Four years ago, Bhutan, the fabled Himalayan Shangri-la, became the last nation on earth to introduce television. Suddenly a culture, barely changed in centuries, was bombarded by 46 cable channels. And all too soon came Bhutan's first crime wave - murder, fraud, drug offences. Cathy Scott-Clark and Adrian Levy report from a country crash-landing in the 21st century

April 2002 was a turbulent month for the people of Bhutan. One of the remotest nations in the world, perched high in the snowlines of the Himalayas, suffered a crime wave. The 700,000 inhabitants of a kingdom that calls itself the Land of the Thunder Dragon had never experienced serious law-breaking before. Yet now there were reports from many towns and villages of fraud, violence and even murder.

The Bhutanese had always been proud of their incorruptible officials - until Parop Tshering, the 42-year-old chief accountant of the State Trading Corporation, was charged on April 5 with embezzling 4.5m ngultrums (£70,000). Every aspect of Bhutanese life is steeped in Himalayan Buddhism, and yet on April 13 the Royal Bhutan police began searching the provincial town of Mongar for thieves who had vandalised and robbed three of the country's most ancient stupas. Three days later in Thimphu, Bhutan's sedate capital, where overindulgence in rice wine had been the only social vice, Dorje, a 37-year-old truck driver, bludgeoned his wife to death after she discovered he was addicted to heroin. In Bhutan, family welfare has always come first; then, on April 28, Sonam, a 42-year-old farmer, drove his terrified in-laws off a cliff in a drunken rage, killing his niece and injuring his sister.

Why was this kingdom with its head in the clouds falling victim to the kind of crime associated with urban life in America and Europe? For the Bhutanese, the only explanation seemed to be five large satellite dishes, planted in a vegetable patch, ringed by sugar-pink cosmos flowers on the outskirts of Thimphu.

In June 1999, Bhutan became the last nation in the world to turn on television. The Dragon King had lifted a ban on the small screen as part of a radical plan to modernise his country, and those who could afford the £4-a-month subscription signed up in their thousands to a cable service that provided 46 channels of round-the-clock entertainment, much of it from Rupert Murdoch's Star TV network.

Four years on, those same subscribers are beginning to accuse television of smothering their unique culture, of promoting a world that is incompatible with their own, and of threatening to destroy an idyll where time has stood still for half a millennium.

A refugee monk from Tibet, the Shabdrung, created this tiny country in 1616 as a bey-yul, or Buddhist sanctuary, a refuge from the ills of the world. So successful were he and his descendants at isolating themselves that by the 1930s virtually all that was known of Bhutan in the west was James Hilton's novel, Lost Horizon. He called it Shangri-la, a secret Himalayan valley, whose people never grew old and lived by principles laid down by their high lama: "Here we shall stay with our books and our music and our meditations, conserving the frail elegancies of a dying age."

In the real Bhutan, there were no public hospitals or schools until the 1950s, and no paper currency, roads or electricity until several years after that. Bhutan had no diplomatic relations with any other country until 1961, and the first invited western visitors came only in 1974, for the coronation of the current monarch: Dragon King Jigme Singye Wangchuck. Today, although a constant stream of people are moving to Thimphu - with their cars - there is still no word in dzongkha, the Bhutanese language, for traffic jam.

But none of these developments, it seems, has made such a fundamental impact on Bhutanese life as TV. Since the April 2002 crime wave, the national newspaper, Kuensel, has called for the censoring of television (some have even suggested that foreign broadcasters, such as Star TV, be banned altogether). An editorial warns: "We are seeing for the first time broken families, school dropouts and other negative youth crimes. We are beginning to see crime associated with drug users all over the world - shoplifting, burglary and violence."

Every week, the letters page carries columns of worried correspondence: "Dear Editor, TV is very bad for our country... it controls our minds... and makes [us] crazy. The enemy is right here with us in our own living room. People behave like the actors, and are now anxious, greedy and discontent."

But is television really destroying this last refuge for Himalayan Buddhism, the preserve of tens of thousands of ancient books and a lifestyle that China has already obliterated over the border in Tibet? Can TV reasonably be accused of weakening spiritual values, of inciting fraud and murder among a peaceable people? Or is Bhutan's new anti-TV lobby just a cover for those in fear of change?

Television always gets the blame in the west when society undergoes convulsions, and there are always those ready with a counter argument. In Bhutan, thanks to its political and geographic isolation, and the abruptness with which its people embraced those 46 cable channels, the issue should be more clearcut. And for those of us sitting on the couch in the west, how the kingdom is affected by TV may well help to find an answer to the question that has evaded us: have we become the product of what we watch?

The Bhutanese government itself says that it is too early to decide. Only Sangay Ngedup, minister for health and education, will concede that there is a gulf opening up between old Bhutan and the new: "Until recently, we shied away from killing insects, and yet now we Bhutanese are asked to watch people on TV blowing heads off with shotguns. Will we now be blowing each other's heads off?"

Arriving at dusk, we pass medieval fortresses and pressed-mud towers, their roofs carpeted with drying scarlet chillies. Faint beads of electric light outline sleepy Thimphu. Twisting lanes rise and fall along the hillside, all of them leading to the central clock tower, where the battered corpse of Tshering, a 50-year-old farmer, was found. In this Brueghel-like scene, crowded and shambolic, where the entire population shares fewer than two dozen names, TV is omnipresent. Potato stores sell flat-screen Trinitrons; old penitents whirl their prayer wheels outside the Sony service centre; inside every candle-lit shop-house a brand new screen flickers.

His Excellency Jigmi Thinley, Bhutan's foreign minister, greets us wrapped in an orange scarf, a foot-long silver sword hanging over his ceremonial robe, or gho. He sweeps us into a pillared hall embossed with golden dragons to explain why the king welcomed cable television to the Land of the Thunder Dragon. "We wanted a goal different from the material concept of maximising gross national product pursued by western governments," he says with a beatific smile. "His Majesty decided that, as a spiritual society, happiness was the most important thing for us - something that had never been discussed before as a policy goal or pronounced as the responsibility of the state." And so, in 1998, the Dragon King defined his nation's guiding principle as Gross National Happiness.

But happiness proved to be an elusive concept. The Bhutanese wondered whether it increased with a bigger house or the number of revolutions of a prayer wheel. A delegation from the foreign ministry was sent abroad to investigate whether happiness could be measured. They finally found a Dutch professor who had made its study his life's work and were disappointed to learn that his conclusion was that happiness equalled £6,400 a year - the minimum on which one could live comfortably. It was a bald and irrelevant answer for the Bhutanese middle classes, whose average annual salary was barely £1,000 and whose outlook was slightly more metaphysical.

The people of Bhutan, however, finally decided for themselves what would make them happy. France 1998 was driving the football-mad kingdom into a frenzy of goggle-eyed envy of those who were able to watch the World Cup on television. The small screen had always been prohibited in Bhutan, although the kingdom was crisscrossed by satellite signals that it was finding increasingly difficult to keep out. Even the king was rumoured to have a Star TV satellite package installed at his palace. Faced by recriminations, the government relented and Bhutan's Olympic Committee was permitted to erect a giant screen in Changlimithang stadium - but only temporarily.

A TV screen in the middle of Thimphu was a revolutionary sight. The kingdom, for so long an autocracy, had only recently forged links with the outside world. In 1959, China quelled an uprising in Tibet, spilling war into the north of Bhutan, forcing the previous Dragon King to forge diplomatic ties for the first time in the country's history. "Even then," says the foreign minister, "we were determined not to become pawns on a chessboard and decided not to have formal relations with the superpowers. We also sensed the regret of many nations across the world at what they had lost in terms of values and culture."

The current Dragon King's father initiated a careful programme of modernisation that saw his people embrace the kind of material progress that most western countries take centuries to achieve: education, modern medicine, transportation, currency, electricity. However, mindful of those afraid that foreign influences could destroy Bhutanese culture, he attempted to inhibit conspicuous consumption. No Coca-Cola. No advertising hoardings. And definitely no television.

By France 1998, Bhutan had a new Dragon King and, under growing pressure from an unsettled country, he had a new political agenda. That year, King Jigme Singye Wangchuck announced he would give up his role as head of government and cede power to the national assembly. The people would be consulted about the drafting of a constitution. The process would complete Bhutan's transformation from monarchist Shangri-la into a modern democracy. And television would play its part.

The prime minister of Bhutan, Kinzang Dorji, has invited us to tea and we sit with him beneath a large thangka painting of the Wheel of Life. "His Majesty wants the Bhutanese people to run their own country. But many are frightened of the responsibility. A lot of things have changed very quickly in Bhutan, and we do recognise that some people feel lost, at sea," the prime minister explains. "Watching news on the BBC and CNN enables them to see how democracies work in other parts of the world, how people can take charge of their own destinies. The old feudal ways have to end."

The year after France beat Brazil 3-0 in the World Cup final, the people of Thimphu gathered once again in Changlimithang stadium, this time to celebrate the Dragon King's silver jubilee. On June 2 1999, he stood before them to announce that now they could watch TV whenever they wanted. "But not everything you will see will be good," he warned. "It is my sincere hope that the introduction of television will be beneficial to our people and country."

The prime minister insists that the introduction of television was carefully prepared: "To mitigate the impact of negative messages, we launched firstly the Bhutan Broadcasting Service [BBS] to provide a local educational and cultural service." Only after the BBS had found its voice would a limited number of foreign channels be permitted to beam programmes into Bhutan via local cable operators.

News footage from the first BBS broadcast of June 2 1999, records the cheer that resounded around Changlimithang. Bhutan's spiritual and cultural leaders were all agreed that TV could only increase the country's Gross National Happiness and help the people to pave the way to a modern, democratic nation. Mynak Tulku, the reincarnation of a powerful lama, is the Dragon King's unofficial ambassador for new technology. Light pouring in through the carved wooden windows catches his large protruding ears and bathes the monk in a golden glow. Nearby, in the main library, some of the oldest surviving texts in Tibetan Buddhism, dharmic verses penned in liquid gold, are being digitised. "I am so excited about technology," beams the Tulku, the epitome of the king's notion of Gross National Happiness. "And let me tell you that TV's OK, as long as you appreciate that it is a transitory experience. I tell my students that it's like rushing in from the cold, going straight to the heater and ending up with frostbite. Ha, ha. TV can make you think that you are being educated, when in fact all you're doing is blinking your life away with a remote control. Ha, ha."

The Bhutan Broadcasting Service was intended to be a bulwark against cable television. When we call by, it is clear the studio is still not finished: the team of technicians hired from Bollywood has gone home for Diwali. The state broadcaster has only one clip-on microphone, but the features producer cannot find it. There are a bundle of programmes "in the can", he says, but none is ready for broadcast. A list of feature ideas hangs on a board, each one eclipsed by a large question mark: Bhutanese MTV? Candid Camera? Pop Idol? Big Brother?

There is no one else on any of the three floors of the BBS building, but there is a distant clamour coming from outside. There, behind a garden shed, we eventually find the BBS cameramen and reporters dressed in their billowing ghos, throwing giant darts at a clay target. It is a badly needed team-building exercise, says Kinga Singye, the BBS executive director, with a doleful voice that makes him sound as if he has had enough of the royal experiment in television. He describes how, in 1999, the last people to learn of the lifting of the television ban were those then charged with setting up the new national station. "They were given three months to make it work. It was done with incredible haste - to be ready in time for the king'ssilver jubilee. What the government wanted was hugely ambitious and expensive, yet we didn't have experience and they had no funding to give," he says. Everyone was surprised when the ministers then issued licences to cable TV operators in August 1999, a bare three months after BBS went on air.

Three years later, in the absence of investment, BBS can still be transmitted only in Thimphu; tapes of its shows bound for the remote eastern town of Trashigang take three days to arrive, by bus and mule. "Our job was supposed to be to show people that not everything coming from outside is good," Kinga Singye says. "But we are now being drowned out by the foreign TV signals. People are continually disappointed in us." That evening, the nightly BBS News At Seven begins at 7.10pm. A documentary on a Bhutanese football prodigy is mysteriously canned halfway through. It is followed by some footage of an important government event, the Move For Health. The sound is indistinct, the picture faded, the message lost.

Downtown, at the southern end of Norzin Lam high street, a wriggling crowd of children press their faces to a shop window. Inside the headquarters of Sigma Cable, the walls are papered with an X-Files calendar and posters for an HBO show called Hollywood Beauties. Beneath a portrait of the Dragon King, the in-store TV shows wrestling before BeastMaster comes on. A man in tigerskin trunks has trained his marmosets to infiltrate the palace of a barbarian king. When the monarch is decapitated and gore slip-slaps across the screen, the children watching outside screech with glee. Inside the Sigma office, the staff are scrapping over the remote control, channel-hopping, mixing messages. President Bush in a 10-gallon hat welcomes Jiang Zemin to Texas. Midgets wrestle on Star World. Female skaters catfight on Rollerball.

Today, Sigma Cable, whose feed comes from five large satellite dishes at the edge of the city, is the most successful of more than 30 cable operators. Together, they supply virtually the entire country, ensuring that even the folks in remote Trashigang can sit down every night to watch Larry King Live.

Rinzy Dorje, Sigma's chief executive, wears a traditional gho but his mind is on fibreoptics and broadband. He was one of the first people in Bhutan to learn to program a computer, and back then (the 1980s) his machine came housed in a home-made wooden box. When he launched Sigma on September 10 1999, he captured the market in Thimphu, signing up the queen mother, the king and his four wives, among others. Between calls on his new mobile telephone, he defends cable TV: "Look, Bhutan couldn't hold back any longer - we can't pretend we're still a medieval, hermit nation. When the government finally got around to announcing cable TV, I was ready, that's all. All the information you need to know on cable technology is on the net. I got prices and sourced the parts in Delhi and Taiwan. And cable came to Bhutan. It's no big deal."

A disgruntled subscriber rings to complain that MTV has gone down. Are there are too many channels? "I couldn't cut back on the channels even if I wanted to - the customers would go elsewhere and Star TV wants us to show more channels, not fewer."

Have Bhutan's values been corroded by TV? "We are entitled to watch what we want, when we want, if we want. And we are quite capable of weeding out the rubbish; turning off the crap," he retorts.

However you look at it, it's obvious that the BBS has been charged down by the juggernaut of Star TV. "If the government wanted to control what people watched, they should have legislated, not tried to compete," says Rinzy Dorje.

It takes three days to pin down Leki Dorji, the deputy minister of communications, an overloaded crown appointee who is also responsible for roads, urban renewal, civil aviation and construction. He readily admits that, in its haste to introduce TV, the government failed to prepare legislation. There is no film classification board or TV watershed in force here, no regulations about media ownership. Companies such as Star TV are free to broadcast whatever they want. Only three years after the introduction of cable did the government announce that a media act would be drafted. Leki Dorji says his ministry is also planning an impact study, but adds that he does not believe cable television is responsible for April's crime wave. "Yes, we are seeing some different types of crime, but that just reflects the fact that our society is changing in many ways. A culture as rich and sophisticated as ours can survive trash on TV and people are quite capable of turning off the rubbish."

Whether the truck-driver Dorje was influenced by something he had watched on television when he began smoking heroin or when he clubbed his wife to death has yet to be established. We will not know whether the death of Sonam's niece had anything to do with the impatient, selfish society promoted by television until the impact study is completed. But there is a wealth of evidence that points to television having been a critical factor.

The marijuana that flourishes like a weed in every Bhutanese hedgerow was only ever used to feed pigs before the advent of TV, but police have arrested hundreds for smoking it in recent years. Six employees of the Bank of Bhutan have been sentenced for siphoning off 2.4m ngultrums (£40,000). Six weeks before we arrived, 18 people were jailed after a gang of drunken boys broke into houses to steal foreign currency and a 21-inch television set. During the holy Bishwa Karma Puja celebrations, a man was stabbed in the stomach in a fight over alcohol. A middle-class Thimphu boy is serving a sentence after putting on a bandanna and shooting up the ceiling of a local bar with his dad's new gun. Police can barely control the fights at the new hip-hop night on Saturdays.

While the government delays, an independent group of Bhutanese academics has carried out its own impact study and found that cable television has caused "dramatic changes" to society, being responsible for increasing crime, corruption, an uncontrolled desire for western products, and changing attitudes to love and relationships. Dorji Penjore, one of the researchers involved in the study, says: "Even my children are changing. They are fighting in the playground, imitating techniques they see on World Wrestling Federation. Some have already been injured, as they do not understand that what they see is not real. When I was growing up, WWF meant World Wide Fund for Nature."

Kinley Dorji, editor of Kuensel (motto: That The Nation Shall Be Informed), warns that Bhutan's ruling elite is out of touch. "We pride ourselves in being academic and sophisticated, but we are also a very naive kingdom that does not yet fully understand the outside world. The government underestimated how aggressively channels like Star market themselves, how little they seem to care about programming, how virulent the message of the advertisers is." Kinley Dorji, a member of the taskforce charged with drafting the kingdom's first media act, believes Bhutanese society is in danger of being polarised by TV. "My generation, the ministers, lamas and headteachers, have our grounding in old Bhutan and can apply ancient culture to this new phenomenon. But the ordinary people, the villagers, are confused about whether they should be ancient or modern, and the younger generation don't really care. They jettison traditional culture for whatever they are sold on TV. Go and see real Bhutan, see how the people are affected."

A fanfare of Tibetan trumpets booms through the pine forest. A rough choir of a thousand voices sings out: "Move for, move for health." It is so early in the morning that the birds are still asleep. But Sangay Ngedup, minister for health and education, has been on the path for hours. His gho is bunched beneath his backpack, and a badge with the king's smiling face is pinned on to his baseball hat. In the past 15 days, he has climbed and scrambled over some of the world's most extreme terrain, from sea level to a rarefied 13,500ft in the Bhutanese Himalayas. Is there anywhere else in the world where a cabinet minister would trek 560km to warn people against becoming a nation of couch potatoes? "We used to think nothing of walking three days to see our in-laws," he says. "Now we can't even be bothered to walk to the end of Norzin Lam high street."

He pauses at an impromptu feeding station, gulping down salt tea and buttered yak's cheese. "You can never predict the impact of things like TV or the urbanisation it brings with it," he says. "But you can prepare. If the BBS was intended as our answer to the cable world, I have to say that, at the moment, it is rather pathetic." Sangay Ngedup is one of the only government ministers willing to voice concerns about television.

For the first time, he says, children are confiding in their teachers of feeling manic, envious and stressed. Boys have been caught mugging for cash. A girl was discovered prostituting herself for pocket money in a hotel in the southern town of Phuents-holing. "We have had to send teachers to Canada to be trained as professional counsellors," says Sangay Ngedup. This march is not just against a sedentary lifestyle; it is a protest against the values of the cable channels. One child's placard proclaims, "Use dope, no hope." "Breast is best," a girl shouts. "Enjoy the gift of sex with condoms," reads a toddler's T-shirt.

The next day, as they do every day at Yangchenphug high school, teachers prepare their pupils for the nightly onslaught of foreign images on television. They pray to Jambayang, the Buddhist god of wisdom, a recent addition to the school timetable insisted upon by the clergy. A class of 15-year-olds are inquisitive and smart. How many of you have television, we ask. Laughter fills the room. "We all have TV, sir and madam," a girl at the front pipes up.

"What's your culture like?" they ask. "Do you have universities? Does it rain a lot where you come from?"

What do you like about TV, we ask the class. "Posh and Becks, Eminem, Linkin Park. We love The Rock," they chorus. "Aliens. Homer Simpson." No mention of BBS. No one saw its documentary on Buddhist festivals last night. Superficially, these pupils are as they would be in any school in the world, but this is a country that has reached modernity at such breakneck speed that the god of wisdom Jambayang is finding it virtually impossible to compete with the new icons.

A new section entitled "controversies" in the principal's annual report describes "marathon staff meetings that continue on a war footing to discuss student discipline, substance abuse, degradation of values in changing times". On another page is a short obituary for ninth-year pupil Sonam Yoezer, "battered to death by an adult in the town". Violence, greed, pride, jealousy, spite - some of the new subjects on the school curriculum, all of which teachers attribute to the world of television. In his airy study, the principal, Karma Yeshey, whose MA is from Leeds University but whose attitude is still otherworldly, pours Earl Grey tea. "Our children live in two different worlds, one created by the school and another by cable. Our challenge is to help them understand both, and we are terribly afraid of failing."

Outside Thimphu, the two worlds of Bhutan are already beginning to blur into one. In the heart of the kingdom's spiritual capital of Punakha stands the Palace of Great Happiness, where the Shabdrung, the country's founding father, is interred. Today a black wire crosses the drawbridge to the 17th-century fortress, running through a top-floor casement and taking cable television into the sacred shrine. So high is the demand for Oprah and Mutant X that in this town the size of London's Blackheath there are now two rival operators vying for business.

The children of Punakha are, by the dozen, abandoning their ghos for jeans and T-shirts bearing US wrestling logos; on their heads are Stars and Stripes bandannas. On the whitewashed mud wall of the ancient crematorium, they have scrawled in charcoal a message in English: "Fuck off Kinley and die."

How quickly their ancient culture is being supplanted by a mish-mash of alien ideas, while their parents loiter for hours at a time in the Welcome Guest House, farmers with their new socks embossed with Fila logos, all glued to David Beckham on Manchester United TV. A local official tells us that in one village so many farmers were watching television that an entire crop failed. It is not just a sedentary lifestyle this official is afraid of. Here, in the Welcome Guest House, farmers' wives ogle adverts for a Mercedes that would cost more than a lifetime's wages. Furniture "you've always desired", accessories "you have always wanted", shoes "you've always dreamed of" - the messages from cable's sponsors come every five minutes, and the audience watching them grows by the day.

There is something depressing about watching a society casting aside its unique character in favour of a Californian beach. Cable TV has created, with acute speed, a nation of hungry consumers from a kingdom that once acted collectively and spiritually.

Bhutan's isolation has made the impact of television all the clearer, even if the government chooses to ignore it. Consider the results of the unofficial impact study. One third of girls now want to look more American (whiter skin, blond hair). A similar proportion have new approaches to relationships (boyfriends not husbands, sex not marriage). More than 35% of parents prefer to watch TV than talk to their children. Almost 50% of the children watch for up to 12 hours a day. Is this how we came to live in our Big Brother society, mesmerised by the fate of minor celebrities fighting in the jungle?

Everyone is as yet too polite to say it, but, like all of us, the Dragon King underestimated the power of TV, perceiving it as a benign and controllable force, allowing it free rein, believing that his kingdom's culture was strong enough to resist its messages. But television is a portal, and in Bhutan it is systematically replacing one culture with another, skewing the notion of Gross National Happiness, persuading a nation of novice Buddhist consumers to become preoccupied with themselves, rather than searching for their self.