Back in April, I wrote a post about why GDP per capita is very limited in scope when it comes to representing the wealth of individuals in countries. With the release of the 2011 Human Development Report and subsequent HDI indexes for most of the world’s countries, I again find myself being critical of yet another measure of human development.
In general, I think that HDI is a great indicator for various social and economic aspects of individuals within countries and for comparison across countries. The unit of measure, conceptualized by Nobel Laureate Amartya Sen, takes into account life expectancy at birth, mean years of schooling and expected years of schooling, and GNI per capita. While I find HDI to be much more useful than GDP per capita, when looking at the indices, I was struck by the fact that the measurement does not take inequality into account by using GINI coefficients or another calculation with which to measure inequality. Without accounting for inequality, HDI simply offers a glimpse of what is possible in a country as opposed to what the reality is. While this may useful for a globetrotter looking for a country to settle down in, is this useful for policymakers?
In the 2011 ranking by HDI, I was most struck by the fact that the US was ranked number 4, beating out Sweden, Switzerland, and Denmark and many other highly developed countries. This ranking is what made me think about the uselessness of HDI indexes for policymakers. As an avid traveler and having visited Sweden and Switzerland and having lived in the US most of my life, I know for a fact that a poor person in the US is much much worse off than a poor person in Sweden. So I wondered how the US managed this ranking, thus realizing that it is a reflection of the potential within countries.
After a bit of research I found that in 2010, following criticism for a lack of inclusion of inequality measures, the Human Development Report began to include “inequality-adjusted HDI”. The IHDI takes inequality into account by using the Atkinson index. When taking into account inequality, the US falls to number 23 on the ranking of countries by IHDI. Seeing the Scandinavian countries all move in front of the US made me feel a lot more comfortable and confident in the fact that the IHDI is one of the better measures that we have to measure social and economic progress for people within and between countries.
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