Human Development Index (HDI): Concept & History

Introduction

Human Development Index: Human Development is the process of enlarging people’s choices. The ethos of planning in India has always been people-centric. However, the introduction of the human development paradigm in the planning mechanism ensured the focus of human development in the growth process.

As the country was opening up its economy in the 1990s, this central position was essential for policy planners to continue focussing on people who may be excluded from market-oriented growth. Additionally, it is extremely essential to incorporate human development into the planning process so that people can be empowered to hold their Governments to account and Governments can be encouraged to be responsive to the needs of the people. (UNDP, 2010).

Thus, in 1990, the UNDP gave a call for a broad approach to improving human well-being that would cover all aspects of human life, for all people, in both high-income and developing countries, both now and in the future. It went far beyond narrowly defined economic development to care for the full flourishing of all human choices essential for quality of life.

For a large country such as India, the utility of the study of human development is enhanced once the exercise is attempted at the state level. Apart from the diversity, an important reason for establishing a “benchmark” and subsequent “follow-up” on different aspects of human welfare at the state level is due to the dominant role played by the states in social sectors in the country.

Human Development Approach

For decades, countries’ levels of welfare were measured in terms of economic growth or an increase in per capita gross domestic product (GDP). While this approach has the advantage of being straightforward and easy to use, the failure of economic growth to improve the well-being of a significant proportion of people in many countries has underscored the need for a more encompassing measure that also captures human development.

The concept of human development emerged in the late 1980s based on the conceptual foundation provided by Dr. Amartya Sen and Dr. Mahbub ul Haq. The HD approach puts people at the centre of the development agenda, where economic growth and wealth are considered means to development, not an end by itself.

Put simply, the starting point for the human development approach is the idea that the purpose of development is to improve human lives by not only enhancing income but also expanding the range of things that a person can be and can do, such as being healthy and well nourished, be knowledgeable, and to participate in community life. Seen from this viewpoint, development is about removing the obstacles to what a person can do in life, obstacles such as lack of income, illiteracy, ill health, lack of access to resources, or lack of civil and political freedoms.

The first Human Development Report defines human development as a process of enlarging people’s choices. To lead a long and healthy life, to be educated, and to enjoy a decent standard of living are the three most critical choices identified in the first HDR. Additional choices include political freedom, guaranteed human rights, and self-respect.

History of the Concept: Human Development Index

Although the rediscovery of the concept is about thirty years old, interest in this subject is not new. Today’s belated return to human development means reclaiming an old and established heritage rather than importing and implanting a new diversion.

The roots of the concept of human development can be traced to early periods in human history and can be found in many cultures and religions. The idea that social arrangements must be judged by the extent to which they promote ‘human goods’ dates at least to Aristotle (384 -322 B.C.) (Haq, 1995). In ancient Greece, Aristotle argued that: “Wealth is evidently not the good we are seeking, for it is merely useful for the sake of something else.”

Immanuel Kant (1724-1804) continued the tradition of treating human beings as the real end of all activities. And when Adam Smith showed his concern that economic development should enable a person to mix freely with others without being “ashamed to appear in public” he was expressing a concept of poverty that went beyond counting calories- a concept that integrated the poor into the mainstream of the community.

However, During the Post Second World War era, the development agenda, however, centred on growth rather than human well-being. The focus was on the accumulation of physical capital through savings and investments for promoting industrial development and growth in war-torn economies. The economic growth paradigm neglected important aspects of development, such as income inequalities, unemployment, and disparities in access to public goods and services such as health and education.

By the late 60’s and early 70’s a general shift in the development, and debate started to take place, where more emphasis was put on social development rather than capital accumulation and growth. The ‘basic needs’ approach was introduced, putting the basic needs of people such as access to basic education, basic health care, food, nutrition, water, and sanitation on the agenda. Fulfilment of these basic needs was seen as a prerequisite for development.

In 1990, human development was given a firmer conceptual, quantitative, and policies focus through the publication of the first global HDR. Human development combines the capabilities and basic needs approach with a greater emphasis on the ability of human beings to lead the lives that they aspire to and the enhancement of the substantive choices that they have.

The human development framework is anchored in the idea that while economic prosperity may help people lead freer and more fulfilling lives, education and health, among other factors, influence the quality of people’s freedoms. Human development helps people to lead more healthy, lengthy, and knowledgeable lives.

Human Development Index (HDI)

The first Human Development Report in 1990 introduced a new way of measuring development by combining indicators of life expectancy, educational attainment, and income into a composite human development index, the HDI.

The components are measured by four variables: GDP per capita, (PPP USD), literary rates (%), combined gross enrollment ratio,(%), and life expectancy at birth (years). The composite index results in a figure between 0 and 1, of which 1 indicates a high level of human development and 0 is no level of human development.

The formulation of the HDI as a measure of human development was based on many objectives, with the following of paramount importance:

• Develop indicators that measure the basic dimensions of human development and the enlargement of people’s choices;

• Make use of a limited number of indicators to keep the measure simple;

• Devise a composite index rather than an excessive number of separate indices;

• Create a measure that covers both economic and social choices;

• Ensure a flexible measure subject to gradual refinement as analytical critiques emerge; and

• Rank countries with the index to advocate for data relevant to human development policies, and investments in data collection and analysis.

The index as it is currently measured is very basic, consisting of the following dimensions:

• A long and healthy life, measured by life expectancy at birth;

• Knowledge, measured by the adult literacy rate and the combined gross enrolment ratio at primary, secondary, and tertiary levels; and

• A decent standard of living is measured by GDP per capita in purchasing power parity (PPP) US dollar terms.

Steps to Calculate the Human Development Index

There are two steps to calculating the HDI.

Step 1: Creating the Dimension Indices

Minimum and maximum values (goalposts) are set to transform the indicators into indices between 0 and 1. The maximums are the highest observed values in the time series (1980–2012). The minimum values can be appropriately conceived of as subsistence values. The minimum values are set at 20 years for life expectancy, at 0 years for both education variables and at $100 for per capita gross national income (GNI). The low value for income can be justified by the considerable amount of unmeasured subsistence and nonmarket production in economies close to the minimum, not captured in the official data.

Having defined the minimum and maximum values, the sub-indices are calculated as follows:

For education, equation 1 is applied to each of the two subcomponents, then a geometric mean of the resulting indices is created and finally, equation 1 is reapplied to the geometric mean of the indices using 0 as the minimum and the highest geometric for education, equation 1 is applied to each of the two subcomponents, then a geometric mean of the resulting indices is created and finally, equation 1 is reapplied to the geometric mean of the indices using 0 as the minimum and the highest geometric mean of the resulting indices for the period under consideration as the maximum. This is equivalent to applying equation 1 directly to the geometric mean of the two subcomponents.

Because each dimension index is a proxy for capabilities in the corresponding dimension, the transformation function from income to capabilities is likely to be concave (Anand and Sen 2000). Thus, for income, the natural logarithm of the actual, minimum, and maximum values is used.

Step 2: Aggregating the Subindices to Produce the Human Development Index

The HDI is the geometric mean of the three dimension indices: (Life 1/3, Education 1/3, Income 1/3).

Major Refinement in the HDI
Refinement	Year
The method of calculation was revised to give the index a positive twist.	1991
Mean years of schooling were added as a second component to form educational attainment. Adult literacy was given two-thirds weight and mean years of schooling one-third.	1991
A cut-off income of US $5,000 per capita per year, based on the world average, was introduced. This decision was based on the assumption that each person as a member of the global community requires at least that income to build basic capabilities. Income above the cut-off point was adjusted using a highly regressive formula.	1991
Fixed minima and maxima were introduced based on the trends of variables and their probable values in the next 25 years.	1994
Mean years of schooling were replaced with combined gross enrolment at the primary, secondary and tertiary levels because the data on the former did not necessarily reflect reality.	1995
The formulation of logging income throughout was reintroduced because the adjustment introduced in 1991 was so drastic that middle-income countries were unjustifiably penalized. The treatment of income in the HDI now emphasizes that people do not need an infinite amount of income for a decent standard of living. As income increases, its value is adjusted downwards through mathematical treatment before it enters the HDI.	1999

Calculating the Human Development Indices: Graphical Presentation