Will Bhutan succeed?

Some readers will know exactly what I mean by this question. Others may be wondering: Where is Bhutan? What does he mean by success? And why should we care?

Bhutan is a small country which has not had much exposure to the modern world. The first roads were built in the 1960s and TV was only introduced in 1999. It is located at the eastern end of the Himalayas, sandwiched between India and China. It covers about the same area as Switzerland and has a population of about 700, 000 people. About 75% of the population are Buddhists and most of the remainder are Hindus of Nepali descent.

The 'Tiger's Nest' monastery, near Paro

What do I mean by success? About 40 years ago the former king of Bhutan famously declared that ‘gross national happiness is more important than gross national product’. This play on words led eventually to gross national happiness becoming a national objective of Bhutan. In terms of this objective, Bhutan will succeed if it can modernize so that the people can enjoy the benefits of the modern world, without major social problems, loss of culture or environmental damage.

Why should we care? Bhutan’s approach to pursuit of happiness is a social experiment that is attracting a lot of attention around the world. A few months ago the United Nations General Assembly accepted unanimously a resolution sponsored by Bhutan which recognizes the pursuit of happiness as a universal goal. In the years to come we can expect to hear a lot about the success or otherwise of Bhutan’s approach to pursuit of happiness.

So, will Bhutan succeed? If we look at the matter from a management perspective, some of the necessary conditions for successful pursuit of goals have been established: 

• The government has a fairly clear view of what pursuit of gross national happiness means. It involves promoting socio-economic development and good government (including a vibrant democracy), while preserving cultural heritage and protecting the environment.
• Surveys are being conducted to monitor progress. The surveys monitor the views of the people about the performance of government as well as resilience of cultural traditions, ecological knowledge, living standards and psychological well-being. 
•  Survey results are used in de veloping policy e.g. a finding that meditation was not being practiced as often as expected led to meditation classes being offered in schools.

   

Archery: the national sport and an important cultural activity 

The chances of success might look good from a management perspective, but will the people of Bhutan actually be any more successful in coping with the modern world than the people in other countries have been?

The first point, which seems obvious to me from my short visit, is that most of the people of Bhutan, like most people elsewhere, want the amenities of modern life. The more they know about how people live in wealthy countries, the more they are likely to aspire to have the stuff that people in wealthy countries take for granted – the household items that take the drudgery out of life, the phones and internet access that enable us to stay in touch with each other, motor vehicles – all that and more. It will become obvious to an increasing proportion of Bhutanese that a lot of this stuff can be useful - even though they may be happy with what they have at the moment.

My second point is that Bhutan’s government is not likely to come under much, if any, pressure from the public to sacrifice environmental or cultural objectives to achieve a higher economic growth rate. There is considerable potential for economic development that does not involve major conflict with environmental or cultural objectives. For example, there is potential to sell more hydro power to India and to expand tourism based on cultural and environmental resources.

The big question, in my view, is the extent to which Bhutan will be able to obtain the benefits of modernity without ending up with the social problems of modern societies? How will they cope with the potential for weakening of traditional values and support systems as larger numbers migrate from rural areas in search of a better life in the cities? How can they ensure that young people continue to acquire social values and avoid the weakening of the social fabric (which seemed evident, for example, in the orgy of rioting and looting in London a couple of months ago)? How can they provide a social welfare safety net without ending up with large numbers dependent on welfare benefits? How can they avoid the excesses of a consumer society, with substantial numbers of people incurring excessive debts to live unaffordable lifestyles? How can they avoid having large numbers of people living unhealthy lifestyles, addicted to TV or the internet and vulnerable to inducements of advertisers?

I think there are grounds for hope that the government of Bhutan will learn from the mistakes of other countries and come up with sensible answers to such questions. It is obvious from the international conferences it has been holding that the government is actively seeking to learn from experiences of other countries. The way survey results are being used also provides grounds for hope that Bhutan will succeed. For example, the emphasis that the government is placing on providing opportunities for children to learn skills in mindfulness makes me hopeful that young people in Bhutan are more likely to learn as they grow up that it is their individual responsibility to make best use of the opportunities available to live a meaningful life. What that means at a practical level is learning to accept responsibility for the important choices in their lives, including choices about such mundane matters as what to eat and when to switch off the TV.

On balance, I think there is a better than even chance that Bhutan will succeed in modernization with fewer social problems than have been experienced elsewhere in the world.

Thimphu: the capital city of Bhutan

What is the price of civilization?

According to Jeffrey Sachs, in his new book ‘The Price of Civilization’, the United States needs an increase in tax revenue equal to about 6 percent of GDP in order to balance the budget and ‘pay for civilization’. He arrives at this figure after making allowance for some cuts in government spending and increases in spending of about the same magnitude in areas such as education, training, childcare, infrastructure modernization and foreign aid.

Jeff Sachs asks himself a ‘crucial question’: ‘how do Canada, Denmark, Norway, Sweden, and other countries manage to educate their young, fight poverty, modernize their infrastructure, enjoy life expectancy well above America’s, and still maintain a budget that is more in balance than America’s?’ He concludes: ‘The answer, of course, is that the other countries tax their citizens more heavily in order to supply more public goods, including in the case of the Scandinavia, universal access to health care, higher education, and child care and support for families with young children’.

Jeff’s revenue-raising proposals would increase America’s tax revenue as a share of GDP to a magnitude similar to that of Canada, New Zealand and Britain. He points out that America’s tax revenue as a share of GDP is currently current second-lowest among the high-income jurisdictions considered, ‘just slightly larger than Australia’. (The comparison doesn’t include Singapore or Hong Kong.)

I was surprised to see that America now has a bigger government than Australia. This must have something to do with the relatively poor economic performance of the US over the last couple of years. It certainly can’t be attributed to any recent cuts in government spending in Australia.

But let us not get side-tracked by the trivia of short-term movements in GDP. There is a fairly clear implication in what Jeff has written that he thinks Australia must be uncivilized because tax revenues as a share of GDP are relatively low in this country.

Australians are so used to being told that they are uncivilized that they rarely take offence. But it is surprising to see this implied in the writings of an American. We tend to associate the view that Australians are uncivilized with chinless members of the English aristocracy, rather than people who espouse democratic principles.

Nevertheless, I think Jeff may have a point. I don’t want to undermine the efforts of Australia’s foreign minister to portray us as civilized people, but it is a difficult case to make. Australians generally make little effort to even appear to be civilized. Most of us require very little lubrication before singing our national song, which is a eulogy to a hobo who steals sheep. With very little more lubrication many of us can be encouraged to sing an advertising jingle we learnt as children, that identifies us ‘as happy little Vegemites, as bright as bright can be’. In this instance it may be equally true that ‘what we identify with establishes our identity’ and that ‘we are what we eat’!

More seriously, perhaps, it is difficult to argue that social outcomes in Australia are up to the standards that might be expected of a civilized country. Australia’s rating according the UN’s human development index (HDI) is only 0.937, just 6 percent higher than that for Sweden. When inequality is taken into account, our performance is even worse – a rating of 0.864, just 5 percent ahead of that for Sweden. Average life expectancy at birth in Australia is only 81.9 years, just a few months ahead of Sweden. Australians only spend about 12 years at school on average, again only a few months more than Swedes. In the few years Australians do spend at school, they don’t actually learn much. Not only are our PISA scores well below those in Shanghai and Korea, they are only slightly higher than those for Sweden.

I hope that anyone from Sweden reading this has a sense of humour. My real point is not that Sweden is uncivilized – just that it is not high levels of taxation that make Sweden a civilized country. Those who argue that Sweden is civilized because it has a big government should consider how they would respond to the view that Sweden is civilized country because it generally adopts market-friendly policies. According to the Heritage Foundation’s measures of economic freedom, Sweden’s policies are more market-friendly than those in the United States in relation to business, trade, investment, finance, monetary policy and corruption - just about all aspects of policy other than size of government and the labour market.

The general point I have been trying to make (in case anyone has missed it) is that it doesn’t make much sense to equate civilization with the size of government. Social outcomes in high-income countries with big governments tend to be fairly similar to those of high-income countries with smaller governments. It is possible to provide a decent social safety net, without huge levels of taxation if benefits are means tested. I have provided some references to research on this topic in a paper I wrote last year for New Zealand’s 2025 taskforce (‘How much does size of government matter for economic growth?’, 2010, p11).

I started off to review ‘The Price of Civilization’, but I haven’t progressed very far. The recommendation for higher taxes is probably the most important recommendation in the book – and it is the issue raised in the title – but that is only part of what the book is about. In particular, the book contains an interesting discussion about what is wrong with American politics, which I will consider in a later post.

Are freedom and trust linked to social values and support for free markets?

In my last post I presented a table showing that countries in which people have strong social values tend also to have high proportions of the population supporting free markets. Unfortunately, that table is difficult to read because of the amount of information it contains, so I am presenting a ‘pruned’ version below.


Apart from presenting fewer indicators, the main difference has to do with the ranking of countries. In my last post, the countries are ranked according to levels of interpersonal trust. In the table below, the countries are ranked by an index (not shown) that gives equal weight to interpersonal trust and feelings of individual agency. As before, each entry in the table is presented against a green, yellow, orange or red background depending on how favourable it is to either the market economy or community values.

The table suggests that values supporting both community and free markets tend to be stronger in countries in which there are relatively high levels of trust (or absence of distrust) and relatively strong feelings of individual agency (a high proportion of individuals who feel that they have some freedom of choice and control of their lives). It seems reasonable to expect that societies that encourage tolerance and respect for others, as well as confidence in the justice system, would tend to foster both trust and the feelings of agency that are necessary for entrepreneurial innovation. Paul Zak and Stephen Knack noted that high levels of trust are favourable to economic activity because they reduce transactions costs (‘Trust and Growth’, The Economic Journal, 2001). Zak has argued subsequently that moral behaviour - i.e. trustworthy behaviour - is necessary to reduce cheating without exorbitant transactions costs. It also enables employees, for example, to be given greater opportunities for self-direction (Zak, ‘Moral Markets’, 2008, xvii and 273).

Favourable economic outcomes generated by relatively high levels of trust and strong feelings of individual agency could be expected to generate attitudes more favourable to the functioning of a market economy. As noted in a recent post, individuals with relatively strong feelings of agency tend to have favourable attitudes towards markets.

The next step in the analysis is to consider the available evidence on changes over time. What changes have occurred in community values in market economies over the last couple of decades?

Why do people in countries with strong social values tend to support free markets?

This question presupposes that people in countries with strong social values do actually tend to support free markets. Some evidence in support of this is provided in the table below.


The table has been constructed from information in the World Values Surveys conducted in 2005 to 2008. Countries are ranked by levels of inter-personal trust i.e. the percentage of people who are more inclined to agree with the proposition that ‘most people can be trusted, rather than that ‘you can’t be too careful’. Each entry in the table is presented against a green, yellow, orange or red background depending on how favourable it is to either the market economy or community values. Further information about the definition of the variables in the tables may be obtained from the last couple of posts (here and here).

Hint: If you click on the table you might still need a magnifying glass to read it!

The fact that there is more green and yellow at the top of the table and more red and orange at the bottom reflects a positive relationship between values supporting the market economy and community values. Why is this so? I suspect the answer has to do with the development of institutions that support both inter-personal trust and strong feelings of individual agency.

I will write more about this later (and possibly present some information from the table in a more readable form).