Failure of Bhutan’s GNH Economy

Gross National Happiness (GNH) is Bhutan’s main umbrella developmental philosophy that governs all government policies and programs. First coined in 1972 by the former King Jigme Singye Wangchuk, GNH comprises of four main pillars which are Sustainable and Equitable Socio-Economic Development, Preservation and Promotion of Culture, Conservation and Sustainable Environment Management, and Good Governance.

Since then, there has been elaboration made on this simple philosophy by Bhutanese and international researchers, think tanks, and policy makers in the former DPT government making it a considerably more comprehensive, but also more complicated philosophy.

The four pillars have nine domains upon elaboration. The nine domains under the four Pillars are Standard of Living, Health, Education Time Use, Psychological Well Being, Community Vitality, Cultural Diversity and Resilience, Ecological Diversity and Resilience and Good Governance.

Under the nine domains, there are further 33 indicators that elaborate the nine domains. For example, under the domain of Health- the four indicators are Mental Health, Self Reported Health Status, Disability, and Healthy Days.

Bhutan’s umbrella economic policy the Economic Development Policy (EDP) 2010, formulated by the previous Druk Phuensum Tshogpa government was heavily influenced by the GNH philosophy. This was also part of the then elected government’s efforts to build a green economy which apart from economic diversification encourages green economy activities like hydropower, sustainable tourism, services and other environmentally friendly businesses. Apart from the general tax breaks and incentives for businesses, there are incentives for green businesses in form of tax rebates, custom duties, etc.

The core idea of the EDP was to build a Brand Bhutan – that of an ‘organic, environment friendly and sustainable’ economic products and services. These included making Bhutan a health care hub, financial services hub, education hub, expand high end tourism and exporting organic agricultural products.

Even Bhutan’s liberalized 2010 FDI policy encourages FDI in this green economy. The former prime minister, during cabinet meetings to finalize the FDI Policy in 2010, personally pushed to integrate the GNH philosophy into an otherwise highly prosaic document. Businesses not in tune with GNH ideals – weaponry, porn, plastics, polluting and toxic industries, and fast food chains like McDonalds are not  allowed in Bhutan under the FDI Policy.

GNH indicators are the touchstone for any foreign investment in the country. Service sectors (education, health services, tourism, etc.) perceived to be clean and green will get priority and fast track clearance.

Rules were to be developed to approve or deny licenses for non-priority sectors like mining and industries. Under the rules, licenses are to be cleared, on a case by case basis, depending on its GNH merit.

In line with this GNH Economy, Bhutan recently declared itself as a carbon neutral country meaning that it would never produce more carbon than its forests can consume.

Bhutan had also taken up the issue of sustainable economic development getting the United Nations General Assembly to pass a resolution to have happiness as a developmental goal.

The former government in 2009 hired the international consultancy firm McKinsey to accelerate this green economy growth and suggest ways to cut red tape and increase efficiency in the government. The key focus area was tourism along with targets sets in all major government ministries like education, health, construction, etc.

Bhutan, under the DPT government, introduced the GNH screening test whereby all major policies have to go through a GNH screening test. In the GNH screening test, the 33 indicators of GNH have been summarized into 22 measurable variables or tools. For example, Health and its four indicators, which are Mental Health, Self Reported Health Status, Healthy Days, and Disability, are assessed through one variable as under Public Health

Out of a score of four, all policies will have to score at least 3 against all these 22 variables with a total score of 66 (22 x 3) to be accepted as a policy.

Using this complex tool, the former government put the question of joining the World Trade Organization to it. The tool said no and Bhutan has decided, at least for now, not to join WTO.

So how is Bhutan’s Green Economy doing?

The verdict, so far, is not satisfactory chiefly because the goals were too ambitious in the beginning and are constrained by fundamental structural weakness in the Bhutanese economy as highlighted in the box. The poor state of the economy was also the main election plank on which the world’s smallest Opposition party -the Peoples Democratic Party (PDP) came to power with a landslide win in the 13 July 2013 General Elections replacing the incumbent DPT government.

Overall Challenges 

Ø             Economic Growth largely financed through external aid resources

Ø             Weak balance of payment situation

Ø             Increasing public debt

Ø             High fiscal deficit

Ø             Small domestic market

Ø             High transportation costs

Ø             Limited exports and markets

Ø             Inadequate infrastructure& etc

Many of the EDP’s aim of Brand Bhutan have not taken off. Bhutan’s Education City project to make Bhutan into an education hub has garnered lukewarm response at the best with many questioning its viability, far from being a health hub Bhutan’s health system is struggling to cope with its own patients. Also Bhutan has given up on being a financial hub due to GNH concerns of money laundering. Organic agriculture is at an early stage with the priority now being on producing enough to feed the nation and reduce food imports.

One example of a white elephant has been Bhutan’s IT Park which has got little or no investments. The controversial multi-billion Education City project initiated by the DPT government came up in the middle of charges of conflict of interest could also turn into another white elephant.

Tourism numbers have increased, but the increase again is not big enough and there is some controversy on how high end tourists are counted. The earlier counting of only dollar paying tourists has been replaced by counting almost all foreigners who fly into Bhutan.

On the FDI front, there were a lot of high expectations that a liberal FDI policy allowing for higher foreign ownership in virtually all sectors with friendlier terms would encourage investment.

However, the response had been disappointing with investors staying away from Bhutan. Since the endorsement of the new FDI policy in 2010, only 26 projects had been approved worth more than Rs 9 bn. Compare this to the completion cost of just one mega project the Punatsangchu 1 , 1200 MW project expected to cost Rs 85 to 90 bn.

After failing to attract enough investors and the subsequent decrease in Foreign Direct Investment (FDI) inflow for the second time in a row, the former economic affairs minister, former Lyonpo Khandu Wangchuk in an interview with the local media admitted that Bhutan is unable to attract enough investments.

The strict GNH based restrictions of the former government had also not helped in attracting FDI as there are more than 100 investment proposals which is either not in the FDI list or are prohibited by GNH.

There was also criticism of the McKinsey initiative with many pointing out that the economy is yet to feel the effects of the measures recommended by McKinsey.

There are also considerable questions on the negative impact of the government’s GNH initiatives on the growth of the economy by the private sector.

Bhutan being declared as a carbon neutral country by the previous government, if not reversed, would limit industrial growth and make it difficult for Bhutan to fully exploit the energy surplus of cheap electricity from the mega projects according to industrialists.

Another GNH linked initiative that had come under fire from the private sector and ordinary citizens was the Pedestrian Day initiative introduced on 5 June 2012 or the World Environment Day, whereby every Tuesday people are not allowed to use vehicles with only highly limited vehicle movement allowed. The BCCI found that this would result in the loss of 52 working days in a year affecting economic growth.  Though the former government brought down to just one Sunday every month it still caused inconveniences. The new PDP government has done away with Pedestrian Day.

There is some debate in Bhutan on adopting a complex GNH policy accounting measure to approve or disapprove policies and projects. Naysayers have criticized the screening test for being too long, bureaucratic and conservative leading to delays in policies like the long delayed mining policy.

Critics also say that Bhutan not joining the WTO would reduce its competitiveness and not inspire adequate confidence from investors looking to invest in Bhutan.

However, it must be made clear that GNH, as a core philosophy of four pillars as elaborated by the Fourth King, still enjoys tremendous support. The problem lies in its interpretation, application and implementation by the former government in a myriad of ways that at times bordered on being intrusive and was not in keeping with ground realities.

The 2013 election verdict, in a sense, was also a failure of the GNH Economy propounded by the previous DPT government.

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