The Human Development Index (HDI) is a measure that looks at income, health, and education to assess how well economies are doing.
The HDI was developed by the United Nations in the 1990s as a way to overcome the limitations of using income as the only way of measuring how good an economy really is.¹ HDI’s big idea was to find a number that would represent not just financial wealth, but freedoms and opportunities.
To do this, the Human Development Index measures life expectancy (health), mean and expected years of schooling (education) and income per person (wealth). These factors are chosen because they are fairly easy to measure and give a rough estimate of some of the most important factors of life.
Though perhaps a step forward from GDP, which looks exclusively at growth, HDI hasn’t taken over as the standard measure of economic success. This is partly because it suffers from a lot of the same faults as GDP does.
Expanding from income to include health and education, still represents a huge simplification of how good the economy is actually working for people’s lives. Among other things, it misses out the effects on the environment, pollution, quality of housing, crime, empowerment and political representation, domination and oppression of certain groups.
And because it’s calculated by averaging out results – what’s known as an ‘aggregate measurement’ – it’s still not able to reflect inequality within the economy, the characteristics of which are hidden in the average figure.
Finally, people see HDI a less ‘neutral’ than GDP.³ Put simply, there’s more politics involved in establishing things like quality of education or average life expectancy. And once you open the can of worms of measuring non-monetary factors, the controversy begins over why certain things are still being left out, like environmental pollution.
Despite these criticisms the HDI is still an ambitious attempt to try and get to the heart of what matters in the economy. And it does try to get closer to what it’s founder, the economist Amartya Sen says ultimately matters, “the nature of the lives people can or cannot lead."