For more than a thousand years, this tiny realm—known by locals as Druk Yul, “land of the thunder dragon”—has survived in splendid isolation, a place the size of Switzerland wedged into the mountainous folds between two giants, India and China. Closed off from the outside world both by geography and deliberate policy, the country had no roads, no electricity, no motor vehicles, no telephones, no postal service until the 1960s. Even these days, its mesmerizing landscape evokes a place that time forgot: ancient temples perched high on mist-shrouded cliffs; sacred, unconquered peaks rising above pristine rivers and forests; a timbered chalet inhabited by a benevolent monarch and one of his four wives, all sisters. No wonder visitors can’t resist calling Bhutan the last Shangri-la.

But even Shangri-la must change. When King Jigme Singye Wangchuck ascended the throne in 1972, Bhutan suffered from some of the highest poverty, illiteracy, and infant-mortality rates in the world—a legacy of the policy of isolation. “We paid a heavy price,” the king would say later. His father, Bhutan’s third king, had begun opening up the country in the 1960s, building roads, establishing schools and health clinics, pushing for United Nations membership. King Jigme Singye Wangchuck would go much further. With the self-confidence of a ruler whose country has never been conquered, he has tried to dictate the terms of Bhutan’s opening—and in the process redefine the very meaning of development. The felicitous phrase he invented to describe his approach: Gross National Happiness.

For many Bhutanese, this idea is not merely a marketing tool or a utopian philosophy. It is their blueprint for survival. Guided by the “four pillars of Gross National Happiness”—sustainable development, environmental protection, cultural preservation, and good governance—Bhutan has pulled itself out of abject poverty without exploiting its natural resources (other than hydropower, sold to India as Bhutan’s main source of foreign funds). Nearly three-quarters of the country is still forested, with more than 25 percent designated as national parks and other protected areas—among the highest percentages in the world. Rates of illiteracy and infant mortality have fallen dramatically, and the economy is booming. Tourism is growing too, though strict limits on new construction and a daily tax of up to $240 a visitor keep out the kind of backpacking hordes that have trampled Nepal.