21 Jul Lessons from Bhutan
A few years ago, I worked with the Bhutan’s Government on the tax reform they were undertaking. Thanks to this opportunity, I was fortunate to know part of the culture of this beautiful country. During one of my visits, a conversation with my government counterpart—who later became a close friend—left a deep impression on me:
-I feel bad coming to such a beautiful country and working on a model that will increase taxes on people. (Me)
-Don’t feel bad, Mauricio. Here in Bhutan, we work to have an efficient tax system so that we don’t have to exploit our natural resources. (My Bhutanese friend)
In many parts of the world, the so-called “defense of natural resources” involves greater capture of oil rents, either by increasing royalties (or taxes) or through the direct exploitation of natural resources by the Government. In Bhutan, however, the defense of natural resources means not exploiting them at all.
That said, preserving natural resources in Bhutan (especially its forests and water resources) comes with significant costs. One of these, as I mentioned earlier, is that Government expenses must be funded by taxes. I use the word costs because it’s far more convenient to cover state expenses with royalties from natural resources than with higher taxes, undoubtedly.
While I’m tempted to explore (in this text) the reasons why Bhutanese people choose a tax system designed to protect natural resources, I won’t. What I’d like to emphasize with this beautiful example is that the energy transition also implies a fiscal transition. What do I mean by this?
I’m confident that most of us care about the environment. We want cleaner air, uncontaminated water, protection for animals (I see this every day with my son Santi), recycling plants, and diverse forests that provide shade. In short, I believe many of us want an environmentally friendly world.
But I’m equally certain that many of us also like having money—whether directly or indirectly—from gas royalties, logging, meat production and processing, monoculture farming, or gold mining (often with mercury). We like having money in our pockets, and often we “turn a blind eye” to the origins of these resources. This, in my view, is why it’s so difficult to get people (we included) to bear the costs of protecting the environment.
The challenge is enormous. For instance, which candidate is more likely to win a national or regional election? The candidate who promises higher natural gas royalties to be distributed to the people, or the one who proposes raising taxes and removing subsidies to protect the environment? This is what I call a “fiscal transition”—ensuring that state expenses (health, education, etc.) are funded through taxes on people rather than royalties from natural resources, as Bhutan is attempting to do.
How do we achieve that level of maturity? One possibility, I believe, is through what I call no-education for our children and youth. But what does this mean? No education? Maybe there’s little we can do to change our way of thinking, the way of the older generations. But we can avoid passing this perspective —our perspective— to our children. Perhaps we can break the vicious cycle with our generation and teach children and youth that it is possible to make a living while caring for the environment. We can help them avoid rent-seeking behaviors by providing them with tools to earn their income without depending on gas royalties. Maybe we can “de – educate” them, that’s why I mentioned “no-education”.
I recently read a book titled Ottoman Studies. In it, the author describes how many leaders of the Ottoman Empire were deeply concerned about the content of school curricula—yes, what their children were learning. Perhaps it’s time to discuss what we’re teaching our children, or better yet, maybe it’s time we learned from them—their love for animals, their empathy, and their sensitivity. Perhaps it’s time we stopped polluting them, both literally and figuratively.
S. Mauricio Medinaceli Monrroy
La Paz
July 21st 2022
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