index is exemplar in exhibiting the multiplicity of challenges faced when
dealing with economic data. These difficulties are especially amplified when
working with an issue such as human development as the meaning of development is
inherently subjective (as Rist says, our conception
of human development is dependent on “the way in which one person pictures the
ideal conditions of social existence”) so that the factors included in an
index, weightings and definitions are innately questionable. Further, as Sen (1999) takes the view that human development consists
of a range of “capabilities” or “freedoms”, a composite index may be deemed
redundant as these elements must be measured directly and separately.
in 1990 the HDI was explicitly presented as only the seed for what was to be an
evolutionary process of mathematical tinkering, definitional adjustment and
prioritisation. The report stated that the HDI “should for the time being focus on 3 essential elements of human life” -
income, education and health – stating that it “will be designed over time” and
that “a participatory approach is crucial to any strategy for successful human
development”. This explicit acceptance that any new index will be initially suboptimal
is crucial in a world where economic data and accounting, both in the public
and private sectors, are increasingly an area of contention.
this paper looks at several elements of the HDI and various opinions on its suitability
to illustrate just the kind of disputes that emerge in dealing with economic
Deaton (2008) states, “without health, there is very little people can do, and
without income, health alone does little to enable people to lead a good life”
– synergies such as this require the use of a composite index when measuring
human development. The selection of income, education and health as the
components of human development has, however, sparked debate.
underlying sentiment behind the development of the HDI was Robert McNamara’s espousal
in the 1960s of the ideal that growth alone is an insufficient indicator of
development. Though President Truman’s inaugural address in 1949 had commended
the possibility of a “trickle down” effect, whereby economic growth would
improve poverty, a decade later this had not been evidenced. Questioning the
supremacy of economic growth as the sole determinant of human development, McNamara
and Sen attempted to bring people to the centre of
this discussion, conceiving the notion of “human development”.
some time now, many have found income to be relatively unimportant to human
beings in comparison to factors such as health, employment and family
circumstances. In particular, Easterlin (1974, 1995)
found that, over a long time period, even though income per capita may rise,
national happiness does not. This links with the fact that satisfaction is
thought to adapt to new income within four years, according to a study by the
German Socioeconomic Panel. This decoupling of growth and development is still
supported today. Tim Jackon’s report on “Prosperity
without Growth” was released in 2009 and considers that, aside from the human
instinct for acquisition and the psychological importance of relative wealth,
rising income does not guarantee rising “prosperity” or satisfaction.
some authors such as Solow and Schumacher insist that this decoupling of growth
and “prosperity” occurs only once basic needs are met. A current example is the
prevalence of 25% youth unemployment in Spain – though this is a nation with
relatively high GNI per capita, the effect that unemployment has on morale and
thus on life satisfaction is significant. It is this analysis that leads to the
inclusion of non-income elements in the HDI. Veenhoven
(1991) takes just this view but others such as Robbins’ (1938) argue the
converse, stating that it is after basic needs are met that income and happiness
become positively correlated, as the “luxuries” of culture and intellect can only
then be factored into well-being. Using data from the Gallup World Poll, where
questions regarding life satisfaction are presented to nationals of different
countries, Deaton (2008) finds that “life satisfaction is higher in countries
with higher GDP per head”. When plotting GDP per capita in 2003 on the x-axis
of a graph and mean life satisfaction on the y-axis, “the slope is steepest
among the poorest countries…but it remains positive and substantial even among
the rich countries”, so there is no “critical level” where basic needs are met
and “GDP per capita above which income has no further effect on life
Conflict is rife
in the choice of three components for the HDI. Mc Gillivray (1991) finds that a significant and positive
correlation exists between all variables within the HDI, deeming a composite
index unnecessary. Similarly, Ivanova et al’s (1999) study shows that using just one measure alone rather
than a composite index, the results rank nations in much the same order. As Georgiadis states,
wealthier may well be healthier as health services and improved hygiene become
affordable. However, this link inevitably subsists only until incomes are struggling
to cover basic needs. Furthermore, the amalgamation
attempted by the HDI is valuable as a procedural
statement, attempting to highlight the inadequacy of analysing economic growth,
even if it has no substantive
advantage in altering results relative to simple comparisons of income.
In choosing the three elements of the HDI there is a trade-off between
simplicity (and thus the breadth of use) and the comprehensiveness of the index,
a common difficulty in the compilation of indices. This is evident in the
following disagreement. In the 1990 HDR itself, Dasgupta
Weale (1992) suggested that civil and political aspects of freedom should be included
within the HDI. This suggestion is highly valid – economic and social
developments are reflected in incomes, health and levels of education, but the
political dimension has thus far been neglected. However, this expansion of the
HDI is deemed an unnecessary complication by Streeten
(1994, 1995), who suggests that freedom should be considered separately from human
development. His point is that political conditions are more volatile than the
measures currently in the HDI, there is no trade-off between the HDI and
freedom indicators and the relationship between the two requires further
research before they can be combined. However, Deaton (2008) poignantly notes
that freedom may not factor into life satisfaction as “people do not
necessarily perceive the constraints caused by their lack of freedom”. “The
child who is potentially a great musician but never has a chance to find out”
is the typical example of this.
This analysis links with Collier’s (2008) work on
“The Bottom Billion”, the poorest nations that diverged in growth from the rest
of the developing world in the 1970s. The countries in this cohort face an average
life expectancy of 50 years, where this figure lies at 77 years in other
developing nations. Infant mortality is 14%, where it is 4% in other developing
nations. Thus, a problem with existing economic data is that “developing
countries” are often grouped together. A large economy with a small population
that is growing rapidly sees its growth rate averaged along with a small
economy that is declining but has a large population. Though the populous nation
contains more individuals, the large economy’s figures have more impact on the
average, skewing the picture that we have of “developing countries” as a group.
In fact, “for the countries that have really fallen apart, there are no usable
data” and leaving out these economies would mean assuming that their economic
performance was that of the average developing country, an erroneous assumption.
Collier also notes that “the countries now at the
bottom are distinctive not just in being the poorest but also in having failed
to grow”. In his explanation of this phenomenon Collier takes into account
non-economic factors: the “conflict trap” whereby certain negative economic
conditions lead to a cycle of violence; the problem of leaders that “are
sometime psychopaths who have shot their way to power, sometimes crooks who
have bought it”; the development trap; the trap of being landlocked; and the
trap of bad governance in small countries. And all this analysis of growth
comes before we even consider whether the progress occurring is the “right”
sort of growth, the “sustainable, pro-poor” variety that actually benefits
individuals in a nation.
the three sections of the HDI, indicators are chosen to reflect the levels of
income, health and education in a nation. Over time, the indicators used in
each of the three categories have been disputed and altered. The changes made
to the HDI in the 2010 HDR will be studied to exemplify some of the typical
difficulties faced when working with economic data.
expectancy at birth was the only indicator that was unchanged, though simply
because no superior alternative could be decided upon. This measure is sluggish
as only the life expectancy at birth of the very youngest affects the average
in a nation. Paul (1996), for instance, suggests that child mortality would
prove a better reflector of the sanitation and health facilities in a nation.
per capita was substituted by GNI per capita, which takes into account the
balance of cross-country income. As the World Bank reported that $325 billion were
remitted to LEDCs in 2010, the need to account for these flows has become
greater over time and this amendment to the HDI reflects the fact that
indicators must develop as the world changes.
In measures of
education, literacy was substituted by mean years of schooling, an indicator which
is measured more frequently in more nations and which allows for cross-national
comparisons to be made. Literacy has long been considered a suboptimal
indicator as it is not only difficult to measure in many nations with poor access
to rural communities, but as it is difficult to compare across nations with
languages of disparate complexity. Enrolment was also substituted with expected
years of schooling to create consistency in the measurement of education in years.
Even still, the
measurement of education in the HDI remains imperfect. Srinavasan
(1994) points out that it is the quality of education that matters and even if
time spent in education is used, dropout rates and the length of the school
year in different nations are yet to be adjusted for. To look at the quality of
education, for example, the 2003 Arab
States Human Development Report constructed a measure that captures both the
quantity and quality of education, adjusting mean years of schooling with
average test scores and including indicators related to media, communication
and the training of scientists. This is a most useful exercise but one which requires significant
amounts of detailed and reliable data that do not exist for many nations. The
trade-off between detailed analysis and comprehensive, global comparisons thus
emerges due to problems of data availability.
(1995) also criticises the sensitivity of the different indicators utilised in
the HDI, their ability to reflect recent changes. For instance, school enrolment
rates are more sensitive to development than the average number of years of
schooling as the latter is a lagging indicator, reflecting changes in
development for the population aged over 25 only. Another key issue is thus the
comparison of stocks and flows - of slow and fast moving variables. Hopkins
(1993), identifying the importance of a sensitive index, suggests that a “Human
Development Improvement Index” may be the way forward, creating a flow version
of all indicators to view the impacts of policy and change in particular.
AND TRANSFORMATION OF VARIABLES
standardisation and transformation of variables compiled in a composite index
is another area of contention in the creation of global economic indices.
key example of the problems faced in this arena was highlighted in 1991, when
“years of schooling” was added to literacy to gauge levels of education in a
nation. Here, overall educational attainment was calculated with raw data in a mixture
of percentages and numbers. This reduced the implicit weighting given to mean
years of schooling, calculated as a simple number. The suggestion was thus to
transform the values of the two indicators on a scale between zero and one
before adding them together.
GDP is a particularly difficult factor
to measure as diminishing returns to income must be considered using logarithms
but discounting above the poverty line is disputed. Desai (1991) makes the key
point that income above that level will still make some difference – relative
income deprivation persists. Excess discounting of income above the threshold
level means it makes practically no contribution to the income value whilst
incomes below the level are not subject to diminishing returns at all, leading to
overvaluation there. The result is a skewed set of HDI values. Dasgupta (1990) believes that all variables face increasing
returns due to achievement effort but Srinavasan
(1994) held that only health indicators should be modelled with increasing
returns as he views life expectancy as something intrinsic rather than an
effort to be achieved.
is crucial that the indicators used in the HDI require only comparable data
that is available for many nations, to allow for useful international comparisons
and for enough years, to allow for intertemporal analysis of progress.
with data affect the usefulness of the HDI itself. Ivanova
et al (1999), for example, find the index does not provide useful results as
changes in the HDI could be attributed to progress or to changes in the
estimation procedure. Murray (1991) takes issue with data on income in
particular, as use of national currency and differing methodologies inhibit
(1994) finds that 87 of 117 countries lack reliable data on life expectancy.
The result is that movements in the HDI are determined mostly by income, as
that is the piece of data available annually. Another trade-off emerges here:
should extrapolation from real data be used so that no factor is
underrepresented in the final HDI figure or should accuracy be upheld. A
problem that Murray (1991) identifies is that changes in the HDI are highly
correlated with the timing of censuses rather than step changes in human
development, suggesting that conclusions drawn from HDI figures have little
main issue with unreliable data is that cross-country comparisons become
redundant. One solution to this problem is to accept the imperfection of data
collection, eliminate league tables and to only categorise countries into groups,
accepting that no practical meaning can be found in ordering high-achieving HDI
countries and ranking nations with marginally different HDI scores. The
development of an ordinal, rather than a cardinal index may be a move forward
in this vein.
data deficiencies, resources are the key issue. Many nations lack the resources
to collect regular, reliable data. In this way, the work of the HDI and the HDR
is seen as a solution aiding human development, not merely external, passive
measurement as these analyses encourage countries to monitor and collect data.
with any national figures, though measuring human development at the country
scale provides some material for comparison, the distribution of income and the
range of education and health levels is very important. Thus, Chowdhury (1991) suggests the HDI should be adjusted to account
for access to services. Another potential improvement may be the introduction
of a Gini coefficient for all components (Stanton,
2006). All such enhancements would require more data to be available.
the components of the HDI are weighted at a third each but implicit weightings
differ. For instance, Kelley (1991) points out that the income dimension is given
less weight than health and education because the endpoint value of income is
developed countries’ poverty line whereas for literacy and life expectancy it
is the highest country value worldwide.
changes to goalposts are also problematic, meaning that the lowest income
country needs GDP growth of 13% to maintain its index value and countries with
income measures above US $ 5,860 need to lower their value for their index worth
to remain static.
a composite index is sensitive to weights, some justification for a given
weight must be offered. Just as improvements to data collection have been
touted as an example of the HDI improving development as well as measuring it, Streeten (2000) calls for national participation in the
selection of weights for the index’s various components. This would prove
valuable in displaying the public’s priorities and preferences for the HDI and
for wider policymaking too.
A key change in
2010 was the shift to using geometric mean (which measures the typical value of
a set of numbers) to reflect the imperfect substitutability across the three
dimensions. This captures how well rounded a country’s performance is across
the three dimensions. As a basis for comparisons of achievement, this method is
also more respectful of the intrinsic differences in the dimensions than a
simple average. It recognizes that health, education and income are all
important, but also that it is hard to compare these different dimensions of
well-being and that we should not let changes in any of them go unnoticed.
“The more we discuss what should or should not be included in the HDI,
the more the debate moves away from the single-minded focus on growth that
pervaded thinking about development”
The difficulties of gathering reliable data and of composing an index to
measure the subjective notion of “human development” are so severe that after
the HDI has been in existence for a decade, disputes still arise. Thus, the
true value of the HDI may not be its ability to measure economic factors.
Rather, it may be this very “debate” that is the premier value of economic
data, encouraging consideration of issues such as the diminishing returns to
income and the factors which contribute to human development.