Measures for Evolving Reality: NEW HUMAN DEVELOPMENT INDEX Milorad Kovacevic Human Development Report Office, UNDP Workshop on HD Approach and Measurement for the GCC States, Doha, 9-11 May, 2011 Thank you, madam chairman, It is a great pleasure to be here to celebrate the anniversary of Morocco’s Initiative on Human development and to contribute to this very well organized international forum. I am very thankful to the organizers for inviting me. Merci madame la présidente C'est un grand plaisir d'être ici pour célébrer l'anniversaire de l'Initiative du Maroc sur le développement humain et de contribuer à ce forum international, très bien organisé Je suis très reconnaissant aux organisateurs de m'avoir invité. These days we also celebrate the 20th anniversary of the Human Development Report. ((click)

Measures for Evolving Reality: NEW HUMAN DEVELOPMENT INDEX Doha, Qatar, 9-11 May HDRs ahead of the curve: Millennium Development Goals: 1991 Human security: 1994 Human Rights and development: 2000 Sustainable development: 1991, 1994, 2006, 2007/8 Workshop on HD Approach and Measurement for the GCC States, Doha, 9-11 May, 2011

Human development and its measurement   Several important steps Conceptual: How to define human development? Operational: How to observe and measure its components and determinants?   How to aggregate the different indicators to obtain a commonly acceptable single index of human development in order to measure its changes? The first HDR opened by stating that « People are the real wealth of nation  » and went on to define human development as a process of enlarging people’s choices. It emphasized the freedom to be healthy, to be educated and to enjoy a decent standard of living. (click) 20 years later, the HDR reexamines the concept and reaffirms that the core of HD is sustainability, equity and empowerement. The past 20 years have seen substantial progress in many aspects of human development. Most people today are healthier, live longer, are more educated and have access to goods and services.

Human development and its measurement   A standard definition of human development as “a process of enlarging people’s choices. The most critical ones are to lead a long and healthy life, to be educated and to enjoy a decent standard of living.” A broader definition (2010 HDR): “Human development is the expansion of people’s freedoms to live long, healthy and creative lives; to advance other goals they have reason to value; and to engage actively in shaping development equitably and sustainably on a shared planet” The first HDR opened by stating that « People are the real wealth of nation  » and went on to define human development as a process of enlarging people’s choices. It emphasized the freedom to be healthy, to be educated and to enjoy a decent standard of living. (click) 20 years later, the HDR reexamines the concept and reaffirms that the core of HD is sustainability, equity and empowerement. The past 20 years have seen substantial progress in many aspects of human development. Most people today are healthier, live longer, are more educated and have access to goods and services.

Principles At the onset there were six basic principles (Ul Haq, 1998) The HDI should 1. Measure the basic concept of human development to enlarge people’s choices;   2. include a limited number of variables to keep it simple and manageable; 3. be a composite rather than a plethora of separate indices; 4. cover both social and economic choices; 5. be sufficiently flexible in both coverage and methodology; 6. not be inhibited by lack of reliable and up-to-date data series. The first HDR opened by stating that « People are the real wealth of nation  » and went on to define human development as a process of enlarging people’s choices. It emphasized the freedom to be healthy, to be educated and to enjoy a decent standard of living. (click) 20 years later, the HDR reexamines the concept and reaffirms that the core of HD is sustainability, equity and empowerement. The past 20 years have seen substantial progress in many aspects of human development. Most people today are healthier, live longer, are more educated and have access to goods and services.

Human development and its measurement   INDICATORS Theories, Concepts Measurements, methods, quality AGGREGATION The first HDR opened by stating that « People are the real wealth of nation  » and went on to define human development as a process of enlarging people’s choices. It emphasized the freedom to be healthy, to be educated and to enjoy a decent standard of living. (click) 20 years later, the HDR reexamines the concept and reaffirms that the core of HD is sustainability, equity and empowerement. The past 20 years have seen substantial progress in many aspects of human development. Most people today are healthier, live longer, are more educated and have access to goods and services. HDI

Definition of HDI The Human Development Index (HDI) is a summary composite index that measures a country's average achievements in three basic aspects of human development: health, knowledge, and income. The HDI was recognized from the onset as simple and crude We can also say that this is the 20th anniversary of measuring human development. (click) Measuring is as relevant as ever. The more we understand the complex world and processes the more we measure. (click) We quantify the progress to understand its determinants, effects and its limits . In order to find ways to improving people’s well being. (Click) Human development has inherent flexibility, that constantly evolves through the debates and deliberations. As the world changes - our analytical tools change.

20th anniversary of measuring the human development Measuring is as relevant as ever Quantifying and describing our changing world Finding ways of improving people’s well-being Human development is an evolving idea As the world changes – analytical tools change We can also say that this is the 20th anniversary of measuring human development. (click) Measuring is as relevant as ever. The more we understand the complex world and processes the more we measure. (click) We quantify the progress to understand its determinants, effects and its limits . In order to find ways to improving people’s well being. (Click) Human development has inherent flexibility, that constantly evolves through the debates and deliberations. As the world changes - our analytical tools change.

HDI Indicator Criteria Inherent and statistical criteria Conceptual relevance Value-added Capturing a “quality” aspect A possibility of having a distribution over households or individuals Practical and data related “Reasonable” country coverage (preferably >170) Past time-series preferred Future “regular” updates required Power of discrimination (especially at top and bottom of HDI)

Potential HDI Indicators LONG AND HEALTHY LIFE ACCESS TO KNOWLEDGE Health-Adjusted Life Expectancy (HALE) Malnourishment of Children under 5 Total population Survival rate to age 5 Life expectancy at birth (LE) Life expectancy at age 10 or 15 Mean years of schooling of adults Educational attainment (of adults) (secondary and higher) School life expectancy (of children) Gross enrolment ratio (secondary & tertiary) (Gross) Primary completion rate STANDARD OF LIVING ($PPP) GDP per capita GNI per capita Household consumption per capita Total consumption: (household + Government) per capita

Change of indicators Adult literacy: - not sufficient for 21st century - does not discriminate between developed countries Mean years of schooling for adults (the highest grade attained) is a better measure of human capital Expected years of schooling for a child of the school entrance age is another way of expressing the GER. GDP is the monetary value of goods and services produced in a country irrespective of how much is retained in the country GNI expresses the income accrued to residents of a country, including some international flows and excluding income generated in the country but repatriated abroad. Gross national income better reflects income available to people within a country The HDI provides summary measure of a country average achievements in health, knowledge and income. It offers an alternative measure of progress to conventional measures such as the level of income or the rate of its growth. This year we also refine the HDI, retaining the same three dimensions – health, education and living standard, But introducing new indicators more pertinent for evaluating current and future progress In education, expected years of schooling for school-age children replaces gross enrolment, and average years of schooling in the adult population replaces adult literacy rates, to permit deeper understanding of education levels. The indicators were changed for several reasons. For example, adult literacy used in the old HDI is an insufficient measure for getting a complete picture of today’s educational field. By including average years of schooling and expected years of schooling, one can capture recent changes in education and school enrolment, as well as get a better idea of a country’s human capital.   Gross National Income (GNI) per capita replaces Gross Domestic Product (GDP) per capita to offer a better reflection of people’s income in a country. GDP is the monetary value of goods and services produced in a country irrespective of how much is retained in the country, whereas GNI expresses the income accrued to residents of a country, including international flows such as remittances and aid, and excluding income generated in the country but repatriated abroad. Thus, GNI is a more accurate measure of a country’s economic welfare. Life expectancy remains the indicator for health. This year’s HDI has a form of geometric mean of dimension indices obtained from the indicators by normalization based on minima and maxima observed over the period for which the HDI has been computed and reported. We calculated the HDI for 169 countries.

Dimensional indices 𝐼 𝑥 =𝐼 𝑥 𝑐 , 𝑚 𝑥 , 𝑀 𝑥 = 𝑥− 𝑚 𝑥 𝑀 𝑥 − 𝑚 𝑥 Scaling (Normalization)   Necessary for comparability on the same scale. Only after rescaling they can be combined into a single scalar – a composite index. Enable each dimension index to range between 0 and 1 𝐼 𝑥 =𝐼 𝑥 𝑐 , 𝑚 𝑥 , 𝑀 𝑥 = 𝑥− 𝑚 𝑥 𝑀 𝑥 − 𝑚 𝑥 𝐼 𝐿𝐸 , 𝐼 𝑀𝑌𝑆 , 𝐼 𝐸𝑌𝑆 , 𝐼 ln⁡(𝐺𝑁𝐼) The HDI provides summary measure of a country average achievements in health, knowledge and income. It offers an alternative measure of progress to conventional measures such as the level of income or the rate of its growth. This year we also refine the HDI, retaining the same three dimensions – health, education and living standard, But introducing new indicators more pertinent for evaluating current and future progress In education, expected years of schooling for school-age children replaces gross enrolment, and average years of schooling in the adult population replaces adult literacy rates, to permit deeper understanding of education levels. The indicators were changed for several reasons. For example, adult literacy used in the old HDI is an insufficient measure for getting a complete picture of today’s educational field. By including average years of schooling and expected years of schooling, one can capture recent changes in education and school enrolment, as well as get a better idea of a country’s human capital.   Gross National Income (GNI) per capita replaces Gross Domestic Product (GDP) per capita to offer a better reflection of people’s income in a country. GDP is the monetary value of goods and services produced in a country irrespective of how much is retained in the country, whereas GNI expresses the income accrued to residents of a country, including international flows such as remittances and aid, and excluding income generated in the country but repatriated abroad. Thus, GNI is a more accurate measure of a country’s economic welfare. Life expectancy remains the indicator for health. This year’s HDI has a form of geometric mean of dimension indices obtained from the indicators by normalization based on minima and maxima observed over the period for which the HDI has been computed and reported. We calculated the HDI for 169 countries.

Dimensional indices Minima/Maxima (goalposts): Observed maxima and natural minima since 1980   Indicator Observed maximum Minimum Life expectancy 83.2 (Japan, 2010) 20.0   Mean years of schooling 13.2 (United States, 2000) Expected years of schooling 20.6 (Australia, 2002) Combined education index 0.951 (New Zealand, 2010) Per capita income (PPP US$) 108,211 (United Arab Emirates, 1980) 163 (Zimbabwe, 2008) The HDI provides summary measure of a country average achievements in health, knowledge and income. It offers an alternative measure of progress to conventional measures such as the level of income or the rate of its growth. This year we also refine the HDI, retaining the same three dimensions – health, education and living standard, But introducing new indicators more pertinent for evaluating current and future progress In education, expected years of schooling for school-age children replaces gross enrolment, and average years of schooling in the adult population replaces adult literacy rates, to permit deeper understanding of education levels. The indicators were changed for several reasons. For example, adult literacy used in the old HDI is an insufficient measure for getting a complete picture of today’s educational field. By including average years of schooling and expected years of schooling, one can capture recent changes in education and school enrolment, as well as get a better idea of a country’s human capital.   Gross National Income (GNI) per capita replaces Gross Domestic Product (GDP) per capita to offer a better reflection of people’s income in a country. GDP is the monetary value of goods and services produced in a country irrespective of how much is retained in the country, whereas GNI expresses the income accrued to residents of a country, including international flows such as remittances and aid, and excluding income generated in the country but repatriated abroad. Thus, GNI is a more accurate measure of a country’s economic welfare. Life expectancy remains the indicator for health. This year’s HDI has a form of geometric mean of dimension indices obtained from the indicators by normalization based on minima and maxima observed over the period for which the HDI has been computed and reported. We calculated the HDI for 169 countries.

Old HDI: arithmetic mean Functional form: Aggregation   Old HDI: arithmetic mean 𝐻𝐷𝐼 𝑜𝑙𝑑 = 1 3 𝐼 𝐿𝐸 + 1 3 2 3 𝐼 𝑀𝑌𝑆 + 1 3 𝐼 𝐸𝑌𝑆 + 1 3 𝐼 ln⁡(𝐺𝑁𝐼) Perfect substitutability: a low achievement in one dimension is not anymore linearly compensated for by high achievement in another dimension. Ex. (0.5, 0.6, 0.7)HDI=0.6, (0.4, 0.6, 0.8) HDI=0.6 Changing of minima and maxima impacts the rankings by HDI The HDI provides summary measure of a country average achievements in health, knowledge and income. It offers an alternative measure of progress to conventional measures such as the level of income or the rate of its growth. This year we also refine the HDI, retaining the same three dimensions – health, education and living standard, But introducing new indicators more pertinent for evaluating current and future progress In education, expected years of schooling for school-age children replaces gross enrolment, and average years of schooling in the adult population replaces adult literacy rates, to permit deeper understanding of education levels. The indicators were changed for several reasons. For example, adult literacy used in the old HDI is an insufficient measure for getting a complete picture of today’s educational field. By including average years of schooling and expected years of schooling, one can capture recent changes in education and school enrolment, as well as get a better idea of a country’s human capital.   Gross National Income (GNI) per capita replaces Gross Domestic Product (GDP) per capita to offer a better reflection of people’s income in a country. GDP is the monetary value of goods and services produced in a country irrespective of how much is retained in the country, whereas GNI expresses the income accrued to residents of a country, including international flows such as remittances and aid, and excluding income generated in the country but repatriated abroad. Thus, GNI is a more accurate measure of a country’s economic welfare. Life expectancy remains the indicator for health. This year’s HDI has a form of geometric mean of dimension indices obtained from the indicators by normalization based on minima and maxima observed over the period for which the HDI has been computed and reported. We calculated the HDI for 169 countries.

New HDI: geometric mean Functional form: Aggregation   New HDI: geometric mean 𝐻𝐷𝐼= (𝐼 𝐿𝐸 ) 1/3 [ 𝐼 𝑀𝑌𝑆 1 2 (𝐼 𝐸𝑌𝑆 ) 1 2 ] 1/3 (𝐼 ln⁡(𝐺𝑁𝐼) ) 1/3 No perfect substitutability reduced substitutability. Ex. (0.5, 0.6, 0.7)HDI=0.594, (0.4, 0.6, 0.8) HDI=0.577 Awards round performance Changing of maxima does not impact ranking by HDI The HDI provides summary measure of a country average achievements in health, knowledge and income. It offers an alternative measure of progress to conventional measures such as the level of income or the rate of its growth. This year we also refine the HDI, retaining the same three dimensions – health, education and living standard, But introducing new indicators more pertinent for evaluating current and future progress In education, expected years of schooling for school-age children replaces gross enrolment, and average years of schooling in the adult population replaces adult literacy rates, to permit deeper understanding of education levels. The indicators were changed for several reasons. For example, adult literacy used in the old HDI is an insufficient measure for getting a complete picture of today’s educational field. By including average years of schooling and expected years of schooling, one can capture recent changes in education and school enrolment, as well as get a better idea of a country’s human capital.   Gross National Income (GNI) per capita replaces Gross Domestic Product (GDP) per capita to offer a better reflection of people’s income in a country. GDP is the monetary value of goods and services produced in a country irrespective of how much is retained in the country, whereas GNI expresses the income accrued to residents of a country, including international flows such as remittances and aid, and excluding income generated in the country but repatriated abroad. Thus, GNI is a more accurate measure of a country’s economic welfare. Life expectancy remains the indicator for health. This year’s HDI has a form of geometric mean of dimension indices obtained from the indicators by normalization based on minima and maxima observed over the period for which the HDI has been computed and reported. We calculated the HDI for 169 countries.

Other similarities and differences   Equal weighting (normative) Logarithmic transformation of income – diminishing return principal No capping of income by $40,000 Equal weighing of educational subindices The HDI provides summary measure of a country average achievements in health, knowledge and income. It offers an alternative measure of progress to conventional measures such as the level of income or the rate of its growth. This year we also refine the HDI, retaining the same three dimensions – health, education and living standard, But introducing new indicators more pertinent for evaluating current and future progress In education, expected years of schooling for school-age children replaces gross enrolment, and average years of schooling in the adult population replaces adult literacy rates, to permit deeper understanding of education levels. The indicators were changed for several reasons. For example, adult literacy used in the old HDI is an insufficient measure for getting a complete picture of today’s educational field. By including average years of schooling and expected years of schooling, one can capture recent changes in education and school enrolment, as well as get a better idea of a country’s human capital.   Gross National Income (GNI) per capita replaces Gross Domestic Product (GDP) per capita to offer a better reflection of people’s income in a country. GDP is the monetary value of goods and services produced in a country irrespective of how much is retained in the country, whereas GNI expresses the income accrued to residents of a country, including international flows such as remittances and aid, and excluding income generated in the country but repatriated abroad. Thus, GNI is a more accurate measure of a country’s economic welfare. Life expectancy remains the indicator for health. This year’s HDI has a form of geometric mean of dimension indices obtained from the indicators by normalization based on minima and maxima observed over the period for which the HDI has been computed and reported. We calculated the HDI for 169 countries.

Comparison of HDI - new vs. old form 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 HDI 2010, new aggregation HDI 2010, old aggregation LOW HD MEDIUM HD HIGH HD VERY HIGH HD Estonia Values of the new HDI are systematically lower due to use of geometric mean which penalizes countries for uneven development across dimensions.

Other related changes and properties   Grouping of countries to four quartile groups: Very High HD, High HD, Medium HD, Low HD Relative boundaries, relative ranking HDI values are not comparable across additions of HDR due to data revisions and possible changes in maxima Each HDR has a table with calculated HDI The HDI provides summary measure of a country average achievements in health, knowledge and income. It offers an alternative measure of progress to conventional measures such as the level of income or the rate of its growth. This year we also refine the HDI, retaining the same three dimensions – health, education and living standard, But introducing new indicators more pertinent for evaluating current and future progress In education, expected years of schooling for school-age children replaces gross enrolment, and average years of schooling in the adult population replaces adult literacy rates, to permit deeper understanding of education levels. The indicators were changed for several reasons. For example, adult literacy used in the old HDI is an insufficient measure for getting a complete picture of today’s educational field. By including average years of schooling and expected years of schooling, one can capture recent changes in education and school enrolment, as well as get a better idea of a country’s human capital.   Gross National Income (GNI) per capita replaces Gross Domestic Product (GDP) per capita to offer a better reflection of people’s income in a country. GDP is the monetary value of goods and services produced in a country irrespective of how much is retained in the country, whereas GNI expresses the income accrued to residents of a country, including international flows such as remittances and aid, and excluding income generated in the country but repatriated abroad. Thus, GNI is a more accurate measure of a country’s economic welfare. Life expectancy remains the indicator for health. This year’s HDI has a form of geometric mean of dimension indices obtained from the indicators by normalization based on minima and maxima observed over the period for which the HDI has been computed and reported. We calculated the HDI for 169 countries.

Summary of added values   Uses more discriminating indicators Rewards balanced performance: countries cannot fully compensate for poor performance in one dimension by another Normalization based on actual values When maxima change the ranks of countries are preserved due to the multiplicative form of the new HDI. The HDI provides summary measure of a country average achievements in health, knowledge and income. It offers an alternative measure of progress to conventional measures such as the level of income or the rate of its growth. This year we also refine the HDI, retaining the same three dimensions – health, education and living standard, But introducing new indicators more pertinent for evaluating current and future progress In education, expected years of schooling for school-age children replaces gross enrolment, and average years of schooling in the adult population replaces adult literacy rates, to permit deeper understanding of education levels. The indicators were changed for several reasons. For example, adult literacy used in the old HDI is an insufficient measure for getting a complete picture of today’s educational field. By including average years of schooling and expected years of schooling, one can capture recent changes in education and school enrolment, as well as get a better idea of a country’s human capital.   Gross National Income (GNI) per capita replaces Gross Domestic Product (GDP) per capita to offer a better reflection of people’s income in a country. GDP is the monetary value of goods and services produced in a country irrespective of how much is retained in the country, whereas GNI expresses the income accrued to residents of a country, including international flows such as remittances and aid, and excluding income generated in the country but repatriated abroad. Thus, GNI is a more accurate measure of a country’s economic welfare. Life expectancy remains the indicator for health. This year’s HDI has a form of geometric mean of dimension indices obtained from the indicators by normalization based on minima and maxima observed over the period for which the HDI has been computed and reported. We calculated the HDI for 169 countries.

Human Development Index

Very few critiques   Ravallion (2011) argues “Implicit Tradeoffs in the HDI seem unreasonable” “An extra year of life expectancy much more valuable in monetary terms for rich versus poor countries” Implicit tradeoffs are embedded in the HDI by the implicit weights and the aggregation formula. Tradeoffs refer to the amount that must be given up of a component in order to achieve an extra unit of another component holding the same level of overall HDI. In economics, that’s called the Marginal Rate of Substitution. The HDI provides summary measure of a country average achievements in health, knowledge and income. It offers an alternative measure of progress to conventional measures such as the level of income or the rate of its growth. This year we also refine the HDI, retaining the same three dimensions – health, education and living standard, But introducing new indicators more pertinent for evaluating current and future progress In education, expected years of schooling for school-age children replaces gross enrolment, and average years of schooling in the adult population replaces adult literacy rates, to permit deeper understanding of education levels. The indicators were changed for several reasons. For example, adult literacy used in the old HDI is an insufficient measure for getting a complete picture of today’s educational field. By including average years of schooling and expected years of schooling, one can capture recent changes in education and school enrolment, as well as get a better idea of a country’s human capital.   Gross National Income (GNI) per capita replaces Gross Domestic Product (GDP) per capita to offer a better reflection of people’s income in a country. GDP is the monetary value of goods and services produced in a country irrespective of how much is retained in the country, whereas GNI expresses the income accrued to residents of a country, including international flows such as remittances and aid, and excluding income generated in the country but repatriated abroad. Thus, GNI is a more accurate measure of a country’s economic welfare. Life expectancy remains the indicator for health. This year’s HDI has a form of geometric mean of dimension indices obtained from the indicators by normalization based on minima and maxima observed over the period for which the HDI has been computed and reported. We calculated the HDI for 169 countries.

Very few critiques A simple reply is   A simple reply is The HDI is not a welfare function to be maximised. It does not encompasses all the development aims. It should be seen merely as index of capabilities. The HDI is an ordinal measure for relative ranking among countries The HDI provides summary measure of a country average achievements in health, knowledge and income. It offers an alternative measure of progress to conventional measures such as the level of income or the rate of its growth. This year we also refine the HDI, retaining the same three dimensions – health, education and living standard, But introducing new indicators more pertinent for evaluating current and future progress In education, expected years of schooling for school-age children replaces gross enrolment, and average years of schooling in the adult population replaces adult literacy rates, to permit deeper understanding of education levels. The indicators were changed for several reasons. For example, adult literacy used in the old HDI is an insufficient measure for getting a complete picture of today’s educational field. By including average years of schooling and expected years of schooling, one can capture recent changes in education and school enrolment, as well as get a better idea of a country’s human capital.   Gross National Income (GNI) per capita replaces Gross Domestic Product (GDP) per capita to offer a better reflection of people’s income in a country. GDP is the monetary value of goods and services produced in a country irrespective of how much is retained in the country, whereas GNI expresses the income accrued to residents of a country, including international flows such as remittances and aid, and excluding income generated in the country but repatriated abroad. Thus, GNI is a more accurate measure of a country’s economic welfare. Life expectancy remains the indicator for health. This year’s HDI has a form of geometric mean of dimension indices obtained from the indicators by normalization based on minima and maxima observed over the period for which the HDI has been computed and reported. We calculated the HDI for 169 countries.

What does the HDI tell us? People and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone. It can also be used to question national policy choices, asking how two countries with the same level of GNI per capita can end up with such different human development outcomes.

What does the HDI tell us? Example: Saudi Arabia has GNI per capita more than $2000 higher than Czech Republic, but life expectancy and expected years of schooling differ greatly between the two countries.  Czech Republic is much higher ranked than Saudi Arabia. These striking contrasts can directly stimulate debate about government policy priorities.

Implications for the future The main problem at the global level: the lack of appropriate data and insufficient data quality of international databases, persists over time. Nonetheless, over the last 20 years there was a considerable improvement in all aspects of relevant measuring of socio-economic and environmental phenomena. Still, a long way to go! Continuous investment in data and their efficient use are needed.

Thank you milorad.kovacevic@undp.org