What is the Human Development Index (and why does it matter)?

The Human Development Index was first published in 1990. It remains an important component for implementing people-centered economic policies.

People in a cros

The first Human Development Report, published in 1990, pushed back on one of the core tenets of 1980’s economics: allowing the flow of money from top earners to “trickle down” will positively impact middle- and lower-class communities. Over time, it became obvious that this theory failed to help the majority of people with their day-to-day reality.

And so Pakistani economist Mahbub ul Haq borrowed from Indian economist Amartya Sen’s theories on human capabilities. Ul Haq looked beyond bank accounts and focused on what matters most to people: access to food, shelter, and education; being able to vote for your interests; and having an opportunity to participate in your community. The Human Development Index (HDI) was born.

Ul Haq believed that in order to expand the richness of human life, basic income numbers are only a small part of the story. He wanted to ensure that everyone has opportunities and choices in their lives. In his view, if growing incomes did not lead to better lives, such numbers are effectively meaningless.

As ul Haq framed his intentions in 1990,  the purpose of the HDI was “to shift the focus of development economics from national income accounting to people-centered policies.”

The three dimensions of life he chose to focus on were the opportunity to live a long and healthy life, acquire knowledge, and have access to a decent standard of living, as expressed in this chart:

3 dimensions of the Human Development Index
Credit: 2021/2022 Human Development Report

The UN has scored nations on their ability to offer these three goals to its citizens since the HDI was introduced. And it all comes down to two things.

Opportunities and choice

Ul Haq knew that choice is an important component in life. This dimension adds nuance to the HDI as it democratizes the overall goals. For example, someone who is hungry due to an inability to earn a living is a problem; fasting for religious reasons is a choice that shouldn’t negatively impact the index. While he promoted opportunities as a human right, ul Haq needed a measure that was flexible enough to factor in spiritual and personal decisions.

Under an opportunities-based framework, the HDI posits a situation where a young girl has access to an education but is denied jobs due to her race or gender. From a holistic viewpoint, opportunities have to build upon one another. Learning a skill set is important but ultimately futile if she cannot earn a decent living from those skills, which is then likely to reduce the possibility that she’ll lead a long and healthy life. Under such a formulation, the three dimensions of the HDI are interdependent.

Human development therefore involves offering more choices to people. This means creating a society in which people have the opportunities they need to accomplish all three dimensions—all while not forcing them to take advantage of those opportunities. The goal is to create an environment that facilitates opportunities while letting people make decisions that appeal to their personal temperament.

The index is often framed in terms of what people can “be” or “do” in their lives. As the HDI website puts it:

Beings: well fed, sheltered, healthy

Doings: work, education, voting, participating in community life

Using these measures as a north star, the Human Development Report 2022 was recently published by the United Nations Development Programme. According to the report, the top five nations are:

  • Switzerland
  • Norway
  • Iceland
  • Hong Kong
  • Australia

In the report’s foreword, Achim Steiner, administrator of the UN’s Development Programme, reminds readers what was initially proposed in the first report 32 years ago: “people are the real wealth of nations.”

And yet, due to increasing political polarization, the increasing effects of climate change, and the most challenging pandemic the world has seen in a century, the report found that after three decades of consistent growth, HDI measures have declined over the last two years. Whereas growth slowed during the global financial crisis of 2008, the index saw its first drop in 2020.

Human Development Index value
Credit: 2021/2022 Human Development Report

Let’s look at why that matters, and what we can do about it.

Measure what matters

The authors write that the ongoing COVID-19 pandemic is responsible for reversing the positive trends of HDI measures. Of course, that’s not the only factor: ongoing wars, a looming global food crisis, and record-breaking temperatures are adding to the chronic stress many citizens feel. As they note,

Acute crises are giving way to chronic, layered, interacting uncertainties at a global scale, painting a picture of uncertain times and unsettled lives.

While humans have always lived in uncertain times, the authors believe we’re living through an entirely new “uncertainty complex.”

Uncertainty complex diagram
Credit: 2021/2022 Human Development Report

The amount of influence we have over our societies and environment makes this even more frustrating. Of course, influence doesn’t equal control. Knowing what you can change and what’s beyond your control are important components of sound mental health, which is why the authors advise focusing on what we can do to mitigate the dangers listed above. That means focusing on the real wealth of the world: an investment in people.

This isn’t the only investment they advise. In fact, the “three I’s” proposed in the report can help people survive (and even thrive) in the face of the uncertainty complex:

  • Investment, ranging from renewable energy to preparedness for pandemics and extreme natural hazards, will ease planetary pressures and prepare societies to better cope with global shocks. Consider the advances in seismology, tsunami sciences, and disaster risk reduction following the 2004 Indian Ocean tsunami. Smart, practical investments pay off.
  • Insurance also benefits the most number of people. It helps protect everyone from the contingencies of an uncertain world. The global surge in social protections (such as expanding health care and unemployment benefits, providing economic stimulus, and linking national registries and adopting digital verification systems) in the wake of the COVID-19 pandemic did just that, while underscoring how little social insurance coverage there was before and how much more remains to be done. Investments in universal basic services such as health and education also afford an insurance function.
  • Innovation in its many forms—technological, economic, cultural—will be vital in responding to unknown and unknowable challenges that humanity will face. While innovation is a whole-of-society affair, government is crucial in this regard: not just in creating the right policy incentives for inclusive innovation but also in being an active partner throughout.

Technology is a double-edged sword. Without an emphasis on the welfare of human beings, technologies can create larger opportunity gaps. While the authors note that COVID vaccines were an incredible application of technological process, distribution of those vaccines was horribly mismanaged. Only by taking a holistic account of technology, focusing on all three HDI dimensions and not just bottom lines, will humans be able to leverage all resources available to us and work through uncertainties.

What does that look like in practice? The authors propose a broad framework:

Framework for alleviating poverty
Credit: 2021/2022 Human Development Report

Research conducted in hospice settings has shown that people generally regret focusing on the wrong things throughout their lives, such as making money or advancing in their careers. These aren’t necessarily bad goals, but spending more time with friends and family tops their wish list. That is, focusing on human connections.

The HDI takes this mindset into account when looking at how humans develop at their best. We can thrive even in times of great uncertainty. Yes, economics plays an important role in all of this: creating monetary systems that help everyone make the most of their money gives them access to more opportunities.

In this view, money serves as a tool, not an end in itself. And that money needs to work for everyone. When people are given both opportunities and choices, they have a say in what they can control. We all deserve to develop in such an empowering way.


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