Is the Bhutan the country counting Gross National Happiness? They might be doing not so bad, after all. What is fatally wrong with social relations largely in the same place they were hundreds of years ago? Most African tribes might be doing much better till now in they were not had been forced out of their feudal kingdoms by colonizations.

As for theocracy selection, I formed an opinion that it is chiefly Abrahamic theocracies (Christianity, Islam, Judaism) that are running the problems of the world since ages. They militant resolution for "one God" is not necessarily the norm in spiritual traditions. Yeah, you have the example of purely non-Abrahamic conflict in Sri Lanka, and more demanding Buddhists in Thailand - but that idea of fighting specifically for your faith might had come there fairly recently. For what I know about spread of Buddhism, it does not fit into the frame of fervent persuasion and even political abuse. Say, in Japan two religions - Buddhism and 'pagan' Shintoism - coexist for more than a millennium without visible tension. Persons profess both traditions, as if religion is not about specifically about believing something but knowing how to live. Buddhist theocracies might not be very attractive political forms, but are modern hyped democracies unquestionably better?