Discussion: Economy

April 16, 2014

At the Imagine Change! forum on the theme “Economy,” it was suggested that Bhutanese institutions could be made more accountable through regulatory mechanism (with lesser stress on the legal system and the regulatory framework) and by focusing on the internal (individual) attitude to be accountable. Reform in education policy was cited as an important factor in addressing the mismatch of skills and the unemployment problem. However, a participant suggested that instead of matching skills to what is available in job market, perhaps we could think about matching individual interest to creating new (non-existing) industries.

However, it was mentioned that private sector is limited in its capacity to create jobs, hydropower doesn’t create much jobs for Bhutanese anyway, and construction sector which is booming doesn’t attract many Bhutanese. Tourism/hospitality industry was argued to be over-capacitated on one hand and mismatched in skill levels on the other. Agriculture sector is also not growing, leaving the big question unanswered: what are our options for employment? On a positive note, one participant pointed out that we should consider using our cheap hydropower to promote domestic industries and diversify our domestic economy. Employment in cottage, small and medium enterprises and agricultural industries are possible if we choose to use our hydropower within domestic industries than simply exporting electricity.

From a private sector perspective, equal opportunity through information dissemination, access to finance, including micro-finance, ease in establishing business, and tax policies were said to be important factors in uplifting people at the bottom. Currently it takes 42 days to open a simple business in Bhutan, and most young entrepreneurs have no opportunity to access loans.

It was discussed that pricing for domestic goods in Bhutan is detrimentally high and doesn’t allow the private sector to grow as consumers prefer cheaper goods from across the border. It was pointed out that cost of production are higher in Bhutan, and unless there are preferential policies and fiscal incentives for domestic producers, this would continue to be a hurdle for increasing local production.

On thoughts about GNH-tax system, it was mentioned that it is important people are willing and feel like it is their duty to pay taxes, and this can only happen when government is accountable, responsible and honest to assure that the tax money is spent on an economy that benefits people. In addition, it was offered that anything that promotes joint consumption or benefits health could be taxed less, and anything that can be socially-detrimental (such as individual spending on grooming or social recognition or to fill our “emptiness”) should be taxed more.

Inflation and the consequent inequality generated was discussed, and social protection policies and public expenditures to address this were offered as some solutions in addition to controlling prices (and inflation) in Bhutan. In whether rising inequality in Bhutan was a result of globalization, it was suggested that while rising inequality among nations is due to asset ownership structures and trade relationships between north and south nations, inequality within a nation is more a result of policy flaws than a global phenomena.

Suggestions were also given on the need to continually assess and refine existing instruments such as the GNH Screening Tool, and to revisit the proposal for moving towards a GNH National Accounts which can easily be done in a short time by a small group of dedicated people. The need for evaluating civil service size and efficiency within context of the total expenditure on the bureaucracy was also pointed out. It was also emphasized that within Bhutan, we need to re-group our energies and coordinate among ourselves so that efforts on GNH do not become more fragmented than they already are.

Some key points made at the forum were:

  • An economy that serves the people should: invest in people, create productive jobs, alleviate poverty, create equitable opportunities for everyone, and have some social protection for the vulnerable and provide them access to capital and market.
  • In Bhutan’s economy, the overall institutional framework and political willingness can be termed as people-oriented, and Bhutan has had a good development trajectory in South Asia reducing poverty, improving health, literacy ,HDI, etc. However, there has been growing income inequality, growth without employment, focus on development in urban areas and on non-agriculture sector (mostly hydropower) and limited institutional accountability.
  • A socially-acceptable level of inequality should be defined, following which a strategy to bring the country to that level of equality/inequality should be formed. Public expenditure must be targeted towards areas such as provision of healthcare, social protection, and education that create skills so that people get equitable opportunities for employment.
  • While the private sector has a responsibility to contribute to social wellbeing, Bhutan’s private sector is small and in its infant stage, therefore, it is also important to create an environment where individuals can make profits and flourish so they can contribute to social wellbeing in the form of taxes paid to government and other direct methods to support social causes.
  • The characteristics of current Bhutanese economy: Extremely “powerful” (meaning dependent on hydropower), highly “westernized” (meaning focused on western Bhutan) and highly liberalized (making it difficult for small industries and agriculture sectors to compete). These characteristics bring about many problems to our economy such as the ideal-structure of hydropower, urban crowding that brings many related problems and non-empowerment of small industries and agriculture sector.
  • Changing the economy itself is very difficult but at least the methods of measurement can be changed so we that can account for resources and value aspects currently left out by GDP. In addition, building on the GNH policy-screening tool, a robust decision-making tool for government agencies in line with the GNH philosophy can also be introduced.

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