. At the height of the Asian financial crisis, Mahathir ignored Western free-market advisers by imposing a very personal form of state control. The problem was money fleeing the country, so Mahathir banned capital flight, and it worked. Malaysia weathered the crisis better than most Asian tiger economies. What must be making Mahathir smile is a string of imitators--who wield state controls by whim to manage economies with startling success.

The leading practitioners of this new statism include Thai Prime Minister Thaksin Shinawatra, whose theories have come to be known as Thaksinomics. This eclectic doctrine includes most known forms of state control, including price caps on energy, and some new ones, including a weird plan for a lottery to fund a Thai state share in the Liverpool football club. South Korean President Roh Moo Hyun has been described as a spendthrift "socialist" by the head of emerging markets at Goldman Sachs. Venezuela's Hugo Chavez has become famous for funneling oil money to populist spending programs. And while Russian leader Vladimir Putin slowly extends Kremlin control over the economy, particularly the oil companies, he, too, is diverting petrodollars to welfare-state spending. "These countries like the benefits of the free market but not the cost," says Anthony Chan, managing director and senior economist for JP Morgan Fleming Asset Management. "They want to be able to keep a grip on things, so they've decided a more activist role on the part of government is not a bad way to go."

It's not as if these leaders plot moves together. But their simultaneous emergence on three continents is made possible by the widespread backlash against the free market as promoted by the U.S. government for much of the 1990s, and by the decline of American economic models since the stock-market correction in 2001 and the subsequent scandals and recession. The neo-interventionist mix of fast growth and populist spending is also made possible by booming commodity prices--for oil in Russia and Venezuela, semiconductors in South Korea, circuit boards in Thailand, soybeans in Argentina. Growth in these countries is forecast to remain well above the global average, at between 5 percent and 7 percent, into 2005. ...