The problem with subjective indicators, such as Bhutan’s Gross National Happiness Index, is that they can be easily manipulated by governments to their advantage.
Across the globe, the gross domestic product (GDP) or gross national product (GNP) is the most credible indicator of economic performance. Sustained and healthy GDP growth is believed to signal that a nation is faring well on the economic front.
Measuring an economy by its GDP is not without its limitations. For one thing, GDP is essentially a measure of how much is produced, not of what is produced. GDP calculators, for instance, would attach as much importance to the production of military goods as to that of food, as much importance to the production of luxuries as to that of necessities.
The GDP index does not take into account who in the main is benefiting from the expansion of the national output or who is primarily losing from its contraction. It may happen, and it generally does, that the fruits of GDP growth are largely enjoyed by a small section of society. Hence, not surprisingly, economies undergoing rapid GDP growth also tend to experience growing income disparities.
The use of the GDP indicator is based on the premise that the more a nation produces, the higher would be its standard of living. It does not take into account the negative externalities, such as the environmental degradation involved in the production of goods.
In view of such limitations of GDP and related indicators, economists and psychologists have long debated alternative economic indicators, though such debates have not been more than academic exercises.
However, there is one country, and only one, that has shunned the GDP indicator and embraced another index. The country is Bhutan and the index is called Gross National Happiness (GNH). Before we look at Bhutan's GNH Index, a brief introduction of the country's economy seems in order.
Though it may not be fair to describe an economy using indicators that it does not approve of, the reliance on such indicators is unavoidable.
Bhutan is one of the least developed countries (LDCs) in South Asia and one of the smallest economies in the world, ranked at 171 in terms of economic size, according to the World Factbook. Although its per capita income is about $6,000, this is mainly because of the very small population of 0.72 million.
Of late, Bhutan has experienced rapid economic growth, with the GDP growing at 8.5 percent and 9.4 percent in 2011 and 2012, respectively (World Bank data), mainly on account of hydropower projects. Bhutan's economic growth has thus clearly outpaced the average growth of South Asia, which was 6.1 percent and 3.6 percent in 2011 and 2012 respectively.
The economy is largely agrarian with cement, wood products and processed food, in addition to tourism, being the major industries. Agriculture is the largest source of employment and accommodates nearly 44 percent of the labor force. Bhutan’s total exports in 2012 were $ 722 million. The export basket consists largely of primary, low value-added products such as cement, metals and vegetable oil. The country has an electricity surplus, which it mainly exports to India.
Although it is South Asia's smallest, and arguably the most backward, economy, Bhutan has far more equitable distribution of income than other countries in the region. Measured by the international standard of earning $2 per day, the poverty percentage in Bhutan declined from 23.2 in 2007 to 12 in 2012. Compare this with other South Asian countries: Bangladesh (76.5), India (68.8), the Maldives (12.2), Nepal (57.3), Pakistan (60) and Sri Lanka (23.9). In 2003, the percentage shares of the richest 20 percent and the poorest 20 percent in the national income were 53 and 5.4, respectively. By 2007, the latest year for which relevant data is available, this had changed to 45.2 and 6.6, respectively. The Gini index, a measure of income distribution, fell from 46.8 in 2003 to 38.1 in 2007 (World Bank data).
Coming back to Bhutan's GNHI, it goes beyond numbers to take, what is commonly referred to, as a holistic and social view of development. The edifice of GNHI rests on four pillars – promotion of sustainable development, preservation and promotion of cultural values, conservation of the natural environment and establishment of good governance. These four pillars are further divided into eight general indicators: (a) physical, mental and spiritual health, (b) time-balance, (c) social and community vitality, (d) cultural vitality, (e) education, (f) living standards, (g) good governance and (h) ecological vitality.
The GNHI is thus a blend of indicators that are subjective and objective, quantitative and qualitative. While the level of physical health can be fairly gauged by the average life expectancy and infant mortality rate, it is difficult to do so in the case of mental and spiritual health. Spiritual health is even difficult to define. And the overall 'happiness' is even harder to assess.
In the first place, it is difficult to give a definition to happiness. Does it lie in the satisfaction of desires – as argued by hedonists? Or does it lie in the control of desires – as maintained by some great moral teachers? Is an educated person happier than an illiterate one? We may define happiness as well-being. But such a definition is circular, for what really is wellbeing? Material progress? Spiritual satisfaction? Mental calmness?
In the second place, happiness is largely subjective, a state of mind so to speak. Wealth may be the strongest ingredient of happiness for one person. For another, a sense of recognition may be the key to happiness. Thirdly, subjective indicators are difficult, if not impossible, to compare over times and across regions and nations. Are people living in the countryside happier than those living in the cities? Are the Bhutanese happier today than they were, say, 20 years ago? Are Indians happier than Americans?
Happiness, however, does have some objective content. For instance, all else being equal, the healthy tend to be happier than the sick, those having access to basic needs, at least in nine out of ten cases, are happier than those who do not. According to the UNDP Human Development Report 2013, life satisfaction tends to be greater in countries that are higher on the HD Index, which is based on objective indicators. And Bhutan, it may be mentioned, ranked 140th out of 185 countries on the 2012 HDI.
Another problem in the case of subjective indicators is that the government can easily manipulate these to boast its effectiveness. A despot can claim that the people are better off and thus happier under his 'paternalistic' regime than they were under a democratic dispensation. Of course, governments at times fudge objective indicators, such as GDP growth rate. But it is always more convenient to manipulate subjective indicators than the objective ones.
That said, the GNHI and similar subjective indices are a reminder that objective indicators such as per capita income and inflation levels are often misleading. Such indices also remind us that economic welfare is part of the overall social welfare; it is a means and not an end in itself. However, subjective indicators can at best complement and not be a substitute for objective data.