Analyzing Global Progress: Interpreting the 2010 UNDP Human Development Report and Index

Around the world, most people are much better off today than they were just a few years ago according to the latest 2010 UNDP Human Development Report (HDR).  From Italy to South Korea to China and India, large increases in Human Development Indexes (HDI) of 22 to 80 percent since 1980 mean peoples’ living standards benefit from higher incomes and longer life expectancies.  With few exceptions, global progress has touched countries at all levels of development from Norway to Nepal.

20 Years of HDR’s and Much Progress

The year 2010 marks two important UN development milestones: the 20th anniversary of the first HDR in 1990 and the 10th anniversary of the UN Millennium Development Goals.  The UN’s development work has played a key role in raising standards of living around the world.  The HDRs have helped to identify and quantify the important factors in development.  More importantly, they have done so by providing reliable, consistent indicators over an extended period of time.  They have become valuable benchmarks to motivate and measure effective policy-making and good governance.  They have also served as useful tools for keeping political leaders honest by showing how a country’s progress stacks up against the performance of other nations, be they neighbors, peers, allies, or aspirational models.

What is Development?

According to the 2010 HDR, the original 1990 Human Development Report defined development concisely as a process of “enlarging people’s choices,” while emphasizing that this objective depended on the freedom to be healthy, educated, and enjoy a decent standard of living.  It also stressed that “human development and well-being went far beyond these dimensions to encompass a much broader range of capabilities, including political freedoms [and] human rights ….”

For 2010, the HDR proposes an evolved vision of human development as 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.  People are both the beneficiaries and the drivers of human development, as individuals and in groups.”

2010 UNDP HDI Rankings

Among the most impressive findings of the 2010 UNDP Human Development Report are the magnitude and reach of improvements in the Human Development Index from 1980 to 2010.  More than 3.376 billion people in 16 different countries, accounting for more than 49 percent of the world’s population, benefited from development improvements of 50 percent or more.  A total of 45 countries saw their HDI’s improve by more than 25 percent.  At the top of the list, Nepal’s HDI more than doubled from 0.210 to 0.428.  The HDI’s of China and India, or roughly one-third of the world’s people, grew by 80 and 62 percent, respectively.  Moreover, the gains of the top 45 countries have been distributed around the world, including Africa, Asia, Europe, Latin America, and the Middle East.  The table below shows the data for the 45 countries with the largest gains in their Human Development Indexes from 1980 to 2010.

At the top of the 2010 HDI table, Norway heads the group of 42 “Very High Human Development Countries.”  The U.S. ranks #4 behind Australia and New Zealand.  Most of the countries in this top bracket also managed strong gains in their HDI’s since 1980, even though many had already started from a high level of development.  Seven of the top 26 countries achieved HDI gains of more than 20 percent and all but five had HDI’s that grew by 15 percent or more.  The overall HDI scores and growth rates for the top 26 countries appear in the table below (click on the table to see a larger version).

One noteworthy case involves the performance of South Korea, which managed to both earn an overall HDI rank of #12 just behind Japan and Germany and come in at #23 on the list of the countries with the largest HDI percentage increases.  Moreover, South Korea’s HDI growth came on top of a very high base of 0.616 compared with most of the countries with the biggest HDI gains.

On the other hand, the U.S., Canada, and Switzerland stand out for their relatively modest increases in HDI over the past 20-30 years.  While starting from very high base HDI’s, they look to have significantly under-performed relative to the other 26 countries during the periods 1980-2010 and 1990-2010.

What’s Behind the Improvements in HDI’s and Quality of Life?

The UNDP’s Human Development Index accounts for a country’s relative standing on three factors:

1)  Health, measured by years of life expectancy at birth;

2)  Education, measured by average and expected years of schooling; and

3)  Income, measured by GDP per capita in US$ at Purchasing Power Parity (PPP).

The past 30 years have seen large increases in GDP per capita and life expectancies across all levels of development.  In Algeria, Bangladesh, Indonesia, Nepal, and Turkey, life expectancy at birth increased by 12 to 19 years.  On average for the world, life expectancy at birth increased by six years and GDP per capita grew by 289 percent.  The table below provides examples of these gains for a limited cross-section of countries (click on the table to see a larger version).

The table above shows another facet of South Korea’s rapid economic development.  Unlike most other development experiences, South Korea’s life expectancy at birth actually decreased from 68 years in 1980 to 67 years in 2008.  This result may be linked to the sacrifice that Koreans have been willing to make to fuel the country’s economic growth.  In 2008, Koreans worked more hours than any other country.  According to the OECD Factbook 2010, Koreans averaged 2,256 working hours per year versus 1,792 hours for Americans and 1,430 hours for Germans. (Although comparisons of OECD working hours data are susceptible to some country differences in labor practices and regulations, it seems safe to say that Koreans bear more than their share of the global workload relative to workers in other OECD countries at similar levels of development.)

Income Adjustments

It is tempting to wonder how the rankings would change if income were removed from the picture.  The HDR provides these data in the form of an adjusted “Non-Income HDI Value.”  The table below shows the effects of restricting the HDI to the health and education components of the index for the top 30 countries in the ranking (click on the image to see a larger version).

Interestingly, Cuba would rank 14 in Non-Income HDI after Finland and Spain due to its long life expectancy and high number of expected years of schooling.  (The UNDP does not provide income data or an overall HDI for Cuba in the 2010 HDR.)

The Non-Income HDI suggests that the prospects for future development may be bright for a number of faster growing countries that rank significantly higher without the income component.  In the top tier of “Very High Human Development,” this includes the Czech Republic, Estonia, Greece, Hungary, Poland, and South Korea.

New Inequality and Poverty Adjustments

Income and gender inequalities within countries affect living standards and quality of life across all levels of development.  The 2010 Human Development Report introduces three new multidimensional measures of inequality and poverty: 1) Inequality-adjusted HDI (IHDI); 2) Gender Inequality Index (GII); and 3) Multidimensional Poverty Index.  These new indicators are intended to account for variations in the levels of health, education, and income within a country’s population that are not revealed by the HDI as an average indicator of a country’s overall development.

Multidimensional Inequality

Large income and gender inequities lead to downward adjustments in countries’ average development levels ranging from a low of 6 percent for the Czech Republic to a high of 45 percent for Mozambique.  South Korea loses the most of any developed country with a reduction of 16.7 percent to its HDI.  Multidimensional inequality reduces Haiti’s already low HDI score by about 41 percent.  The UNDP cites Haiti as one of eight countries where women receive less than half as many years of schooling as men.  The table below shows the effect of adjusting for inequality on the overall HDI rankings of the top 30 countries (click on the image to see a larger version).

Multidimensional Poverty Index (MPI)

While poverty tends to hit low income countries the hardest, far too many people in wealthy and poor countries alike still live in impoverished conditions.  The 2010 HDR’s Multidimensional Poverty Index, created by the Oxford Poverty & Human Development Initiative with UNDP support, refers to conditions where people face constant, acute shortcomings in their health, education, and living standards.  In most cases, the number of people living in impoverished conditions and the intensity of their poverty go together.   In Haiti, more than 30 million people, around 57 percent of the country’s population, struggle to survive in this difficult, stressful state.  In other countries such as Myanmar, Philippines and Vietnam, the intensity of poverty is even greater than the substantial poor headcount might suggest.

Comparison with Other Quality of Life Indexes and Rankings

The UNDP rankings can be compared with several other global measures of living standards and quality of life.

Legatum Institute 2010 Prosperity Index

Norway also retained the top ranking in the London-based Legatum Institute’s 2010 Prosperity Index, published a week prior to the UNDP’s 2010 HDR.  The Legatum index is based on eight “foundations for national development,” including: economy, entrepreneurship and opportunity, governance, education, health, safety and security, personal freedom, and social capital.

The table below compares the top rankings for the 2010 UNDP HDI and Legatum Prosperity Index rankings (click on the image to see a larger version).

The table below reproduces the Prosperity Index scores by foundational category for the top 30 countries (click on the image to see a larger version).

The social capital sub-index on the far right in the table above looks to correlate closely with the overall rankings of the top ten or so countries.  The sub-index measures performance in two areas: 1) social cohesion and engagement; and 2) community and family networks.  The Legatum report points out studies have found a correlation between the level of social capital and a country’s rate of economic growth.

Interestingly, the Legatum study finds that entrepreneurship and appetite for risk correlate more closely with a nation’s overall prosperity than any other factor.

To the extent that the Legatum Index’s additional data points correlate strongly enough with the HDI’s three components, they may be factored into the UNDP data to varying degrees.  The UNDP’s multidimensional inequality and poverty adjustments to the HDI help address other key dimensions of the development picture.  In addition, the HDR also presents a number of other stand-alone indexes and indicators that help assess other aspects of the international quality of life, but which are not included in the overall HDI.  Moreover, the UNDP confronts more data limitations by indexing a much larger universe of countries in order to include poor nations at low levels of development.

Environmental Rankings

Switzerland topped the Economist’s 2008 environmental performance index, followed by Norway and Sweden in a tie for second place.  The index considers such factors as environmental health, biodiversity, air pollution, water use, agricultural methods, and tackling climate change.

City Quality of Life Rankings

The Economist ranks Vienna, Austria first on its index of cities with the highest quality of living based on 39 factors.  Vienna is followed closely by Zurich and Geneva.  German, Austrian, and Swiss cities take 9 of the top 25 spots.  Oslo, Norway comes in 24th but still ranks higher than any city in France, Italy, Spain, U.K., or U.S.  Honolulu and San Francisco are the highest ranking U.S. cities at spots 29 and 30, respectively.

So Why is Norway #1?

In addition to scoring near the top on the fundamental indicators of health, education, and per capita income, Norway also ranks highly on social capital as well as entrepreneurial opportunity and appetite for risk.  On a more subjective note, 85 percent of Norwegians live within sight of a coastline and many have second houses on lakes.

It’s worth pointing out that Norway’s ranking may also relate to several characteristics that make the country different from many other advanced western nations.

A relatively small, homogenous population could make it hard to compare Norway directly to much larger, more diverse countries like the U.S., U.K., France, and others.  Norway’s 4.9 million people consist predominantly of ethnic Norwegians (83.8 percent) and Lutherans (82.1 percent).

On the economic front, Norway’s very high per capita income comes partly from state-controlled oil and natural gas resources that were discovered in the North Sea in 1971.  Oil and gas account for $82.9 billion or about 67.8 percent of Norway’s $122.1 billion of total exports.  A century ago around the time that it declared independence from Sweden in 1905, Norway was one of the poorest countries in Europe.

Good Reason for Hope

Overall, the UNDP’s 2010 Human Development Report paints a story of substantial progress on many fronts.  While there is still much to be done to alleviate the remaining scars of multidimensional poverty and inequality, most of the world’s people enjoy much longer, healthier lives and higher standards of living than they did just 20 or 30 years ago.  The findings and work of the UNDP should give us confidence that the international community’s quality of life together can get even better in the future.

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Sources:

CNN Wire Staff.  Norway at Top of Prosperity Index.  CNN.  October 26, 2010.

Human Development Report 2010.  United Nations Development Programme (UNDP).

2010 Legatum Prosperity Index.  Legatum Institute.

Mandelson, Peter.  Prosperity Is More Than Just Money.  The Wall Street Journal.  October 26, 2010.

2010 OECD Factbook. Organisation for Economic Cooperation and Development.

Pocket World in Figures.  Economist.  2010 Edition.

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