Monday, 30 May 2011

ABCDE: Combine our knowledge and best practices

This post first appeared on OECD Insights.

This week, we’ll be reporting on the Annual Bank Conference on Development Economics (ABCDE) taking place here at the OECD, in co-operation with the World Bank and France. Our first post is from OECD Secretary-general Angel Gurría.

These are momentous days for the OECD and its work on development. Last week, US Secretary of State Hillary Clinton chaired our 50th Anniversary Ministerial Council Meeting, at which Ministers urged the OECD to adopt a comprehensive new approach to development. They gave us a strong mandate to launch a development strategy in line with our member countries’ aim of promoting development worldwide, and of achieving higher, more inclusive, sustainable growth for the widest number of countries. This effort will entail greater collaboration and knowledge sharing, mutual learning, and deeper partnerships with developing countries and other international organisations.
This week, we are co-hosting the ABCDE, joining forces with the World Bank and France in bringing together some of the best and brightest thinkers on development economics. We’re putting into practice our desire to deepen our understanding of the diverse realities and challenges that developing countries are facing in today´s rapidly changing economic landscape.

It is only natural that we sharpen our focus on development. The epicenter of economic activity is shifting from industrialised countries to the large developing countries and, more than ever, their future growth prospects are closely intertwined. Over the past decade, a group of emerging and developing countries has achieved remarkable advances in terms of growth and development. They have lifted millions of people out of extreme poverty, becoming a vital development source of trade, investment and aid. If current trends continue, we anticipate that developing countries will account for nearly 60% of global GDP by 2030.

These dynamic new poles of growth have useful experiences and knowledge to share. Working closely with them, we can combine our knowledge and best practices in the service of all countries, and particularly the poorest. We will develop new perspectives on how to achieve inclusive growth, identify new ways to address inequality and poverty, and find new pathways towards social and economic well-being.

Here at the OECD, we have begun broadening our sources of knowledge, building on 50 years of gathering evidence, sharing experience and promoting good practice. Four new member countries are enriching our work: Chile, Estonia, Israel and Slovenia. Russia is moving closer to accession, and we are engaging closely with Brazil, China, India, Indonesia and South Africa on a wide range of policies. We are also working hard to support G20 discussions, which represent a major step towards more inclusive and innovative global decision-making.
Looking at the ABCDE conference theme of Broadening Opportunities for Development, I note that emerging economies are both highly familiar with the challenges and highly innovative in finding solutions.

Broadening opportunities is about tackling inequality, about not leaving people behind in our ever-changing world economy. Across OECD countries, the richest 10% of people earn 9 times more than the poorest 10 per cent. In Mexico and Chile, the rich have incomes more than 25 times higher than the poorest. Beyond the OECD, our figures for Brazil suggest a ratio of 50 to 1, and our figures for South Africa suggest a ratio of 147 to 1! This reminds us that despite formidable progress in emerging economies, the battle against poverty is not yet won.
The good news is that many emerging economy governments now have the resources to make smart social investments. Mexico and Brazil, with their successful cash transfer programmes and other innovations, have shown the way.

What can we learn from them? How can we understand better the diverse realities of developing countries and the particular challenges they face?

What is clear is that, in OECD countries and elsewhere, high levels of inequality are economically, politically and ethically untenable. Inequality prevents the most vulnerable from breaking through the vicious cycle of poverty. We need to identify policies that can boost access to education, skills, jobs and social services, promoting upward mobility for talented and hard-working women, men and youths. We need to ensure that growth is participative and inclusive, fostering social cohesion. We need to close gender gaps in education and employment, empowering women to gain entrepreneurial skills and use them to their fullest. And, finally, I think we need to understand that development is not all about income, but about a more general notion of societal progress.

I am looking forward to reading your views and following ABCDE discussions!

Useful links:

Friday, 27 May 2011

The week in review

This week was an exceptionally large week in the progress world, with the release of the 2011 Global Peace Index and Your Better Life Index. See a round-up of news items and blog posts on the week that was.

On progress

The 2011 Global Peace Index (GPI), released on Wednesday by the Institute for Economics and Peace, shows that the world is less peaceful for the third consecutive year. According to the GPI, levels of peacefulness in 2011 were most impacted by the threat of terrorist attack and the likelihood of violent demonstrations.

The GPI uses 23 indicators to rank 153 countries, gauging both domestic and international conflict, safety, security and militarisation.

See the Global Peace Index 2011 for full details and scores.
See the Wikiprogress article for more about the GPI and see the 2011 GPI media review for all news items on the index.

The OECD launched Your Better Life Index on Tuesday as part of the Organisation’s 50th anniversary celebrations. This interactive index allows users to compare well-being across 34 nations based on 11 key dimensions: housing, income, jobs, community, education, environment, governance, health, life satisfaction, safety and work-life balance.

See Your Better Life Index and rate your country according to the elements of well-being you feel are important. See the Wikiprogress Better Life Index media review for all news items on the index.

The Economist Online debate on Happiness (The Economist 27.05.2011)
All week The Economist online has been debating the motion "This house believes that new measures of economic and social progress are needed for the 21st-century economy". Defending the motion: Richard Laylard. Against: Paul Ormerod. Results have just been announced: 83% voted YES, 17% voted NO.

On gender equality

At the end of last week, Rebecca Alitwala Kadaga made history by becoming the first female speaker of Uganda’s parliament. One of her first actions as speaker will be to ensure the Parliament enacts the Marriage and Divorce Bill 2009 into law, which has been under consideration for the last 40 years.
See more on access to property 

That's all from us this week. We hope to see you back here this time next week for another round up of highlights in the weekly review. 

Yours in progress,

Philippa Lysaght

Thursday, 26 May 2011

Designing Your Better Life Index from a methodological perspective

By Romina Boarini

Many things count in life. This is why measuring these things requires a multidimensional instrument. Your Better Life is a composite index of well-being, piecing together many aspects which shape people’s life and well-being.

Building a composite index requires some steps. These are[1]: identifying the components of well-being that one wants to measure; identifying the indicators that capture best these components; carrying out imputation of missing data; normalising the indicators; deciding how to weigh and aggregate the indicators; assessing the robustness of the index through a sensitivity analysis; reflecting on the visualisation of the results.

Concerning the choice of the components, the main challenge is to come up with dimensions of well-being which are equally relevant for different countries. For doing that, Your Better Life Index relies on the OECD Measuring Progress Framework which assesses current well-being on the basis of two domains (material living conditions and quality of life) and eleven dimensions (income and wealth, jobs and earnings, housing, health status, education and skills, work and life balance, civic engagement and governance, social connections, personal security, environmental quality and life satisfaction). This framework has been chosen following theory (e.g. the Report on The Measurement of Economic Performance and Social Progress by the Stiglitz-Sen-Fitoussi Commission) and practice in many OECD Countries (e.g. Australia ABS framework to measuring progress). Its rationale is discussed in more details in the Compendium of Well-Being Indicators.

This framework and in particular the strong focus that this puts on households, inequalities, outcomes and both objective and subjective features of well-being, inspired the choice of the indicators. In addition, indicators have been identified so as to be relevant (e.g. policy amenable, easy to interpret, etc.), relying on very good data quality (e.g. most of them comes from National Statistical Offices) and comparable across the OECD countries. Finally, indicators have been discussed with National Statistical Offices of the member countries.

Despite considerable effort put in seeking the data, some indicators display missing values. We have thus estimated the missing values through standard imputation techniques. We have also tested the impact of such an imputation on the values of Your Better Life Index and concluded that imputation (which in fact concerns less than 5% of the overall data) does not affect substantially the Index.

The next step has been to normalise the indicators, i.e. expressing them in the same metrics. Normalisation is needed as indicators are originally expressed in different units (dollars, years, percentage points, etc). The normalisation technique, which is a standard one for composite indices, consists of comparing each value to the boundaries of the interval where the indicator ranges. The resulting normalised values vary between zero (the bottom performer) and one (the top performer).

Once values are normalised, they can be aggregated. In Your Better Life Index this happens in two stages. First, within each dimension, indicators are added up with equal weight. Secondly, aggregation across dimensions is done automatically and interactively when the users rate the topics. When rating the topics, users can decide to assign no rate at all (i.e. the topic is not important at all) or go up to 5 rates (i.e. the topic is very important). These rates are automatically converted into weights which vary from zero to 100%, with the constraint that the sum of weights must be 100%.

Before launching Your Better Life Index we have carried out several robustness tests and other checks, to ensure that the Index is statistically sound.[2] In particular we have tested the sensitivity of the index to the weights assigned at various levels (domains, dimensions and indicators) and to a number of other assumptions (imputation and normalisation). Overall, the results show that the Index is robust to these various assumptions.
A great deal of work has also been done on the visualisation aspects of the tool, by the external developers of the website and the OECD Communication Directorate. For instance simplicity and user-friendliness of the tool have been balanced with its level of precision. More information on this can be found at

[1] OECD Handbook of Constructing Composite Indicators.
[2] See “Designing your better life index: methodology and selected results”, by Boarini R., V. Denis, G. Cohen and N. Ruiz, OECD Statistics Directorate Working Paper (forthcoming).

Wednesday, 25 May 2011

2011 Global Peace Index released today

The world is less peaceful for the third year running. 

The 2011 Global Peace Index (GPI), released today by the Institute for Economics and Peace (IEP), shows a decline in levels of world peace for the third consecutive year. According to the GPI, levels of peacefulness in 2011 were most impacted by the threat of terrorist attack and the likelihood of violent demonstrations.

Steve Killelea, Founder and Executive Chairman of the IEP, said, ‘The fall in this year’s index is strongly tied to conflict between citizens and their governments; nations need to look at new ways of creating security – other than through strong-arm military force.’

The decline in peacefulness has come at a high price; violence cost the global economy $8.12 trillion in 2010. Furthermore, if levels of violence were reduced by 25% internationally then the world economy would have benefited by over US$2 trillion in the last year.

Despite overall levels of peacefulness decreasing, certain areas of the 2011 GPI show a positive increase, particularly in relationships between neighbouring countries.

As the leading international measure of global peacefulness, the GPI uses 23 indicators to rank 153 countries, gauging both domestic and international conflict, safety, security and militarisation.

See the Wikiprogress Global Peace Index article for more information.

Number Crunch – 2011 Global Peace Index
·      Libya dropped 83 places on the global rank - largest ever fall in GPI history
·      Iceland comes in at number 1 as the world’s most peaceful nation, followed by New Zealand, Japan, Denmark and the Czech Republic
·      The likelihood for violent demonstrations increased in 33 nations
·      Somalia displaces Iraq as world’s least peaceful nation, ranking 153rd
·      40% of the world’s least peaceful countries are now in Sub-Saharan Africa

For full details of the 2011 Global Peace Index, see the Vision of Humanity website.

The Wikiprogress Community Portal will have a special focus on a round up of media coverage given to the GPI.

Philippa Lysaght

Tuesday, 24 May 2011

OECD launches Your Better Life Index

This post first appeared on OECD Insights.

As we mentioned a few days ago on the Blog, this week marks the launch of the OECD’s brand new Your Better Life Index . A quick reminder: The Index is designed to let you compare and contrast the various factors that determine people’s well-being – not just GDP, but a much wider range of things like education, income, housing, security and so on.

The Index was launched this morning in Paris by OECD Secretary-General Angel Gurría, who quoted Bob Kennedy, who in 1968 said of GNP – a more traditional economic measure – that it “does not allow for the health of our children, the quality of their education, or the joy of their play; it does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials … It measures everything, in short, except that which makes life worthwhile.”

Danilo Türk, president Republic of Slovenia, spoke next and described the Better Life Index as a “very important and very precious present” from the OECD as it marks its 50th anniversary. He praised the Index’s “imagination and creativity,” and said he hoped it would help drive a rethinking of measuring progress: “I hope the quote from Kennedy will look obsolete in a few years’ time,” he added.

Inevitably, with such a new project, there were plenty of ideas from panellists at the opening sessions of the OECD Forum on how the Index could be improved and, just as importantly, made relevant to people’s lives and to policymaking.

Jacques Attali, Chairman of PlaNet Finance, a non-profit that works on microfinance issues, felt the Index needed to take more account of democracy issues, freedom of speech and corruption. He said it had become clear that these issues were missing in many international indicators, especially the Millennium Development Goals, but that they were essential to social progress.

Pravin Jamnadas Gordhan, South Africa’s Minister of Finance, said a test of the Index’s usefulness would be whether it helped publics to communicate with politicians. He warned that “significant parts of the population feel excluded,” citing groups like young people in Spain and workers in Greece. He said there was an urgent need for “ruling elites hear voices that are marginalised in society.”

Sharan Burrow, General Secretary, International Trade Union Confederation, liked the Index, but warned that its focus on a broader approach to thinking about well-being needed to be reflected in policy: “The Index means little if it remains separate from our dominant economic thinking.” She also was critical of mixed messages from the OECD: The organisation’s policy thinking on structural issues was bad for workers and would foster inequality, she said, which was at odds with that the thinking behind the Index.

Also commenting was Yoshinori Suematsu, a Japanese Senior Vice-Minister, who said the catastrophes that have struck his country this year had focused people’s attentions on what is really necessary for living a good life. One of the most important, he said was social networks, and he noted that since the earthquake and tsunami sales of engagement rings had jumped by 50% in Japan – a mark of people’s little need for engagement in a dark time.

A quick final note: The Index is already getting plenty of media coverage: “Canadians can’t complain,” reports The Globe and Mail which reckons that the Index shows Canada is a pretty good place to be. What do you think? Take a look at the Index and let us know.

OECD Week 2011: Better Policies for Better Lives

The post first appeared on OECD Insights.

 Welcome to OECD Week. We start our coverage with this message from OECD Secretary-General Angel Gurría. The key themes this year include how to measure progress; new sources of growth, notably green growth; and a new paradigm for development; and gender.

The OECD was created to foster international co-operation. Article 1 of our founding Convention states that our role is “to promote policies designed to achieve the highest sustainable economic growth and employment and a rising standard of living” in member countries, partner countries and on a global scale.

The OECD is marking its 50th anniversary at a time when international co-operation is more essential than ever. The list of global challenges requiring co-ordinated policy action is getting longer, and in most cases, this action is becoming more urgent. This means that the inspiring vision of our founding parents is still relevant and will continue to serve as the guiding principle for our work. Much remains to be done to achieve a cleaner, stronger and fairer world.

 Take climate change. We need to make growth greener, to make our economic and environmental policies more compatible and even mutually-reinforcing. This is not just a matter of new technologies or new sources of renewable, safe energy. It is about how we all behave every day of our lives, what we eat, what we drink, what we recycle, re-use, repair, how we produce and how we consume.

There are other common challenges. The world economy is recovering from its worst crisis in modern times, but this recovery remains tentative. With budgets stretched, governments can no longer spend their way into recovery. They need to implement structural reforms and to find new sources of growth. They need to make the public sector more efficient and they need to ensure that the private sector is more competitive. They need to fight corruption, promote ethic behaviour and restore trust in institutions.

Last but not least, the social dimension. The human and social costs of this crisis are still being felt across the globe. Unemployment, especially among the youth, remains high. Poverty, hunger and preventable diseases still affect millions of people in developing countries. Solving these challenges requires well designed social and employment policies, efficient public services and investment in health and education. Promoting development requires international solidarity, effective and well-coordinated assistance, and a cross-cutting, integrated approach to build institutional capacity and mobilise domestic resources.

The OECD can and should play a major role in addressing all of these challenges. It is an institution with one of the most advanced forms of co-operation and engagement. It has expertise in a broad range of economic, social and environmental policies. Its work involves many stakeholders – government, business, trade unions, civil society and academia.  Its working methods help ensure that the necessary “horizontal” exchange of ideas takes place across policy domains.

As a result, the OECD is a major source of cross-cutting, evidence-based advice for governments and a standard setter to facilitate and galvanise action. It is a forum where policy makers can learn from each other, where best practices can be identified and disseminated, and a place where authorities can get the support of peers to help implement domestic reforms.

These assets will continue to serve the international policy community well for years to come, but the Organisation still needs have to adapt and change. We are witnessing a revolution in the way the world is governed and the only way to remain relevant in the next 50 years is to continue to deliver high quality and substantive contributions to global debates, incorporating the perspectives of countries which are key for this new global governance, but which are not yet Members of the OECD.

The OECD 50th Anniversary Week is a unique opportunity to think collectively about how to best achieve the vision of our founding parents. Achieving better policies for better lives is a journey, not a destination.
The OECD is ready to embark with you in that journey, armed with our foundational values: openness, objectivity, boldness, pioneering spirit and sound ethics.

I look forward to working with you to establish the roadmap for this journey.

Friday, 20 May 2011

The week in review

This week has been a big week in the world of progress, and it looks like things will be even bigger next week with the release of two new indices. See our highlights from the week that was and have a look to what’s coming up in the week ahead.

On child well-being
When Children Learn, Nations Prosper (World Bank 18.05.2011)
Around the world, school attendance is at its highest level. But attendance is not enough. Are students learning? This World Bank video looks at the importance of measuring learning in order to understand whether or not teaching methods are being effective.

On gender equality
The special focus this week on the Wikigender Community Portal: New Council of Europe treaty preventing and combating violence against women and domestic violence.  This new groundbreaking Treaty opens the path for creating a legal framework at pan-European level to protect women against all forms of violence, and prevent, prosecute and eliminate violence against women and domestic violence. 
See a selection of media articles: Wikigender special focus

On progress
This house believes that new measures of economic and social progress are needed for the 21st-century economy
The debate is still in progress and will finish on Wednesday. Defending this motion is Lord Richard Layard, Emertius Professor of Economics at the London school of Economics. Against the motion, Paul Ormerod, Economist and author. Join the debate and vote on whether or not you agree with the motion.
See more on Happiness

In the week ahead
Looking to the week ahead there are two key events:

On the 25th of May the Global Peace Index will release their 2011 results. The 2011 GPI will be launched with a series of events around the world and will be available online on the Vision of Humanity website.

The Better Life Initiative will be launched next week at the OECD 50th Anniversary week celebrations. The initiative includes an interactive index, Your Better Life Index, that allows users to rate their country according to what they feel makes life better.

Stay up to date throughout the week by  looking at the Wikiprogress Community Portal, and don't forget you can find us on Facebook, Twitter, Jumo, Flickr and YouTube! Hope to see you this time next week.

Yours in progress, 

Philippa Lysaght

Tuesday, 17 May 2011

Progress and young people’s health and wellbeing

by Richard Eckersley

The widely accepted story of young people’s health in developed nations is that it is continuing to improve in line with historic trends and the progress of nations. Death rates are low and falling, and most young people say they are healthy, happy and enjoying life. For most, social conditions and opportunities have improved. Health efforts need to focus on the minorities whose wellbeing is lagging behind, especially the disadvantaged and marginalised.

There is another, very different story. It suggests young people’s health may be declining - in contrast to historic trends. Mortality rates understate the importance of non-fatal, chronic ill-health, and self-reported health and happiness do not give an accurate picture of wellbeing. Mental illness and obesity-related health problems and risks have increased. The trends are not confined to the disadvantaged. The causes stem from fundamental social and cultural changes of the past several decades.

The contrast between the old and new stories is graphically illustrated by these Australian statistics: about 40 per 100,000 young people (aged 12-24) die each year and the rate is falling; 26,000 per 100,000 (26%) (aged 16-24) suffer a mental disorder each year and the rate has probably risen, perhaps steeply. Which statistic says more about young people’s wellbeing?

Stories inform and define how governments and society as a whole address youth health issues, so which story is the more accurate matters. The usual narrative says interventions should target the minorities at risk. The new narrative argues that broader efforts to improve social conditions are also needed. The old story may still generally hold true in developing nations, but the issues raised in the new story are also of increasing importance to these countries as modernisation and globalisation impact more on the lives of their young people.

A central dimension of the changed trajectory in health over recent decades, and which underpins the new story, concerns the declining significance of material and structural determinants of health and the growing importance of existential and relational factors to do with identity, belonging, certainty and purpose in life. There is a shift in emphasis from socio-economic causes of ill-health to cultural; from material and economic deprivation to psychosocial deprivation; from a problem of material scarcity to one of excess. With this has come a shift in significance from physical health to mental health.

This argument is not to suggest sharp, categorical distinctions and clear breaks from the past. Physical and mental health are closely interwoven and interdependent. Physical illness, including infectious diseases, still matter. Disadvantage and inequality still matter. Indeed, the cultural changes of past decades may well have exacerbated their effects by making material wealth and status more important to how people see and judge themselves. Environmental problems such as climate change have serious implications, including the risk of possible catastrophic effects on human health.

The contrast between the old and new stories of young people’s health and wellbeing is part of a larger contest between the dominant narrative of material progress and a new narrative, sustainable development. Material progress sees economic growth and a rising standard of living as the foundation for a better life; sustainable development seeks a better balance and integration of economic, social and environmental goals to produce a high, equitable and enduring quality of life.

Material progress represents an outdated, industrial model of progress: pump more wealth into one end of the pipeline of progress and more welfare flows out the other. Sustainable development reflects (appropriately) an ecological model, where the components of human society interact in complex, multiple, non-linear ways. Not only does sustainable development better fit the new story of youth health, it is likely to achieve better outcomes in relation to the old story’s focus on socio-economic disadvantage and inequality because it less intent than material progress on economic growth and efficiency.

Related to this contest, the new story of youth health also challenges the orthodox story of human development, which places Western nations at its leading edge. It shows that the dominant measures of development – not just income, life expectancy or happiness, but also education, governance, freedom and human rights – are not enough. However desirable these things may be, they do not capture the more intangible cultural, moral and spiritual qualities that are so important to wellbeing. And it is in these respects that Western societies do not do so well.

The health of young people should be a focal point in the larger contest of social narratives. They should, by definition, be the main beneficiaries of progress; conversely, they will pay the greatest price of any long-term economic, social, cultural or environmental decline and degradation. If young people’s health and wellbeing are not improving, it is hard to argue that life is getting better.

This is an edited extract from:
Eckersley, R. 2011. A new narrative of young people’s health and wellbeing. Journal of Youth Studies. First published 13 April 2011 (iFirst)

An author version is available at

Saturday, 14 May 2011

The week in review

It has been a very eventful week in the world of progress and we have a lot more to look forward to in the coming weeks. See below our collection of highlights from the week that was.

On development
The Fourth UN Conference on the Least Developed Countries (LDCs) was hosted in Istanbul this week. One of the key topics discussed was poverty elevation in the world’s 48 LDCs. UN Secretary General Ban Ki-Moon recognised the potential presented by these nations, and said that investing in poor countries should be seen as an opportunity, not as charity.  

See video on the conference and a full round up of media coverage in the community portal.

On gender equality
By teaching girls in Bangladesh how to read – the under 5yrs mortality rate is cut in half. This blog reports on the linking between education for girls and mortality rates in a handful of countries, finding that literate girls have a significantly higher chance of survival.

See more on education for all

On child wellbeing
Figures released at the beginning of the week by Save the Children and Daycare Trust show that childcare has increased every year over the last decade. The OECD released a report last month giving a sober warning about child poverty in the UK. This article shows the facts and figures and looks at what impact the rising cost of childcare has on families.

See more on Babies and Bosses

On happiness
Life Satisfaction and State Intervention Go Hand in Hand, Baylor Researcher Finds (News University of Baylor)
Researchers at Baylor University have put together a study based on data from the 2005 World Values Survey to find that countries with governments that have a greater number of social services also report a better life satisfaction.

See more on civic engagement

Coming up…

The International Society for Child Indicators is holding a conference at the University of York on Children's Well-Being: The Research & Policy Challenges. For full details see the conference website.

That’s all from us for this week. To see the full media review of news articles and blogs on progress, have a look at our community portal. As always, we encourage you to edit, discuss and create articles on Wikiprogress. We hope to see you this time next week.

Yours in progress,

Philippa Lysaght


Wednesday, 11 May 2011

Why it’s getting harder to be really rich

This post first appeared on OECD Insights 10 May 2011

by Brian Keeley

Seventy million pounds – or about $114 million: That’s how much you now need to get on to The Sunday Times “rich list” (subscribers only) in the UK. A pretty steep entry barrier and, perhaps surprisingly, it’s even higher than it was before the crisis: Just three years ago, a mere £55 million would have won you a place among the UK’s wealthiest.   

That’s further evidence that the gap between the incomes of the richest and the poorest is widening. But as a recent OECD paper demonstrates, it’s not happening just in the UK. Income inequality has risen in all but a handful of OECD countries, says the paper, which offers preliminary findings ahead of a fuller report later this year. On average, the richest 10% of people are about nine times better off than the poorest 10% in OECD countries, a ratio of 9 to 1. The gap is lower in Scandinavian countries – about 5 to 1 – but higher elsewhere: 14 to 1 in Israel, Turkey and United States and 27 to 1 in Mexico and Chile.

“With very few exceptions (France, Japan and Spain), wages of the 10% best-paid workers have risen relative to those of the 10% least-paid workers,” says the paper, and “top earners saw their incomes rising particularly sharply”.

As we noted recently on the blog, the trend is for the gap to grow, and “even in highly egalitarian places like Scandinavia”, as The Economist points out. One way to understand this is through the Gini coefficient a “measure of income inequality that ranges from zero, when everybody earns the same amount, to one, when all income goes to only one person”, as The Wall Street Journal explains. By that measure, income inequality in OECD countries has risen from 0.28 in the mid-1980s to 0.31 in the mid-2000s – an increase of 10%.
The rise is often blamed principally on a mix of globalization, which has led to a decline in manufacturing jobs in developed countries, and the emergence of the knowledge economy, which rewards people with higher levels of education. The OECD paper acknowledges that technological progress and globalisation have had an impact, but that their role has perhaps been overstated. It’s true that increased trade – a characteristic of globalization – has put pressure on the wages of lower-paid workers. But some of these downsides have probably been offset by rising capital flows – another feature of globalization – most notably a big increase in foreign investment.

Instead, the paper suggests the role of other factors may have been overlooked, notably the changing nature of taxes and benefits – in effect, the money governments collect in taxes and social security contributions from workers and then redistribute, directly and indirectly, as benefits to people in need. This system of redistribution reduces income inequality by a quarter in OECD countries, and by even more in some countries. But, the paper suggests, its impact has weakened over the past 10 to 15 years.  

Regulatory reforms – or changes to the rules covering everything from product monopolies to work contracts – have also played a role. On the one hand, these have brought benefits by bringing more people into labour force. On the other hand, says the paper, they “have also contributed to widening wage disparities, as more low-paid people were brought into employment and the high-skilled reaped more benefits from a more dynamic economy.”

And there’s been a change in who we marry: “Over the years people have become more and more likely to marry mates who have similar incomes,” says The New York Times . By contrast,  when richer and poorer people wed, it tends to spread out the benefits of higher incomes more widely in society.
So what can be done? OECD Secretary-General Angel Gurría clearly believes action is needed: “Halting the scary outlook of increasing inequality is more urgent than ever,” he said at a recent OECD policy forum  devoted to the issue.

Based on its examination of the causes of rising inequality, the OECD paper suggests taxes and benefits may need to be looked at again, especially in light of the fact that “the share of overall tax burdens borne by high-income groups has declined over recent years”. Action is also needed to ensure that people who aren’t currently working can find jobs, but “this requires not only new jobs, but jobs that enable people to avoid and escape poverty,” the paper says. And, it concludes, there needs to be a stronger focus on better training and education for low-skilled workers.

Useful links
OECD work on inequality

Friday, 6 May 2011

The week in review

It has been another very busy week in the world of progress. See our collection of highlights from the week that was.

On data
This article looks at the recent release of the Human Security Index (HSI) Version 2, and the potential roles for the environmental and earth observation communities. The HSI was first created 2008; it aims to define what human security means and how to measure it.

Know about human security? Wikiprogress needs your contribution on human security – see how to create an article

On child wellbeing
A report released by Save the Children has ranked the UK  23rd out of 43 more ‘developed countries’ for child wellbeing. The 2011 State of the World’s Mothers report analyses health, education and economic conditions for women and children in 164 countries.

See more on child wellbeing

On gender equality
A roundtable discussion on “Democracy and Gender Equality” was held on Thursday and attended by high-level UN Officials. Outcomes of the meeting have stressed the need to promote the participation of women in decision-making. Secretary General Ban Ki-Moon spoke on the mutually reinforcing link between gender equality and democracy.

See also the Wikigender special focus on women, leadership and quotas 

On progress
This week the OECD announced the winners of the 50th Anniversary Video Competition. The competition invited young people worldwide to create a short video describing their vision of Progress. 'Progress is Education for all' (video below) was voted number 1 by the public.

The week ahead
This conference will be held in Mexico City, from Wednesday to Friday next week. It will be the first of a series of regional conferences aimed at enhancing and promoting concrete policy-oriented work on measuring well-being and fostering the progress of societies at the national, regional and global levels.

We hope you enjoyed the week in review. As always, we encourage you to contribute to Wikiprogress by editing existing articles and helping broaden the information available by creating new articles. Be sure to tune in this time next week for another week in review.

Yours in progress,

Philippa Lysaght

Tuesday, 3 May 2011

HDI 2010: New Controversies, Old Critiques

This post first appeared on 27 April on the UNDP's Let's Talk Human Development

By Jeni Klugman, Francisco Rodríguez and Hyung-Jin Choi
Director, Head of Research and Consultant (respectively),
Human Development Report Office, UNDP

Since its introduction in the first Human Development Report in 1990, the Human Development Index (HDI) has attracted great interest in policy and academic circles, as well as in the media and national audiences around the world. Its popularity can be attributed to the simplicity of its characterization of development - an average of achievements in health, education and income – and to its underlying message that development is much more than economic growth.

The index was originally conceived by the late Pakistani economist Mahbub ul Haq, in collaboration with Amartya Sen and other scholars, as a response to their dissatisfaction with GDP as the standard measure of development. As Haq noted, “Any measure that values a gun several hundred times more than a bottle of milk is bound to raise serious questions about its relevance for human progress.”
Yet the HDI’s very simplicity prompted critiques from the start, with some contending that it was too simplistic, while others who accepted its self-imposed limitations still questioned its choice of indicators and its computational methodology. This article is a detailed review of key critiques of the HDI, today and in the past, and explains the recent changes introduced to the HDI formula and indicators. The full paper can be read online in the Human Development Research Papers series as well as in an upcoming June issue of The Journal of Economic Inequality.

Key innovations in the 2010 Report
In 2010, for the twentieth anniversary edition, the Human Development Report undertook a comprehensive review of these critiques and introduced several major changes to the HDI. Though the HDI had been modified before, as summarized in the table below, 2010 was the first time that major changes were made simultaneously to the indicators used to measure progress, and to the functional form used to convert those indicators to a single measure of progress.

Until 2010, the HDI had been defined as a simple arithmetic average of normalized indices in the dimensions of health, education and income: HDI = (1/3)*(Hh + He + Hls). Hi denotes the sub-index for dimension I, with i={h,e,ls} respectively denoting the health, education and living standards dimensions. Life expectancy (le) and GDP per capita (gdp) were the proxies for health and living standards respectively, whereas the education dimension used two indicators: literacy (lit) and the gross enrolment ratio (ger).

The indices were normalized using upper and lower bounds. Thus:
Hh = (le-lemin)/(lemax-lemin), 

He = (1/3)*((ger-germin)/(germax-germin))+(2/3)*((lit-litmin)/(litmax-litmin)),

Hls = (ln(gdp)-ln(gdpmin))/(ln(gdpmax)-ln(gdpmin)).

The 2010 Human Development Report introduced several significant changes in the HDI. The new formula is: HDI = (HHealth * HEducation * HLiving standard)1/3 The indices Hi are still normalized indicators of achievements. Life expectancy (le) remains the indicator for the health dimension, while Gross National Income (gni) replaces GDP, and mean years of schooling for adults (ms) plus expected years of schooling (eys) for children now make up the education dimension.

Hh = (le-lemin)/(lemax-lemin)

He = [((mys-mysmin)/(mysmax-mysmin)) *((eys-eysmin)/(eysmax-eysmin))]1/2

Hls = (ln(gni)-ln(gnimin))/(ln(gnimax)-ln(gnimin)).

The approach introduced in 2010 retains the same three-dimensional structure with equal weights, with several key changes: It replaces the indicators for income and education, it changes the method of aggregation from an arithmetic average to a geometric average, and it redefines the upper and lower bounds used to normalize the index, eliminating the practice of capping variables that surpass the upper bounds.

Three of the four variables that go into the HDI were revised. GDP per capita was replaced by GNI per capita (both valued in PPP US$), while literacy and gross enrolments were replaced by mean years of schooling and expected years of schooling.

To supplement these changes to the HDI, three new complementary indices were introduced in 2010 that were designed to capture the deprivations and disparities: the Inequality-Adjusted HDI, the Gender Inequality Index, and the Multidimensional Poverty Index.

It is worth focusing on the changes related to income. The Human Development Report and its HDI was an explicit challenge to the reigning paradigm of the late 1980s in development policy circles, commonly known as the Washington consensus. The prevailing approach for development economics was best symbolized then in the World Bank’s World Development Report’s practice of ranking countries by per capita income.

Throughout its history, the HDI has effectively pinpointed the differences in rankings that emerge from a comparison between the HDI and per capita incomes. Haq pointed out in 1995 that of the 173 countries included in the HDI rankings, there was no difference between the HDI and per capita income rankings for only four countries, while for more than a third of the sample the HDI and per capita income ranks differed by more than 20 places. These patterns still hold true today. The 2010 Human Development Report systematically explores the links between economic growth and other dimensions of human development and documents the finding that over relatively long periods of time high rates of economic growth are not necessarily accompanied by improvements in other dimensions of human development.

New indicators to measure human development

The 2010 HDI revisions took into account measurement improvements in its three dimensions over the past two decades. Unfortunately, alternative measures that may be conceptually preferable are available for fewer countries than were typically covered by the HDI, and are often not updated frequently.

The best example is perhaps life expectancy. The World Health Organization has reported Health-Adjusted Life Expectancy (HALE) for 192 countries, as the number of years that a person might expect to live in good health. The estimates are based on country life tables, analyses of 135 causes of disability for 17 regions of the world and 69 health surveys in 60 countries. However, the WHO does not plan to regularly update its estimates of HALE.

Similar problems arose in the case of education, where the cross-national assessments of science, mathematics and reading levels that could be used to construct quality adjustments are only available for a limited number of countries. The approach in the 2010 Human Development Report was to adopt mean years of schooling as calculated by Barro and Lee as the indicator to measure the education of adults. This indicator is more frequent, has broader coverage, and better discriminatory power than literacy. The calculations are based on primary data from the UNESCO Institute of Statistics’ Database of Censuses and can thus be replicated and updated.

Literacy – which had up to now carried a 2/3 weight in the education index – has become deeply unsatisfactory over time as a measure of progress in education. The world average literacy rate rose from 60 to 83 percent between 1970 and 2010. Almost half of countries have a literacy rate higher than 95 percent and, indeed, developed countries no longer collect data on basic literacy. Further, many developing countries are poised to attain universal literacy in future years. While literacy was a good measure to evaluate progress in the past, it is now much less informative.

The new HDI also changed its measure of the education of children, replacing the gross enrolment ratio with a measure of expected years of schooling. This captures the average number of years that children today could be expected to attain in adulthood if enrolment rates stay at their current levels. The education indicator is now framed as a measure of years of schooling, with the education of current and future generations receiving equal weights.

There is extensive literature today on the drawbacks of GDP per capita as a measure of well-being and economic progress, most recently summarized by the report of the Commission on the Measurement of Economic and Social Progress led Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi (2009). Some of these criticisms relate to its inadequacy as a broader measure of welfare or capabilities, while others examine its ability to measure an economy’s capacity to provide goods and services to its people. Most notable among GDP’s many shortcomings are that it does not measure non-market activity, such as subsistence agriculture or household work; it does not register productivity growth in public goods; it makes no adjustment for the depletion of natural resource; and per capita GDP is often unrepresentative of the typical person’s actual income.

Are all of these criticisms relevant for the income dimension of the HDI?  In order to put some of these criticisms in perspective, it is important to consider why income was included in the HDI in the first place. As discussed in the early reports, income differs from health and education in that it is not a direct measure of a capability, but rather an input into these capabilities. The relevant capabilities include adequate nourishment, shelter, and access to participation in the basic life of society. Attaining these capabilities requires people to have command over a basic set of resources necessary to ensure a decent standard of living.

In other words, the measure of income in the HDI is a proxy for the typical person’s command over resources that they can use to acquire goods and services, and save for the future. Note that this is very different from the idea of GDP as a measure of how much an economy can produce. Gross Domestic Product does not include transfers received from other countries, for example, while it does include transfers sent to other countries, as it is meant to capture the goods and services produced within the national territory. But to the extent that one wants to capture command over resources, one would like to include transfers from abroad and exclude transfers to other countries. The new HDI does this by replacing per capita GDP with per capita Gross National Income (GNI), which is equal to GDP less primary income payable to non-residents plus primary income receivable from non-residents.

Combining achievements into an aggregate measure

Perhaps the most radical innovation introduced in 2010 was the shift to a geometric mean in order to aggregate dimensional indices. This marks a significant conceptual change in the way in which one conceives the relationship between different dimensions of capabilities.

The shift to the geometric mean addresses the issue of perfect substitutability: This was a problematic assumption of the old formula, in that the level of priority to be given to a dimension was invariant to the level of attainments.

The new HDI attains a compromise by adopting a functional form that is between the extremes of perfect substitutability and perfect complementarity. There is a distinct advantage to the geometric mean – unlike the arithmetic mean or other forms of aggregation with a non-unitary elasticity of substitution, the rankings produced by the geometric mean are invariant to the scale in which each variable is measured.

Consider the comparison between Japan and France in the old functional form: Japan has a higher life expectancy than France, with a higher education index and also a slightly higher per capita income. With the additive functional form, Japan ranks 6 positions above France. But if we were to change the maximum for life expectancy by 10 years, we see that Japan drops by 2 positions relative to France. This is problematic as thresholds are likely to be continuously updated s the world experiences progress. This problem does not affect the new HDI, however. In the same example but with the new functional form, the relative ranking between Japan and France is unaffected by the choice of maxima, with Japan always occupying three positions above France.

The choice of minimum, in contrast, will continue to have significant implications for rankings even in the geometric mean. This makes sense because the minima have a concrete meaning as subsistence indicators – values below which it would be very difficult for a society to survive over time. In the new formula, these subsistence values are derived from the historical and epidemiological literature.

Addressing other critiques

Another concern with the HDI relates to its potential redundancy, given the high correlation of the index with its underlying components. The 2010 Human Development Report addresses this criticism head on, by showing that this criticism is fundamentally unfounded. It explores how the HDI illuminates investigations of advances in human development over time. The 2010 Report argues that the picture of development obtained from looking at the past forty years through a human development lens is vastly different from that obtained through a sole focus on economic growth.

To take just one example, China is by far the economy with the greatest rate of economic growth in that period – its annual per capita growth rate of 7.6 percent significantly exceeds not only the world average (1.8 percent) but also that of the second highest growing economy (Botswana, 5.6 percent). But China ranks 64th out of the same 135 countries in terms of average improvement in non-income HDI, and is one of only 10 countries in the world with a lower gross enrolment ratio today than in 1970. More generally, only three of the top 10 fast growing economies for the period of study are also top improvers in the HDI – the majority of countries that get into the list of top HDI performers do so because of their performance in terms of health and education, not income. If one looks at changes over time instead of levels, the redundancy argument disappears.

Critics have argued further that the HDI categories that used to classify countries into low, middle and high levels of human development are not robust to data revisions over time. This was because the numerical HDI thresholds used to define these categories (0.5 and 0.8) were kept fixed even after changes in methods and data. This valid criticism was addressed in the 2010 Human Development Report by changing the method used to create country categories. Rather than using fixed thresholds, countries are now grouped by quartiles of the HDI distribution. The problem of change in development groups due to data updates or formula revisions is no longer an issue, because countries are grouped by HDI rank, not value.

Some recent criticisms have pointed to “paradoxes” that would arise if a society tries to maximize the HDI. These criticisms are based on the incorrect premise that the HDI is a welfare or utility function. There are at least three reasons why one should not recommend that societies try to maximize the HDI. To begin with, not all elements of human development – such as political freedoms, equity or sustainability - are included in the HDI. Second, the expansion of capabilities is only one of the reasons why people may value the components of the HDI. People may enjoy the luxuries that come from higher levels of income even if these don’t contribute to them leading substantively different lives. Third, the HDI is severely limited by data constraints, and thus one can at best expect it to give a rough approximation of a country’s relative development level and progress.

Enabling debate

The Human Development Reports have always stressed that the HDI is not and was never intended to be a definitive measure of development. By design, the HDI is a simple measure that uses available international indicators (that are inevitably imperfect), that provides a broad vision of the progress of people. The aim is to stimulate discussion and debate, including about the appropriate ways to think about wellbeing and progress. As symbolized by the Human Development Report website’s introduction of online tools that allow users to construct their own indices with variable weights and indicators, the HDI should be understood as a starting point of a global conversation about development, rather than an endpoint.

Read the research paper: PDF Inline (GIF) The HDI 2010: New Controversies, Old Critiques [660 KB]