Obstacles to Market Access and Economic

Transition in Bhutan

Eleanor White Student number: 180739 Supervisor: Dr Stephanie Blankenburg MA International Studies and Diplomacy September 15 2007 Word count: 10,523

This dissertation is submitted in partial fulfilment of the requirements for the degree of

MA International Studies and Diplomacy of the School of Oriental and African Studies

(University of London)

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Table of Contents

Abstract.............................................................................................................................. 4

Acknowledgements ........................................................................................................... 5

Introduction....................................................................................................................... 6

Chapter 1: The context for socio-economic development ............................................. 8Models of development and the subsistence economy................................................... 8Agrarian change and market transformation ................................................................ 10Class power relationships and structures of social property......................................... 13The political economy of rent-seeking ......................................................................... 16

Chapter 2: Bhutan .......................................................................................................... 18The Political economy of Bhutan ................................................................................. 18The social organization of power.................................................................................. 21

Chapter 3: The government’s development strategy and its implications ................ 23The preservation of tradition and its beneficiaries........................................................ 23The role of the government........................................................................................... 25Key features of government strategy ............................................................................ 29

Chapter 4: Restraints on agrarian growth ................................................................... 33Constraints on land acquisition and transactions as an obstacle to primitive accumulation................................................................................................................. 38Maintaining the organization of social power and the rural-urban divide.................... 46

Chapter 5: Policy implications....................................................................................... 51Letting go of growth-limiting traditions ....................................................................... 52Managing social transition............................................................................................ 54

Encouraging primitive accumulation ........................................................................ 55Using power productively......................................................................................... 58

Conclusion ....................................................................................................................... 64

Bibliography .................................................................................................................... 66

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I have read and understood regulation 17.9 (Regulations for students of SOAS)

concerning plagiarism. I undertake that all material presented for examination is my own

work and has not been written for me, in whole or in part, by any other person(s). I also

undertake that any quotation or paraphrase from the published or unpublished work of

another person has been duly acknowledged in the work which I present for examination.

I give permission for a copy of my dissertation to be held at the School’s discretion,

following final examination, to be made available for reference.

________________________

Eleanor Awbery White

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Abstract

Bhutan has been hailed as a development success due to its high economic growth rates

and apparent conformity to the international consensus on development strategy. But

nearly 90 percent of its population lives in poverty. Government development strategy is

focused on the maintenance of traditional culture and values and avoids changes that

would aid transition to market access in the countryside. In particular, government policy

keeps family small-holdings, central to the subsistence economy, inefficient and reliant

on unwaged labour. Powerful government and business factions who benefit from the

current social organization of power are threatened by the possibility of a new middle

class emerging from the rural poor. This thesis argues that policies that enable the

transfer of land in the agricultural economy, producing capital through primitive

accumulation, would improve the livelihoods of small holders and hold the best chance

for equitable and long-term development in Bhutan.

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Acknowledgements

I would like to thank:

My supervisor Stephanie Blankenburg, for her interest, enthusiasm and guidance, David and Anne Chapman, for their support and comments on a draft, Lam Dorji, Karma Tshiteem and Neil Fraser for their expertise.

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Introduction

Bhutan is often cited as a development success story, due to its remarkable growth rates;1

some of the highest in South East Asia over the last decade. It is often referred to as a

‘shangri-la,’ perhaps because of its pristine mountain environment, or its national

development strategy that pursues ‘Gross National Happiness’ in place of Gross National

Product. The Royal Government of Bhutan has implemented established development

wisdom by the book: it religiously pursues sustainable economic development,

conservation of the environment, promotion of national culture, and good governance as

its four ‘pillars of wisdom.’2 Bhutan has few of the problems associated with corruption

which plague some developing countries. It even ranks number eight on the University of

Leicester’s list of ‘happy places.’3

Yet nearly 90 percent of its population live at subsistence level and Bhutan ranks only

135th out of 177 countries on the Human Development index.4 In 2004 only 8 percent of

the population had access to electricity, despite Bhutan’s major source of revenue being

hydro-electric power.

1 It has one of the fastest growing economies in South Asia, with average annual growth rates between 6 and 7% over the last decade. GDP per capita at constant local currency unit (LCU) rose steadily from Nu (ngultrum) 11,548 in 1980 to Nu 31,200 in 2005 (US$252.5 to US$681.9) (World Development Indicators). 2 Bhutan 2020 1999. 3 http://news.independent.co.uk/europe/article1207609.ece 4 UNDP, Human Development Report, Bhutan 2005.

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This thesis asks why so many Bhutanese remain poor, despite high economic growth

rates and the apparent determination of the government to reduce poverty. It finds the

answer in an analysis of social and political structures of power that prevent primitive

accumulation and access to market systems. Obstacles to the transfer and accumulation of

land keep the family small-holding, with high labour intensity and low productivity, and

which is at the heart of the rural economy, from sustainable growth. The government’s

desire to improve living standards for the majority of the population clashes with its

ideology for the preservation of traditional culture and values, which manifests in a

maintenance of the status quo in the social organization of power.

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Chapter 1: The context for socio-economic development

Models of development and the subsistence economy

This thesis examines obstacles to economic development in Bhutan. Nearly ninety

percent of the Bhutanese population lives at subsistence level; 5 my thesis holds that

without agrarian development, most will remain poor.

An ideological debate over the cause of economic development affects policy choice for

less developed countries (LDCs). The international development establishment6 holds a

neoliberal view which relies on the perfect market as a model for economic growth. From

this perspective, growth is the gradual, smooth accumulation of factors of production –

equilibrium in a dynamic context.7 Growth is therefore seen as the natural result of

unfettered market forces. The policy corollary is to encourage the liberalization of

markets and trade regimes and assign governments a service delivery role, ensuring the

5 World Bank: World development indicators, September 2006. 6I refer to the main organizations involved in international development which include, but are not limited to: international financial organizations such as the International Monetary Fund, the World Bank and the United Nations Development Programme, international Non Governmental Organizations and the governments of donor states. 7 Solow 1956 p. 66.

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transparency of domestic institutions and a democratic infrastructure.8 Even an imperfect

market is seen as preferable to state intervention, as planners can never have exposure to

complete information (in the way that the price mechanism does).9

Neoliberal analysis assumes that total national economic growth is the key indicator of

development. Wealth distribution, or the distribution of development across sectors, lies

outside the model. However, a distinction important to my thesis is that between

economic growth and socio-economic development. The latter can be measured to some

extent through poverty reduction and health and social indicators, but most importantly, it

is realized through the establishment of a sustainable, cross-sector economic

infrastructure that allows the majority of the population to increase their income above

subsistence level.

The neoliberal view assumes the pre-existence of a market and an inherent tendency

towards growth in market processes. But in subsistence economies, there is no significant

market. The definition of a subsistence livelihood is one where there is little, or no,

surplus produced beyond that which is required to fulfil basic needs.

Subsistence economy is labour intensive. Adam Smith first promoted the division of

labour as crucial to the process of economic development. Development is connected to

8 This is particularly true of the ‘Washington Consensus’ which emphasized institutional problems as the cause for the failure of previously implemented free-market based policies in developing and emerging economies (World Bank Policy Research Report 1993). 9 Hayek 1988 p 86: markets proliferate ‘the generation and use of more information than is possible under central direction’.

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the greater efficiency of a given unit of labour input; the intensification of labour can

bring limited improvements in productivity, but will not cause sustainable growth.10 This

is an important point for my thesis because I argue that present government policy in

Bhutan may improve productivity in the rural economy, but will not kick-start

development. I suggest that without socio-economic change, the majority of the

population in Bhutan will remain working the land without wages and without access to

wider markets.

Agrarian change and market transformation

Central to my thesis is the argument that improved market access is crucial to the

sustained development of Bhutan’s socio-economy. This view maintains that it is

impossible to significantly improve livelihoods and the general standard of living in rural

areas without the process of primitive accumulation leading to a developed economy.11

Primitive accumulation is the formation of a surplus of production as an external starting

point for a process of capitalist market transformation. The barrier to development

progression away from a subsistence economy is, effectively, the lack of this significant

10 Aston and Philpin 1985. 11 I use the term ‘capitalist’ loosely to mean a market economy characterized by the reinvestment of production surplus and economic development.

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surplus12 for reinvestment. Without it, access to markets – historically, the process of

industrialization13 – cannot occur.

Industry is capital intensive; it increases efficiency through the increased productivity of

factor inputs. In the original process of industrialization in England, the organizers of

production had no choice but to buy and sell on the market, leading to competition and

increased efficiency.14 Industrialization causes development because it mobilizes labour

and increases demand through the creation of surplus income.

A subsistence livelihood oscillates between crisis and the satisfaction of basic needs with,

in more productive times, a small surplus.15 A sustainable growth cycle within the

framework of socio-economic structures that characterize a subsistence economy would

be a contradiction in terms. However, my analysis of the government of Bhutan’s

economic policy is that it attempts to improve living standards in the rural economy

without transforming the structure that prohibits access to markets for growth.

Successful development elsewhere was anything but smooth. It involved take-off periods

and kick-starts to rapid productivity increases and large migratory flows. 16 A historical

12 Or extraction of the surplus with extra-economic compulsion, as characterizes the feudal economy (Aston and Philpin 1985). 13 Chang 2002. 14 Aston and Philpin 1985. 15 Ibid. 16 Khan and Jomo 2000.

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analysis shows that social and economic changes precede high growth periods and that

successful markets are sometimes, but not always, the outcome.17 For the majority of

western developed economies, the process took hundreds of years, but for the New

Industrialized Countries (NICs), cross-sector development was achieved relatively

quickly, in a few decades.18 Industrial expansion, for those economies that have

successfully developed, was founded on a growing domestic market ‘rooted ultimately in

the continuing transformation of agricultural production.’19

Sustained, long-term economic development has always involved the emergence and

social integration of a new class of entrepreneurs; emerging commercial interest has often

clashed with the prevailing holders of power.20 The rise of this new socially powerful

group and its ability to survive existing social power structures is central to the successful

development of a developed economy.21 Only strong, but progressive, governance can

effectively manage these changing social relationships. Migdal22 outlines the importance

of the state’s ability to enforce policy changes that encourage economic development.

The capacity of states to achieve social change has been connected to their ability to

penetrate society, regulate social relationships, extract resources and appropriate or use

17 Ibid. 18 Chang 2002. 19 Aston and Philpin 1985 p. 325. 20 Moore 1966. 21 Migdal 1988. 22 Ibid.

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them in determined ways. De Soto23 identifies three characteristics of a strong,

transforming government: an ability to take the perspective of the poor; to co-opt, or re-

direct the socio-economic activities of the elite; and to deal with legal and technical

bureaucracies, the ‘current custodians’ of existing social divisions.

The Bhutanese government, dependent on international funding like many LDC

authorities, complies with the international development establishment norms, with its

recent focus on anti-corruption measures, international financial codes and standards,

development of independent judicial systems and a strong rule of law.24 This thesis

argues that, although important for economic development, the creation of politically

democratic institutions alone will not transform Bhutan’s subsistence economy. In fact,

current development policy in Bhutan avoids some specific institutional socio-economic

pre-requisites that could effect positive growth, but are regarded as socially disruptive.

Class power relationships and structures of social property

The focus of this thesis is the need for increased productivity in Bhutan’s agrarian

economy. Working within the historical materialist framework outlined above, Brenner

identifies two important changes that characterize transformation of the agrarian

economy to access wider markets: the decline of feudal economic structures and the end

23 De Soto 2000. 24 Author’s observation, from reading of government documents (see especially the Vision 2020 document).

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of de facto ownership rights in the form of small, fragmented land-holdings.25 For

Brenner, crisis is built into the feudal subsistence economy. Decreasing population

affects the lords’ income, resulting in increased rates of surplus extraction, pressurizing

the peasantry into greater hardship. The downward spiral of increasing pressure on

resources leads to a point of social crisis.

The inevitability of crisis by this cause is no longer present in Bhutan, because land

reforms in 1952 ended the feudal economy.26 The 1952 land reform, I suggest, removed

one obstacle to primitive accumulation in the agrarian economy (surplus extraction with

extra economic compulsion characterized by the feudal relationship between lord and

serf) only to replace it with another. The aristocracy are no longer dependent on the rural

poor for production and extraction, since economic growth in specific, capital intensive

industries produced pockets of production which now provide their income. Funding

from India and development of the hydro-electric sector meant that the aristocracy could

support themselves by external, more lucrative, means – hence they no longer needed to

extract surplus from the majority population. I suggest this was the point at which

Bhutan’s economic, rural-urban divide began. The business class (old aristocracy) were

effectively freed from the need for a feudal relationship with the rural poor, who remain

confined to a lifestyle of subsistence.

25 Aston and Philpin 1985. 26 The late king, at considerable political risk, created a new system of property rights. Large aristocratic holdings operating under the ‘chunidom’ slave labour system, were reallocated to peasant families tilling the land and the tax in kind, a characteristic of feudal economies, was gradually phased out. (The subsequent tax system and its changes up to the present day can be seen at tshonrig.org.)

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I will argue that, although the traditional feudal relationship no longer exists, there is,

nonetheless, a relationship in which the powerful perpetuate their social position by

preventing access to markets in the subsistence economy. They do so by maintaining the

limited rights to property ownership created by the 1952 land reforms. This, I argue, is

the principal obstacle to sustainable, cross-sector development in Bhutan.

I show that class relationships in Bhutan reinforce an unproductive system of social

property which prevents access to markets in the agrarian economy. My argument rests

on the premise that land possession, without access to transactions that facilitate transfer

and accumulation, prohibits access to market-based livelihoods. Labour intensive small-

holdings, particularly without modern technology and the institutional structures that

allow access to wider markets,27 cannot produce sufficient surplus for primitive

accumulation and are therefore economically inefficient.28 The historical inverse farm

size productivity relationship could be the basis for objection; however, this relationship

ignores the cost of inputs and looks only at productivity per acre.29 Contemporary

analyses show that substitution of capital for labour increases total factor productivity in

farming.30

27 One of the features of modern agricultural economies is the reduced need for tillage, due to advanced technology (Frithjof Khunen: http://www.professor-frithjof-kuhnen.de/publications/man-land-relation-changes/3.htm). 28 Khan 2004a. 29 Author’s observation. 30 Frithjof Khunen: http://www.professor-frithjof-kuhnen.de/publications/man-land-relation-changes/3.htm

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Bhutan has a nationally enforced and recognized system of property ownership, but

technical details ensure that land has no value other than its immediate capacity for

production. Far from enhancing opportunity for increased livelihood in the rural poor, the

system ties them to a life of subsistence. De Soto shows that a system of property rights is

useful for citizens insofar as it allows them to generate capital. The existence of property

rights, de facto or de jure, as a means by which individuals, or groups, secure ownership

is not, in itself, conducive to market processes. Capital ‘requires a process for fixing an

asset’s economic potential into a [fungible] form that may be used to initiate additional

production.’31

The political economy of rent-seeking

A historical perspective shows that the emergence of capitalist class relations is the

determining cause of the breakthrough from traditional economies to self-sustaining

economic development.32 Historically and sociologically industrialization was

accompanied by rents which enabled the emerging capitalist class to reinvest surplus

towards growth-enhancing output.33 However, from the neoliberal perspective, the

pecuniary awards of rent-seeking are disassociated from social value. The static market

analysis rejects the possibility of an output side to rent creation – that is, growth

31 De Soto 2000, p. 38. 32 Migdal 1988. 33 Khan and Jomo 2000.

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enhancing rent.34 Thus all rent creation is seen as a corruption of ideal market processes

and as an obstacle to maximum efficiency. The role of the state is best confined to service

delivery; industrial policy that directs the flow of capital is seen as a distortion of market

processes.

But if rent is viewed simply as income gained in excess of the next best opportunity,

rather than being artificially associated with state intervention in the market, then

producer surplus is a form of rent unaccounted for in the neoliberal approach. (Any

surplus is an outcome created by a particular configuration of social rights and

advantages.) From this point of view, the market can never be rent free. Policy is

therefore best directed towards promoting rent with growth enhancing output.35

In my final chapter I propose policies that would facilitate agrarian change. I suggest

growth enhancing support structures, including types of rent creation that would nurture a

new class of entrepreneurs emerging from the rural poor and direct the activities of the

current business elite towards increased market productivity. I argue that these policies

are the best available means for the government of Bhutan to facilitate the changes

necessary for a process of equitable and even economic development. Change of this sort

would lay the ground for long-term domestic, political stability.

34 Khan and Jomo 2000. 35 Ibid.

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Chapter 2: Bhutan

The Political economy of Bhutan

Bhutan’s political economy is divided. 38.3 percent of the rural population, compared to

4.2 percent urban, lives below the national poverty line of Nu 740.36 (US$16.2) per

capita per month.36A culture of subsistence operates for nine tenths of the population and

rapid industrial expansion is confined to a small number of businesses connected to the

hydro-electric power industry, construction, transport and tourism. This expansion

accounts for almost all of Bhutan’s economic growth.37

Industry has boomed over the last two decades, 38 but productivity remains low in the

agricultural sector with the subsistence economy. Figure 1 shows a low percentage of

rural income from wages (ten percent labour hire). This reflects the social infrastructure

of the rural economy; livelihood is almost entirely reliant on unpaid labour on family

small-holdings and many farmers still live outside the cash economy.39 World

development indicators show a 54 percent increase in land productivity as value added

(constant LCU) per kilometer square from 1980 to 2005, and a 39 percent increase in

labour productivity during the same period. These figures are consistent with public

36 Ministry of Works and Human Settlement: “Department of Roads at a glance” 2005. 37 Asian Development Bank, Country Economic Review. 38 The construction sector has an estimated growth rate of 17.3% (Tobgay 2005). 39 IFAD: Rural poverty in Bhutan, 2007.

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spending on poverty reduction such as increased access to health and education which

take place within the subsistence economy. Some of the increase may also be accounted

for by specialized cash crop production for export, profitable for a few wealthy farmers

connected to the royal family.40 In the following chapters I suggest infrastructural

changes in agriculture, which I argue would show percentage increases of much greater

magnitude.

Figure 1: Rural household income by source41

40 Basu 1996. 41 Adapted from Bhutan National Human Development Report, Novermber 2005 p.109.

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The high growth industries offer limited employment opportunities and have not created

links within the domestic agrarian economy through spill-over or ‘learning by doing.’42

An example of this is the tourism industry, which brings revenue through a development

strategy radically different to neighbouring countries such as Nepal.43 Tourist numbers

are limited on grounds of both environmental concerns and preserving the traditional

culture.44 This strategy maintains government revenue but foregoes potential income and

jobs for the rural population. Only 2,500 people were employed by the Bhutanese tourist

industry in 2004.45

The division between the rural and industrial economies shows in social problems new to

Bhutan. Youth unemployment and urban crime are growing.46 Rural-urban migration is

on the increase and a newly educated class of school leavers finds an almost non-existent

private sector and little access to public sector posts.47 If growth continues at its current

rate in isolated sectors, with little drop in rural population as a percentage of the whole,

then the socio-economic divide in Bhutan will increase.

42 Wangyal 2005. 43 Fraser 2000. 44 The government has set a high entry cost for the individual tourist: $205 per day minimum. Data from Bhutan tour operators’ websites show the cost increasing to $240 peak season. 45 This is 0.32% of the population (RGOB, statistical yearbook of Bhutan, government census 2003). 46 UNDP Human Development Report 2005 and Wangyal, 2005. 47 Ibid.

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In the last section of this chapter, I show how social power structures and government

strategy perpetuate Bhutan’s socio-economic divide.

The social organization of power

The politically powerful in Bhutan are those of Ngalop ethnicity, connected to the royal

family and of Tibetan origin. They control Bhutan’s government and socio-economic

culture48 and have owned the major businesses since privatization in 1980.49 They form

between ten and twenty percent of the population50 and live mostly in the western

regions. The Ngalop are socially advantaged in relation to the majority of the rural

population who are mostly of other ethnicities and inhabit a separate social stratum.

It is likely that agrarian transition from subsistence would lead to the conglomeration of

land and the creation of a new class of wealthier farmers,51 and at the same time, an

emerging class of urban entrepreneurs migrating from the countryside. The organization

of these groups into strong, new political forces would potentially threaten the old

aristocracy (the Ngalop bureaucracy and business elite) who benefit from existing

48 All citizens of the country are required to follow the national behaviour and dress code, the driglam namzha, which is Ngalop in origin, in public. 49 Basu 1996. 50 Rizal 2001. 51 In Barrington Moore’s analysis of the agrarian revolution in England, the process of enclosure led to an equivalent class, the yeomans, wealthier peasants with commercial interests (Moore 1966).

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arrangements of power. The next chapter examines how government strategy attempts to

avoid this threat through checks on structural modernization and the preservation of

‘traditional culture and values.’

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Chapter 3: The government’s development strategy and its

implications

The preservation of tradition and its beneficiaries

This thesis argues that the Ngalop bureaucracy and business elite have an interest in

maintaining current social structures and practices. These prevent the formation of a large

middle class from the rural poor. The rise of a new class of urban entrepreneurs from

different ethnicities,52 and the political organization of the non-Ngalop majority into a

coherent, articulate social group, might threaten the current distribution of wealth and

dominant culture.

My argument would seem to contradict government rhetoric which does state the desire

for a ‘new middle class.’53 However, development strategy has envisaged the new

entrepreneurial class forming out of the existing Ngalop bureaucracy. In the mid 1980s,

privatization involved selling off nationalized companies into the existing elite.54

Important new business posts were filled through clientelist networks. The sixth Five

52 In particular, the Nepalese Lhotshampas who remain in the south of the country following migration for work in the early 20th century, and the Sharchops and other religious and ethnic groups who form the majority of the rural poor in the central and eastern districts. 53 Stated explicitly by Wangyal, 2005, Chetri and Dhar, 2004 and Tobgay 2005. 54 Fraser 2000.

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Year Plan saw this as the start of a capitalist process.55 But the market did not take off as

had been hoped. There was little evidence of a growing market outside of the new

privatized industries during the following decade and loans to elite networks were not

used for re-investment.56

Posts in the bureaucracy that were vacated by the move towards privatization were filled

by the first tier of a newly educated class – still part of an elite family network –

graduating from the pilot secondary and tertiary education schemes.57 I propose that

graduates from the country-wide education programme thereafter were envisaged as

employees in industries set up and run by the Ngalop elite. This did not happen as the

industrial process in urban areas did not take off as expected.

In an attempt to further boost incentive for urban capitalism, in 2002 the Royal

Government provided a package of tax holidays and other incentives to stimulate

business development and employment generation. The package included the exemption

of corporate and business income taxes on the convertible currency earnings of

manufacturing industries, IT services and agriculture produce exports, as well as the

55 The whole plan is dedicated to the creation of a framework for economic development in different sectors. “Public issue of shares in industrial and commercial projects will be widely encouraged” (Chapter 21, p 3). At the time of writing the plan, only a small minority of Ngalop elite would have had the means to access company ownership. Public offerings were bought in bulk by select, or newly created companies, with the help of government subsidies (Fraser 2000). 56 Basu 1996. 57 Explained in more detail later in this chapter.

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abolition of export taxes on cash crops.58 However, growth remains isolated within the

large industries and is not having the desired ‘spill-over effect’ to create widespread

industrialization. The newly educated rural youth, making their way to the towns, find no

openings for employment and little opportunity for entrepreneurial ventures without a

growing domestic market.

I suggest that, panicked by the rise of youth unemployment, crime and ‘new’ problems,

those in power now want the newly educated to rural livelihood and to, at best, set up

small scale, cottage industries.59 The alternative – greater rural-urban migration, large-

scale demographic shifts and the development of a large new urban class of entrepreneurs

– might pose a threat to the existing organization of social power which benefits a small

minority.

The role of the government

The government sees the lack of institutional infrastructure and technology as the

principal constraints to economic growth, causing limited access to world markets.

Adopting a ‘free-market’ liberal approach gives it a specific and limited role, one of

58 Human Development Report 2005. Other incentives included allowing corporations to reinvest 20% of their profits, abolishing the salary limit for corporations and sales tax exemptions for particular industries. 59 This strategy can be identified through policy suggestions in Wangyal, 2005, Human Development Report 2005 and Poverty Reduction Strategy 2004.

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service provision – to facilitate the market process.60 This perception of its role is

encapsulated in the National Human Development Report, 2005:

“To create an enabling and business-friendly environment that stimulates

private sector development, many relevant legal instruments have been

enacted and appropriate trade and industrial policies adopted. All these efforts

are directed toward the long-term objective of the Royal Government

gradually withdrawing from all commercially viable areas of economic

activity to focus on the provision of social services and basic infrastructure.”61

To this end, Foreign Direct Investment (FDI) and trade regimes have been liberalized and

extensive reforms undertaken in the financial sector; these include the establishment of a

stock exchange, liberalization of interest rates and the removal of foreign exchange

restrictions on current account payments and transfers. 62 Accession to the WTO is

pending: possibly membership will compromise existing options for trade control. 63

This strategy assumes that growth will occur automatically if certain market conditions

are in place. Market accessibility underlies all government development plans, but is not

60 Privatization featured heavily for the first time in the 6th Five Year Plan in the mid-80s (Basu 1996 and Fraser 2000). Airline and postal services are now corporatized; telecommunications, media services and the operation of power utilities are now commercial. 61 UNDP Human Development Report, 2005, p. 75. 62 Ibid. 63 Tobgay, 2005.

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integrated to a strategy for change in de facto socio-cultural institutions. Sonam Tobgay,

the author of central government resource documents and planning recommendations,

writes:

“In order to further facilitate farmers towards a market oriented environment the

government has been initiating several programs and projects including the

improvement of domestic markets… setting up marketing infrastructures…

subsidized credit and farmers training, and identification of new export

markets.”64

Agricultural reform, from this perspective, encompasses export promotion and focus on

the development of high-value, low volume cash crops for a niche market in rare and

organic produce. Such crops are cultivatable in the most fertile, sub-alpine non-forested

terrain, on the few relatively large and wealthy farms owned by a small minority. Other

policy solutions suggested are the development of farmers cooperatives, strengthening

existing micro credit schemes, preferential subsidies towards small and marginal farmers

and increased public investment in farm infrastructure (through road access rather than

more modern machinery).65

64 Ibid. 65 The 10th Five Year Plan for 2008 to 2013 emphasizes the promotion of rural enterprise development models such as cane, bamboo and wood handicrafts and e-business for women artisans in the poorest regions (UNDP Bhutan web pages).

28

But even with improved access to niche agricultural product markets, I argue that growth

in the majority agrarian economy will not occur, unless the rural poor have both the

incentive and the means to improve their livelihoods. Government policy currently gives

some attention to incentive in the form of attempts to create market demand, both

domestic and export. The principal obstacles to primitive accumulation in the rural

economy – and therefore increased incomes – are restrictions on land ownership and land

transaction. Incentive cannot kick-start widespread, cross-sector market transformation in

the face of these obstacles.

The government’s current facilitative position will not create the means for transition

from subsistence for Bhutan’s agrarian economy. A strong, pro-active government is

needed to create the means for the development process to occur and to ease the

transition for those who may threaten, or be threatened by the process of change. I

identify two such groups: the business elite,66 who currently benefit from lack of

competition – and therefore enjoy de facto power over commercial interests – and the

rural poor, who potentially face social upheaval, greater urban migration and loss of their

current subsistence livelihood. This group is Bhutan’s potential middle class. The next

chapter proposes detailed changes to land and farming practices that may initially seem

threatening to this group but would provide the means for long-term, cross-sector

development and improved livelihood for the majority of the population. The final

chapter proposes policy solutions that would ease the transition for both groups and help

maintain social stability.

66 All connected to, or part of the royal family. (Rizal 2001.)

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Key features of government strategy

Government strategy is strongly influenced by the Buddhist religion. I argue that this

leads to some admirable values, such as a commitment to environmental preservation,

alongside a traditionalism that threatens the development process. A key distinction for

my thesis is that between cultural and/or national values, and social practices. The two

are often compounded in the government’s rhetoric in the phrase ‘traditional culture and

values.’

Vajrayana Buddhism is the state religion, and religious beliefs are frequently cited as

justifications for government policy. The country’s very strong environmental policies—

for example, a commitment to maintain forest cover at 60% or more of land area

permanently67—are rooted in Buddhist thought. Central to Bhutan’s recent development

strategy is the slogan ‘Gross National Happiness is more important than Gross National

Product,’ a point of view extrapolated from Buddhist doctrine.

The government has pursued policies that are highly traditional – internet and TV were

banned until 1999 – alongside a programme for economic modernization. Western

values, in the form of materialism and consumerism, are referred to as undesirable,

without moderation.

67 Dorji, L. et al, 2006.

30

“Our approach to development has been shaped by the beliefs and values of

the faith we have held for more than 1,000 years…the clear articulation of a

cultural imperative has not only been used to guide our distinctive process of

development but also to cushion us against alien influences and the many

disruptive and undesirable impacts of indiscriminate modernization.”68

Unfortunately, the government’s dual objectives of avoiding modernization (‘preserving

traditional culture and values’), and eliminating poverty, conflict in practice. The

resulting, internally-inconsistent policies prevent increased land ownership and

transaction amongst the rural poor. I identify this as the principal obstacle to rural

development. It maintains the socio-economic divide in Bhutan’s political economy and

produces increasingly uneven development and social instability.

I argue that, because of this paradox, the government’s policies address symptoms of

poverty, but do not address the underlying causes of continued poverty. Government

strategy has certainly led to some improvements: for example, as recently as 1960, life

expectancy in Bhutan was estimated at 37 years69 but had risen to 64 by 2004.70 There

has been a significant increase in access to safe drinking water from 45 percent of the

68 Vision 2020 p. 21. 69 Royal Government of Bhutan: “The challenge of Youth Employment” Bhutan National Human Development Report November, 2005 p. 35. 70 World Bank: World development indicators, September 2006.

31

total population in 1990, to 78 percent in 2000.71 Since its widespread deployment in the

1980s the state education system has been highly successful: most Bhutanese children

now attend primary and secondary school.72

Largely due to this successful new education programme, rural-urban migration is

increasing. The number of newly educated youth predicted to enter the labour market will

soon exceed 14,000 per annum.73 Most of them will find no jobs awaiting them. But

government policy does not match the labour need by retraining for the construction

industry, for example,74 but by vocational training for small, niche cottage industries.

Alarmed by the rise in unemployment and urban crime, the government response is to

discourage migration. The government’s key strategy for rural development is support for

cottage industry and SMEs, micro-finance and vocational training. Agricultural reforms

for poverty reduction such as livestock breed replacement are proposed to improve the

quality of life for poor communities.

71 Geeri, S: “Digging deeper into the poverty-environment nexus,” Bhutan position paper, UNDP, August 2004. 72 Annual school enrollments have grown at 8% on average over the last few years; primary education enrollment rates were 83% in 2003; secondary and tertiary attendance and institutions are expanding rapidly (Human Development Report 2005). 73 UNDP Human Development Report, 2005. 74 A 1989 UNDP survey indicated that over 70 percent of employment in the mining sector was filled by immigrant workers. Expatriate migrant workers in the construction industry were estimated at 34,000 in 2006 (nearly two and a half times the number entering the labour market in Bhutan each year.) Wangyal, reflecting government sentiment, refers to the Bhutanese rural population as “generally averse to such labour.” (Wangyal, 2005, p 10.) I discuss policy recommendations for the construction industry in more detail in Chapter 5.

32

I argue that development strategies for agriculture are indeed important, but that

transformation of the rural economy will not occur without decreasing the labour-land

ratio, which would change the social organization of the rural poor. Such changes are

likely to give rise to further urban development, as the domestic market grows and

demands new locally-oriented industry. Improved infrastructure may alleviate poverty to

some degree, but it can only provide access to markets if the socio-economic conditions

for supply and demand are met. For this to happen, I suggest that a change in the social

organization of power is necessary.

Hydro power revenue has enabled beneficial public spending in Bhutan, but these

improvements alone will not kick start sustained, cross-sectoral development. The next

chapter shows how government policy, purportedly designed to address problematic

socio-political trends, maintains the subsistence economy and a rural-urban divide.

33

Chapter 4: Restraints on agrarian growth

The government of Bhutan wishes to retain particular social and economic practices that

it sees as valuable cultural tradition. Its policies aim to increase productivity without

substantially altering those practices, and are therefore contradictory. It also imposes, or

ignores, legal and de facto obstacles that hinder both growth and accumulation. This

chapter examines those obstacles. The first section identifies the structures and practices

that prevent transformation of the subsistence economy to sustained growth. Later in the

chapter, I show how limits on property ownership combined with the organization of

social power maintain the obstacles to growth.

The government wants traditional farming practices, common to many pre-capitalist

agricultural communities, to continue in Bhutan. It is, in part, these practices that the

government refers to as Bhutan’s unique cultural heritage. Most prevalent is the family

small-holding, relying on unwaged labour for subsistence grain production (rice, maize

and barley in particular) and livestock husbandry. However, similar systems have existed

and still exist in other less developed economies,75 and are not unique to Bhutan.

75 For example, the Anglo-Saxon ‘freeman’ system in Britain, prior to feudalism (Moore 1966), or Sub-Saharan African economies today. (Migdal 1988).

34

All agricultural holdings in Bhutan are less than twenty-five acres, with the exception of

a few holdings connected to members of the royal family.76 Figure 2 shows a large

proportion of them are less then ten acres. In this chapter I show how government

policies limit rural labor productivity to subsistence. Even more importantly, these

restrictions severely limit the capital formation required for entrepreneurial development

in the countryside. Family farms may contribute to developed economies, but not in

circumstances that tie the majority of the population to the land and subsistence living.77

Figure 2: Percentage of agricultural area by land holdings in acres.78

76 Tobgay 2006 and Basu 1996. 77 88.9% of Bhutan’s population lives within the agrarian subsistence economy (Bhutan statistical yearbook 2005). 78 Renewable Natural Resources Department Census 2000.

35

Endorsing policies that prohibit market access for the countryside risks exacerbating

uneven development; it denies material gain to the majority of the population.

“In rural Bhutan, the fusion of Tantric Buddhism and animistic Bonism with

our mainstream beliefs and values leads us to interpret nature as a living

system in which we are part rather than as a resource base to be exploited for

material gain.”79

Statements like this suggest that the government would like living standards to improve

without resorting to processes that monetize and free up land access. But the realities of

life at subsistence level suggest a conflict of interests: a Renewal of Natural Resource

(RNR) department report shows that only 44 percent of rural households can predictably

produce enough food for their requirements, while 56 percent produce food per annum

for only ten months of the year. Households regularly have food grain shortages.80

Shortages are exacerbated by natural crises, flooding or disease.81 However, famine is

prevented by the distribution of cheap grain imports from India.82 I argue that increased

development of Bhutan’s land and small-holding economy would easily cover the cost of

the food imports necessary to replace its subsistence economy.

79 Vision 2020, Chapter 2, p. 23. 80 RNR census 2000. 81 Tobgay 2005. 82 Ibid.

36

Primitive accumulation requires an increase in productivity: widespread socio-economic

development cannot take place without increased agrarian surplus.83 Enough surplus must

be produced on a regular basis in circumstances that encourage re-investment in the

production process as preferable to the next best opportunity. 84 I suggest that the most

effective boost to productivity would be substantial alteration to socio-economic

structures that maintain family small-holdings with unpaid labour. Allowing economic

choices of ownership and transaction to the rural poor, would create the possibility for

transition from subsistence. Increased income for rural entrepreneurs would give rise to a

new domestic, demand-led market. An increase in farm size, support in establishing

institutional standards and processes and access to modern technology would increase the

efficiency of production factors and allow access to wider market systems.85 Increased

productivity could open the way to a wage structured rural economy and a mobile

workforce.

Government policy attempts to increase productivity whilst maintaining the current

structures of kinship-based ownership and prohibiting transaction. Family small-holdings

are feeling the pressure from a slightly decreased labour force due to the beginnings of

83 There is growth in the agricultural sector, but it remains near 1% per annum, far below the overall GDP growth rate of 6 - 7%. The main impetus for agrarian growth came from forestry and cash crop production, businesses outside the realm of the majority rural population (Tobgay 2005). 84 The two largest crops in Bhutan are maize and rice. No production in excess of subsistence occurs in the case of maize and only about 1.2 percent of the harvest is left for sale in the case of rice (Tobgay 2005). 85 Tobgay suggests that the steep slopes of most farms in Bhutan make mechanization difficult (2007). However, Switzerland’s mountainous terrain is similar and farming communities benefit from machinery designed for such terrain (author’s personal observation).

37

rural-urban migration;86 in response, the government wants the migrating youth to return

to the countryside, to continue to work the land with their families alongside establishing

new niche cottage enterprises to supplement agricultural production. But intensification

of labour does not mean greater efficiency. It might increase production but it will not

lead to successful development. Attempts at new enterprises will only be successful if

enough of the population has a disposable income to create a market for local goods. If

the majority is still tied to unwaged labour on family small-holdings, significant new

enterprise and access to markets are both unlikely.

The government does also attempt to improve factor efficiency, for example, through

livestock breed replacement, training in sustainable forestry or cooperative farming

initiatives.87 However, I argue that benefits will be minimal within the current farming

structure. Food production is declining despite population growth.88 It seems likely that

one factor contributing to this is the increasing opportunity cost of labour as the rural

youth seek jobs in urban sectors. This thesis argues that government policy might work

with this trend rather than attempt to stall it. A more productive cow here and there might

ease the degree of poverty for some families. It will not kick-start agrarian transformation

in the countryside or meaningfully improve the general livelihoods of the rural poor.

86 This leads the government to interpret a labour shortage in the rural economy, whereas I maintain that the land-labour ratio is high, but inefficient. 87 See Kumar 1995 (on shifting cultivation), Tobgay 2005 (food production initiatives), Wangchuk et al 2006 (conflict resolution and approaches to cooperative farming practices) and IFAD Punakha Wangdi valley development project as examples. 88 Tobgay 2005.

38

Thus government strategy purports to increase access to markets (providing incentive)

without changing the social infrastructure and inherited socio-cultural institutions of

farming (the means of production). The only agricultural export market identified is that

for high-end cash crops: specialized rare or organic produce. And without the

development of primitive accumulation in agriculture and urban industry (the focus of the

last section of this chapter), a domestic market is unlikely to develop.

Constraints on land acquisition and transactions as an obstacle to

primitive accumulation

The combined effect of joint household ownership, inheritance practice, obstacles to sale

of land and restrictions on ownership size keeps the family small-holding of less than five

acres the mainstay of Bhutan’s rural subsistence economy. I suggest that not only does

this limit farm productivity, it ties more labour to the land than is necessary, where it is

less productive than it might be in the urban areas, and it prevents the sale or mortgaging

of small-holdings to raise capital to start non-agricultural small businesses that would be

more productive than agriculture.

Government policy imposes, or ignores, legal and de facto obstacles that are both

accumulation and growth hindering. Land transactions, and the use of land as loan

collateral, are limited – both legally and bureaucratically. Some government reports refer

39

to a high proportion of small-holdings as symptomatic of rural hardship in Bhutan,89 but

no strategy or policy addresses the limits on structural change amongst small-holding

communities as a root cause of continued poverty. This thesis proposes that until there is

a sound legal basis, with effective enforcement mechanisms for land ownership and

transaction and backed by efficient procedures, population growth coupled with de facto

inheritance rights will continue to increase land fragmentation and its associated

downward growth spiral.

Low transfer opportunity makes a successful small-holding economy unlikely. In

practice, subsistence economy makes land transfer uncommon. Land is the direct source

of livelihood and as such is a ‘fixed,’ immobile commodity, rather than a flexible asset

with a value that can be capitalized upon.90 The means are not in place for it to become

an indirect source of livelihood, as in a developed, rural economy. Inevitably, the

difficulty in selling or transferring land prohibits its use as collateral.91 Barriers to transfer

and accumulation limit its role.

Land ownership in Bhutan is complex. De facto and de jure rights exist alongside each

other.92 A central land cadastre records all land ownership in the country,93 but, crucially,

89 Tobgay 2005 for example 90 De Soto, 2000 91 I failed to find any reference to mortgages in Bhutan, other than regarding company owned property in Thimpu, the capital. One author mentions that mortgage is ‘not allowed’ (Basu 1996, Chapter 3). 92 Confirmed in a personal email from Lam Dorji, Executive Director, Royal Society for the Protection of Nature, Bhutan.

40

land ownership is registered per household, not per individual.94 This may be a principal

obstacle to land transfer, and therefore accumulation. Households consist of large,

extended families, yet transfers are only likely to occur through group consensus, which

risks veto, or through coercion, which risks dispute and increased uncertainty over

transactions. A ‘household’ is an organic entity. Connections between different families

and households merge over time. Using the household as the primary unit of ownership is

likely to cause lack of clarity and disputes over ownership or land usage.95 An externally

commissioned report for the Ministry of Agriculture, addressing rural conflict resolution

projects suggests that this is indeed the case in practice.96

Inheritance practices increase land fragmentation in Bhutan. Most small-holdings are

only one to three acres in size, and the average size is still decreasing.97 National

inheritance law provides for equal distribution among all sons and daughters.98 However

matrilineal inheritance is more customary – property is divided equally between all the

93 The old iron chain cadastre (‘sa-thram’), recorded manually (on paper) is currently being updated to a computer database. The new system uses lazer measurements. However, the computerization of records will serve no useful purpose if property cannot be transferred with ease (De Soto 2000). 94 A household is registered in the matrilineal name. This seems to lead to articles and reports that mistakenly refer to most property in Bhutan being owned by women. Technically, all members of the household are listed in the cadastre, under the matriarch. The likelihood of a woman selling the household land is remote. 95 Contributions to Kuensel and Bhutan Times’ web forums also suggest a lack of consistency in the interpretation of the word ‘household’ across different districts. 96 Wangchuk et al, 2006. 97 Tobgay 2005, p. 6. 98 US department of state, country report on Bhutan, 2004.

41

daughters of the head of the household. Primogeniture no longer exists,99 in law or de

facto, other than for the royal family. It is interesting that customary practice also

includes polyandry,100 in instances that might prevent land fragmentation. This suggests

that rural population themselves recognize the benefit of larger land holdings and would

take advantage of opportunities to prevent fragmentation.

Legally, land can be sold, but in practice this is not made easy. National restrictions

prohibit owners of less than five acres101 from selling without government permission –

and it seems that permission to sell is unlikely. The Bhutanese web forum sites show

people commonly believe that they are not entitled to sell if they own less than five

acres.102 Nicholas Rhodes writes:

“The people often live in joint families in family owned houses, built with

communal help on family owned land. In order to attempt to ensure that this

way of life is not completely eroded by the relentless advance of the cash

economy, laws have been passed to ensure that landowners cannot dispose of

99 This is true for the majority Buddhist population in the countryside. The Hindu Nepalese in the south, mostly now landless, do have de facto primogeniture. 100 US department of state, country report on Bhutan, 2004. 101 66% of land holdings are less than 5 acres and roughly 25% are between 5 and 10 acres (Togbay 05) (NB, note the significant difference with figure 2, which shows land area per holding size). 102 Land forum on Kuensel: http://www.kuenselonline.com/modules.php?name=Forums&file=viewtopic&t=42660

42

land that leaves them with less than a minimum smallholding. In this way,

most Bhutanese still live according to traditional values.” 103

This view expresses the commonplace confusion between traditional values and socio-

economic practices that I believe lies behind and is perpetuated by government strategy.

There is also a maximum land holding limit of 25 – 30 acres.104 Although very few small-

holdings remain even at this size, in southern Bhutan, prior to the 1952 Land Act, the

average holding was 400 acres.105 This thesis argues that access to larger small-holdings

would allow for mobility of the work force and the supply/demand mechanism to begin

to work through a wage structure. This socio-economic structure would also be better

suited to the low-yield quality of much of Bhutan’s terrain.

The final disincentive to land transfer and accumulation that I identify is the complicated

and lengthy bureaucratic procedures involved in transaction. Figure 3106 (page 44) shows

a breakdown of the procedures required to sell a piece of land in Bhutan.

Previously, I suggested that the first hurdle on the table, gaining family consensus for the

transaction, from all members registered in both households, might in itself prohibit many

103 Rhodes 2000. 104 It seems this is waived for members of the royal family and the 2007 Land Act will also provide an exception for industrial businesses. 105 Wangchuk. 106 Data compiled by the author from Tobgay 2005, Chetri and Dhar 2004 and personal communication from Dorji, Lam.

43

from taking the first step to buy or sell land. The points in the process at which court

procedures are required (at different levels), with a positive outcome, are marked as

circles. Any part of the process which takes place above the village/gup level is likely to

require travel to a district, regional or urban centre. Given that the majority of farmers

live at least six hours’ walk from a road head,107 the chances that two households might

be able to spend the required time and energy to complete a transaction are extremely

unlikely. All things considered, it is likely that a single transaction would take years

rather than months.

The rhetoric of government strategy exalts development with limited modernization and

the preservation of traditional culture and values. In practice this translates into the

prevention of access to market systems in Bhutan’s agrarian economy. The next section

examines the particular organization of social power maintained by this approach; who

benefits from the preservation of ‘traditional culture and values’ and how.

107 Chetri and Dhar 2004.

44

Figure 3: Land transfer process, steps 1-23.

Administrative

level

Family

consensus

Court

order

Court

order

(sathram)

Fragmentation

letter

Internal

agreement

Copies of

1A cards

Acquire

Form 2

Buyer &

seller

agreement

on Form 2

Form

71

(Gup

report)

Ministry

DSLR X

Trimkhang

Court O X

Geog (region) X X X X

Dzongkhag

(district) X X

Village gup

(headman) X X

Household X X

Administrative

level

Forms

48

Form

38

NOC

from

family

members

Buyer

land

records

Census

statistics

Court

process

MOA

approval

of court

verdict

Form

59

DSLR-

level

court

process

Survey

report from

Dzongkhag

Ministry X X O

DSLR O

Trimkhang X

Court O

45

Geog (region) X X

Dzongkhag

(district) X

Village gup

(headman)

Household X

46

Maintaining the organization of social power and the rural-urban divide

The removal of obstacles to land transaction and accumulation amongst small-holders

would provide the means for primitive accumulation, but might not be enough in itself to

kick-start widespread access to markets. In this section I analyse how the government’s

desire to limit urbanization adds another obstacle to transition and prevents overall socio-

economic development.

The government is keen to encourage a new class of entrepreneurs, but actively seeks to

avoid the political and socio-structural implications historically associated with

development. The result is a deadlock which ties the majority population to a subsistence

life, with increasing restlessness and lack of opportunity for a growing younger

population.108 Furthermore, the status-quo policy might backfire. This section shows how

restricting ‘modernization’ of urban areas by trying to limit rural-urban migration will

translate into increasingly uneven development and could further the causes for social

instability.

The government may also fear increased urbanization because industrial growth to date

has not led to wider market access and growth has been limited to particular sectors.

Increased urbanization without the growth of new industries and small businesses puts

108 Bhutan is demographically young (one fifth of its population are aged 15 – 24). While unemployment levels are still relatively low, the unemployment rate for young people is 2 – 3 times that of the general population and they constitute more than half of all unemployed (Human Development Report 2005).

47

pressure on the government for greater infrastructural support and welfare expenditure; a

cost without the counter-balancing benefit of cross-sector, domestic-market urban

economic growth.

The business elite have not fully engaged in the process of market access and

development. Government incentives for privatization of national industries did not

encourage spill-over or investment in other sectors. The rate of business formation is

disappointingly low.109 However, some privatized businesses are clearly successful in

themselves. This implies that they have the means to pursue further development across

sectors – but not the incentive. (This is opposite to the situation I described in relation to

the rural economy.) Incentives have been misplaced,110 giving rise to rent-creation

without the resulting growth enhancement envisaged. There is also no restrictive measure

such as subsidy withdrawal, for those businesses that do not develop in the way that

government rhetoric envisages, as was successful in the industrial growth period of South

Korea or Japan, for example.

Another reason the government may fear increased rural-urban migration is the possible

growth of a new, educated and articulate urban middle class of non-Ngalop origin.

Historically the rural, multi-lingual population of Bhutan have not formed a single,

organized political unit. I suggest the main reason for this has been the lack of means to

109 Wangyal 2005. 110 Rizal suggests that there is an “ethnic based economic policy which promotes the prosperity of the royal family, ruling elites and ngalungs, through business monopoly, special privileges to travel and passports, visas and business contracts” (Rizal 2001, p. 57).

48

do so. The rural population speak different languages and retain their cultural and ethnic

diversity. The hazardous mountain terrain and distance between villages and the

remoteness of most of the population make large-scale organization unlikely. However,

Rose111 argues that the land reform in 1952 served to “pacify the peasantry”. It was

followed by the substitution of cash land taxes for in kind taxes in 1970 which were kept

at low levels.

However the government may, inadvertently, have given the rural population a means to

organize. A possible indicator of this kind of social change is the increasing use of

English. Dzongkha, a Tibetan dialect, is traditionally the national and administrative

language, spoken by the ruling Ngalop, but historically the majority of rural population

have been culturally fragmented by different ethnicities and languages. But English is

now used increasingly in political circles and students learn it country-wide. The new

shared language, alongside improved basic infrastructure and rural-urban migration may

combine to create a strong, new politically critical and vocal mass.

Ostensibly, this is in keeping with government aims. A key principle underlying its

development strategy is ‘decentralization and public participation in decision-making

processes at all levels.’112 But a greater voice for citizens, especially the poor, can easily

be mistaken for equity itself, rather than its tool. Giving the poor a voice is potentially

meaningless or provocative without the means for an improved standard of living. The

111 Rose 1978. 112 Bhutan 2020, 1999.

49

rural poor will only enjoy increased socio-economic power with both the means, and the

long-term incentives to improve their livelihoods.

This thesis argues that the Ngalop elite, who control the politics and business of Bhutan,

find themselves caught between a rock and a hard place. Rural-urban migration may

result in one of two alternatives: urban chaos as unemployment and crime rise and

disaffected youth organize to protest – or, the growth of a new entrepreneurial middle-

class out of the rural poor that might threaten the status quo of politico-ethnic relations.

Trying to avoid both so as to keep political stability in the form of the continuance of

existing social power relationships, current development strategy leans towards

exacerbating the rural-urban divide and further social fragmentation.

This thesis suggests that, contrary to government strategy, urban problems will not

decrease and the newly educated will not return to their subsistence backgrounds. Rural-

urban migration is a natural consequence of the new state education programme and

improved infrastructure, alongside a subsistence economy. This change is already evident

in the growing discontented youth, educated for a modern economy, who refuse to return

to subsistence living, despite government attempts to entice them back to their districts of

origin. Increased agrarian productivity is likely to lead to even greater rural-urban

migration.113 Given the likely continuance of this scenario, the best approach may be to

transform this existing potential into urban and domestic market growth, rather than

113 Chang 2002.

50

renouncing the reality of demographic and social change. The final chapter explores how

this might happen and makes particular policy recommendations to this end.

The upheaval of social change and the potential threat to the existing means of livelihood

for the rural poor should not be underestimated. This thesis proposes changes to land and

farming structures and to the socio-economic framework that may initially threaten the

majority of the population and could bring dramatic changes to a traditional way of life.

However, I argue that such changes might also provide the means for long-term benefit

and cross-sector economic development. It could be argued that the Bhutanese poor have

very little to lose – there have been times of severe crisis and food shortage114 and a

substantial proportion still live below the poverty line. If the suggested transition does not

occur, the likely scenario is one of a Malthusian crisis, alongside uneven development – a

double cause for political unrest and social disaster in the country.

114 Although these are eased now by grain import (Tobgay 2005).

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Chapter 5: Policy implications

Economic development has always been painful in some ways.115 This chapter suggests

how government strategy can promote the transition while mitigating negative effects for

the rural poor and maintaining social stability. The government has invested in physical

infrastructure and institutions, both governing and financial,116 and has established a

programme of public spending on health and education. This is a good ground for growth

but I have argued that poverty alleviation measures will not provide a means for

development, or access to markets in the agrarian sector. This chapter proposes policy

solutions that would encourage development and a gradual end to subsistence-level life. I

propose ways in which the government might create the conditions for greater social and

economic cohesion, rather than further fragmentation of ethnic and social groups.

The development of new classes of urban and rural entrepreneurs should be central to

government policy. This would involve a shift in focus from ‘traditional culture and

values’ to relaxed expectations that the Ngalop elite alone can provide the engine for

market growth. The business elite might still play a key role in Bhutan’s development; it

is important that the government encourages their full participation in the process. Rent

creation re-directed to new industrial growth, technological progress, business mentoring

115 Chang 2002 and Migdal 1988. 116 Asian Development Bank, country web pages.

52

and training would send capital to where it is most needed and lessen the growing divide

between the business elite and the newly educated youth.117

Letting go of growth-limiting traditions

All forms of socio-economic organization have potentially negative and positive

outcomes. This thesis holds that policies geared towards agrarian transition are the most

likely to benefit all sections of Bhutanese society, the rural poor and business class

inclusive. Current policy, with growth limited to key industries, risks perpetuating a ‘one-

country-one-export’ commodity framework,118 with no spill-over into the creation of new

industry and a continuing vacuum of entrepreneurship.

Making a distinction between social traditions and national and/or cultural values would

be central to a revised approach. The rural way of life in Bhutan is a social tradition; it is

not a value and it is not culturally specific to Bhutan. Maintaining the process of

defragmentation in family smallholdings secures an existing social organization of

power. Serious policy changes require recognition of the benefits of actively promoting

access to markets in the countryside.

117 This divide is not explicitly stated in my source material, but it is implicit in the growing unemployment rate (over 2% now compared to 1.4% in 1998 – Asian Development Bank) and concern in government reports about the growing disaffected urban youth. 118 Asian Development Bank, country economic review, referring to hydro-electric power.

53

Certain core values can be easily extrapolated from government policy documents and

vision statements: happiness for individuals, including but not limited to material

improvement, social harmony, respect for the environment and active citizenship

participation. Government documents refer often to the importance of transparent

institutions and democratic processes which give civil society a greater voice.119 This

value might be expanded to explicitly include participation in economic development. At

the moment, policy seems to focus on local participation in processes of governance. I

argue that the current transition to democracy risks the disruption to social cohesion that

can result from increased voices without increased livelihoods. If these values were to be

freed from attachment to the particular social and material traditions that maintain the

subsistence economy in Bhutan, democratic and economic progress might occur across

the whole economy.

Clearly identifying important values as the guiding framework for socio-economic

transition will help to avoid some of the negative consequences associated with

capitalism. The adoption of a set of values across society is an organic process; the new,

successful education system might help their propagation. However, I argue that a

‘laissez-faire’ policy that allows capitalism to remain limited to certain sections of society

is most likely to lead to Gross National Dissatisfaction as the poor stay poor and the

minority rich get richer.

119 A chapter is devoted to governance, decentralization and participation in the Vision 2020 document, for example.

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Managing social transition

In chapter one I stated that a strong, active government needs to create the means by

which economic development can occur and ease the transition for those who may

threaten, or be threatened by the process of change. In this section I identify two guiding

principles through which the government might successfully manage the transformation:

encouraging primitive accumulation and using power productively.120

Managing social transition successfully requires active intervention. This thesis holds that

government policy should direct economic processes when it is clear that market forces

will not facilitate equitable development. There are clear signs that the Bhutanese

government is open to development and that they do want improved material conditions

for the Bhutanese population.121 It is not unrealistic to expect that they might also realize

the need to encourage a change in socio-economic organizational structures – such

transitions were made by some of the successful newly industrialized Asian

economies.122

120 There are other possible approaches that lie outside the scope of this thesis. Respecting the urban environment might be one. Current policy suggests that limiting the process of urbanization is most respectful to the environment, whereas I would propose a proactive approach to developing an ecologically conscious urban environment. 121 I refer to the policy oriented towards enabling rural entrepreneurship and explanations that recognize the fulfillment of ‘basic material needs’ as an aspect of GNH, though I argue that this does not go far enough. 122 For example, rent-seeking in Thailand was competitive and allowed for entry of new capitalists into rent-earning industrial sectors (Jomo and Khan p 89).

55

Successful policy has clear principle and function. Each Bhutanese policy should

demonstrate an understanding of its potential effect on social groups and how the needs

of those groups will be met. For example, a policy intended to increase the number of

business start ups in the tourism industry might consider the effect of visitors on isolated

communities and provide grants to businesses working with local communities to ensure

their involvement in the industry and improved means of livelihood. The focus should be

long-term in outlook, but may involve some short-term measures to ease the transition for

particular groups.

Encouraging primitive accumulation

In chapter four I identified restrictions on land ownership and transfer practices as key

obstacles to primitive accumulation in Bhutan’s rural economy. Here I outline policy

solutions to address each of those obstacles.

Property ownership should be individual, without registration by household or recording

of household members. The registration process and ‘sa-thram’ – ownership

documentation – are fairly well coordinated in Bhutan and there is a nationally

recognized system, rather than diverse de facto property rights and variants in local

custom. The land cadastre, including the recording of the whole household, is the result

of the national land reform programme in 1952. Introducing a change to this practice will

not disrupt traditions that go back centuries. Anecdotally, rural Bhutanese often refer to

56

the individual ownership of the matriarch123 and might welcome changes that avoided

family disputes through individual decision-making.

Government policy should facilitate the use of land as collateral for credit.124 The

government recognizes that legal access to credit has been a problem for those wishing to

set up cottage businesses in rural areas and is addressing this through micro-finance

schemes.125 Borrowing against land would make available a much larger pool of

(currently immobile) capital even than can be provided by micro-credit schemes.126 The

use of land as collateral would also create the need for local banking systems, a further

opportunity for commercial development.

The changes I have suggested would be likely to have a de facto impact on inheritance

practices.127 A benefactor would not be forced to split land and beneficiaries would be in

a position where they could make ownership decisions regarding land acquisition versus

cash (which could be used for savings or investment.) As I suggested previously, the rural

123 Kuensel web forums and personal communication from Chapman. 124 Logically, this is most likely to take place following the transition from household land registration to individual ownership rights. A period of time whereby household or individual registration could exist alongside each other might make the transition easier for rural communities. 125 Chetri and Dhar 2004. However, their research shows that extralegal credit still holds advantages for entrepreneurs and that government attempts at loan process simplification have not been entirely successful. 126 De Soto 2000. 127 Although some books and web sites refer to ‘matrilineal inheritance laws’ in Bhutan, I have been unable to find evidence of national jurisdiction and it seems improbable, given the ethnic diversity of the country. Inheritance ‘laws’ are most likely de facto practices, but if that is not the case, it would be possible for the Bhutanese government to adapt existing law following changes in local practice. Imposing a change in inheritance practice before it happened naturally could create landless, surplus labour before the economy was ready to absorb the labour into different sectors.

57

poor take opportunities to increase land holdings through joint household ventures or

marriages when possible, and it seems unlikely that they would provide barriers to

acquisition128 were cash available for alternative uses.

All national restrictions on land sale should be lifted, in particular the five acre rule which

prevents the easy sale of small land-holdings. The 25 to 30 acre maximum limit on

small-holdings could be raised incrementally.129 Rescinding the five acre rule would

make small-holdings available for use as collateral and would make it possible to

aggregate plots that are too small to be productive. To implement this change the

government would need to engage in country-wide publicity. There is already

considerable confusion regarding the law on sale of land130 and the rural population, most

of whom are still fairly isolated, would benefit from clear understanding of the law. Pilot

schemes and local case examples of successful procedures might help reassure them

about the reliability of transaction processes. In addition, the excess land tax proposed in

the 2007 Land Act should be waived.131

128 The choice would still be available to families to maintain household small-holdings, should this prove to be the best opportunity for them. 129 Setting some maximum limit could still be an option; it might encourage competition and avoid labour monopsony problems. Yield capacity for most land in Bhutan is low enough to suggest a considerably higher optimal limit than currently exists on holdings. 130 See Chapter 4. 131 Despite a number of references to the revised Land Act 2007 on Kuensel and Bhutan Times and Assembly sessions with relevant agenda items, a full copy of the Act does not yet appear to be available. Of those changes that I have read about, the only one relevant to this thesis is the excess land tax.

58

Bureaucratic and administrative obstacles to the land transfer process should be

streamlined so that transactions can take place within a few months, rather than years.

Unnecessary obstacles such as court proceedings should be dropped, to lessen the time

spent by buyers and sellers in the process to fewer person-days.

Alongside the proposed policy changes, the government should provide incentives to

facilitate a shift from the unwaged, voluntary labour system to waged employment. This

is likely to occur with an increased mobility of labour in the countryside, but start-up

grants for new agricultural business, or tax holidays on small-holding wages might

contribute to the transition.

The policies suggested above are specific to eliminating obstacles to primitive

accumulation in Bhutan’s rural economy. None of these changes would necessarily

promote wide scale development on their own. It is important to see them in the wider

context of a government development strategy designed to facilitate economic growth,

and a concomitant reorganization of socio-economic power structures. The next section

examines how active participation in this process of reorganization might avoid domestic

instability.

Using power productively

Government intervention is needed to direct the growth of market processes in a way that

will benefit Bhutanese society through more productive employment for the rural poor. I

argue that this cannot be accomplished by the present strategy which maintains the rural-

59

urban divide. This section proposes ways in which the government can encourage

development across sectors. Adoption of these policies would require the separation of

cultural values from the identified social practices.

Growth has remained isolated in particular industries for the last two decades; I argue that

this suggests a need for rent creation oriented towards growth enhancement of the

broader economy. The 2005 Human Development Report states ‘the Royal Government

remains keen not to introduce more or higher taxes so that the private sector growth is not

stifled.’132 I argue that the government should reassess the function of specific rents and

organize rent packages designed to increase spill-over, investment in new businesses,

entrepreneurialism and development of the tourist, retail and service industry.

Bhutan has exceptional growth rates, concentrated in hydro-electric power, construction

and transport industries.133 The Human Development Report accurately recognizes that

the high capital intensity and low employment elasticity of the major industries has

prevented the desired spill-over effect and creation of new employment.134 This

understanding is already leading to some subsidies for rural SME and cottage industry

start-ups. I suggest that these could concentrate on the urban as well as the rural economy

and target development of the domestic market, rather than farms producing the high-end

132 Human Development Report 2005, p. 24. 133 The hydroelectric sector accounts for 12% of GDP and 45% of government revenues (Asian Development Bank, country economic review). 134 “The role of employment generation as an important aspect of promoting pro-poor growth has not figured adequately in the poverty reduction strategy thus far, and its importance cannot be understated.” (Human Development Report 2005, p 57).

60

cash crops for export (that is, focus on developing high capital intensity industry with

high employment elasticity).

The lack of entrepreneurialism and new business from industrial spill-over suggests that

private revenue has not been reinvested in the economy. Interestingly, failure to reinvest

does not show in greater consumption levels,135 but, typical to the Bhutanese character, in

a high savings ratio at 17 percent.136 This has resulted in excess liquidity that the Royal

Monetary Authority has had to sterilize137 and it is unlikely that this is a result of FDI,

which has been severely limited by government policy to date.138 One obstacle to

entrepreneurialism I have already addressed: the absence of growing domestic demand

due to persistence of the rural subsistence economy. Another obstacle is the ‘crony

capitalist’ relationship between the Ngalop bureaucracy and the business elite. The

government could better use this relationship to promote cross-sector growth.139

The government should provide incentives to involve the business elite in the process of

capital transition. Rather than tax holidays which have growth reducing implications in

135 Anecdotally, there is very little conspicuous consumption in Bhutan. Given the Bhutanese approach to materialism, it is more likely that excessive consumption might show in the commissioning of a few extra fancy Buddhist statues in dangerously unreachable places of outstanding natural beauty. 136 Asian Development Bank, country economic review. 137 Ibid. 138 Tobgay, 2006. 139As was successful in Malaysia and Thailand, for example, in different ways suited to the specific organizations of power in those countries (Khan and Jomo 2000).

61

this context,140 I propose a return to standard taxes for all large businesses (construction

and hydro-electricity in particular). These businesses are unlikely to fail if taxed.

Increased government revenue could then be used to promote rural and urban SMEs. To

create a link between existing business practice, expertise and the domestic market, there

could be a tax in kind option on favourable terms for large businesses that uses their

expertise to run vocational training and business mentoring or advice schemes for young

entrepreneurs. This could also help create links between two divided social groups and

might ease political tension through the transition.141

Subsidies for the adoption of new technology and modern machinery would assist a move

towards capital intensive industry with high labour elasticity. This is a controversial

suggestion, with transformative implications for the construction industry in particular.142

Bhutan’s road infrastructure could dramatically and rapidly improve from its current poor

quality, manually constructed tracks143 to a reliable interior network designed to suit the

needs of the Bhutanese population. Improved productivity in the Bhutanese construction

140 Government revenue is decreased without increased production. 141 This policy suggestion aims to avoid the clash of classes and the problems that Pakistan experienced in the 60s with its exclusionary industrial policy (Khan 1999). Bhutan has inherited traditions of state-society interaction that are more akin to Pakistan, say, than South Korea. 142Low-waged, low-skilled migrant workers manually break stones into gravel at the roadsides (Chapman, personal communication). 143 Most road construction is privatized. Road construction is carried out by businesses contracted to the Indian government or local Bhutanese companies (using Indian migrant labour). The Indian government finances road construction through soft loans; it benefits through interest on the loans, (Asian Development Bank). It also gains a source of employment for manual labour.

62

business would also potentially decrease Bhutan’s dependence on Indian financing and

open up new, skilled employment opportunities and training in the industry.144

My final suggestion that Bhutan should open up its tourist trade is also contrary to current

government policy.145 However, this thesis suggests that preserving traditional culture

and values by limiting the contact of the ordinary Bhutanese citizen with the modern

world prevents development. The other argument promoted by the government for

limiting tourism is environmental preservation. Bhutan is unusually placed in that it has

little history of development with degrading environmental effect to counterbalance or

‘un-do.’ A cautious, gradual approach to developing a specialization in eco-friendly

mountain tourism might contribute to preservation of the environment. Possibilities for

local tourist connected business leading enhancement of the local service industry are

great. Development of the tourist industry would contribute to the move away from the

subsistence economy which, if well-managed, could also lead to less pressure on the

environment.

144 My thinking in this paragraph is influenced by Khan’s account of privatization in Bangladesh and his distinction between employment and technological outcomes (Khan 2004, “The public sector and privatization”). Bhutan has the potential to improve outcomes in both areas. My focus is on the importance of technological absorption and dynamic efficiency for industrial policy (Khan and Blankenburg 2005) – in Bhutan this would have a much needed long-term effect on demand for skilled labour. 145 Explained in Chapter 2.

63

64

Conclusion

Bhutan’s high growth rates would be most impressive if they indicated a significant

increase in real income per capita for the majority of the population. They do not.

Economic growth in Bhutan has been confined to a few industries connected to the

creation of hydro-electric power, plus an exclusive trade in tourism and high-end cash

crops. Some of the increased government revenue has been spent on public services, but

these have little effect in comparison to the improved livelihoods for the rural poor that

would result from the changes I have proposed.

Bhutan’s success could prove to be its undoing, if the government continues its current

development strategy without consideration of the likely socio-economic results.

Increased rural-urban migration without the emergence of a new entrepreneurial class,

both rural and urban, will bring further unemployment and poverty. Improved

infrastructure and exposure to the ‘modern’ world without development of a domestic

market for locally produced goods will bring dissatisfaction and resentment. Increased

wealth for a minority of the population without changes to the social organization of

power will bring new social and political rivalries and domestic instability.

These social problems can be avoided if Bhutan’s leaders adopt strategies that facilitate

primitive accumulation and economic growth throughout the economy. I have shown

65

how they can do this with policies that remove obstacles to the transfer and accumulation

of land in small-holding communities, nurture the emergence of a young entrepreneurial

class and encourage productive reinvestment of industrial surplus. Successful economic

development requires strong, skilful management. Bhutan has the ingredients for success:

what it needs now is appropriate application.

66

Bibliography

Documentary sources Geeri, S: “Digging deeper into the poverty-environment nexus,” Bhutan position paper, UNDP, August 2004. Royal Government of Bhutan: “The challenge of Youth Employment” Bhutan National Human Development Report November, 2005.

Royal Government of Bhutan: Poverty Reduction Strategy Paper, 2004: A cover note to the Ninth Plan Main Document.

Royal Government of Bhutan, Planning Commission: Bhutan 2020: A vision for peace, prosperity and happiness. 1999. Royal Government of Bhutan, National Statistics Bureau: Statistical Yearbook of Bhutan 2005 Tobgay, S: “Bhutan and the World Trade Organization” 2007 Current working document for the Ministry of Agriculture, Royal Government of Bhutan. Tuladhar, A M: “Reengineering cadastre and land registration systems and business opportunities in Nepal and Bhutan.” FIG (International Federation of Surveyors) Working Week 2003, Paris France April 13 – 17, 2003. Wangchuk K, Dorji K and Lhendup U: “Crushing the bone: Minimizing grazing conflicts in community tsamdro.” A series of case studies on community-based forest and natural resources management in Bhutan. June 2006. Books and articles Books - General: Aoki, Kim and Okuno-Fujiwara The Role of Government in East Asian Development, (Oxford: Clarenden Press) 1997 Aston, T.H and C.H.E.Philpin: The Brenner Debate: Agrarian class Structure and Economic Development in Pre-Industrial Europe, (Cambridge: Cambridge University Press) 1985 Bardhan, P: The role of governance in economic development: A political economy approach, (Development Centre Studies: OECD) 1997

67

Books and articles continued Chang, H-J: Kicking away the ladder: development strategy in historical perspective. (London: Anthem Press) 2002 De Soto, H: The Mystery of Capital, (Bantam Press, London) 2000 El-Ghonemy, R: The Political Economy of Rural Poverty: The Case for Land Reform, (London: Routledge) 1990 Grix, J: The Foundations of Research, (New York: Palgrave Macmillan) 2004 Hayek, F.A: The Fatal Conceit: the Errors of Socialism. (Chicago: University of Chicago Press) Ed: WW Bartley III. 1988. Migdal, Joel S: Strong societies and weak states, (Oxford: Princeton University Press) 1988. Moore, B: Social origins of dictatorship and democracy – Lord and Peasant in the making of the modern world. (Middlesex: Penguin.) 1966 Neugeboren, R: The Student’s guide to Writing Economics, (New York: Routeledge) 2005 Heywood, A: Politics, 2nd Edition, Chapter 1, ‘Theories of Politics’ and Chapter 2, ‘Governments, systems and regimes.’ (New York: Palgrave) 2002 Khan, M and K.S.Jomo (eds) Rents, rent-seeking and economic development: Theory and evidence in Asia. Cambridge University Press: Cambridge (2000) Books - Bhutan: Basu, G. K: Bhutan, the political economy of development (New Delhi: South Asian Publishers) 1996 Chetri S and Nath Dhar S: Money and microenterprises in Bhutan – The Land of Zorig Chug Sum, Thirteen Arts and Crafts (KMT Press: Bhutan and Sterling Publishers PVT.Ltd: New Delhi) 2004 Fraser, N; Bhattacharya, A and Bhattacharya B: Geography of a Himalayan Kingdom: Bhutan. (New Delhi: Concept Publishing Company) 2001 Grover, V (ed): Bhutan, Government and Politics. (New Delhi: Deep and Deep publishing Ltd.) 2000

68

Books and articles continued Karan, P.P: Bhutan: Development amid Environmental and cultural preservation. Institute for the study of languages and cultures of Asia and Africa, 1987. Kharat, R.J: Bhutan in SAARC. (New Delhi: South Asian Publishers.) 1999 Rizal, D.P: Bhutan: Decentralization and Good Governance. (Delhi: Adroit Publishers) 2001 Rose, L: The Politics of Bhutan. (Ithaca: Cornell University Press.) 1978 Articles - general: Bhaskar, V and Khan M: “Privatization and Employment: A study of the jute industry in Bangladesh.” American Economic Review Vol. 85 (1): 267-272, March 1995 Cardemil, L; Di Tata J C and Frantischek F: “Central America: Adjustment and reforms in the 1990s.” Finance and Development, volume 37, no. 1, March 2000 Dorji, L; Webb, E.L and Shivakoti, G.P: “Forest property rights under nationalized forest management in Bhutan” Environmental Conservation 33 (2) Foundation for Environmental Conservation, 2006. p141 - 147 Gray, C and Daniel Kaufmann: “Corruption and Development.” Finance and Development, volume 35, no. 1, issue on Corruption, March 1998 Ito, T and Krueger, A: Growth Theories in light of the East Asian Experience, National Bureau of Economic Research. (Chicago: University of Chicago Press) 1995 Ito, T and Krueger, A: Governance, Regulation and Privatization in the Asia-Pacific Region, National Bureau of Economic Research (Chicago: University of Chicago Press) 2001 Klitgaard, R: “International cooperation against corruption.” Finance and Development, volume 35, no. 1, issue on Corruption, March 1998 Khan, M: ‘The Efficiency implications of corruption,’ Journal of International Development Vol 8, no 5 pp 683 – 696 (1996)

Khan, M: “The Political Economy of Industrial Policy in Pakistan 1947-1971.” SOAS Department of Economics Working Paper No. 98, 1999.

69

Books and articles continued

Khan, M: “Class, Clientelism and Communal Politics in Bangladesh,” in Panikkar, K.N., Byres, T.J. and Patnaik, U. eds. The Making of History: Essays Presented to Irfan Habib . New Delhi : Tulika 2000a pp. 572-606.

Khan, M: “The political economy of secularism and religion in Bangladesh” in Basu, S. and Das, S. eds. Electoral Politics in South Asia . Calcutta : K.P. Bagchi 2000b.

Khan, M: “Bureaucratic and Political Corruption in Pakistan,” Report on the World Bank's Anti-Corruption Strategy in Pakistan, 2001-02, for the Operations Evaluation Department of the World Bank.

Khan, M: ‘Corruption and governance in early capitalism: World Bank strategies and their limitations’, in Reinventing the World Bank. (Cornell University Press) 2002 Khan, M: “Power, Property Rights and the Issue of Land Reform: A General Case Illustrated with Reference to Bangladesh” Journal of agrarian change, Vol 4, Nos 1 & 2, January and April 2004a, p73 – 106. Khan, M: ‘State Failure in Developing Countries and Strategies of institutional Reform’ in Toward Pro-Poor Policies: Aid Institutions and Globalisation, Tungodden, B; Stern, N and Kolstad, I (eds) Proceedings of Annual World Bank conference on Development Economics, (Oxford: Oxford University Press and World Bank) 2004b.

Khan, M: “The Public Sector and Privatization,” draft paper presented to the Industrial Policy Task Force of the Initiative for Policy Dialogue, New York, 4-5th June 2004c.

Khan, M and Blankenburg, S: The Political Economy of Industrial Policy in Asia and Latin America,” draft paper presented to the Industrial Policy Task Force of the Initiative for Policy Dialogue, Rio de Janeiro, 17-19th March 2005

Kraus, R and Vanneman, Reeve D: ‘Bureaucrats versus the State in capitalist and Socialist Regimes’ Comparative Studies in Society and History. January, 1985 Krueger, A: ‘The Political Economy of the Rent-Seeking Society’ in Bhagwati, JN (ed) International Trade: Selected Readings (London: MIT Press) 1996 Mauro, P: ‘Corruption and Growth’, Quarterly Journal of Economics, Vol 110 no 3 (August 1995) Mauro, P: “Corruption: causes, consequences and agenda for further research.” Finance and Development, volume 35, no. 1, issue on Corruption, March 1998

70

Books and articles continued Murphy, KM; Shleifer, A and Vishny, RW: ‘Why is rent-seeking so costly to growth?’ in The American Economic Review, Vol. 83, no 2 (May 1993) pp 409 – 414 Murphy, KM; Shleifer, A and Vishny, RW: ‘Industrialisation and the Big Push’, The Journal of Political Economy, Vol 97, no 5 (October 1989) pp 1003 - 1026 Rodrik, D: “Globalization, Social Conflict and Economic Growth,” The World Economy Vol. 21 (2) March 1998 Rodrik, D: “The Limits of Trade Policy Reform in Developing Countries,” Journal of Economic Perspectives. Vol 6, no 1 pp 87 – 105.1992. Rodrik, D: "Growth Strategies", John F. Kennedy School of Government, Harvard University Working Paper. June 2003 Shleifer, A and Vishny, RW: ‘Corruption,’ The Quarterly Journal of Economics, Vol. 108, no 3. (August 1993) pp 599 – 617 Shue, Vivienne: ‘The Fate of the Commune,’ Modern China vol 10, No. 3 (1984) pp259 – 283 Solow, R: ‘A contribution to the theory of economic growth.’ The Quarterly Journal of Economics, vol. 70 (February 1956.) Treisman, D: “The Causes of Corruption: A Cross National Study”, Journal of Public Economics 76: 399 – 457 (2000) World Bank Policy Research Report: The East Asian Miracle: Economic Growth and Public Policy (September 1993) Articles - Bhutan:

Fraser, N: “Development Strategy of Bhutan,” for 16th European Modern South Asian Studies Conference, Edinburgh. Sept. 2000 Panel on Structural Change and Economic development in South Asia. Kumar, P: “Shifting Cultivation in Bhutan: A gradual approach to modifying land use patterns” Case study from Pema Gatshel District, Bhutan. Community Forestry Case Study, Series 11, Forestry Department of Bhutan. 1995 Mancall, M: “Bhutan’s quadrilemma: to join or not to join the WTO. That is the question.” Journal of Bhutan Studies, vol 9 (no date given.)

71

Books and articles continued Rhodes, N: “The monetization of Bhutan” Journal of Bhutan Studies, 2000 Rose, L: “The Role of Monarchy in the Current Ethnic Conflicts in Bhutan,” In Hutt (ed.) Bhutan,: Perpectives on Conflicts and Dissent. (Kiscadale) 1994 Ura, K: “The Nomads’ Gamble: Pastoralists of Northern Bhutan,” South Asia Research, Vol. 13, No.2, November 1993. Wangchuk, T: “Change in the land use system in Bhutan: ecology, history, culture and power.” Journal of Bhutan Studies, Volume 2, no. 1 (no date given.) Wangyal, T: “Cottage and Small Enterprise Development in Bhutan: Prospects, Status and Recommendations” UNDP Report on Bhutan, June 2005 Articles - unpublished: Chapman, D (A’gyür Rig-tsal ): Letters from Bhutan 2003 Fan, S and Chan-Kang, C: “Is small beautiful? Farm Size, Productivity and Poverty in Asian Agriculture” (International Association of Agricultural Economists, Durban) July 2003 Tobgay, S: “Small farmers and the food system in Bhutan,” for the FAO Symposium on Agricultural Commercialization and the Small Farmer, Rome, 4-5 May 2005 Tobgay, S: “Bhutan and the WTO: A Study on the Impact of Agriculture and Agriculture-Related Issues in WTO Agreements on the Bhutanese Agriculture Sector.” November 2006. CISD Student theses from previous years: Aagenes, S: Exploring the equator principles: Commercial banks taking environmental and social responsibility into account. 2005 Acuna, J. J: Has Trade Liberalisation worked? The Case of the Philippines. September 2004 Bissada, A-M: The role of efficient corruption in bringing about economic growth in developing countries – Egypt case study contrasted to the Malaysian experience. September 2006 Fernandez, E: Future-flows securitization: Implications for the international financial system and economic development in emerging markets. 2005

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Books and articles continued Naito, D: Can Ghana successfully implement its twin strategy of export-led industrialization , and domestic market-led industrialization based on import competition? September 2005 Newsum, Ruth: China’s WTO Accession: Implication for China and the global economy September 2006. Wirth, C: What is the impact of introduction of TRIPS on the Indian pharmaceutical industry and the consumption of the medicine in India? September 2006 Newspapers Bunting, M: “Fine Words, Flawed Ideas. Economist Hernando De Soto is hailed as a saviour of poor countries, but he is nothing of the kind.” The Guardian, September 11 2000 Kuensel, national newspaper of Bhutan: www.kuenselonline.com

! Major Changes in Land Act, 30 June 2007: http://www.kuenselonline.com/modules.php?name=News&file=article&sid=8680

! Excess land forum posts: http://www.kuenselonline.com/modules.php?name=Forums&file=viewtopic&t=42660

Interviews Chapman, David. Communications & Technology entrepreneur. Bhutan writer & traveller. (Personal communication regarding industry in Bhutan.) Dorji, Lam. Executive Director Royal Society for the Protection of Nature Bhutan (Personal communication regarding property rights, land use and ownership in Bhutan.)

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Interviews continued Tshiteem, Karma. Planning Commission Minister Royal Government of Bhutan (Personal communication regarding rural access to electricity, population statistics and hydro power plans.) Internet sites

Asian Development Bank ! Country assistance plan, Bhutan. 1. Country performance assessment:

http://www.adb.org/Documents/CAPs/BHU/0102.asp ! Country economic review, Bhutan:

http://www.adb.org/Documents/CERs/BHU/2003/execsum.asp

The International Fund for Agricultural Development (IFAD) ! Home page: http://www.ifad.org/governance/index.htm

! Rural poverty in Bhutan (July 2007): http://www.ruralpovertyportal.org/english/regions/asia/btn/index.htm

! Punakha Wangdi Valley Development Project: http://www.ifad.org/evaluation/public_html/eksyst/doc/prj/region/pi/bhutan/r223bhae.htm

! Agriculture, marketing and enterprise promotion programme, Bhutan: http://www.ifad.org/english/operations/pi/btn/i659bt/index.htm

The inverse size-productivity debate: ! Frithjof Kunen, Professor of rural development, University of Gottingen:

http://www.professor-frithjof-kuhnen.de/publications/man-land-relation-changes/3.htm

! Food First, Institute for food and development policy: http://www.foodfirst.org/pubs/policybs/pb4.html

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Internet sites continued

IMF: ! Bhutan country pages: http://www.imf.org/external/country/BTN/index.htm

! Article IV consultation: http://www.imf.org/external/np/sec/pn/2005/pn0591.htm

National Assembly of Bhutan (Tshogdu): ! Home page: http://www.nab.gov.bt/

Royal Government of Bhutan website - Bhutan.gov.bt

! Acts: http://www.bhutan.gov.bt/government/acts.php?av_id=0 ! Moveable and immovable property act of the kingdom of Bhutan, 1999 (An Act

relating to loans, mortgages and other security interests in moveable and immovable property): http://www.rma.org.bt/Documents/FISD/Moveable%20&%20Immovable%20ACT.pdf

! Service standards for land transactions, 2006, Department of survey and land records, Ministry of Agriculture, Royal Government of Bhutan: http://www.moa.gov.bt/moa/DSLR/publications/ss_english.pdf

Ministry of Agriculture:

! Rural land compensation rate, discussion forum: http://www.moa.gov.bt/moa/forum/readdetails.php?topicid=63

Ministry of Works and Human Settlement: ! “Department of Roads at a glance” 2005:

http://www.dor.gov.bt/Publication/DoR%20at%20a%20glance.pdf

Ministry of Trade and Industry: ! Department of tourism: http://72.18.135.200/dotbhutan/

Planning Commission: ! Five Year Plans: http://www.pc.gov.bt/fyp.asp ! Fifth Plan: http://www.pc.gov.bt/fyp_dzo.asp?ID=6 ! Sixth Plan: http://www.pc.gov.bt/fyp_details.asp?ID=6&DzoID=1 ! Ninth Plan: http://www.pc.gov.bt/fyp_dzo.asp?ID=9

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Internet sites continued

Swedesurvey - working worldwide. (A Swedish state-owned land management organization contracted by the RGOB to work on UNDP projects in Bhutan.)

! Bhutan pages; a history of the Thram system: http://www.swedesurvey.se/workingworldwide/bhutan.html

Things Asian:

! Bhutan bucks regional trend in attitude to women: http://www.thingsasian.com/stories-photos/2162

Tshonrig.org, knowledge centre for the private sector in Bhutan

! Taxation system in Bhutan: http://www.tshongrig.org/bhutan/en/content/en/1843/Taxation-System-in-Bhutan

Travel and tourism operators:

! Bhutan Cypress: http://www.bhutancypress.com.bt/index.html ! Bhutan Travel Information Centre: http://travelbhutan.tripod.com/

UN Encyclopaedia of the Nations:

! Bhutan: http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Bhutan.html

UNDP website:

! Bhutan, poverty reduction pages: http://www.undp.org.bt/prprogramme.htm ! Human Development Report, Bhutan 2006:

http://hdr.undp.org/hdr2006/statistics/countries/country_fact_sheets/cty_fs_BTN.html

! Development newsletter Bhutan, August 2006, Vol 1, no 1: http://www.undp.org.bt/Governance/docs/Development%20Newsletter06.pdf

US Department of State, Country Reports on Human Rights Practices

! Bhutan, 2004 report: http://www.state.gov/g/drl/rls/hrrpt/2004/41739.htm

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Internet sites continued

The World Bank website, www.worldbank.org ! Bhutan: Country overview 2006:

http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/BHUTANEXTN/0,,contentMDK:20196794~menuPK:306154~pagePK:1497618~piPK:217854~theSitePK:306149,00.html

! Bhutan: Priorities for Agriculture and Rural Development: http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/EXTSAREGTOPAGRI/0,,contentMDK:20753248~menuPK:2007425~pagePK:34004173~piPK:34003707~theSitePK:452766,00.html

Data sources ESDS online services:

! World Development Indicators (September 2006)