Bhutan is renowned for "happiness." The country may have per capita GDP of only US$2,000, but take a stroll through some of its terraced rice paddies and strike up a chat with some of Bhutan's relaxed farmers – it's hard not to be moved by their irrepressible smiles and wonder why they don't seem to have a care in the world.

Part of the reason is that the Bhutanese government has made "happiness" a prime characteristic of the country's development.

"Every forward step should truly be a progressive kind that should advance our chance of happiness," says Jigmi Thinley, the country's first elected prime minister. Speaking with me in a five-star hotel for foreign guests situated along the Wang Chuu river in the capital Thimphu, Thinley explains that policies in pursuit of economic development must also respect traditional culture and environmental protection, with the latter two factors always taking precedence.

The government's promotion of a Gross National Happiness index, or GNH – as opposed to the more commonly used GDP standard – has generated a feverish desire around the world to learn more. At a time when market economies have lost their way and capitalism faces widespread challenges, Bhutan is being touted as a new model offering an alternative path for development.

Its positive exposure only grew when, in the middle of October, headlines everywhere were preoccupied with the marriage of the young, dashing king of Bhutan, Jigme Khesar Namgyel Wangchuck, to a 21-year-old student, breaking many of his fans' hearts.

Bhutan's Choices and Costs

Bhutan's ability to attract the international spotlight today results from a choice made 50 years ago that launched a half-century-long experiment of sacrificing economic growth in favor of cultural preservation and environmental protection.

Bhutan's people may have paid a price for that choice, but they remain steadfast in using GNH as the main denominator of their road forward.

Of course, Bhutan's isolation may also be a product of its geography. Mountains cover 98 percent of a land area slightly larger than Taiwan, explaining why the country's average altitude is 3,000 meters. All of its towns and farms have developed along river valleys, and parallel mountain ranges slicing through the country from north to south preclude building a cross-country railroad and complicate any form of transportation.

In fact, Bhutan's typical landscape – emerald terraces extending from river banks up mountain slopes dotted by traditional white farmhouses – evoke the Shangri-La described in 1933 by James Hilton in his book Lost Horizon.

Gauging 'Well-being' 

Since the Wangchuck family unified Bhutan at the beginning of the 20th century, the country has remained relatively insular, engaging only in limited trading activities with neighbor India.

But to better adapt to a rapidly changing world, Bhutan decided in the early 1960s to become more modernized and nudged itself open to the outside world. During the 32-year rule of its fourth "Dragon King" – Jigme Singye Wangchuck – Bhutan threw off its shroud of mystery and entered the large melting pot of globalization.

When he suddenly ascended to the throne on July 23, 1972 after his father died, Jigme Singye Wangchuck was only 17 and had just recently returned from Britain where he was studying. He knew modern civilization could deal a severe blow to traditional culture and the environment, so his advisers devised novel economic indicators, such as GNH to replace GDP, that anchored the happiness and well-being of the nation's people as the main guiding principles of Bhutan's development.

To implement the GNH concept, Bhutan created the GNH Commission similar to Taiwan's Council for Economic Planning and Development. Consisting of the prime minister, ministers and other top officials, the committee devises long-term development plans and reviews all proposed policies based on GNH guidelines.

Bhutan's tourism policies most clearly illustrate the GNH spirit. Tourism is the resource-starved country's second biggest income earner, behind hydroelectric power generation, and contributes 20 percent of its foreign exchange earnings. Visitor numbers have risen from 300 in 1974 when Bhutan first opened its doors to 25,000 last year.

Yet Bhutan's government has not promoted a rapid expansion of the sector because of the negative example provided by neighbor Nepal, another repository of Tibetan Buddhism.

'Price-controlled' Tourism

Nepal, which drew 600,000 tourists in 2010, has put no constraints on its tourism sector, contributing to chaotic streets, drugs and prostitution in the capital Kathmandu. Trails up the Himalayas are littered with garbage left behind by visiting mountain climbers.

"Seeing that is really sad," says Pawo Choyning Dorji, the Bhutanese son-in-law of famed Taiwanese theater director Stan Lai. He said his countrymen took the lesson to heart, and they have remained vigilant in trying not to make the same mistake.

The result has been a tourism policy that relies on price to keep quantity in check.

Every foreign tourist visiting Bhutan must pay a basic fee of US$200 per day, which includes accommodation, transportation and guides, but if one stays at a five-star resort, the room is extra and usually exceeds US$300 a night.

A worker at the Tourism Council of Bhutan explains that the fee requirement helps the government limit tourist numbers and guarantees tourism quality, allowing visitors to truly experience the country's special culture and natural beauty.

"To those of us in the industry, of course, the more people the better," says a local guide named Ngawang Gyetshen. "But we also understand that if we don't control (tourism), the day Bhutan's traditional culture vanishes and our natural vistas are no longer beautiful, we'll be out of a job."

Education, Health Care, Overseas Study All Free

Another indicator of the GNH spirit and the biggest source of happiness and well-being among Bhutan's people is the effort made to care for them. 

The government provides free education from elementary school through college and also funds postgraduate studies abroad for those who pass an exam qualifying them to study overseas. The children of many elite Bhutanese families have diplomas or advanced degrees from American or British universities

In addition, Bhutan offers its population universal health care, including free basic medical care. The service reaches more than 90 percent of the population, the only exceptions being people who live in remote mountain areas. In all, the government dedicates 30 percent of its budget to education and health care, 2.3 times the level seen in Taiwan.

The welfare benefits extend to public housing. Bhutan's government has built a large quantity of low-income housing units over the last 10 years with the assistance of the Asian Development Bank. These three- or four-story public housing units, characterized by their white walls and red roofs and easily spotted on the periphery of every town in the country, are rented out for US$50-US$60 per month, about a third to a half of the typical rent in the country.

With the gradually expanding tourism sector creating new jobs and a still robust agriculture sector that continues to absorb workers, the country's unemployment rate has remained consistently under 4 percent.

In choosing to support a "big government," however, Bhutan must also bear the burden of heavy responsibility.

According to estimates by Karma Ura, president of the Centre for Bhutan Studies, because local households rarely need loans to cover their expenses, personal debt is only 11 percent of GDP.

In contrast, Bhutan's government has had to borrow money from India, the Asian Development Bank and the World Bank to support its many free services, and its total debt is now 70 percent of GDP.

The Temptations and Harm of 'Civilization'

The national debt has been one of the major issues of greatest concern to members of Bhutan's parliament recently, and is emblematic of the wider challenges the country faces in fighting off the ills of modern civilization.

Although Bhutan's government is trying its best to follow a path of sustainable development guided by GNH goals, when Pandora's box is opened, evils will inevitably be released.

Bhutan may have emerged from its isolation in 1961, but its people did not truly feel the change until 1998, when a ban on televisions was lifted. The Internet was introduced in 2001, and mobile phones were allowed in the country beginning in 2003. These developments bombarded the country's people with information from the outside world and its material civilization.

Over the past decade, Bhutan's material standard of living has risen dramatically. The number of cars has grown an average of 25 percent a year, and one of the most common sights in the capital Thimphu is big SUVs shuttling around. Nightclubs and Internet cafes have sprouted up everywhere and become regular hangouts for young people.

These young adults, dignified in traditional attire at work during the day, turn themselves into fashionistas at night in their blue jeans and T-shirts. But the wave of civilization washing in from outside the country has also brought pollution, diseases of civilization, youth unemployment, drugs and even suicide.

"In the past, you never heard of young people committing suicide. Now there are five or six a year. To Bhutanese, it's really bizarre," Nawang says. 

Bhutan's education minister, Lyonpo Thakur Singh Powdyel, agrees.

When I explain that the outside world sees Bhutan as a "happy country," he immediately responds," Bhutan is no longer an isolated Shangri-La."

In a spartan office dotted with touches of traditional culture, the education minister sees more nuance than the public perception allows.

"Even today, outside people think Bhutan must be the happiest country in the world. … This is not correct. We wish it were, but Bhutan is a real country of real people. As people, we have our own problems, strengths and weaknesses," he says.

"(But) we should not sacrifice some of the very important aspects of our culture that we have inherited from our ancestors. Even though the economic gains may be very tempting, we should not sacrifice everything just for economic returns."

As it plots its next step of development, Bhutan's government has begun reaching out to the international community for ideas. In June, nearly 200 technical and investment experts from 20 countries gathered in Bhutan to discuss how to apply the latest green technology and commercial models to the country.

Though busy with their administrative duties, the prime minister, Cabinet ministers and executives of state-run companies all sat in a single row at the conference, carefully listening to the experts presenting the latest technology and business ideas and peppering them with questions.

Sitting through the entirety of each session, I noticed that none of the senior officials ever left early.

"I've come in touch with many governments, and I've never seen such humble and earnest officials," says a retired Taiwanese businessman who was also present at the conference. "The efforts of the Bhutan government should really make Taiwan reconsider what it is that we really want."

Translated from the Chinese by Luke Sabatier