The Human Development Index is a very poor indicator of country progress, but the alternatives are worse

Human development, or country progress, is an intriguing concept because of the normative considerations which surround any definition, and given this (inevitably controversial) definition, how best it can be measured so that appropriate policies can be formulated to improve the level or growth rate of human development thus defined. The concept of human development is inextricably tied up with notions of poverty and inequality which again are not definitive, exacerbating the lack of consensus.

In order to assess the use of the Human Development Index (HDI), attention needs to be first focussed on defining human development itself, which is what the index aims to measure. There are many sub-concepts which are included in the definition of human development which themselves need clarifying. Given all definitions will be controversial, it is imperative that they are laid out meticulously so the merits or downfalls of the HDI discussed are based only on the definitions given. The HDI will be ‘put to the test’ to establish its validity and relevance of demonstrating the level or growth of human development in a country.

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Where the HDI is not a good indicator of a particular aspect of human development, alternatives will be proposed and evaluated. A conclusion will be drawn on whether the HDI is a good indicator and even if this proves not to be the case whether it is the best out of the current alternatives or not. Today, human development is defined in broader social and political goals, than was the case with the “Washington Consensus'” (Stiglitz) when crude and narrow measures of GNP/capita, and economic growth was more or less equated with a better life.

However, as will be seen in the definitions of relative and absolute poverty, this is not necessarily indicative of well-being and welfare which are shown by higher levels of capabilities and functioning. To give an example, in Kerala, India the GNP/capita is much lower than many other Indian states, yet life expectancy there is much higher, and literacy rates are comparables to those of MDCs. In this case, Kerala would be deemed to have a higher level of human development than the state of Punjab.

This empirical illustration immediately shows the limitations of using narrow measures alone and hence the formulation of measures such as the HDI. Human development then involves achieving a better life via the process of “enlarging people’s choices… which depends not only on income, but also on social indicators” (UNDP, 1990). Improved well-being obviously connects with the reduction of poverty. Poverty is a dynamic concept for it has both relative and absolute associations which vary over time and space.

Sen (1984) provides a concise method of making this often-confusing distinction between absolute and relative poverty by using the sequence from a commodity (e. g. a bike), to characteristics (transportation), to capability to function (ability to move), to utility (pleasure from moving). He says that poverty is an absolute notion in the space of capabilities, but a relative notion in the space of commodities and characteristics. Given this, any index of human development needs to incorporate the measurement of capabilities. Linking this back to human development then, in addition to measuring e. . GDP/capita to give levels of relative poverty, measurements of absolute poverty must be taken.

One may ask why not then just measure absolute poverty levels as if this is low, then one knows that relative poverty levels are probably low. The reason in an indicator of country progress one would look for both types of poverty is because then for the purpose of effective human development policymaking one could see if absolute poverty is at a high level due to relative poverty prevailing, or due to the fact that relative advantages of a good GDP level for that country (based on e. . the cost of a basket of goods) are not being converted into absolute poverty reduction Possible reasons for low rates of conversion into capabilities include a lack of freedom. Another flaw of the GNP/capita method is that it ignores the inequality of income, which means it ignores inequality of consumption, a certain level of consumption being what is need for absolute poverty reduction or removal.

It must be noted, that although poverty and inequality are not interchangeable concepts, (given that for example a population of a country may be equally in relative and absolute poverty below an established basic universal poverty line which does not signify human development,) normally what will be found in a poorer country is large structural inequalities which, with the correct reallocation of resources could be overcome in such a way as to take people out of relative and possibly absolute poverty according to some country specific poverty line.

Is this a fair assumption? Empirically, this is not just an assumption, it appears to be the case and indeed this is why measures of inequality are used. A good measure of inequality which not only counts numbers below an established poverty line e. g. the headcount ration below median income, but also shows the intensity of poverty can then be compared over the years to show the reduction levels in inequality, which will normally be in the direction of moving more from below to above the poverty line than from above to below.

The HDI is a multi-dimensional index which coalesces three deprivation indexes into an average deprivation index. The deprivation indexes are: GDP/capita with less weight given to higher incomes on the basis of diminishing marginal utility to higher incomes (threshold approximately $PPP 5 000, 1992); life expectancy at birth; and educational attainment of society, weighted 2/3rds by adult literacy, and 1/3rd by enrolment rates in primary, secondary and tertiary education.

The HDI, which then gives a number between zero and one, is supposedly shows the “fraction of ultimate development. On what bases though can it claim to describe this? The immediate question is, why these three indicators? Quality of life attributes show changes in average absolute poverty and so average changing capability to function levels, and it is this that indicates average well-being and the achievement of a certain average standard of living. In this case, the HDI which incorporates the GDP/capita measure as well as two quality of life indexes should be a better indicator of human development than GDP/capita in isolation. Is this straightforwardly the case?

Sen (1988) says life expectancy is actually a very limited measure of quality of life, and in fact is more a measure of quantity of life. But surely life expectancy serves as a proxy for other quality of life attributes because forces that lead to death make living conditions more intolerable. Still, it is possible to live a life in illness and pain, and so here a better indicator can be used: “Expected Disability-Adjusted Life Years” (EDALYs). Does this give a good measure of human development given the aim of increasing well-being?

Not necessarily, for even a healthy life can involve little welfare and few functionings due to poverty. Given this a good predictive calculation would be (EDALYs x mean expected time consumption per year) for the median adult, to avoid attributing greater weight to the consumption and life expectancy of the most fortunate (something the HDI ignores and will be discussed). Basu (2000) says ‘isolated’ illiterates, those with no literate living in the same household should be distinguished in measures from ‘non-isolated’ illiterates.

The reasons for this are apparent, but there are many objections to this idea. From a policy point of view, it is not only morally wrong to deny any illiterate tuition, but also children gain more from being literate. Also, ‘growth through trade’ requires literacy for, e. g. local absorption of knowledge (imported). In this case expenditure on efficient adult education should be irrespective of being ‘isolated’ or not (Michael Lipton, 2000). The HDI thus stands firm here. Why does the HDI weight e. g. 10% income increase for someone earning $PPP 300 more than a 10% increase for someone earning $PPP 3 000? D Ray (1998) says the weighting scheme is as ad hoc as other indicators. In this case, the weighting for each deprivation index will be taken to be of little importance. But what about the weighting scheme for the average deprivation index? For this, the three attributes are weighted equally. This therefore means that in determining the “fraction of ultimate development” the GDP/capita, relative poverty measure represents a third and the other two absolute poverty measures represent two thirds.

This is surely not desirable given well-being has nothing to do with commodities directly, only indirectly by them enabling functioning of capability, and by allocating GDP/capita a third of the weighting then the conclusions reached as to whether a country is progressing in terms of human development could be wrong. A slight improvement on the HDI’s approach is with Chakravarly’s generalised HDI which tabulates the deprivation indexes of the three variables separately, and also shows their per cent contribution to human development.

For example, from 1993-5 Uganda can be identified as having increased GDP/capita by 7. 25%, while life expectancy decreased by 8. 25%. This is clearly not an encouraging situation and so the generalised HDI shows the contributors to (detractors from) HDI which is important for policy guidance. A better measure I propose would be to for example take an average deprivation index using (EDALYs x mean expected time consumption per year) and literacy, along with another indicator of absolute poverty such as miles to a basic health clinic.

This absolute poverty aggregate average could then be tabulated next to the ranking of GDP/capita. This would enable policy to be more effective as here, as discussed before, one could establish clearly whether there was absolute poverty due to relative poverty, or due to commodities and resources not being translated into improving the absolute poverty levels. Basu (2000) though would object to this formulation on the grounds that human development is too important to be measured by one reductive indicator.

Instead he calls for a return to GDP/capita because: it is tested and founded on sound micro theories on the causes of changes in it, and of other positive or negative changes between such a change and of other desiderata; and because (and most relevant here), there are accessible measures of how components should be weighted i. e. relative price. As discussed, this would not show human development. It has been established that a merit of the HDI is that it gives a better indication of absolute poverty levels that GDP/capita alone. But at what comparison level does it do that?

It is useful to see ranking changes of countries over the years e. g. through the 1990s, Sri Lanka has had a positive rank differential, but Guatemala and Pakistan have had negative ones. Also, because it is simple to understand it is politically powerful as it highlights clearly with regard to well-being if a relatively high GDP/capita country is not reaching its socio-economic goals, as it then will fall behind a relatively low GDP/capita country. However, it is not necessarily useful for cross-country comparisons. This is because the average HDI of industrial countries of 0. 916 is only 1. times higher than that of developing countries’ 0. 570, even though real GDP/capita is six times higher. Given though that comparisons between MDCs and LDCs are rarely carried out, to look for an indicator which is better than the HDI for this is of little use. The HDI crucially misses out factors undermining its claim to show “the fraction of ultimate development”. For example it ignores the negative externalities imposed by GDP growth which are inflicted on the environment and also (and disproportionately) on the population of a country. To take an example: the depletion of natural resources.

This may well enable for a few generations accelerating GDP/capita growth, so probably a reduction in relative poverty, and maybe even a reduction in absolute poverty. But this will be to the detriment of the absolute and relative poverty levels of future generations. If so, does this really represent human development? Yes according to the definition given, but it should be noted that the definition of human development should incorporate sustainable inter-generational development, for a country should surely be ranked higher if well-being can be sustained at slightly lower levels for longer, than at high levels for a short time.

However, due to data and informational constraints and indeed missing scientific knowledge, the impact of a certain level of degradation for future generations cannot be discerned, and this is before a vast array of valuation problems due to value-heterogeneity and value-endogeneity into the debate. Other crucial missing indicators in the HDI are representatives of: social opportunity and participation e. g. freedom, justice and participation in decision making; how people perceive their well-being which is both necessary and important (OECD report, 1997); and personal safety and administration of justice.

However, at present again due to constraints no index is better in incorporating a more thorough coverage of human development. The next and final issue to be addressed, no less important for this reason, is the issue of inequality. Economic inequality is the fundamental disparity that permits one individual certain material choices, while denying another of those very same choices (D Ray, 1998). Relating this to the HDI, an increase in GDP/capita would not necessarily mean a decrease in relative poverty and indeed could hide an increase in this, and therefore possibly absolute poverty.

In this case, poverty would increase, well-being would fall, and so negative human development would occur. To overcome this, many measures of inequality have been suggested and are used. For example, the coefficient of variation sums all distances from average income in the country which are weighted according to this distance, then divides this by total income of the country. The Gini coefficient is also widely used and in short instead of taking deviations from mean income, it takes the difference between all pairs of incomes.

None of these measures are perfect and so in the case where a Lorenz curve may cross, they may rank inequalities differently. Basu (2000) advocates instead focussing on the bottom quintile of the population. In this case then policy measures can be established to balance growth more equitably. The problem with this is clear though, improving the well-being of the poorest 20% can never be satiated which is therefore a self-defeating method of procedure. The problem is that if stricter criteria are used for an index, it becomes more controversial and subjective.

In this case it may be better just to accept incomplete orderings, for as long as equality increases in a country, any good indicator should capture this. Arguably though a better index would account for gender differences as for example literacy inequality within households greatly reduces the bargaining power of women e. g. in East Asia. The most salient merits and downfalls of the HDI have been discussed, though the list is by no means exhaustive. Human development is an extremely subjective area of study, and because it therefore requires value judgements, most definitions and formulae are contentious.

One therefore has to make a logical and reasonable judgement of an indicator based on these problems, and given the current informational constraints. The HDI, given the clear definitions made is of little use on its own as an overall measure of human development. However, in certain areas it is indicative at least of general trends. As a specific measure it is less useful, though the use of complementary topic-specific measures will highlight anomalies to normal trends such as inequality increasing despite increased GDP/capita.

The question attempts to persuade that single measures on their own need to be evaluated in terms of their own merits and then a conclusion drawn as to their use for indicating human development. This though is misleading and there is no reason why the HDI cannot be complemented in certain areas by another measure, and discarded in favour of another or other measures for other areas in order to assess human development. The overall aim of human development is to increase well-being. This concept covers a vast array of attributes which realistically no individual measure could show.