The Concept of Human Development Index

Transcription

1 The Concept of Human Development Index Cristina BALACEANU, Diana APOSTOL Dimitrie Cantemir Christian University Abstract The transition from the aggregate indicator reflecting the economic value of goods produced by an economy over a specified period of time, to sustain aggregate demand (GDP), feebly covering the individual s socio-economic and environmental needs, to the aggregate indicator that also reflects non-quantifiable aspects, such as individual's total satisfaction generated by the coverage of human needs, in addition to quantifiable aspects, under the form of revenue obtained through the use of production factors, out of the aggregate Gross National Income (GNI) used to the assess national welfare and implicitly the living standard. Key words: national welfare, Gross Domestic Product (GDP), Gross National Income (GNI), Human Development Index (HDI) Meeting the needs of the individual implies, as it is generally know, the consumption of goods that have resulted in the determination of costs which are similar to the following categories: economic costs, social costs, environmental costs (ecological). Sustainable development takes into account the way in which to cover these costs requires the increased gap between consumption and income taking into account the possibility of economic field to produce a) present revenues to support the current social and economic costs and b) future revenues to support the environmental costs resulting in damages transferred to future generations. As a result of extensive exploitation of the natural resources caused by population growth, larger consumption of luxurious and economic goods as well as increasing human habitat, the growing number of the negative effects have led to environmental damage, particularly natural environmental changes for economic purpose. Humanity is currently experiencing an economic and social crisis caused by the irrational exploitation of economic resources, particularly financial ones, with devastating consequences on the natural and social environment, which generates instability, lower occupancy and chances of development, social inequity, obvious socio-economic disparities, with direct and immediate repercussions on the quality of life of people. Consequently, it is obvious that future generations have limited chances to enjoy a natural healthy environment. The way in which current needs are met without compromising the ability of the future generations to achieve its own requirements 1 invoke 1 Gro Harlem Brundtland, Our Common Future, report of the UN World Commission on Environment and Development, 1987 Revista Română de Statistică Trim I/2012- Supliment 111

2 two aspects of equity: intergenerational equity (referring to a certain generations) and intergenerational equity (between generations). Intergenerational equity refers to the redistribution of a nation s treasury considering principle of social justice. Social justice is not possible without strong and coherent redistributive policies conceived and implemented by the institutional policy. A fair, efficient and progressive taxation system allows a State to perform its duties, including providing national security, financing infrastructure and public services such as education, health care and social security, and offering protection and support to those who are temporarily or permanently in need 2. Social justice requires strong and coherent policies in a multitude of areas. Fiscal, monetary and other economic policies, as well as social policies, incorporate specific objectives but must all be geared towards the overall social goal of promoting the welfare of a country s citizens and increasingly, in this age of global interdependence, the citizens of the world. The concept of Social Justice is currently identified with the one of Economic Justice due to the gradually minimized role and power of the welfare State. Economic justice is considered an element of social justice, a choice justified by the desire to convey the idea that all developments relating to justice occur in society, whether at the local, national, or global level, and by the related desire to restore the comprehensive, overarching concept of the term social, which in recent times has been relegated to the status of an appendix of the economic sphere. Intergenerational equity appears as the present generations deduct its benefits by using environment as basic resource while costs are transferred to the future generations. Actually, intergenerational equity presumes the current generation s interest considering the extension of the report potential development of n i resource expressed in revenues of the current generation. Thus, through its institution, the State needs developing and preserving financial resources by creating a system of macroeconomic policies that should encourage the development of private initiative and entrepreneurship, to stir motivation for work by creating financial instruments accessible to economic agents. In this way, the economic treasure is increasing that, by taxation, will generate incomes for the state budget, used further on in the process of redistribution. Consequently, to grant welfare, it is necessary to identify a common denominator at the political level so that the redistribution of public incomes should be effective. Implicit in such a view is to set up a forwarding strategy to assure public venues increase which requires defining an objective of governance: set up a simulative fiscal policy for the business environment that should encourage work and highlight the awareness of social responsibility. Thus, if we could understand economies as potential growth mechanisms (Baumol, Litan, Schramm, 2009) that needs fuel for properly working, as well as the agreement of certain parts or primary components so that they may promote efficiently entrepreneurship, innovation and economic growth, we could assert that the role of management would be to identify the trajectory through which the arum of these 2 Department of Economic and Social Affairs, Division for Social Policy and Development, The International Forum for Social Development, Social Justice in an Open World, The Role of the United Nations, United Nations, New York, 2006, p. 3, Revista Română de Statistică Trim. I/ Supliment

3 economies could be turn into welfare for all of us considering the fact that the income flows that reach to the state budget due to taxation would be correct and efficiently managed. The fuel of an economy stands for the proper set of macroeconomic policies (Baumol, Litan, Schramm, 2009): mainly prudent fiscal and monetary policies to maintain lower inflation and relatively stable to prevent the diminishment of the economic activity from affecting the long term economic growth. From this point of view, an institutional support is needed through which economy may become sustainable and generate welfare: public institutions should reward the entrepreneurial activity with social values as otherwise we cannot expect people risk their money and time in business that end up badly; governmental institutions must discourage those activities that tend to divide the economic area, rather than extend it by proliferating some disloyal and even illegal economic practices. Governmental institutions must be sure of that the entrepreneurs that managed, as well as the large and popular companies continue to appreciate the incentives for innovation and development. The development of the entrepreneurial policies generates effects involving economic and social costs which may affect under the conditions of irrational use of economic resources, the sustainable development of society. It is important that the orientation of these policies to presume reducing environmental damage, taking into account a system of sanctions applicable to companies that show an irrational and improper conduct, with favourable effects on the revenue of the company, as well as on the conservation and rational use of the natural environment. To identify the measure instruments of economic sustainability as well as economic-social welfare, we shall elaborate a set of criteria generated by the three dimensions of sustainability (Boulanger, 2004): economic, environmental and social dimension (Figure no 1). Figure no 1. The diagram of dimensions and indicators of sustainable development Inovation Each dimension of basis (figure no 1) will be assigned variables that would allow the analysis of the economic sustainability and the extent to which this promote human development. For the construction of a system of variables of economic sustainability, we have to develop the concept of sustainability, the identification of dimensions through variables which define the concept of sustainability, the creation of items which can Revista Română de Statistică Trim I/2012- Supliment 113

4 commensurate these variables, ending up with the determination of an integrator concept to commensurate the economic phenomenon of sustainability. Assuring economical sustainability consists of a modality of producing economic treasure and distributing it within society without any damaging effects on the natural environment or on the future generation s access to use it at least in the same conditions as the present users. In this way, through the process of producing treasure, one should eliminate the risks of negative effects that could damage social-economic welfare of the present and next generation, consisting of pollution, natural environment destruction, lower degree of literacy, increased risk of losing job, high degree of capital- labour substitution which will highlight the phenomenon of unemployment and would lead to increased poverty, delinquency, decrease in birth. Currently, the indicator of economic performance, GDP, does not correspond to a complete dimension of sustainability. A significant number of economists consider that GDP is not conceived to measure with precision the economic and social progress on longterm, and does not reflect the ability of a society of facing up some problems such as climate changes, efficiency of resources and social inclusion. It is obviously necessary to complete GDB with statistic data that should also cover the other economic, social and environmental aspects on which people s welfare depends. Instead of orienting assessments on the goods and services an economy produces, policy makers would do better to focus on the material well-being of typical people by measuring income and consumption, along with the availability of health care and education. We looked to GDP as a measure of how well we were doing, and that doesn t tell us whether it s sustainable (Stiglitz, 2010). In contrast, the reliance on a standard measure of economic progress, such as the growth of GNP, is necessary to evaluate the quality of life in the form of conditions of living, life expectation, expected years of schooling, GNI per capita. These expectations are measured by Human Development Index (HDI): Dimension index= HDI= The Inequality-adjusted Human Development Index (IHDI) draws on the Atkinson (1970) family of inequality measures and sets the aversion parameter ε equal to 1.In this case the inequality measure is A = 1 g/µ, where g is the geometric mean and µ is the arithmetic mean of the distribution. This can be written as: where {X 1, X n } denotes the underlying distribution in the dimensions of interest. A x is obtained for each variable (life expectancy, mean years of schooling and disposable income or consumption per capita). The inequality-adjusted dimension indices are obtained from the HDI dimension indices,, by multiplying them by (1- ), where is the corresponding Atkinson measure: 114 Revista Română de Statistică Trim. I/ Supliment

5 The inequality-adjusted income index,, is based on the unlogged GNI index,. This enables the IHDI to account for the full effect of income inequality. The IHDI is the geometric mean of three dimension indices for inequality. First, the IHDI that includes the unlogged income index is calculated: = = IHDI= The efficacy of that index lies in providing an alternative general focus of attention-alternative to the ubiquitous GNP per capita. Conclusion: It is now being increasingly recognized globally that the nation is not merely the economy, and GDP is not the only indicator to compare the success, happiness and development of nations. The total sum of developments achieved by a nation or organization is, in fact, sum total of individual developments. Therefore, a nation cannot be considered developed unless man is taken as a unit of development, whatever might be achieved in respect of economic development. Along with the GDP, a new indicator has been added to define a really developed nation: Gross National Happiness (GNH). A convergence of circumstances seems to be helping the concept of GNH to come of age. There are now various kinds of Quality of Life indices, which are becoming a powerful tool for judging the true wealth of nations. In early 1990s the UNDP introduced the Human Development Index (HDI). Since 1995, a San Francisco based think tank called Redefining Progress has been annually assessing the American economy with an alternative yardstick called the Genuine Progress Indicator (GPI). The assessment presents a relatively a grim picture of American society. The GPI Index shows a steady decline in the in US after 1970s even as the GDP index has continued to steadily rise. This is because the GPI index gets closer to the reality of people s lives by treating as a loss, for example, all money spent on either preventing crimes or divorces or on repairing damages caused by environmental degradation. At the core, GNH is a civilisational vision anchored in nonmaterial values such as living in harmony with nature, social equality and spiritual quest for higher levels of being (Manuj, 2005). xxx,,this work was supported by the project "Post-Doctoral Studies in Economics: training program for elite researchers - SPODE" co-funded from the European Social Fund through the Development of Human Resources Operaţional Programme , contract no. POSDRU/89/1.5/S/61755". Revista Română de Statistică Trim I/2012- Supliment 115

6 References Atkinson, A. 1970, On the measurement of economic inequality, Journal of Economic Theory 2 (3): Baumol William, Litan Robert E., Schramm Carl J., 2009, Capitalism good, evil capitalism and economic development and prosperity, Polirom Publishing House, Iaşi, pag. 14 Boulanger Paul-Marie, 2004, Sustainable development indicators: a scientific challenge, a democratic issue, Institut du Developpement Durable et des Relations Internationales IDDRI,, Dinga Emil, 2009, Economic Studies. The contribution of logical, epistemological and metodological analysis, Economica Publishing House, Bucureşti, pag. 214 Hartwick, John M.,1977, Intergenerational Equity and the Investment of Rents from Exhaustible Resources American Economic Review, 67, December Manuj Mishra, 2005, Features, GDP s Not the Only Index for Measuring Progress, SGP Society, Stiglitz, JE, Sen, A & Fitoussi, J-P. 2010, Mismeasuring Our Lives: Why GDP Doesn t Add Up, New Press, New York HDR 2011, Technical Notes 116 Revista Română de Statistică Trim. I/ Supliment