SEMESTER – II MACROECONOMIC 8. Explain the criticisms of HDI. ANS: The Human Development Index has been criticized for failing to include any ecological considerations, focusing exclusively on national performance and ranking (although many national Human Development Reports, looking at sub-national performance, have been published by UNDP and others—so this last claim is untrue), not paying much attention to development from a global perspective and based on grounds of measurement error of the underlying statistics and formula changes by the UNDP which can lead to severe misclassifications of countries in the categories of being a ‘low’, ‘medium’, ‘high’ or ‘very high’ human development country. Economists Hendrik Wolff, Howard Chong and Maximilian Auffhammer discuss the HDI from the perspective of data error in the underlying health, education and income statistics used to construct the HDI. They identify three sources of data error which are due to (i) data updating, (ii) formula revisions and (iii) thresholds to classify a country’s development status and find that 11%, 21% and 34% of all countries can be interpreted as currently misclassified in the development bins due to the three sources of data error, respectively. The authors suggest that the United Nations should discontinue the practice of classifying countries into development bins because the cut-off values seem arbitrary, can provide incentives for strategic behavior in reporting official statistics, and have the potential to misguide politicians, investors, charity donators and the public at large which use the HDI. In 2010 the UNDP reacted to the criticism and updated the thresholds to classify nations as low, medium and high human development countries. In a comment to The Economist in early January 2011, the Human Development Report Office responded to a January 6, 2011 article in The Economist which discusses the Wolff et al. paper. The Human Development Report Office states that they undertook a systematic revision of the methods used for the calculation of the HDI and that the new methodology directly addresses the critique by Wolff et al. in that it generates a system for continuous updating of the human development categories whenever formula or data revisions take place. Some common criticisms of the HDI are as follows: 1. It is a redundant measure that adds little to the value of the individual measures composing it. 2. It is a means to provide legitimacy to arbitrary weightings of a few aspects of social development. 3. It is a number producing a relative ranking which is useless for inter-temporal comparisons, and difficult to compare a country’s progress or regression since the HDI for a country in each year depends on the levels of, say, life expectancy or GDP per capita of other countries in that year. However, each year, UN member states are listed and ranked according to the computed HDI. If high, the rank in the list can be easily used as a means of national aggrandizement; alternatively, if low, it can be used to highlight national insufficiencies. Ratan Lal Basu criticizes the HDI concept from a completely different angle. According to him the Amartya Sen-Mahbub ulHaq concept of HDI considers that provision of material amenities alone would bring about Human Development, but Basu opines that Human Development in the true sense should embrace both material and moral development. According to him human development based on HDI alone, is similar to dairy farm economics to improve dairy farm output. To quote: ‘so human development effort should not end up in amelioration of material deprivations alone: it must undertake to bring about spiritual and moral development to assist the biped to become truly human.’ For example, a high suicide rate would bring the index down. A few authors have proposed alternative indices to address some of the index’s shortcomings. However, of those proposed alternatives to the HDI, few have produced alternatives covering so many countries, and that no development index (other than, perhaps, Gross Domestic Product per capita) has been used so extensively—or effectively, in discussions and developmental planning as the HDI. 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