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J Econ Inequal (2011) 9:497–499
DOI 10.1007/s10888-011-9203-2
Response to Martin Ravallion
Jeni Klugman ·Francisco Rodríguez ·Hyung-Jin Choi
Published online: 9 September 2011
© Springer Science+Business Media, LLC 2011
In our paper “The HDI 2010: New Controversies, Old Critiques”, published in the
June 2011 issue of the Journal of Economic Inequality, we responded to several of
Martin Ravallion’s criticisms of the HDI functional form, arguing that they were for
the most part misplaced [1]. In his article in this issue, Ravallion [2] presents several
counterarguments. He argues that the fact that the HDI is not a comprehensive
objective function should not deter us from studying its trade-offs; that the HDR
in practice advocates for maximization of the HDI; and that concavity in income is
not an exclusive property of the new HDI’s functional form. He also restates his
criticisms of the relative weights of longevity and education and the gradient of the
valuation of longevity in income.
We agree that the incompleteness of the HDI should not deter us from studying
the trade-offs of the index. In fact, we are puzzled as to why Ravallion characterizes
our argument as being that one should “not care about the trade-offs.” We sought
to stress the relevance of understanding these trade-offs and their properties, writing
that they “are extremely relevant as they tell us about the marginal contributions of
improvements in different dimensions to furthering capabilities.”
What we do argue is that the interpretation of these trade-offs should be consistent
with the nature and purpose of the HDI, which is best viewed as that of providing an
index of capabilities. Thus we caution against interpreting the trade-offs implicit in the
index as social valuations and trying to directly derive policy recommendations from them.
In particular, we take issue with Ravallion’s interpretation of a positive income
gradient in the valuation of longevity as a life being worth more in rich countries.
J. Klugman (
B
)
Gender and Development Group, The World Bank, Washington DC, USA
e-mail: jklugman@worldbank.org
F. Rodríguez
Global Emerging Markets Research, Bank of America Merrill Lynch, New York, NY, USA
H.-J. Choi
Department of Economics, University of Minnesota, Minneapolis, MN, USA
498 J. Klugman et al.
The idea of the HDI as a capabilities index—which forms the basis of the argument
presented in our paper, to which Ravallion pays scant attention—is key to under-
standing why this comparison is wrong. In rich countries, income contributes very
little to further expanding capabilities, as the basic material conditions necessary
for pursuing meaningful lives have been attained for most residents. Therefore the
“value” of anything in terms of income appears very high. A comparison of trade-offs
between poor and rich countries only tells us that, in terms of its capacity to improve
capabilities, income is nearly worthless in rich countries. One cannot and should not
jump from this to the conclusion that one should devote more resources to increasing
longevity in rich countries rather than in poor countries.
For the same reason, comparing the marginal rates of substitution of education for
income with Mincerian returns does not provide meaningful insights. The compari-
son reveals that an index of capabilities attributes much more relevance to education
relative to income than the relative relevance assigned by participants in markets.
But it would in fact be odd if this were not the case.
The fact that the HDI is an index of capabilities is also relevant for understanding
why our functional form uses the logarithmic transformation of income combined
with the geometric mean, a double concavity which Ravallion harshly criticizes.
Ravallion actually states that we “do not explain why” we use two concave trans-
formations rather than just one in our functional form. This statement is puzzling, as
our paper argues in detail that this is necessary because of the distinction between the
existence of diminishing returns in the transformation of capabilities into the HDI and
diminishing returns in the transformation of income into capabilities.Aswewrite,
“the geometric mean ensures that there are diminishing returns in each [capability]...
the natural logarithm captures the fact that there are also diminishing returns in the
transformation of income into capabilities.”
Nor do we argue, as Ravallion states, that improving the HDI should not be a
development objective. In fact, we write “Expanding these freedoms should be one
objective—and a very important one—of society. However, there is no contention
that it should be the only objective”.
Ravallion makes this statement in the context of arguing that in order to be con-
sistent with our position, we should be able to point to cases where an improvement
in the HDI was seen as negative. This is a non-sequitur: the HDI can be one of many
arguments of a social welfare function without its marginal contribution ever being
negative. Our argument is that the expansion of capabilities is one but not the only
socially relevant objective—this is clearly distinct from the argument, which we do
not make, that the expansion of capabilities could be harmful to social welfare.
In any case, there are multiple instances in which the HDR has highlighted the
incompleteness of the HDI and shown how rankings can and do change once one
considers factors that are not in the HDI. To take one of many examples, the
1990 HDR showed how country rankings could change for several countries by
adjusting for income inequality,
1
an exercise that was expanded to 139 countries
and three dimensions of inequality in the 2010 HDI. As we wrote in chapter 4 of
1
Box 1.3 of the 1990 HDR considers adjustments to GNP for inequality (using the Gini) for Panama,
Brazil, Malaysia and Costa Rica, and discusses the ability to make similar adjustments for the HDI
(although it does not actually do so). It finds that “if distributional adjustments are made using each
country’s Gini coefficient, the original ranking reverses to Costa Rica, Malaysia, Brazil, Panama”: [3]
Response to Martin Ravallion 499
the 2010 HDR: “Countries may have a high HDI and be undemocratic, inequitable
and unsustainable—just as they may have a low HDI and be relatively democratic,
equitable and sustainable... we cannot be sure that increases in the HDI will be
accompanied by improvements in the broader dimensions of human development
or that improvements in those dimensions will yield increases in the HDI.”
Some of Ravallion’s critiques are nonetheless useful. We accept that the relative
valuation of longevity in very poor countries like Zimbabwe in 2010 is unreasonably
low. We recognize this in our paper, where we also argue that the problems may
be due not just to the lower bound but also to poor quality statistics and biases in
national income accounting practices. For this reason, and in line with Ravallion’s
suggestion, the 2011 HDI will use a lower subsistence level of income, $100, as a lower
bound. This change is due in no small measure to the valuable discussions prompted
by Ravallion’s criticisms, a contribution which we are glad to acknowledge.
References
1. Klugman, J., Rodríguez, F., Choi, H.-J.: The HDI 2010: New controversies, old critiques. J. Econ.
Inequal. 9(2), 249–288 (2011)
2. Ravallion, M.: The human development index: a response to Klugman, Rodríguez and Choi. J.
Econ. Inequal. (2011). doi:10.1007/s10888-011-9193-0
3. UNDP-HDRO. Human Development Report. Oxford University Press, New York (1990)
