February 27, 2013
The HDI is a more accurate measure of human well-being
than either the income per capita approach or Amartya Sen’s capability
approach.
The concern with finding better ways of measuring human well-being has
been a growing focus of economics in recent years. Its importance is
underscored by the vigorous debate over the degree of progress (or lack
thereof) that has accompanied the accelerated globalization of the last 30
years. The answer depends in large part on which measures one feels are most
accurate. Often the reason for choosing measures depends on the ideology of the
researcher.
“Human well-being” is an ambiguous concept with varying definitions.
While recognizing that my definition foreshadows the direction of this paper, I
will use the definition found in the 1990 UNDP report (Klugman, F. and Choi,
H.: 3) that states human well-being is concerned with human capabilities and
freedom of choice in one’s life. Choices may be many, but three which are
arguably universal are the freedom to live a long and healthy life, freedom to
learn, and freedom to have a decent standard of living.
I argue that the Human Development Index (“HDI”) is indeed a more
accurate measure of human well-being than either income per capita or Sen’s
capability approach, but there is, as yet, no ideal measure which is
universally applicable.. Furthermore, I argue that it is unlikely that a
universally applicable and acceptable measure can be found. However, the
search for one has succeeded in leading to a deeper analysis of the objectives
of the comparisons being made, consideration of the relevant models, and
determining the relative weighting of variables which differentiate populations
being compared. I will also suggest that the roots of the debate lie in
differences in economic ideology.
I will describe the background leading to the creation of the human
development index, followied by the developmental work around the capability
theory. Major arguments in support of this new index will be reviewed and
analyzed. Following that, each of the four areas of common criticism will be
addressed and the weaknesses of the criticisms will be shown. Last, I
will summarize by adding that the over-arching value of the index has been to
point the way to a highly differentiated future of comparisons chosen around
the particular objectives of policy makers.
Supporters of HDI (beyond the team of creators) include the United
Nations (UNDP), Nobel Prize winner Joseph Stiglitz (Goodman, P.: 2009) and Dani
Rodrik (Rodrik, D. : 2011) of Harvard amongst others. Their central argument is
that there is a great deal more to human well-being than improvements in
income. Criticisms mainly fall into four categories: How to define human
well-being, composition of the index, usefulness, and measurement. Among the
critics are Mark McGillivray of the World Institute for Development Economics
Research and Martin Ravallion of the World Bank.
GDP or GNP per capita had previously been the predominant measure
of growth, with the presumption that economic growth and well-being were
synonymous until the 1970’s, when the income measure came into question.
Nordhaus and Tobin challenged the reliance on this single variable in 1972, and
later others joined the search. Ultimately, the HDI emerged as the most widely
used index, when considering human well-being. (Simon 2006: 261)
The capability approach was the
foundation for the work leading to the development of the HDI. It is not an
index in itself, but a theory. As such, we could rule it out as not addressing
the essay question, because it does not measure. However, it is a
powerful and influential theory addressing the question of how best to
understand human well-being, and it has stimulated the creation of valued
indices including the HDI, so we shall consider it.
Professor Amartya Sen (2001:1),
1998 Nobel Prize Winner who was the leading force, along with Nussbaum, Anand,
Foster and others to create the theory, describes his capability approach in
this way:
Development can scarcely be
seen merely in terms of enhancement of inert objectives of convenience, such as
a rise in the GNP (or in personal incomes), or industrialization, or
technological advance, or social modernization. These are, of course, valuable —
often crucially important — accomplishments, but their value must depend on
what they do to the lives and freedoms of the people involved
The capability approach does not directly challenge the value of
income. It argues that there are additional values which are important,
and for many people, some of those are more important than income. Here are
some of the benefits scholars attribute to the capability theory: (1) Sen’s
view that a person’s well-being is determined by capability within his own situation
is an advancement over the idea that standard of living can be equated with
real income; (2) since indices are about seeking equality and equity, the
capability approach raises a valuable question of just what it is that we are
seeking to equate; (3) capability fills a space between two things which have
been the prior focus--goods and utility—that being functionings and
capabilities; and (4) it draws attention to the valuable consideration of
varying interpretations of development. (Gaspar 1997) There is little
literature to be found which in any way denies the value of these
considerations in human life.
The capability theory work evolved to the creation of the HDI which was
first released in 1990. The creators of the HDI were, most notably, Amartya
Sen, collaborating with Mahbub ul Haq, Martha Nussbaum amongst others. They
pointed out that there are many among the bottom half of world income who feel
they have human well-being, and there are many in the upper half who do not
feel they have satisfactory human well-being. Consider a young woman of great
potential and ambition who lives in the tribal regions of Afghanistan and feels
the education denied her is far more important than her family income. We can
trace the realization regarding the exaggerated value of wealth all the way
back to Aristotle (Aristotle: 384-222) who told his world that “…wealth is evidently
not the good we are seeking, for it is merely useful and for the sake of
something else.” Sen and colleagues were attempting to point toward that
“something else.”
The United Nations Development Programme (“UNDP”) Human Development
Report for 2006 (2006: 263) describes the structure and intent of the
index:
Each year since 1990 this report has published a human development index
(HDI) that looks beyond GDP to a broader definition of wellbeing. The HDI
provides a composite measure of three dimensions of human development: living a
long and healthy life (measured by life expectancy), being educated (measured
by adult literacy and enrolment at the primary, secondary and tertiary level)
and having a decent standard of living (measured by purchasing power parity,
PPP, income).
UNDP adds that they do not defend the index as comprehensive in
measuring all of human development. They do not argue for HDI as a replacement
for GDP, and they do not argue that the particular indicators of the HDI are
the only relevant measures. They argue that it adds (“looks beyond”), and in
that respect it may be seen as “better.” The formula has grown in popularity
and is now widely used and studied. (Ashok, V. 2010)
However, some critics claim there are flaws and/or limitations to the
HDI. Martin Ravallion of the World Bank is one economist who takes issue
with the HDI as an effective index. Ravallion (2010: 9) describes
indicators of the nature of the HDI as “mashup indices,” and he has serious
problems with such indicators:
Some mashup indices have alluded to theoretical roots, to help give
credibility. However, there is a large gap between the theoretical ideal and
what is implemented. For example, the HDI claims support from Sen’s writings
arguing that human capabilities are the relevant concept for defining welfare
or well-being...Yet it is quite unclear how one goes from Sen’s relatively
abstract formulations in terms of functionings and capabilities to the specific
mashup index that is the HDI. Why, for example, does the HDI include GDP, which
Sen explicitly questions as a relevant space for measuring welfare?
It is appropriate to correct a possible misinterpretation here. It is
true that Sen questions the use of GDP, but only as being the only measure, or
the best measure. He does not argue against it being use as “a” measure,
evidence by his including it as one of the three elements of the HDI.
Ravallion (1997: 637), acknowledges the value of other indices, but also
defends income. He says there can certainly be “low quality growth,” but the
bigger issue is that there is just not enough growth “of even quite normal
quality.” Ravallion’s comments do not directly challenge the concept
(definition) that human capabilities and freedoms are a relevant concept, but
he does challenge the composition of the HDI. One could certainly identify
dozens of indicators, each with an arguable bearing on well-being, such as
freedom from oppression, sacrosanct property rights, gender equality, and many
others. Some might be easily measurable, and others only with great difficulty.
The end result of too many indicators was perhaps seen by Sen and colleagues as
only adding to the unwieldiness and difficulties of comparison. Also,
there is reasonable data available for life expectancy and education. Many
other indicators have less reliable data available.
UNDP (UNDP 2011) provides the best answer to the question of
why not other indicators, or more indicators. Their statement is that they
support complementary indices to cover the “missing dimensions” in the HDI. It
should be self-evident to all that HDI is not, and was never promised to be, a
universal measure of all aspects of human well-being.
It is important to note that
Sen does not speak of specific indices as determinative, even in 2001,
subsequent to his launching of the HDI. He speaks of “a deeper basis of
evaluation,” of “focusing on interconnections,” and of “seeing how” we can
strengthen our understanding of human well-being. Sen has sometimes been
misinterpreted as suggesting that a single index (HDI) will simplistically
address the heterogeneity of different nations and cultures and magically make
them entirely comparable. Rather, he clearly recognizes the different values
placed on different freedoms under different circumstances. Sen said
clearly (above) that he was only trying to stimulate valuable examination with
the capability theory and the HDI. He did not argue that the HDI was “perfect”
as an index.
Mark McGillivray (1991: 1497),
Australian economist, challenges both composition and usefulness of the HDI.
Labeling the HDI as “yet another redundant composite intercountry development
indicator,” he finds the strong correlation of life expectancy and education
indicators with GDP as suggesting the HDI adds nothing to GDP.
One might well ask the question—if GDP is as powerful as both
Ravallion and McGillivray imply, then what is the disadvantage of including
it? A three part blended index with GDP included adds something to health
and education taken alone, and the addition of health and education add
something to GDP taken alone.
As to whether there is so much correlation to make the HDI essentially
redundant to GDP per capita, one must only take a look at the 2011 UNDP
Report, especially the column showing GNI per capita rank minus HDI rank (UNDP
2011: 127) for an easy answer. If it made no difference, there would be little
variance shown, but what about Qatar at -36, Georgia at +36, and Equatorial
Guinea at -91, to name only a few? There are many significant differences.
There is clearly more than enough lack of correlation between GNI and HDI to
potentially lead to discovery of valuable future policy options for particular
countries. This also counters the usefulness charge from McGillivray—the HDI is
useful if it leads to insights not revealed by income per capital alone.
What can we say concerning the adequacy of income per capital taken
alone? The argument is that income per capita seems a necessary condition for
poverty reduction and enhanced human capability. Critics of the HDI further
argue that while economic growth is not the same as economic development,
economic growth is closely associated with such positive factors as employment
creation, productivity improvements, diversification of production, increased fiscal
revenues (which enable social spending on health and education), and
development of groups such as labor unions and political parties (which are
among the “choices” which Sen and Nussbaum value in their research of human
well-being). This is true, but it doesn’t really address the previous point
that HDI does indeed reveal opportunities that income does not.
Pritchett and Summers (1996: 38), see value in both approaches. They
admit income per capital explains less about mortality than would be desired,
but argue only that there is some correlation. Such scholars have not really
denied the value of the HDI. They only argue that income measurement is
valuable and gets close in many cases. They even acknowledge that the HDI’s
“other variables” may be important.
Similarly, even McGillivray (1991: 1467) makes a concession,
acknowledging that the search for better indicators, motivated by the
HDI, may lead to the advancement of the understanding of development.
This appears to be the central motivation of Sen and the UNDP in supporting the
HDI as better than income per capita. Subsequently, McGillivray calls for
more research to obtain data on indicators other than GNP or HDI. McGillivray
points to our conclusion—that the search for better indicators is the path to
progress.
Returning to my definition, perhaps the answer to
the question of which most accurately measures human well-bring is best
understood in reviewing underlying ideology. While the dominant theory of the
last 30 years has been neoclassical (Stein 2006: 596), economists are far from
agreed with the neoclassical view that GDP is the key measure of growth, much
less well being. The major point of disagreement centers around the fundamental
neoclassical belief that inequality is important as an incentive to getting
one’s needs met (Hunt 1989: 326). Clearly, Sen does not put the highest
priority on this aspect of human behavior. He is joined by many scholars, as
argued above.
Dedication to GDP growth alone and the associated
neoclassical view that exchanging goods is the full definition of human
happiness even came to be questioned by none other than the World Bank (World
Bank 2005: xiii) in its 2005 Report “Learning from a Decade of Reform.” Noting
that across the 90’s and early 2000’s, there were great successes to
neoclassical “Washington Consensus” prescriptions to developing countries,
there were also great failures, they admitted:
The central message of this volume is then that there is no unique
universal set of rules. Sustained growth depends on key functions that need to
be fulfilled over time: accumulation of physical and human capital, efficiency
in the allocation of resources, adoption of technology, and the sharing of the
benefits of growth
The report goes on to highlight the need for a better understanding of
noneconomic factors—history, culture, and politics—in economic growth
processes. While the World Bank may not be a leader in challenging
neoliberal theory in its policies and practices, it is noteworthy that this
powerful organization was forced to acknowledge as early as 2005, that there
are other factors to be considered in the reals of history, culture, and
politics.
I should add that there is much opportunity for advancement in this
realm of research. There is a need to understand the data: Do countries with
poor birth and death registrations have accurate life expectancy measures? If
life expectancy in one culture as valuable as education? Does enrollment
mean education? There are many challenges to “getting it right.”
Conclusion:
While it appears likely that the income per capita approach will not to
be (and should not be) abandoned by reason of the arrival of the HDI or
other such indicators designed to measure human well-being, the capability
approach and the index borne of that work, the HDI (and other more recently
developed indices), have advanced understanding of development economics by
including valuable indicators. The HDI points the way to a deeper understanding
of developmental differences and opportunities than is addressed by income per
capita. In this regard, the HDI is better than income per capita as a measure
of well-being. The above argument has shown that the HDI is very useful. It
reveals important comparisons that are not provided by income alone. It includes
income, recognized as also important. It is based on measurable data sources.
As to criticisms of definition and composition, it does not purport to
be a universal solution to all valuable comparisons, although some have used it
in this manner, thus perhaps generating some of the unjustified criticism.
The question of this essay asks about human well-being, not about growth
or even “development.” If the HDI leads to relevant comparisons, and a study of
differences leads even further to consideration of policy changes that may
yield development advances, then HDI has played a very valuable role, a role
that income alone cannot play.
The HDI and its underlying capability theory have clearly advanced
development economics beyond that which would have occurred if the science
rested solely on income per capita. HDI is better than income alone. It is more
“accurate,” in part because it is broader than income alone, in part because it
includes other valuable meaures. The challenges serve not so much to disprove
the value of the HDI as to confirm its underlying theory—that we need to look
beyond income. One imagines Sen would enjoy hearing such challenges, as they
lead mostly to greater study of well-being variables, which appears to have
been his original intent with the capability theory. The continuing proliferation
of other indices based on data increasingly available points to a better
opportunity for research and policy adjustment in the future, while not
promising a single universal solution.
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