Remarks of the Hon’ble Prime Minister at a Press Conference releasing the first natural, social, and human capital results of Bhutan’s new National Accounts
Bhutan will be the first country with expanded capital accounts
10 February, 2012
Three decades after His Majesty the Fourth Druk Gyalpo made his now famous proclamation that “Gross National Happiness is more important that Gross National Product,” I think we are only beginning to unravel the profundity of that seminal statement.
In His Majesty’s presence, one thing was always crystal clear to me – he chose his words very carefully and very deliberately. Each word and each phrase had meaning. Two examples are particularly relevant for what I now want to present now:
His Majesty could have chosen simply to talk about GNH and its benefits. But he very deliberately introduced and presented GNH in direct contrast to GNP. That means it is incumbent on us really to understand GNP (or GDP as it has now become in international accounting systems) if we really want to understand GNH. How and why is GNH more important than GDP? And since GNP or GDP is actually an accounting system, what would GNH accounts look like?
And His Majesty could have chosen to say that “GNH is more important to the people of Bhutan than GNP”. But again he deliberately stated it as a universal truth that is therefore applicable to all peoples. This is crucial to understand. GNH matters not only for us. It’s also His Majesty’s gift to the world.
At a time of devastating environmental and cultural destruction globally and the growing bankruptcy and collapse of our global economic order, the world desperately needs an alternative to the materialist, consumerist obsession that has wreaked such havoc. If we can demonstrate the practical viability of a working set of GNH (not GDP) accounts that chart a sane and balanced path forward, that will be one of the greatest contributions our little country can make to the wider world.
Let’s consider our current reality – the way the whole world now keeps its national accounts is enshrined in the official global System of National Accounts that is accepted by the United Nations, the World Bank, the International Monetary Fund, and by every government in the world. It’s the reason GDP is comparable globally from London to Addis Ababa to Beijing to Buenos Aires.
It is hard to rock that boat…!!! But rock it we must, because that universally accepted system is based on untenable premises that have led governments to adopt some of the most bewildered, confusing, and destructive policies imaginable. And challenge it we must if we are serious about charting a sane and balanced GNH path forward, both for ourselves and for the world.
The conventional and almost universally held belief, globally, is that the more the economy grows, as measured by GDP growth, the better off and more prosperous we are. But consider this:
Because the GDP only counts monetary market transactions, it mistakenly and misleadingly counts the depletion and degradation of our natural wealth as if it were economic gain. If we were to cut down all our forests in Bhutan, GDP would mushroom, because GDP only counts the timber value of our forests once they are cut and sold at market. GDP takes no account at all of the resources we leave behind, and so it entirely ignores the value of our standing forests.
Yet, as we well know, and as our own Constitution wisely recognizes by vowing to keep most of our country under forest cover, our standing forests have immense value – protecting wildlife, biodiversity, watersheds, soils, and sacred places, sequestering carbon from the atmosphere, ameliorating the danger of landslides, and much more. Because those values are invisible in GDP, it’s no wonder the world has accumulated a massive ecological debt that appears in no country’s national accounts.
Keeping accounts this way, as the world presently does, is like a factory owner selling off all his machinery and seeds and counting it as profit, even though he’ll have nothing to produce next year. And yet that’s the way the world, and even we here in Bhutan, keep our national accounts! How absurd and foolish..….!
There are so many examples of this absurdity…. The more fossil fuels we burn and the more greenhouse gases we therefore emit, the more GDP will grow, and therefore – according to conventional economic dogma – the ‘better off’ we are! The true costs of climate change remain invisible. For that matter, as we learned the hard way watching the devastating oil spill in the Gulf of Mexico, the true costs of oil have never been reflected at the petrol pump, primarily because our present GDP-based accounting systems ignore ecological benefits and costs. Indeed, it is sadly ironic that natural or human-induced disasters actually make GDP grow, simply because money is spent on repair and clean up costs.
In fact, many things that make GDP grow, and that are therefore conventionally (and misleadingly) counted as positive signs of an expanding economy, actually signify a decline in wellbeing. The more crime, pollution, war, and sickness we have, for example, the more GDP will grow, simply because money is being spent on prisons, police, weapons, drugs, cigarettes, and pollution clean-up costs to deal with the consequences of these ills. So long as you spend money, GDP will grow, regardless of whether that spending signifies an improvement or a decline in wellbeing. So simple GDP growth can’t actually tell us if we are better off or not.
And if GDP counts as gain many questionable things that actually signify a decline in wellbeing, it entirely ignores a whole range of productive economic activity that genuinely does contribute to wellbeing – ignoring it simply because no money is exchanged. And so, volunteer work, community service, and the vital unpaid work done in households count for nothing in GDP, and the precious free time that we need to meditate, garden, and socialize with family and friends is completely value-less in GDP.
And since equitable development is one of our core GNH principles, it is noteworthy that GDP only measures the total amount of income a country produces and takes no account of how that income is shared. So the rich could be getting richer while the poor are getting poorer, and GDP can still continue to grow, with the growing inequities invisible in our standard accounts.
I could go on listing many more fundamental flaws in our present reliance on GDP accounting methods which, sadly, send highly misleading signals to policy makers who continue to undermine timely action on climate change, disease prevention, and other crucial preventive actions. But just these few examples I’ve noted suffice to explain what the primary architect of GNP / GDP accounting, Nobel Prize winner Simon Kuznets, knew 60 years ago when he warned that GNP /GDP should never be used to assess a nation’s wellbeing, prosperity, and progress. To do that, Kuznets recognized that you always have to ask, not just how much is growing, but what is growing. But the world has long ignored Kuznets’ sage warning and still uses GDP as its primary measure of wellbeing, prosperity, and progress.
That total misguided reliance on GDP was never clearer than in the global economic collapse of 2008-09 when the world’s leaders almost unanimously decided that the most important thing they could do was make the economy grow again – in other words, to stimulate GDP. The world is now paying the price of that one-sided approach as governments slide into devastating debt from which they cannot emerge.
All this leads me directly to the key announcement I want to make today. From now on, we will start accounting properly for all this country’s precious wealth – including our natural wealth and our human, social, and cultural wealth – and we’ll stop focusing narrowly on our financial and manufactured wealth alone, as if that was all that mattered. Of course, we’ll continue to count that, but from now, we’ll be able to figure, for the first time, the true costs of economic activity, and we’ll be able to balance that activity with a proper accounting of our natural, human, and cultural wealth, which of course are key pillars of Gross National Happiness. In short – we’ll create balanced GNH Accounts for this country, and thereby build the world’s first comprehensive set of national accounts.
We are in good company here, since this is precisely the action recommended by the Stiglitz Commission that was appointed by French President Sarkozy. We’ll be the first country actually to do it in practice, and we are already drawing on some of the world’s top expertise to do it well and credibly. It won’t be easy, it will take time to do properly and fully (several years in fact), and there will be huge methodological challenges, like the inadequacy of money to properly to describe the value of non-market activities like ecosystem services.
But we have already begun work, thanks to Drs Costanza and Kubiszewski here, by starting to train our national statisticians, key GNH Commission and Finance Ministry officials, and others, in the new concepts and methods. And – even though we don’t yet have complete GNH Accounts ready – we are today releasing the first natural, social, and human capital results of our new expanded accounting system.
There is more information, and three detailed reports, in your press packages. But here I’ll just let you know in a nutshell:
Drs. Kubiszewski and Costanza have worked hard to give us the first ever estimate of the economic value of our country’s natural capital, which provides Nu 760 billion worth of ecosystem services every year – 4.4 times more than our whole GDP. Nearly 94% of that ecosystem service value is provided by our country’s forests. And here is where our little country is performing a huge service to the world, because 53% of that value accrues to those beyond our borders. Why? Because our forests regulate the climate, store carbon, and protect watersheds from which others benefit.
And every year, our people generously give their voluntary time to helping others, cleaning up litter, repairing lhakhangs, fighting fires, helping the sick, elderly and disabled. Through their voluntary work, our people are not only living GNH in action, but providing extraordinarily valuable services to our country and economy. If we had to replace their voluntary work for pay, we now know it would cost us Nu 320.5 million every year. This is our first economic valuation of our social capital.
And we have started valuing our human capital too, learning for the first time that the health care costs of alcohol abuse cost our health care system more than Nu. 30 million every year.
So for the first time, by starting to value our natural, social, human, and cultural capital, we are beginning to get a true sense of our rich and abundant national wealth, and also of real costs like alcoholism – all of which are hidden in conventional GDP-based accounts. The new information will help us tremendously in making policy based on real evidence, and in creating a true GNH society.
More than that, our new full benefit-cost National Accounts are really the foundation of a new GNH based economic paradigm that at last weans us off our consumerist economic growth addiction and that will lead us to sustainable human happiness and the wellbeing of all life forms.
Some will undoubtedly ask: Why is all this number crunching necessary? And others might also ask – aren’t our GNH indicators enough? Well first, the new measures matter simply because what we count and what we measure is what gets attention. If we don’t count something, we think it has no value, and it doesn’t catch the attention of policy makers.
And when we measure properly, we need both indicators and also accounts. Certainly our GNH indicators – and the key data and information they provide – are the essential basis for our proposed new GNH accounts. We will always need these indicators for basic information about our country – and particularly as the important policy screening tool they have become. But they are not enough. Indicators and accounts are two entirely different, though fully complementary, sets of measures. Indicators assess trends over time. Accounts assess value – what something is worth.
As simple examples, crime rates are an indicator (i.e. are they going up or down), but accounts assess the economic costs of crime to society – money we’d save if we had no crime. Smoking rates are an indicator, while accounts assess the economic costs of smoking to our health care system due to higher rates of lung cancer, heart disease, and respiratory ailments – money we’d save if no Bhutanese smoked. Greenhouse gas emissions are an indicator of whether we are emitting more or less GHGs this year than last, while accounts assess the costs of climate change attributable to these emissions.
In other words, our new GNH Accounts will add a vital economic valuation dimension to our current indicator information. And that is essential for the simple reason that GDP is not an indicator but an accounting system. If we are really to challenge the dominance (even stranglehold) of GDP-based thinking over our thinking and policy formation, then it is completely necessary to construct a broader and more accurate and comprehensive accounting system that properly accounts for the value of our natural, human, and cultural wealth.
So long as budgets make the world go round, and so long as we ignore the true benefits and costs of our economic activity, indicators alone will not unseat the GDP from its present dominant role. And if we are to realize His Majesty’s profound understanding that GNH is more important than GNP, then we have to take the next step in creating a true GNH society by building on our excellent indicator system to construct now a new set of GNH Accounts.
What does this new accounting system mean in practice? Let me give just a couple of examples. When we present our annual budgets, it means we will also start accounting for the health of our forests and other natural resources like water. And if we’ve had a bad year of forest fires, for example, then we’ll need to count the consequent forest loss as a depreciation of our natural wealth, just as we presently figure depreciation when we account for the value of our built and manufactured capital. And if we plant trees, we’ll count that as an investment in natural capital, just as we presently account for investments in our built capital.
Or to take a human capital example, we will start figuring preventable illnesses as costs to the economy rather than misleadingly accounting for such expenditures as economic gain. We have started, for example, to calculate the costs of alcoholism to the economy, and therefore to see preventive expenditures designed to reduce alcohol abuse as worthwhile investments in our human capital (rather than simply as costs, as in our present flawed accounting system.)
In other words, our budgets and accounts won’t look the same, but they will definitely give us a much more accurate picture of how we are doing as a country, and how prosperous we really are when we consider our total wealth and the full benefits and costs of our economic activity. Because they give us much more comprehensive information than our present GDP-based accounts, the new accounts will also make our policy making much more informed than it can possibly be when we rely on narrow market measures alone. The new accounts will point accurately to our hidden strengths (like our rich natural and cultural heritage), on which we need to build rather than taking them for granted, and they will identify weaknesses and investment requirements in our national wealth that are overlooked in conventional market measures.
Perhaps most importantly, our new national accounts will finally reflect all the key pillars of Gross National Happiness, so that we can truly chart a balanced path forward for the benefit of all our people. And in so doing, the new accounts will certainly be a gift to the world from which many other countries can learn. I truly believe that this major step on which we are embarking will not only help us understand more profoundly what His Majesty the Fourth King meant when he said GNH is more important than GNP, but in fact will help fulfill His Majesty’s vision of a happy and contented people.