Most economics courses will include the topic of limitations of Gross Domestic Product as an indicator of standard of living. US senator Robert F Kennedy pointed out 50 years ago that GDP traditionally measures everything except those things that make life worthwhile. I was very taken by Dr Mike Ryan’s (WHO) recent speech about how Covid 19 is a wake up call to how we live our lives. A lot of references to the fact that we can’t keep just focusing on economic growth. Well worth a look.
The Human Development Index (HDI) is a composite index focusing on three basic dimensions of human development:
- the ability to lead a long and healthy life, measured by life expectancy at birth;
- the ability to acquire knowledge, measured by mean years of schooling and expected years of schooling; and
- the ability to achieve a decent standard of living, measured by gross national income per capita.
To measure human development more comprehensively, the Human Development Report presents four other composite indices.
- The Inequality-adjusted HDI discounts the HDI according to the extent of inequality.
- The Gender Development Index compares female and male HDI values.
- The Gender Inequality Index highlights women’s empowerment.
- And the Multidimensional Poverty Index measures non income dimensions of poverty.
The 2018 Update presents HDI values for 189 countries and territories with the most recent data for 2017. The main points are:
59 are in the very high human development group,
53 in the high,
39 in the medium
38 in the low.
In 2010, 49 countries were in the low human development group.
The top five countries in the global HDI ranking are:
Ireland (0.938) and
New Zealand comes in at 16 with 0.917
The bottom five are:
South Sudan (0.388),
the Central African Republic (0.367)
The largest increases in HDI rank between 2012 and 2017 were for Ireland, which moved up 13 places, and for Botswana, the Dominican Republic and Turkey, which each moved up 8. The largest declines were for the Syrian Arab Republic (down 27), Libya (26) and Yemen (20) .
Why is Inequality a problem for development?
A recent Oxfam International report showed that:
“8 men own the same wealth as the 3.6 billion people who make up the poorest half of humanity”
“82 percent of all global wealth in the last year went to the top 1 percent, while the bottom half of humanity saw no increase at all”
Deep imbalances in people’s opportunities and choices stem from inequalities in:
income – education – health – voice – access to technology – exposure to shocks.
Human development gaps reflect unequal opportunity in access to education, health, employment, credit and natural resources due to gender, group identity, income disparities and location. Inequality is not only normatively wrong; it is also dangerous as:
- It can fuel extremism and undermine support for inclusive and sustainable development.
- It can lead to adverse consequences for social cohesion and the quality of institutions and policies, which in turn can slow human development progress.
The global level inequality in income contributes the most to overall inequality, followed by education and life expectancy. Countries in the very high human development group lose less from inequality than countries in lower groups
An engaging article from The Economist suggesting that income is not the only aspect of life that people care about. There are other variables that have an impact on people’s lives. The Oxford Poverty and Human Development Initiative have devised the Multi-Dimensional Poverty Index (MPI) which asks 10 questions:
2 on education
2 on health
6 on household standard of living
Each of these is given a weighting in the overall index. A household is deemed poor if its hardship adds up to at least 33%. The index addresses other developments not just income per day. Nepal improved health and living standards but was slower to improve education or widen access to drinking water. In Rwanda the availability of water and sanitation accounted for a large part of its development. Ultimately the index focuses the importance of measuring standards of living away from consumer durables to that of drinking water, sanitation and health. Policymakers have in the past looked at statistics in a vacuum with a focus on purchasing power rather than other variables of equal importance.