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Cherry Picking in Bhutan Rowbotham, Michael 2003-12

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Michael Rowbotham*
It is a great honour to be invited to Bhutan to address this
conference. In writing this discussion paper, three
considerations were uppermost in my mind. I wanted to
express my admiration for the work already being undertaken
by the Bhutanese Government under His Majesty the King,
Jigme Singye Wangchuck. The concept of Gross National
Happiness (GNH) represents an original and highly significant
initiative and the Government has been diligent in finding
ways to apply this policy as broadly and honestly as
possible.1 Secondly, I wanted to express my appreciation of
the work of others. Those papers and extracts I have had the
opportunity to read show a deep appreciation of the issues
involved, not least the acute dangers to developing nations
presented by the modern global economy.2 With this in mind,
my third consideration was that I wanted to make an original
contribution - not duplicate the work already done by others
nor simply echo other delegates. This paper is offered in the
hope that it will integrate with this earlier work.
It is important to state at the outset what is omitted from this
paper. What I do not discuss in depth is the debate over the
nature of happiness itself, and the extent to which this
derives from material/social/external considerations and
from inner,  spiritual  ones.  This has  been well  covered  by
* Author and lecturer in the area of economics, the United Kingdom,
^asho Meghraj Gurung, Address to Gross National Happiness
Seminar, Netherlands, 2001.
2 Sander G Tideman, Gross National Happiness: The Meeting of
Buddhism and Economics, Briefing Paper for GNH Dialogue,
Netherlands, 2001.
 Journal of Bhutan Studies
those more qualified than myself.3 Material well-being clearly
contributes to happiness, yet we are all aware that a state of
happiness lies much deeper. Paradoxically, happiness
actually lies deeper than many of the important social and
non-material considerations that are excluded by
conventional economics and embraced by GNH. Ultimately,
happiness is a matter of perception; a state of mind; a fact
that is fully acknowledged by Buddhism and other world
What this paper focuses on is the way that orthodox
economic policies can erode and destroy the happiness of a
society and its people. It also outlines a range of economic
policies and ethics that have the potential to provide a
structure within which GNH might be more effectively
created. This is by avoiding some of the mistakes of
orthodoxy, and considering alternative 'New Economic'
policies that provide room for the many subtle elements that
contribute to GNH to emerge.
The aim is to try to add to the debate in the following ways:
1) Draw attention to important economic considerations
omitted from orthodox economics, which are embraced
by the concept of Gross National Happiness
2) Highlight the flaws in conventional economic policies
and institutions that can erode Gross National
Happiness and disadvantage developing or smaller
nations, such as Bhutan
3) Emphasise the dangers faced by small nations such as
Bhutan in their engagement in the global economy
4) Outline the wide range of economic policies that might
ameliorate   the   impact   of   the   global   economy   and
3 Chris En th oven (ed) Gross National Happiness, Gross National
Product - A meeting between two cultures, Ecooperation, 2001.
 Cherry Picking in Bhutan
promote a more benign, sustainable form of economic
5)     Discuss the potential application and relevance of these
policies to key economic and social sectors in Bhutan
Bhutan is not alone in facing the challenge of development in
the 21st century and the opportunity exists to draw as widely
as possible on the experience of other countries in informing
this discussion.
1) Economic Considerations Omitted by Orthodox
Economics, which are Embraced by the Concept of Gross
National Happiness.
Although this area has been discussed in other papers, it is
worth summarising some of the points already made,
hopefully adding to the analysis.
Gross National Happiness is a magnificent ethic. The
substitution of a single word, 'happiness' for the word
'product' injects humanity, in all its rich complexity, into
economics. Many tenets of economic orthodoxy are
challenged, most obviously the assumption that increasing
material wealth automatically equates with increasing levels
of human happiness. It has been broadly conceded by writers
in the GNH forum that material wealth can contribute to
human happiness, but that this is only one element in a
complex array of considerations. Perhaps the most succinct
statement of this is that humans are not wealth 'maximisers',
but 'satisfiers'4. The majority of people pursue material goals
only to a certain level: either to a level where non-material
considerations become more important (such as leisure or
family concerns), or to a level that provides them with a sense
of security - a perception that is at least in part non-material.
4 Stanislav Menchikov, quoted in Enterprise and Development in the
21st Century: Compassion or Competition? Sander Tideman (ed),
Asoka, 2000.
 Journal of Bhutan Studies
The contention that human desire for material wealth can be
satisfied in turn casts doubt on the deeply traditional premise
that economics is a study of 'the allocation of scarce
resources' - essentially a study of conflict. The falsehood of
this premise is also attested by the observation that our
access to material wealth is not limited by the finite nature of
the world, but rather by our ability to create and willingness
to distribute that material wealth.5
As well as challenging orthodox assumptions, the concept of
GNH allows and obliges us to include many considerations
omitted from orthodox economics. The satisfaction (or lack of
it) from work has no relevance in orthodox economics - labour
is seen merely as a factor of production and is thereby utterly
dehumanised. Similarly, the impact of economic development
on families and community structure, the health of the
environment, the depletion of natural resources and the
prospects for future generations; all these considerations,
which are of the first importance in GNH, only figure in
orthodox economics to the extent that they can be
demonstrated to impact on the production of material wealth.
The 'voluntary economy' that revolves around
family/community/social ties, and which can be affected so
disastrously by conventional economic policies, is completely
omitted from GDP. Yet, as has been indicated by many
studies, this voluntary economy actually contributes some
50% of the true economy of a nation. GDP as a concept,
focusing on monetised exchanges, is therefore a deeply flawed
measure of the true material wealth of a nation.
GDP also assumes all monetary transactions are inherently
desirable, and so includes many aspects of the 'negative
economy' as positive outcomes. For instance, the restoration
of environmental damage, anti-pollution systems, excessive
transport, growing demands on the legal system, measures to
combat rising crime and deteriorating health, drugs
programmes - all these register as increases in GDP. The New
Sander G Tideman, Op Cit.
 Cherry Picking in Bhutan
Economics movement has for many years been developing
GPI (Genuine Progress Indicators) that attempt to embrace
the glaring omissions and contradictions of GDP.6
It might be argued that the wealthy nations do not, in fact,
pursue GDP growth blindly, but entertain other policy
considerations alongside this goal. However, these policies are
generally an afterthought and fail to acknowledge that the
problems they attempt to address are frequently caused by
the relentless pursuit of economic growth. By contrast, the
policy of GNH deliberately places non-material outcomes at
the forefront; it widens the debate to include everything of
relevance to humanity - dramatically broadening the scope of
our economic and political concern. This also complicates a
government's decision-making, since it is not just immediate
and obvious outcomes, but knock-on effects of policies that
are relevant.
2) Flaws in Conventional Economic Policies and
Institutions that can Erode Gross National Happiness and
Disadvantage Developing and Smaller Nations, such as
Although much has already been said in criticism of orthodox
economic priorities, again it is worth adding to this critique. It
is important to have as complete an analysis as possible in
understanding the defects of the economic system prevailing
nationally and internationally.
The above section notes the extent to which the register of
GDP is a redundant and flawed measure of progress.
However, the pursuit of GDP is but one of a host of
assumptions, ethics, policies and institutions that
characterise and drive forward the modern economy. To
provide an exhaustive discussion of these is beyond the scope
6 Cobb, Goodman, Wackernagel, Redefining Progress; Genuine
Progress Indicators, Oakland (California), 1999.
 Journal of Bhutan Studies
of this paper and many have already informed the debate over
GNH. However, the following are, I believe, key issues.
Debt-Based Financial System
One of the greatest institutional failings shared by the
majority of national economies is the monetary, or financial
system upon which they rely. My first book, The Grip of
Death, is subtitled A Study of Modern Money, Debt Slavery
and Destructive Economics.1 It discusses how an out-dated
financial system, based almost exclusively upon fractional
reserve banking, still dominates modern economies. This
'debt-based financial system' renders economies permanently
unstable and creates a pressure towards constant growth,
regardless of need or the desires of the population. A debt-
based financial system is characterised by deteriorating
personal solvency and the acute financial exposure of both
commerce and government. This general lack of liquidity
leads directly to the predominance of low-cost, mass-
produced goods and services, and thereby to the over-
centralisation of production, distribution and retailing. The
pressure to find and provide new employment in an economy
where labour is constantly displaced by technology results in
a ceaseless stream of new products and services, which
people are encouraged to purchase through an entire
industry devoted to mass-persuasion and the manipulation of
desires. In the over-centralised, debt-ridden, 'rich-but-poor'
wealthy nations, public services, commerce and agriculture
have all been deeply affected, transport systems are grossly
overloaded and even residential and commercial patterns of
development now reflect the failings of the inadequate
financial system upon which the entire economy is based.
The debt-based financial system also has far-reaching effects
internationally. Due in part to the tendency towards
overproduction and in part to the lack of liquidity, there is a
pressure on nations to seek overseas markets for goods that
7 Michael Rowbotham, The Grip of Death; A Study of Modern Money,
Debt Slavery and Destructive Economics, Jon Carpenter, 1998.
 Cherry Picking in Bhutan
cannot be sold domestically. This pressure to export is
intensified by the influx of foreign goods from other
economies similarly seeking adequate markets for their
unsold goods. Trade, which ought to involve a balanced and
fair exchange of goods to the mutual advantage of all nations,
is now little more than thinly disguised economic warfare.
The extension of fractional reserve banking/debt-finance into
the field of development has created the single greatest
disaster of the last century - the institution of International,
or 'Third World' Debt. The prime lending and advisory
institutions, the IMF and World Bank, have presided over the
slow-motion destruction of countless countries under the
banner of 'progress'.
Sub-Saharan Africa's development, like that of
so much of the Third World, has been a
horrifying tragedy in which 'progress' has been
accompanied and countered by the most
appalling suffering, starvation and
wretchedness. Millions now find themselves
marginalised within their own society, existing
in the midst of an economic degradation so
profound that it not only fails to provide them
with food, water and shelter, but has destroyed
their culture, their past, their future and all
The historical record of the IMF and World Bank, documented
in literally thousands of books protesting at their false
economic priorities and failed policies, stands as an enduring
testament to the wholesale failure of neo-classical economic
wisdom to address the sensitive issues of development.
Meanwhile, the failure of Western nations to cope with their
own development, by maturing into stable, contented
societies, underlines the inadequacies of their own economic
8 Michael Rowbotham, Goodbye America! Globalisation, Debt and
the Dollar Empire. Jon Carpenter, 2000.
 Journal of Bhutan Studies
institutions, priorities and policies. The debt-based financial
system is by no means the only factor contributing to this
failure, but it is certainly a major component.
Wealth, Poverty and the Free Market
In the West, it is accepted almost without question that the
activities of the business or 'entrepreneurial' sector within an
economy lead to the creation of wealth, and that this in turn
leads to a general increase in the material wealth of the
society as a whole. This assumption has been challenged on
two fronts.
First, as David Korten discusses in his book When
Corporations rule the World, much activity by the business
sector is not, in fact, creative of wealth, and may even be
destructive of wealth.9 The absolute priority of the business
sector is to make a monetary profit. This may involve wealth
creation, but much activity by the business sector actually
involves the abstraction or appropriation of material wealth
that has already been created, the pursuit of market share
and the elimination of rival commerce. If one firm takes over
another firm and shows an increased profit, this is deemed a
business success and automatically 'good for the country'.
The business venture may indeed be a success for those
directly involved. But this may involve thousands of workers
losing their employment, the closing down of factories and
retail outlets, a decrease in the range and quality of products
available, workers being obliged to travel further to new
employment and consumer dissatisfaction. This example is
not intended as an argument against free enterprise or
capitalism, simply an observation that business success does
not automatically equate with wealth creation. Business
success is just that - business success.
Second, the success of a business, whether it involves the
creation of wealth or not, does not automatically lead to the
9 David Korten, When Corporations Rule the World, Earthscan,
 Cherry Picking in Bhutan
increased distribution of wealth. The 'trickle down theory' - the
assertion that wealth generated by the
business/entrepreneurial sector percolates throughout the
economy - is one of the ethics dearest to orthodox economics.
This belief, born of faith in a mythical 'perfect market', is far
from proven. The growth of poverty in wealthy nations such
as the USA and UK coupled with a markedly increased 'gini
coefficient' (measuring the disparity between wealthy and
poor sectors) strongly suggest that confidence in the 'trickle
down theory' is wildly misplaced. Since Adam Smith,
economists have warned that 'unequal exchange' may lead to
the progressive aggregation of wealth and impoverishment of
the poor. This remains true despite the fact that there
appears to be an increased flow of material goods to citizens
as consumers; the spiralling levels of personal debt in the
West underline the fact that access to this 'created wealth' is
problematic, to say the least.
The above points are not intended to argue against free
markets, nor denigrate the entrepreneurial sector. They warn
of the need for fairer and more effective regulation in
business, proper employment rights and policies that ensure
the distribution of wealth is more just.
Inefficient Allocation of Resources
Another axiom of conventional economics is that a free
market will lead to the most efficient use, or 'allocation' of
resources. Those businesses that survive and succeed in the
market achieve this success because they utilise the available
resources most effectively, producing and selling goods at the
most competitive price, whilst other less efficient firms do not
survive. Over time, the available resources will be used most
effectively by the most efficient firms.
According to this rationale, consumers in the developed
nations 'want' their products to be increasingly unreliable,
with an ever-shorter lifespan; they 'want' to have to make and
buy those throw-away products repeatedly; they 'want' to eat
food that is increasingly tasteless and lacking in nutritional
 Journal of Bhutan Studies
content; they 'want' to be barraged by imagery that
undermines their self-esteem if they do not conform to
advertising stereotypes; they 'want' to work in an economy
that is destroying the planet on which they depend.
Perhaps the most glaring example of the 'misallocation', or
inefficient use of resources involves the trend towards the
globalisation of food production. Land within the poorer,
developing nations that is desperately needed to grow food for
their own population is utilised to grow crops for export. The
foodstuffs produced are then transported by sea and air to
Europe, North America and other wealthy nations.
Meanwhile, farmers in these more advanced economies, who
are often perfectly capable of producing the crops being
imported, are driven out of business. Three ecosystems suffer.
Farming in the UK struggles to survive and land usage
declines; prime agricultural land in impoverished nations is
diverted towards export crops instead of feeding the
indigenous peoples; meanwhile the global ecosystem suffers
from the excessive transport of goods.
Orthodox economics argues either that this is the most
efficient allocation of resources (the free market cannot be
wrong) or that a more efficient allocation of resources will
come about through the 'doctrine of convergence' - the
wealthy farmers in the UK will have to compete their way
back into the market by lowering their income expectations,
whilst the success of farming in the developing nations will
raise incomes there. Thus, the grotesque misuse of land we
now see is perceived as a stepping-stone along the road to
greater global equality. All the evidence of the past century is
that this 'doctrine of convergence' is another totally
redundant economic ethic, rendered meaningless by the
existence of global food monopolies and the overhang of
crippling debt that obliges developing nations to feed the
world rather than their own peoples, acting as the cheap
manufacturing and agricultural outposts for powerful western
 Cherry Picking in Bhutan
This 'development debacle' does far more than warn of the
dangers of focusing on export products in a glutted world
market. It emphasises yet again that commercial success is
not an automatic good, and certainly does not imply the most
efficient use of resources. This warning applies within nations
as well as between nations. Long before globalisation of food
reached its current level, UK farming was suffering a
damaging trend in which the most effective and genuinely
productive farms - medium sized, mixed farms - were being
driven out by ever-larger, more wasteful but more cost-
effective agricultural businesses, operating in alliance with
giant supermarket chains.
Trade is Not an Automatic 'Good'
Trade between nations is, rather like GDP, taken by orthodox
economics to be an incontrovertible indicator of progress.
Trade is 'good'. That this is not the case takes only a
moments application of common sense. If trade were an
automatic sign of progress, Bhutan could produce everything
needed by Nepal, and Nepal could produce everything needed
by Bhutan; the goods could be exchanged and everyone
would be better off - except of course, they wouldn't be. Trade
involves transport and transport involves a substantial cost.
Once the gross inequities of the international markets are
appreciated, the glaring cost associated with modern trade
becomes apparent. Near-identical products criss-cross the
planet, goods that could be produced locally or regionally are
manufactured in remote countries and exported globally,
patterns of production and supply are forever changing,
involving constant and repeated re-investment - the waste is
simply incalculable. The proper purpose and value of trade is
well understood and reasonably obvious, but to confuse
today's burgeoning exchanges with progress is quite wrong.
This excessive and ever-changing trade is, as discussed in a
later section, a product of the volatile global markets created
by the international debt crisis and the wholly inadequate
trading architecture devised at Bretton Woods and since.
 Journal of Bhutan Studies
3) Dangers Faced by Small Nations such as Bhutan in
their Engagement in the Global Economy
It might seem, with all the effort being put into the policy of
GNH, that there is little likelihood of Bhutan being drawn
down the road of 'Western style development'. With all their
glaring defects, the wealthy nations are clearly not a model,
either in terms of their material possessions, their social
priorities or their rampant pace of change. Surely, the culture
of Bhutan is too proudly revered and GNH is too robust a
However, the danger is very real of Bhutan being drawn either
towards excessive materialism of the West, or the poverty of
other developing nations, or indeed a blend of both. The
global economy is a highly aggressive environment and the
pressure of external debt has obliged the majority of
developing nations gradually to divert economic effort and
resources away from their own citizens' real needs. As the
unrepayable debts mount, these countries are forced to
accede to deregulatory policies that progressively expose their
economies to global commerce, with disastrous results.
There is yet another danger. The perception of affluence
within the wealthy nations can have a profound influence on
the citizens of poorer nations, generating a growing
dissatisfaction and ultimately a rejection of their own culture,
which is substituted by a craving for Western material wealth
and the image of happiness it conveys. The loss of traditions
and erosion of cultural identity can, like the breakdown of
family and community structures, happen rapidly and
But perhaps the greatest threat is an insidious one, coming
from the aggregate impact of the material wealth of the global
economy in which technological progress and materialism is
so prevalent.
 Cherry Picking in Bhutan
There is a tendency to suggest that technology and material
goods are, in themselves, 'neutral'; it is the use to which they
are put that is of importance. In fact, nothing in life is truly
neutral - neutrality is an abstract, essentially scientific and
mathematical concept. Material goods have existence. If a
country suddenly invents a technology or imports a type of
product it did not have before, that country is altered. If a
country imports a technology or improves an item it already
had, it is changed. This can be as simple as knives and forks
or clothing, or as complex as cars, tractors, mobile phones
and televisions. The culture is changed.
Technology and material goods are not neutral; their
existence changes patterns of life. And this is the problem. We
are not discussing a single product - such as mobile phones -
but a vast range of material goods that, in aggregate,
represent a wholly different way of life. All these are waiting
beyond the borders of Bhutan - motorbikes, microwaves,
crockery, computer games, stainless steel kitchen equipment.
If these are imported en masse, where then is traditional
kitchen? Where then is the traditional way of making
Bhutanese plates? If tractors and chemical fertilisers become
widespread, where then is traditional agriculture, its field
size, structure of the landscape, land tenure and the
communities they supported?
Neither are we are simply considering a threat from material
consumption, but methods also. When an item is produced in
a different way, there is an effect on working patterns. When
goods are imported, a domestic industry often dies. Viewing
technology and material goods as 'neutral' is a Western
perspective with limited views, ignoring the socio-cultural
impact of the product, how it is produced and what it
replaces. Instead, we should always be asking, "What is the
effect of this change or that change?"
In essence, if you really want to keep Bhutan as it is, you
must change nothing. Just put up the barriers and refuse all
change. This, I am anticipating, is not an option. Cultures
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naturally evolve and change, albeit far more slowly than
under the economic pressures recently experienced in the
West. Normally, they change from within or in response to
gradual influence and changes elsewhere. Bhutan's isolation,
which has served it so well, means the country is now faced
with a flood of advance representing changes that Western
citizens found difficulty in adjusting to over a far longer
This leaves Bhutan's leaders with the vital but immensely
complex task of monitoring and regulating the nature and
pace of change - a momentously challenging responsibility.
However, Bhutan should realise that it is not by any means
alone. Although it may seem as if the entire world has either
adopted western consumer culture or is in avid pursuit of
that culture, this is actually part of the myth of western
consumerism. The vast majority of the world's population
actually live in communities, regions and nations that value
their own culture, prize their independence and are seeking to
find ways, like Bhutan, of preserving their inheritance and
4) Economic Policies that Might Ameliorate the Impact of
the Global Economy and Promote a More Benign,
Sustainable Form of Economic Activity
It is one of the great intellectual failings of recent years that
political and economic debate has been reduced to a
simplistic contest between socialism and capitalism. The only
alternative to the deregulated free enterprise and market
capitalism that now prevails is portrayed as state socialism or
communism, in which powerless and property-less citizens
are directed by an omnipotent government dictatorship. To
contend that these caricatures comprise the only possible
political/economic options is absurd. Lip service is sometimes
paid to the notion of a mixed economy, involving a blend of
welfare provision and free market capitalism, but the 'mix' is
far from certain. With the collapse of communism, neo-liberal
capitalism   is   clearly  the   ascendant  ethic,   indeed  The   UK
 Cherry Picking in Bhutan
Chancellor, Gordon Brown has declared that "...there is no
alternative". But of course, there is. Indeed, there are
countless alternatives.
Just how lacking is the theoretical debate can be seen even in
the GNH forum, for example, in discussions over the role of
competition and the hypothetical free market. It has been
asserted in several past GNH papers that competition is an
inevitable and at times positive element in economic activity.
This may be true, but the nature of competition can be
dramatically affected and outcomes altered by economic
policies. For instance, the level of competition for land in an
economy where very large land holdings are permitted and
are customary will be very different from the competition for
land in an economy where a size-limit on land holdings
exists, permitting more farmers to enter the market whilst
restricting the power of established farmers to monopolise
land and food production. As another example, the degree of
commercial competition for sales in an economy where
adequate purchasing power is distributed amongst the
majority of consumers will be very different from that in an
economy where a significant number of consumers lack
adequate purchasing power. To discuss the notion of
'competition' but ignore the factors that affect the nature of
competition is a virtually meaningless exercise.
It may well be that the most optimistic future for economics
lies in dispensing with intellectual slavery to any one 'ism',
whether it be capitalism, socialism, environmentalism or New
Economic-ism. If that is the case, it leaves politicians free to
exercise their judgment and consider likely outcomes rather
than fond hopes and misplaced faith. In this, the concept of
GNH would seem to represent an ideal that is far superior to
any intellectual system or single programme. A government
that embraces GNH is free to adopt and adapt policies at will
from a multitude of sources, old and new.
This brings us to the opposite of the statement made by Larry
Summers formerly of the World Bank, who once infamously
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stated to the Indian Government, "... governments need to
understand that there is no longer such a thing as a separate
and distinct Indian economics - there is only economics".10
There is, or should be, an economics that is distinctive for
each and every country. This conference represents part of
the search for a specifically Bhutanese economics in which
the priorities, culture, specific problems and opportunities of
this country are given primacy. Countries have the right to
cherry-pick amongst the vast array of contending and
available policies and make their own decisions.
The following section discusses a wide range of topics and
policies. Some of these reflect the range of analysis, practical
policies and ethics that derive from the New Economics
movement. In other cases, key sectors of the economy are
discussed in terms that emphasise their significance to
developing nations, their importance to the concept of GNH
and their sensitivity to policy initiatives.
Audit and Inventory
Import Substitution
Licenses, Tariffs, Quotas and Subsidies
Agriculture and Rural Communities
Capital Development Projects (Hydroelectric Power)
International Debts
Currency Valuation and Trade Deficit
Monetary Reform
Fixed Limits
Service Sector and Tourism
Education, Culture and Celebration
10 Quoted in, Susan George, Fabrizio Sabelli, Faith and Credit,
Penguin. 1994.
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5) Potential Application and Relevance of these Policies
to Key Economic and Social Sectors in Bhutan
This section attempts to highlight the nature and scope of the
initiatives that might be undertaken by a government wishing
to engage in the global economy, secure a prosperous future
for its people and also maintain the identity and integrity of
its culture. Some of the policies are regulatory, some are
supportive, and some are creative. There is a blend of what
might be termed New Economic reforms, well-known (if
sometimes unfashionable) policies, and ad hoc suggestions.
The discussion is deliberately open-ended. Rather than
advocate any specific programme, the aim is to identify the
type of decisions that could be made and powers exercised in
crucial economic sectors. The overall intention is to
emphasise the enormous scope for action and equally
enormous responsibility placed on a government committed
to a policy as demanding as GNH. ...Everything matters.
Audit and Inventory
Those who are happy know they are blessed with many gifts...
So, in line with all good moral advice, "count your blessings".
In addition to its social fabric, Bhutan already has
considerable material wealth. Some of it is natural capital;
some have been created by human endeavour. Although the
focus is not simply on material issues, it is a valuable
exercise to assess a country's material wealth; its natural
capital, tapped and untapped; its agricultural and industrial
capacity; its homes, villages and cities; roads, waterways and
infrastructure. Such an audit can be highly useful in
informing policy-making across the range from industry and
agriculture to education and the environment. A country's
intellectual and cultural capital is of course beyond measure,
and sight should never be lost of it. But that which can be
counted is worth counting.
Import Substitution
Section 3 above discussed how central to a culture are the
myriad small things of everyday life; how we dress, household
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items, consumer goods, what these represent and how they
are produced. The influx of Western consumer goods has the
capacity to change a culture beyond recognition. Not only are
the daily routines of life in the home altered, but domestically
produced products are replaced, whilst the need for money to
buy the imported goods creates a resultant pressure to
export/earn revenue - all these can exert massive aggregate
changes across an economy.
One policy pursued very vigorously and effectively by a
number of Asian countries in the 1950s and 1960s was that
of import substitution. Whilst exerting a strict protectionist
ethic (backed up by the lack of foreign currency to buy
imported goods) nations such as Japan and South Korea
found ways to produce and market their own versions of
western consumer products.11 This policy has many virtues.
First, the reality of actually making an item is brought home
to a people and their economy. Second, a specifically
indigenous character can be instilled into the product. Third,
the pace of change is regulated and slowed since the policy
requires some development. Fourth, the monetary balance
and integrity of the country's economy is maintained.
The policy of import substitution does, however, have a
problem - or at least an apparent weakness. Goods that are
easy to make, and which Bhutan could produce itself without
too much effort, are precisely those goods that are already
available cheaply on world markets. There is therefore a great
temptation simply to import them. By the same token,
products that are complex to manufacture are likely to be
more expensive and place greater revenue demands but, since
they may require an industrial base that the country lacks,
the country feels it has no option other than to import them.
But this apparent problem actually proves the validity of the
policy. It is precisely because import substitution is no 'quick
fix' that the policy has such merit. A country is obliged to
develop a genuine industrial base and this takes time. The old
11 Cheryl Payer, Lent and Lost, Zed Books, 1991.
 Cherry Picking in Bhutan
maxim "look after the pennies and the pounds will look after
themselves" is highly relevant. Savings that are made by
import-substitution of cheaper products can then allow the
judicious import of more high-tech capital goods, leading to
modest but progressive industrialisation.
It may not be feasible for Bhutan to manufacture its own
mobile phones and televisions, but it is certainly possible for
it to produce many simpler household items, from crockery
and cutlery to furniture and fittings. Precisely what Bhutan is
capable of producing for itself, learning from Western
technology and adapting this to its own material needs and
cultural priorities, is an adventure in itself. To have a healthy
acceptance that change is inevitable and healthy, but defiant
that this should be Bhutanese change, is a policy that must
have relevance to GNH. It is astonishing what a small country
can actually produce for itself, especially in an era when
expertise and technology is capable of meeting a demand for
small and medium-scale production.
The potential for import substitution emphasises the value of
an economic audit, since intelligent planning can be
undertaken; energy can be directed towards key processes
and products that provide a maturing and gradually
diversifying industrial base. It is worth also noting Bhutan's
close economic links with India, as well as its other main
trading partners. These links could be highly valuable in any
programme of modest industrialisation and import
substitution in supplying raw materials, semi-manufactured
goods, equipment and expertise.
Licenses, Tariffs, Quotas and Subsidies
Investment in import substitution can be coupled with
restrictions or heavy tariffs on chosen foreign goods. Policies
such as import licenses, tariffs, quotas and subsidies - all of
which 'interfere with free trade' - are frowned upon by
orthodox economists. Yet a country clearly has every right to
adopt a programme that vigorously defends and seeks to
improve  the  welfare  of its  people.  If the  United  States  is
 Journal of Bhutan Studies
justified in placing tariffs on imported steel to protect its steel
industry, Bhutan is equally justified in placing tariffs that
help it prevent or regulate the mass exodus of currency on
cheap consumer goods from abroad, whilst gradually
developing its own industrial base and protecting its cultural
A special note has to be made with regard to subsidies. As
with tariffs, modern Western nations and their economists
frown on developing nations when they grant subsidies, yet
such financial assistance is rife in the wealthy nations. This
involves not only the more obvious instances such as EU
farm support, but direct grants to private firms involved in
public services (such as railways), multi-million dollar deals
to entice multinationals to invest in a country and countless
regional support programmes that allow businesses to apply
for government grants and funding. These are investment and
support subsidies, pure and simple. They have no greater
validity in terms of 'free market' economics than food
subsidies in developing nations. In short, subsidies are
In discussing tariffs and subsidies, it is worth drawing
attention to the seminal work of Tim Lang and Colin Hines.
Their book The New Protectionism, whilst acknowledging the
value of free enterprise, vigorously defends the right of
governments to adopt policies that regulate imports and
support indigenous production.12 Colin Hines' more recent
book, Localisation; A Global Manifesto, is equally important.13
Agriculture and Rural Communities
All the evidence of the past 50 years warns of the danger of
an over-emphasis on the production of foodstuffs for export.
World markets in food commodities are mostly glutted and
prices are notoriously volatile. The first duty of a government
is to feed its people and the first priority of land should be to
12 Tim Lang, Colin Hines, The New Protectionism, Earthscan, 1993.
13 Colin Hines, Localisation, A Global Manifesto, Earthscan, 2000.
 Cherry Picking in Bhutan
produce food for domestic consumption; not export. A
domestic market is predictable and stable, crops that conform
to the climate and soil are already known and farming
systems and land tenure are well established and constitute a
vital element of rural culture.
This does not mean that indigenous agricultural systems are
incapable of improvement. In many developing nations, much
work has gone into improving traditional methods, drawing
on the experience of farming elsewhere and the ingenuity of
intermediate technology. More effective tools and equipment,
advances in crop varieties, irrigation systems and cooperative
marketing and machinery schemes - all these have in various
countries given great support to subsistence agriculture to
the point where life is easier and productivity markedly
Land tenure/usage is a vital aspect of traditional rural
culture. Any policy or sequence of events that seriously
affects land tenure threatens the foundation of rural
communities. This in turn is potentially disastrous for the
continuity of those communities and the practical lifestyle
that binds them together. People simply cannot be expected
to adhere to traditional cultures and values if the link
between land, labour and community is drastically or rapidly
altered. In a country such as Bhutan, where some 50% of the
population is based in rural communities with an agricultural
base, every effort needs to be made to support such
communities and help them thrive by making subsistence
farming and village crafts more viable. If this does not
happen, rural depopulation, flight to the cities and the
poverty of shanty towns promises a bleak future not only for
the landless population, but the nation as a whole. It is clear
that the Government of Bhutan recognises this danger and
has been active in supporting its rural sector.14
14 Chris Enthoven (ed) Gross National Happiness, Gross National
Product - A meeting between two cultures, Ecooperation, 2001.
 Journal of Bhutan Studies
It is worth recognising that rural communities worldwide and
throughout the ages have tended to suffer gradual
impoverishment as money and wealth flows towards towns
and cities. Many developed nations compensate in some
measure for this, either deliberately by injection of additional
funds to councils administering rural areas, or less
deliberately through progressive welfare and taxation
In the absence of such structures, rural assistance can
simply be responsive to need. Rural communities can benefit
from assistance with marketing agricultural produce, whether
by government boards or cooperative schemes; transport
systems can be devised; cooperative ventures that share
agricultural and other equipment can be supported;
community-building programmes implemented. There are
countless ways in which rural life can be supported and
improved, and its value acknowledged.
It is important to recognise also the importance of agriculture
for export. The crops produced can bring much needed
revenue to the country as a whole and into rural areas.
Without contradicting the primacy of agriculture for domestic
consumption, the production of crops for export may also be
an appropriate opportunity for government assistance,
whether in investment, marketing or transport.
Again we see the danger of adopting entrenched positions. To
assert the importance of domestic agriculture does not lessen
the importance of export crops. The irrelevance of the old
capitalism/socialism divide is also apparent. It is perfectly
reasonable for a country to adopt a freehold land policy
(notionally capitalist); limit this to a maximum acreage
(notionally distributist), coupled with land usage obligations
(notionally socialist), coupled also with supportive cooperative
systems involving marketing or access to machinery
(notionally communist). It is also perfectly reasonable for a
country to regulate land usage applying an entirely different
set of standards and tenure for land designated for export
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crops and land designated for domestic market produce. So
far as a country such as Bhutan is concerned, it is far more a
question of what works most appropriately, bearing in mind
the established pattern of agriculture and broad priorities of
GNH. Again, the value of an on-going audit that monitors the
use of land is clear.
Motorised transport is, without doubt, one of the hallmarks of
Western culture. The increasing demand for transport
probably constitutes one of the greatest threats to a country
such as Bhutan. Transport easily becomes a culture in itself,
subverting other cultures and overwhelming more fulfilling
and worthwhile aspirations. The change in a country such as
Bhutan of widespread individual car (or even motorbike)
ownership could be calamitous. Cars constitute a colossal
expense individually and in aggregate to a country. Whilst
aiding the transport of people and goods and linking urban
and rural areas, they can also severely fragment
communities. In many developing countries, the only
regulator of private transport is poverty, denying people
access to privately owned motor transport.
Many small countries have faced this problem and done so
effectively. The solutions they have arrived at vary, but are
'right for them' in many cases. Elements of these solutions
are; the provision of good public service transport, especially
buses; the permission of a restricted number of cars/vehicles
often associated with particular roles - doctors, police, fire-
services etc; the issuing of licenses for cars operating as taxis;
the permission of an appropriate number of
machines/vehicles for use in agriculture and industry and in
the collection/distribution of material goods.
As with so many issues, this is an area for close, realistic
study - the permission and provision of an appropriate level of
motorised transport and/or services always bearing in mind
the knock-on effect of that provision. This is a delicate matter;
the   aim   should   be   to   support   the   culture   rather   than
 Journal of Bhutan Studies
unwittingly and indirectly subvert it. It is the widespread
individual ownership of motorised transport that fragments
communities. An appropriate level of transport connecting
cities and towns with rural areas can be mutually beneficial
and an element of the support for rural communities that is
so vital.
Capital Development Projects
Bearing in mind the potential of Bhutan for hydroelectric
power, this is a vital area of policy. As a general rule, capital
projects do not repay the monetary investment they require.
This applies to majority of services in the developed nations
(rail, road, healthcare, electricity). These services invariably
run with an enduring and heavy debt, often also requiring
'bail-outs' from national governments. The reasons for this
blatant defiance of the theoretical laws of economics lie
largely in a complete reliance upon the debt-based financial
Similarly, capital development projects in developing nations
funded by loans from the World Bank fail, generally, to make
the anticipated returns on the investment. As discussed
above, this has had a catastrophic effect in developing
nations. Since the residual debt is denominated in dollars or
other hard currencies, the debt overhang from past capital
and development projects has placed these nations in the
position of having to seek a surplus of exports over imports
year on year. Commodity prices have collapsed, currency
values have fallen, prime assets have been sold off to
multinational corporations, loans have been rescheduled, but
still the debt overhang persists and grows.
If there is one lesson to be learned from this 'development'
debacle of the last 50 years, it is this: DON'T borrow US
dollars from the World Bank or IMF or any other source for a
capital project and expect to be able to repay these loans. The
competition for dollars is so all-pervasive and export markets
are so intensely competed and unpredictable that even if a
project is a physical/material success, its financial failure is
 Cherry Picking in Bhutan
almost assured, resulting in endemic and crippling
international indebtedness.
Where then does this leave Bhutan in terms of developing its
hydroelectric potential? The first point to appreciate is that
the demand for electricity in neighbouring nations places
Bhutan in a powerful negotiating position. Next, it should be
realised that there are several potential models of
development that avoid the dangers of multi-million dollar
debts for the country.
One option is that, rather than lending funds to the country
of Bhutan, the World Bank can be requested to lend funds to
a specific project, run as a commercial venture. This represents
an entirely new policy. It creates a joint liability for projects,
conforming to recent calls for greater accountability and co-
responsibility on the part of the international lending
institutions. A country cannot be declared bankrupt and its
debts written off, a commercial venture can. It is wholly
wrong for an entire nation to suffer in perpetuity the
economic mistakes of the past, whether these reflect the
inadequacies of their own leaders or the flawed economic
wisdom of western advisers. Restricting debts to specific
projects places those directly involved - borrowers and
lenders - in a position of shared responsibility, and limits the
liability of countries where the project is taking place.
At this point in time, there is likely to be little appetite on the
part of the IMF and World Bank for such a policy; however if
the demand for such funding became general internationally,
attitudes might change. Certainly, there is a desperate need
for new models of development.
However, such a policy does not represent the only option.
The principal material beneficiary of successful hydroelectric
development would be India, a powerful and by comparison
with Bhutan, a relatively wealthy nation. India cannot expect
Bhutan to shoulder the entire development costs, and
financial risk, of hydroelectric development, especially since
 Journal of Bhutan Studies
India has considerable prowess in the engineering and
construction industry. Not only is there the opportunity for
India to engage and share responsibility in the project, but
they are also in a position to lobby the international lenders
on behalf of such a proposal, possibly under the terms
outlined above.
Finally, there is another potential source of capital funding,
although this is far from an established avenue. The
traditional model of financing capital projects in developing
countries involved domestic saving within that country,
coupled perhaps with some inward investment. Since
domestic saving seldom made sufficient capital available, by
the 1950s, countries were being encouraged to 'borrow,
invest, export, repay' from the World Bank, IMF or
commercial lenders. The complete and resounding historical
failure of this 'borrow, invest, export, repay' model, has
coupled with an awareness that there were theoretical flaws
in an exclusive reliance upon foreign funds to develop a
nation's natural capital, not least because of the imbalanced
currency flows that were generated. Development scholars
have, in recent years, become aware of the need for projects
to be funded, at least in part, by a domestic source of
finance.15 Since World Bank, IMF and commercial bank funds
involve not the lending of money but the creation of money,
there is no reason why domestic capital cannot be created in
the same way - by a nation's own central banking system.16
This offers an entirely original model of development, which
involves a combination of funding from international sources
and funds created by the Bhutanese Government to mobilise
the capital of their own country. This constitutes a strong
development model that satisfies and resolves many
theoretical contradictions and paradoxes. Currency flows are
more balanced, whilst the use of both foreign and domestic
15 Bade Onimode (ed), The IMF, the World Bank and African Debt;
Conference ofthe Institute for African Alternatives, Zed Books, 1989.
16 Michael Rowbotham, Op Cit.
 Cherry Picking in Bhutan
financial capital reflects the mobilisation and involvement of
both foreign and domestic physical capital. The foreign
'physical capital' consists of imported capital goods and
expertise/labour, the domestic 'physical capital' consists of
natural resources, capital goods and labour.
If these proposals appear unlikely and counter to the climate
of current economic policy, one final point should be born in
mind. The mountains, the rain and the rivers will be there for
many years to come. There is no need for haste in pursuing
such a major industrial venture. The readiness of Bhutan to
wait a number of years until acceptable terms for
development are put forward could concentrate the relevant
minds very effectively.
If or when such projects do proceed, it is clearly in Bhutan's
interest to develop this key resource slowly, monitoring the
initial project(s) carefully and not allowing the nation to
become a cheap electrical generator for what are likely to be
the insatiable demands of India for power.
International Debts
In the year 2000, Bhutan's external debt stood at $245
million. It is likely that the government will be paying in
excess of 5% per annum on at least this year 2000 figure; a
total of $12 million annually. Gross exports totalled $154, so
this figure represents some 8% of export earnings. With
import costs of $196 million, Bhutan's financial position is
clearly somewhat perilous.
External debt is not just a revenue problem; it is a political
one. The current CIA World Factbook website denigrates
Bhutan commenting, "Detailed controls and uncertain
policies in areas like industrial licensing, trade, labour, and
finance continue to hamper foreign investment". This is
praise indeed! What Bhutan must beware is pressure to adopt
an economic framework that involves 'certain policies' for
'unhampered investment', since this will undoubtedly reflect
the neo-liberal Washington Consensus. All round the globe,
 Journal of Bhutan Studies
countries have been forced to conform to an ideology that
includes sweeping deregulatory measures in trade and
finance, privatisation of state-run commerce, auctioning of
prime natural assets etc. These provide the foreign
investment climate which, it is argued, is the route to future
progress and prosperity. In this sense, international debt is
properly viewed as a tool of intrusive political leverage.
If the point is reached where debt repayments are impossible
for a nation, there is no virtue in agreeing to such
conditionality attached to rescheduling, or accepting
additional loans by the World Bank or IMF. Failure on the
part of a nation to meet debt repayments is, apart from being
a widespread problem, actually a problem for the Bank, the
Fund and commercial lenders. It is because national
governments are deemed to have 'failed' and feel intimidated
that they concede to bail-out loans, sell-offs and
conditionality. In fact, failed debt repayments present the
lenders with the problem - what are they going to do?
The entire issue of Third World Debt is a massive, as yet
unresolved debate. The existence of unrepayable debts forces
the majority of countries - the most materially impoverished
nations - to seek a surplus of exports over imports in
perpetuity. This creates a gross disturbance in the balance of
international trade and is counter not just to all economic
rationale, but common sense itself. In the immortal words, "It
is clearly impossible for all countries to increase exports and
reduce imports at the same time".17
The possibility of mass default by debtor nations or sweeping
debt forgiveness should not be ruled out. There are
substantial grounds for regarding the backlog of dollar debts
registered against developing nations as invalid and declaring
these debts void. The compelling arguments for this are fully
17 Third World Debt Survey, The Poverty Brokers - The IMF and
Latin America, Latin American Bureau, 1983.
 Cherry Picking in Bhutan
discussed in my second book, Goodbye America!18 In brief,
the invariable failure of all developing nations to settle or even
reduce their international debts over a half century of
mounting debt crisis is incontrovertible evidence that the
'borrow, invest, export, repay' model is deeply flawed when
applied to international lending. The unjust terms under
which these loans were advanced; the failure of projects
proposed or endorsed by the World Bank and IMF; the
requirement to adopt austere and deregulatory 'Structural
Adjustment' policies ill-suited to their vulnerable economies;
the failure to alter these policy-demands despite mounting
evidence of the damage being inflicted; the progressive
impoverishment of developing nations despite decades of
economic endeavour; the refusal to acknowledge the
substantial and detailed criticism from qualified observers
and scholars - all these arguments converge. The undeniable
conclusion is that International debts are substantially
invalid. These debts do not represent 'failure' on the part of
developing nations, but the gross inadequacies of the
prevailing development model, of trading architecture and of
international accountancy.
The current refusal to acknowledge the invalidity of the
backlog of international debt leaves debtor nations in a
curious and somewhat ambivalent position. If only a handful
of nations were to default and refuse payment on their debts,
citing the numerous reasons for so doing, the entire issue of
Third World debt would have to be discussed and settlement
reached. In the absence of such action, individual nations
continue with their onerous repayments.
A compromise position might be for debtor nations to adopt
the framework suggested by a number of Latin American
nations during the 1970s. This is to restrict repayments to a
set percentage of export revenues - 10% was suggested as the
maximum an economy could actually sustain - and thereby
apply some form of ceiling to those repayments.
18 Michael Rowbotham, Op Cit.
 Journal of Bhutan Studies
Precisely how long a nation can shrug its shoulders, perhaps
offering reduced payments, is not clear. What is clear from
the experience of Malaysia is that nations that do stand their
ground, particularly if they adopt a vigorous and independent
economic policy, are immeasurably better off in the long term
than those that succumb to the dire warnings of currency
collapse and exodus of foreign investment. Malaysia, under
its President, Mahathir Mohamed, refused to accept IMF bailout loans during the Asian crisis of 1997, nor accept their
'recipe for recovery'. In fact, Malaysia adopted policies that
were almost the complete reverse of those prescribed, fixing
the value of the currency, declaring the 'Ringitt' valueless
outside the country, refusing to acknowledge its trading on
foreign exchanges, locking in foreign investment, protecting
the stock market, favouring domestic investment and
reflating the economy through its own Central Bank. As a
result, Malaysia experienced rapid recovery from the financial
crisis, emerging with an incomparably stronger and more
comprehensive domestic economy and without the burden of
additional dollar debts. After years of anger and derision from
foreign observers, the grudging conclusion of the World Bank
was that Malaysia's economic success was "...remarkable".
Malaysia's programme of rapid industrial expansion may not
be one that Bhutan wishes to pursue, but the principle of
independent action is sound and their experience highlights
the huge range of policy options available to a sovereign
nation. One additional note should be made; President
Mahathir Mohamed demonstrated not just courage and
determination, but immense economic competence and
judgement in administering the Malaysian recovery
Currency Value and the Trade Deficit
In geographical terms and because of its special relationship
with India it makes perfect sense and is convenient to peg the
value of the Ngultrum (BTN) to the Indian Rupee (INR) on a
1:1 basis. In trade terms, however, this fixed currency rate
has  partial  and  perhaps  doubtful  validity.   Bhutan's  main
 Cherry Picking in Bhutan
exports are to India, the US, UK, Pakistan and France; whilst
the country's main imports are from India, Japan, Germany,
UK, and the US. The problem is that the value of the Indian
Rupee has fallen year on year and with it, the value of the
Ngultrum has fallen in relation to other world currencies,
including Bhutan's other trading partners.
If the value of a nation's currency falls, imports become more
expensive and exports earn less foreign revenue. Successive
devaluations by the entire community of indebted developing
nations, all of whom are anxious to boost export volumes, has
lead to the currencies of those nations being grossly
undervalued in real terms. Driven on by a competition to
devalue and thus secure export markets, the developing
nations are now hemorrhaging material wealth for pitiful
returns. This is the reason for many of the trade imbalances
in developing nations. These trade imbalances proclaim
trading on the part of developing nations to be a financial
failure - they are exporting less than they are importing. But
in terms of volumes of material wealth, developing nations
have never produced nor exported more! This is the damage
wreaked by Third World Debt and the colossal failure of
international trading architecture.
Figures demonstrating Bhutan's trade deficit were given in
the section above discussing international debt. It is a
worthwhile exercise to compare the current volumes of
exports and imports with the currency values of 5, and 10
years ago. The present value of the currency (BTN) is $1 =
49BTN. Ifthe currency value of just 5 years ago ($1 = 41 BTN)
is applied to current export/import volumes, Bhutan's
present trade deficit of $42 million would be reduced to a
deficit of just $5 million. If the currency value of 10 years ago
(1$ = 31 BTN) is applied to current export volumes, Bhutan
would actually have a trade surplus of some $40 million! This
is the significance of currency values and once again we are
confronted by the colossal damage and injustice of Third
World debt. The community of debtor nations has been drawn
into a suicidal competition to devalue their currencies, as a
 Journal of Bhutan Studies
result of which their material wealth and labour is rendered
so cheap that they serve as export factories for the wealthy
nations and their powerful corporations.
So long as the Ngultrum remains tied to the undervalued
Indian Rupee on a 1:1 rate of exchange, the policy options are
complicated. To apply a surcharge to exports to countries
other than India, effectively increasing the currency rate to
the rest of the world, is a cumbersome instrument and simply
invites foreign buyers to operate through Indian
intermediaries. The Ngultrum could be pegged either to the
dollar or a basket of world currencies, however this would
complicate exchanges with India, which would then be at a
variable rate. Another option is to consider revaluing the
Ngultrum against the INR on a ratio other than 1:1. This
might interfere initially with the established cross-border
economy, but provided the rate was realistic and stable,
trading patterns would adjust.
With the prospect of more complex economic ties between
India and Bhutan, particularly involving expensive and long-
term capital projects such as hydroelectric power, it is vital
that the issue of currency values is addressed.
Monetary Reform
The failings of the debt-based financial system have resulted
in a number of important proposals for reform. The central
proposal is that a national government has both the right and
obligation to ensure a healthy money supply - healthy not
just in terms of quantity, but in constitution and form. A
banking system can only create and supply money in parallel
with debt, by advancing loans to borrowers. A government
can, and to some extent already does, create and supply
money to its economy on a debt-free basis. However, this
government money-creation is restricted to one form only;
note and coin - i.e. cash currency.
It is the contention of monetary reformers that, with the
declining   use   of  note   and   coin,   a   government   ought   to
 Cherry Picking in Bhutan
establish an alternative basis for the supply of money to an
economy. Governments worldwide are already obliged to act
to support their economies financially, by undertaking
government deficits, which create new funds. Monetary
reformers argue that there is no reason for this monetary
input to involve the issuance of bonds, thereby creating a
debt against the nation and granting profit to private banks.
This money can be created debt-free, just as are coin and
note. Furthermore, monetary reformers argue that there is
now no basis for deciding precisely how much government
monetary input an economy actually needs. This is done on
an ad hoc basis, simply covering the annual tax deficit.
The further details of monetary reform arguments and
proposals are beyond the scope of this paper, however they
constitute one of the most important fields of future economic
research and one of the most fruitful areas for policy-making
by responsible governments.
In parallel with the government creation of money, monetary
reform proposals generally advocate restraints on the bank
credit-creating mechanism. For example, mortgages now
contribute some 60% of money to the modern western
economy and levels of home debt and house prices are
spiralling upwards. There is therefore a strong case for
applying a legal limit to the extent to which people are
permitted to mortgage their income in buying a house. No
legal restraint on the income multiplier exists in the UK; over
recent years banks have been allowing mortgages of up to 4
or even 5 times a person's annual income, whereas an income
multiple of 3 was formerly considered a prudent limit. This
has increased the business and profits of the banking system,
but has contributed directly to gross inflation of house prices.
To place a cap on income multiples would place all buyers in
an identical competitive situation, restraining house price
inflation and helping ameliorate the domestic debt burden.
This would be a notionally 'deflationary' measure to counter
the 'inflationary' measure of a government contributing to the
money supply.
 Journal of Bhutan Studies
Without adopting the full range of monetary reform analysis
and proposals, a potentially useful policy model for
developing nations exists in what has become known as the
'Jersey experiment'. The island of Jersey, one of the Channel
Islands off the UK/French coasts, has at times adopted an
extremely effective policy of government funding. If a project
is deemed viable - the building of a school, the construction of
sea defense systems - but the government lacks the funds to
finance this, the government will simply create the required
funds, finance the project, then gradually tax back and
destroy those funds. No long-term inflation is caused; indeed,
the government is able to use this device as an effective
means of countering recession. This contrasts markedly with
the orthodox Keynsian model of borrowing funds from Central
and commercial banks, which require not only repayment,
but also a profit on the money they create and advance to the
Criticisms of the monetary system have also given rise to
important proposals for local currencies and trading schemes
(LETS). These can have great value in empowering citizens to
create and distribute wealth amongst themselves despite the
inadequacies of their national financial system. There is a
considerable literature on Local Currencies, Micro-credit,
LETS and Trade-and-Barter systems and such schemes have
great potential in restoring the prosperity of communities
impoverished by circumstance or by inadequate development
Taxation is a very powerful economic instrument. The right
and obligation on a government to raise revenues for public
services presents governments with great power to influence
the shape of an economy. Taxation can penalise, deter and
prevent undesirable trends, whilst the funds raised by
governments can be used for welfare, to promote desirable
investment and development or to protect and support fragile
sectors of the economy. The pattern of taxation in modern
economies is well understood; it is therefore worth making a
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number of specific points in relation to alternative or less
common schemes.
The New Economics movement has long argued for greater
emphasis to be placed on taxing 'bads' rather than 'goods'. By
this is meant, for example, the transfer of the burden of
taxation from citizens on low incomes to, for example, petrol -
thereby helping to deter excessive transport and reduce
pollution. Taxes on excessive earnings, energy use, pollution,
land values, unused agricultural land, neglected building
sites, currency earnings, foreign profit repatriation,
international monetary exchanges (Tobin tax) - many
suggestions have been made, and many have undoubted
The reverse of taxation is, of course, subsidy - an equally
powerful political instrument, allowing a government to
support vulnerable or nascent sectors of the economy, such
as small businesses or organic farming. The use of taxation
and subsidy should not be seen as contrary to the principle of
a free market. The ability of commerce, particularly Big
Business, to 'externalise costs' and/or gain an effective
subsidy from government capital programmes is well-
documented; such market imperfections will always exist. If a
government wishes to create conditions using taxation and
subsidy that redress such imbalances, or to promote
important development, this does not invalidate the market
as the decisive point of contact between consumers and
commerce. Neither does it betoken a dictatorial, state socialist
economy, merely an intelligent structure within which the
market economy operates.
Fixed Limits
One of the major characteristics of western 'capitalist'
economies is that they are flexible, open-ended systems.
People are not, in general told what they must or must not
do. Limits are not set on the wealth that can be held nor how
a product should be manufactured nor what employment
they must accept. Laws exist to prevent the sale of products
 Journal of Bhutan Studies
that constitute a danger, and there are anti-monopoly
regulations, however these economies rely, for the most part,
upon the freedom and sanction of the market. The real only
regulator of wealth is a sliding scale of taxation plus an intergenerational inheritance tax.
Such freedom has much to recommend it; however it is not
the only option, particularly for developing nations. There is
no reason why governments should not erect limits and
constraints, for example to prevent the accumulation of
wealth or the control of vital resources, thereby increasing the
opportunity of access for others. A good example of this is to
set limits on the size of land-holdings to prevent
monopolisation of agriculture, maintain ease of access to land
ownership /farming and encourage proper and careful
management of the land. As with so many policies, it would
be wrong to advocate them in the abstract; but they do
represent viable and at times justifiable instruments.
Western economists would view such a policy with horror and
it may well have little application in developed economies. But
in countries where land reform and distribution is being
undertaken, where agriculture is undergoing change and
where additional considerations such as rural employment
and communities are vital, such a policy could be a valuable
stabilising framework. Such ad hoc limits can, if the situation
justifies, be applied in other sectors of the economy, including
property ownership and commerce. It is interesting to draw
attention, in passing, to the English company 'Boulton and
Paul' which at one time operated an internal income policy
that stated that no employee of the company could earn
greater than ten times the wage of the least-paid worker in
the firm. Such policies seem more satisfying to the conscience
than the current situation where an employee in a London
company may 'earn' many millions of pounds per year,
perhaps a multiple of 1000 times greater than the National
Minimum Wage.
 Cherry Picking in Bhutan
The Service Sector and Tourism
The Service Sector constitutes a large and growing part of
economies round the world. Whilst Bhutan may not be able to
manufacture its own mobile phones, televisions, computers
and radios, the country is capable of running the service
sectors that supply these technologies, and doing so in a
Bhutanese way. Bhutanese radio and television networks,
SMS and ISP providers can all be run, saving the country
revenue and contributing to the sense of national identity.
In Western economies, the service sector is enormous.
Developing countries need, perhaps, to beware of monetising
and commercialising those activities that are part of the
voluntary economy and the community/home/traditional way
of life shared. Perhaps an even greater danger is involved in
tourism. In pursuit of foreign revenue, there is a temptation
to supply a complex service economy to tourists well-used to
such provision. But what is Bhutan? Why have people come
to visit the country? Have they come to enjoy a stay in a
'western' style hotel, surrounded by familiar restaurants
serving familiar food? It may be critical not only for the self-
respect of the nation but for its tourism that Bhutan decides
what it intends to offer tourists. It is the country's very
inaccessibility and lack of development that now constitutes
its charm, which offers such a salutary lesson to western eyes
and which demonstrates that Bhutan is justified in protecting
and revering its culture. Excessive and elaborate provision for
tourism cannot but detract from the very magic that draws
people to this beautiful country. However, if tourism is based
around the expectation that visitors will, for the time of their
stay, accept basic provision, adapt to, integrate with and
respect the Bhutanese way of life, a form of tourism that is
better for Bhutan and more rewarding for tourists will
remain. The contrast is between going to Greece and staying
in a hotel complex on the mainland or visiting some of the
smaller, less-visited islands and finding a welcome amongst
the delightful Greek people.
 Journal of Bhutan Studies
Education, Culture and Celebration
Much comment has already been made about the importance
of education to the policy of GNH. It is certainly true that
children can be 'educated away' from their culture, by
creating expectations of employment, lifestyle and prosperity
radically different from that surrounding them. But if this
happens, it is a poor and essentially false education. There is
nothing to be feared in education, however advanced this may
be, so long as the mirage of western consumerism is
recognised as such and children are kept in contact with their
own culture. With the influx of televised images, the nation as
a whole has to be able to deal with and appreciate the
ludicrous mythology behind western 'civilisation'. This
involves the education of all, notjust the young.
For this reason, I suggest it is far more important even than
education that Bhutanese culture is celebrated and kept
alive. My first thought when I heard about the conference and
learned of the nature of the problem it seeks to address was,
"I hope they haven't forgotten how to sing and dance". A
country's music, literature, arts and crafts are the bedrock of
its soul and its identity; their celebration is vital. Imagine my
delight when I discovered that, despite the welter of economic
concerns impinging on the country, one of the four main
components of the policy of GNH is cultural promotion.
Imagine my further delight when I discovered that the GNH
conference was timed to coincide with one of the major
Bhutanese festivals. The value of Bhutan's spiritual and
cultural legacy, which provides the country with an
inspirational source of energy and focus of consent in the
challenge it faces, cannot be overstated. And so long as the
country of Bhutan feeds the spirits of its people, support for
the policy of GNH will remain strong and the Kingdom's
future is assured.


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