Melt butter in a large pot or Dutch oven over medium heat; add onion, bacon, thyme, 1 ½ teaspoons salt, and 1 teaspoon pepper; cook, stirring often, until onions are softened and edges begin to brown, about 8 minutes. Add flour and cook, stirring constantly, for 2 minutes. Gradually add water while whisking constantly, and bring to boil. Add corn and potatoes and return to simmer; reduce heat to medium-low and cook until potatoes are tender, 15-18 minutes.
Ladle 3 cups chowder into blender and blend until smooth, 1-2 minutes. Pour pureed chowder back into pot, add half-and-half, and heat until simmer. Take chowder off heat, add sugar, and season with salt and pepper to taste. Garnish with basil and serve.