The history of measuring development is replete with models. The Standard Index, Gross Development Product (GDP) and its variant, Gross National Product (GNP)/Gross National Income (GNI) has been continuously questioned as a true measure of human development. GDP is defined as the sum of the economic activity that consists of the value of goods and services produced by the citizens inside the border of a country in a given year. GNP/GNI has the same definition but it also includes the economic activity of citizens who live outside the country’s border. The use of GDP is very popular because it is easy to track progress along a continuum. It is also politically preferable for showing achievements. Furthermore, it is assumed to be able to predict the overall progress of development. Many governments and development agencies such as the World Bank, and the IMF use GDP as a baseline to develop policies and projects.
The dissatisfaction with GDP as a measure of development led UNDP in 1990 to create the Human
Development Index (HDI). The intention was to emphasize that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone. The HDI was therefore created as an indication that national policy choices may explain how two countries with the same level of GNI per capita (GDP) can end up with different human development outcomes. As illustrated in the diagram, HDI is a summary measure of the average achievement in key dimensions of human development: a long and healthy life, being knowledgeable and having a decent standard of living.
In support of the HDI, Amartya Sen, Nobel Laureate aptly describes development as creating freedom for people and removing obstacles to greater freedom. He argues that greater freedom enables people to choose their own destiny; and that obstacles to freedom, and hence to development, include poverty, lack of economic opportunities, corruption, poor governance, lack of education and lack of health. Subsequently, the UN promoted the 2015 Millennium Development Goals (MDGs), and the 2030 Sustainable Development Goals (SDGs) with a number of targets, largely responses to Sen’s vision. What all of these goals and targets contend is that economic development is a broader concept than economic growth and that development reflects social and economic progress and requires economic growth. While they all recognize that growth is a vital and necessary condition for development, they agree that it is not a sufficient condition as it cannot guarantee development.
More recently, the World Bank has initiated a Human Capital Development Project in an attempt to identify “the sufficient condition to guarantee development”. The project has established a Human Capital Index, the first version of which was released in October 2018. This metric is intended to measure the human capital of the next generation. Hence, the main concerns are with (a) the conditions that increase the survival rates of children under 5 years, (b) the expected years of learning-adjusted school, reflecting the quality and relevance of the learning environment; and (c) the overall health environment throughout the life cycle.
The focus on Human Capital is fascinating, especially in this era of the 2030 Sustainable Development Goals which will be explored more fully in another blog. But as shown in the diagram, the rates of return are maximized by investing in preschool programmes and sustained through quality of life long learning and job training. The major inputs to Human Capital Investments are improving skills, health, knowledge and resilience. And the major outcomes are productive, flexible and innovative citizens, communities, nations and regions.
The World Development Report 2019: The Changing Nature of Work supports this view by illustrating how investment in Human Capital becomes more important as the nature of work must respond to rapid changes in technology. More important is that markets in the future are projected to be demanding workers with higher levels of human capital especially advanced cognitive and socio behavioral skills with a pay difference of 25%-30% between those capable of performing analytic non-routine work and those without such skills.
The early takeaways from the exploratory studies within the Human Capital Development Project provide the basis for further dialogue on the value of focusing on Sustainable Human Development. They include:
Stiglitz Joseph, Amartya Sen, and Jean Paul Fitousi, The measurement of Economic Performance and Social Progress Revisited - OFCE - Centre de recherche en économie de Sciences, December, 2009
World Development Report 2018 Learning to realize Education’s Promise, World Bank, Washington DC 2018
Tim Evans, Without Health for All we will all end up in poverty by 2030, World Bank Blog December, 2017