The Overhyped Economy of Bhutan

this video is sponsored by givewell there is one country in the world today that operates its economy in such a unique way that it breaks a lot of the typical models that governments Banks and businesses use to run our own economies and in some ways this approach is doing a lot of good and in others a lot of harm macroeconomists usually work off a set of standard assumptions when dealing with national economies that normally hold true even over different political ideologies Market systems and wealth levels the simple idea that all countries want to become wealthier so they can provide a better standard of living to their people is one of thosee assumptions all of Economics is ultimately just about deciding the best way to allocate limited resources so that people can achieve the highest levels of material satisfaction this is broken down into answering just three questions what should be produced how much should be produced and who should it be produced for every single Economist spends their entire career in one way or another answering those questions there are certainly lots of competing ideas about how this is best done but they all want to grow their economy so the questions become just a little bit easier to answer overall that is except for one economy this is Bhutan a small country in the Himalayas nestled between India and China but also indirectly neighboring Nepal and Bangladesh in a geopolitically tense area of the world that has a lot of dotted lines over uncertain borders despite being somewhat awkwardly wedged between the two most populous countries in the world Bhutan is only home to 780,000 people who collectively make up an economy that is 6,500 times smaller than neighboring China but that doesn't seem to phase them one bit the country has very openly dismiss the typical economic progress that every other country in the world dedicates an enormous amount of attention to the small relatively informal government of Bhutan has pursued gross national happiness over gross domestic product for the past 50 years and that's not just talk that cover up disappointing economic statistics either case in point while countries around the world are fighting for tourist revenues Bhutan which could be an extremely popular destination has intentionally tried to make itself as unattractive as possible to regular Travelers despite the country itself having a very low cost of living only the world truly wealthy can afford to go and holiday there this is just one example of a country missing out on a lot of potential foreign Revenue but the government doesn't care because they would prefer to maintain their unspoiled landscape and culture rather than sell out to a bunch of tourists so has this very unique form of economic management produce good outcomes for Bhutan could our own economies learn anything from how this country is managed and finally is Bhutan going to be able to maintain this system as the world grows around it once we've done all of that we can use economic metrics to put Bhutan a country that does not care about economic metrics on the economics explained national leader board there are over 1.5 million nonprofit organizations in the United States and millions more around the world how do you know which ones can make the biggest impact with your donation give well was founded to help donors with that exact question they pour over independent studies and charity data to help the owners direct their funds towards evidence-backed organizations that are saving and improving lives give well has now spent over 15 years researching charitable organizations and only directs funding to a few of the highest impact opportunities ities they found over 100,000 donors have used give well to donate more than $1 billion rigorous evidence suggests that these donations will save over 150,000 lives and improve the lives of millions more givewell wants as many donors as possible to make informed decisions about high 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lot of suburbs in highly advanced economies around the world there are mediumsized factories around the world that produce more economic output than this entire country and a lot of that is due to the reality of where they are in the world Bhutan is located amongst the Himalayan mountains which means even basic infrastructure like roads and Rail lines are incredibly difficult and expensive to build the country also doesn't have much in the way of natural resources and even if transport within the country was easy getting anything out of it to take place in global trade would be a significant roadblock normally a lower income country like Bhutan could take advantage of the low wage demands of its workers to set up factories where basic Goods could be produced at a lower price than if they were made in a country where wages were higher this is the simple idea behind Outsourcing the problem for Bhutan is that by the time raw materials get trucked in across thousands of kilometers over China and India and then finished goods get transported back out again the extra shipping costs more than wipe out any money saved from making Goods in Bhutan it also completely ignores the fact that those raw materials and finished goods would be transported across China and India the world's two largest centers of lowcost manufacturing to begin with even if Bhutan wanted to it was never going to achieve economic Prosperity through the traditional means of industrialization today most of the country relies on subsistence Agriculture and cottage industries the largest modern addition to its economic output was a series of hydroelectric dams that take advantage of snow melts that work their way down the country's mountains one thing the country is World leading in though is its absolutely stunning natural beauty its indirect neighbor Paul brings in billions of dollars every single year from a rising number of Adventure tourists that want to see the Himalayas and immerse themselves in a unique culture Bhutan has exactly the same thing to offer in an arguably even more appealing package but the country chooses not to take advantage of it or at least not in the same way up until the 1970s the country just did not let in Outsiders at all even today ordinary people cannot afford to visit Bhutan and that's by Design because the kingdom is a poor country for the rich Bhutan only has four airports and only one of them is international now despite the average citizen in the country living on only $235 a month a large share of traffic at these airports are private jets for every day a tourist spends in Bhutan they need to pay a fee to the government of $200 that by itself is already quite a lot a week in Bhutan for a couple would cost $2,800 and that's before considering flights and accommodation we don't want to go full wind over here but Ban's unique approach to tourism is perhaps the best insight into the country's unique approach to its entire economy Bhutan has very few hotels and since each individual visitor is already paying a lot of money just to set foot within its borders the few Resorts that do exist there know that they won't get many visitors but those that they do will be rich the country's largest Resort catering to International Travelers is Aman cor prices are not listed on their website instead potential guests are directed to make an inquiry but if they do prices start at $3,000 per night for a basic room and go all the way up to $20,000 a night for a private filler that means one night stay at a hotel in this country represents a similar market value to the average residents entire economic outputs and then on top of all of these things there are flights normal International Airlines do not fly to Bhutan the airports are too small and dangerous to operate out of and there's just not enough traffic to make it worth it even if they wanted to the country doesn't allow it Bhutan Airlines and dra air are the only two International carriers permitted to operate into and out of the Kingdom but flights are infrequent expensive and only operate out of surrounding countries like India so a lot of wealthy Travelers choose to just take their own Jets or Charter One this option is so popular with the country's few tourists that some resorts there even offer services to help guests organize the paperwork they need to do to park their jet while they enjoy their holiday but then how does the country justify a system where it could take a decade for an average botines citizen to save up enough to spend one night in a hotel room and a tourist could easily spend as much in a weekl long vacation a as most people in the country could earn in their lifetimes well the economic philosophy is that material wealth is less important than maintaining the country's environment and culture all other things been equal the country would probably prefer no visitors it's just that these tourists are willing to pay so much for an exclusive holiday that it would be insane not to let them spend their money once they are there tourists are also quite restricted in what they're allowed to do Mount nearing is a very popular activity amongst wealthy Adventure Travelers and it's something that again makes their indirect neighbor Napal billions of dollars every year in tourist Revenue as people try to scale its many mountains including Everest Bhutan on the other hand decided in 2003 that it didn't want to deal with people scrabbling over littering and dying on their mountains so they banned it and that's why today it's home to the tallest unclimbed mountain in the world all of this means that the country only welcomes about 5,000 visitors a month and even though every individual visitor is spending a lot of money those tiny numbers mean that the country is still making less than $1 million a year in tourist Revenue a tiny fraction of an already tiny GDP compare that to a country like Iceland which has half the population but welcomes nearly 800,000 tourists every month in Peak seasons in what is still seen as a pretty exclusive and expensive holiday destination but the unique economic philosophy of Bhutan means that they don't see it as a missed opportunity rather more as they get nearly $100 million in revenue and most people living in the country will never even see a tourist let alone have their lives impacted by them the same approach is true for a lot of their other Industries as well on the surface it looks like may have a problem and what somewh see is its almost snobby attitude towards the outside world could be a cause the country has a very high debt to GDP ratio of around 130% which for a low-income developing economy is normally a really bad position to be in in bhutan's case though most of this money was borrowed with much the same philosophy as they use in their tourist industry it was only to take advantage of an opportunity so good they would be silly not to take EDS the country's mountainous train might make most traditional Industries and pieces of infrastructure close to impossible to build out but it does give it something that it has recently taken advantage of in a big way as the snow melts and winds its way down mountain ranges the water can be collected and used to generate hydroelectric power most of the country's borrowing has been used to fund the creation of six massive hydroelectric dams that produce more power than the country itself can use so it exports a lot of it to the northern regions of India hilariously the country after making such a big point of not chasing material wealth has also used a lot of this excess electricity to mine Bitcoin and other cryptocurrencies by global macroeconomic standards this is still a tiny industry but it gives the country more than enough foreign income to pay its debts and reinvest some money into projects to try and make the lives of its citizens better the culture of putting little value on material wealth that is so heavily emphasized by the government also has one other interesting Advantage bhan is ranked as the 25th least corrupt country in the world which doesn't sound amazing but it is outstanding for an undeveloped country which tend to be more susceptible to corruption the king ranks just one place behind the USA and head of countries like South Korea Portugal and Spain all advanced economies with traditional legal and Democratic systems so could growth at all cost macroeconomists learn something from the country that does away with traditional economic theories and prefers the slow and steady approach to improving gross national happiness instead of gross domestic products well maybe certainly the country is a great example of balancing traditional economic objectives like raw output with other variables like living standards environmental controls and culture but Bhutan is probably not a model that many advanced economies are going to be following anytime soon while the average bhy citizen may be content with the simple life and the pursuit of cultural tradition fits very well with the values of the country's predominantly Buddhist population they are still incredibly poor and realistically that poverty is at least in part self-inflicted the country could be richer if through no other means than just making itself a little bit more open to tourism what's more is that for all of its talk about gross national happiness the country isn't even that happy ranking 95th out of 156 countries in the world happiness report now obviously happiness is a bit subjective but overall economies with a higher economic output tended to do better than those with below average output like Bhutan where most of the country's population still lives in poverty so while the country should be praised for not mindlessly chasing economic goals just because that's what the world tells it to do it's still just a lower income developing economy orbe it perhaps with really good marketing okay now it's time to put Bhutan a country that doesn't care about economic rankings on the economics explained National leaderboard starting as always with size the country has a good reason to shift Focus away from its Roar economic output and that's because it's tiny so small in fact that the World Bank whose figures we normally use for these rankings does not collect economic data for Bhutan but the international monetary fund does a small disclaimer here is that these two institutions use slightly different methodologies to compile economic figures like GDP so it won't be directly comparable to other countries on the leaderboard but anyway with the G GDP of $2.7 billion Bhutan is the 166th most productive country in the world just behind the Central African Republic and ahead of Cape ver it gets a 2 out of 10 GDP per capita is also quite low the country doesn't have much in the way of any highly value adding opportunities for its people and indifference to Economic Development means that the average person only produces $35,000 worth of output every year which is roughly a quarter of the global average and in line with countries like Egypt and Venezuela so it gets another 2 out of 10 stability and confidence is not amazing but also not terrible being stuck between two t Global superpowers China and India is a Potential Threat and their democracy is still very young only formally been formed in 2008 with a lot of power being maintained by the country's Monarch even still the country has mostly stable governance and since it isn't pushing rapid growth at all costs it also doesn't have weaknesses like a lot of external debt that isn't easily maintained bhan gets a 5 out of 10 all things considered economic growth has been pretty decent recent in Bhutan the country is roughly 70% larger today than it was a decade ago compared to its neighbors India and China that's not too impressive but it still gets a seven out of 10 industry is obviously tiny and that's at least partially by Design and also largely due to circumstances even if the government and the people of brhan changed their National philosophy to pursue economic growth at all costs there are very few industries that they could compete in next to their direct neighbors apart from tourism even if they did open up to everybody and got rid of their daily visitor charges Bhutan is still a remote Niche destination so the economy wouldn't be able to develop around tourism exclusively it gets a 2 out of 10 but keep in mind anything lower means that the country is almost entirely dependent on things like foreign aid altogether bhan gets an average score of 3.6 out of 10 unfortunately putting it right down here on the leaderboard fortunately the country has made it very clear that they do not care so good for them now Bhutan has strong development linkages with India which has the potential to be one of the most globally dominant economies within the coming decades India development will inevitably be a good thing for Ban's Economic Development too but we've already made an entire video on that which you should be able to click to on your screen now thanks for watching mate bye

Channel: Economics Explained

Views: 534,935

Keywords: economics, economics explained, economy explained, bhutan, economy of bhutan, bhutan king, bhutan trade, bhutan economy

Id: a88l92ntAOM

Length: 15min 10sec (910 seconds)

Published: Sun Nov 26 2023