The 2003 Human Development Report

The Human Development Report 2003 will be released this week by the UN Development Program. The Financial Times provides a summary. The key grafs:

At the current pace of change sub-Saharan Africa will not attain international poverty reduction goals until the year 2147, more than a century later than hoped, the United Nations Development Programme’s annual Human Development Report warned on Tuesday…. While substantial progress in China and India during the 1990s meant worldwide poverty reduction targets could be achieved, “a very significant hardcore of countries ended further behind (after the 90s),” says Mark Malloch Brown, the UNDP’s head. Fifty-four countries (many from Africa and the former Soviet bloc) grew poorer, and 21 saw a decline in their human development indicators, such as life expectancy and education. The report calls for renewed attention to this group of often small and landlocked nations, which are “perilously off track”, and says rich countries must make a much more serious commitment to achieving the eight ‘Millennium Development Goals’, agreed in September 2000. They include halving extreme poverty by 2015, and creating of a “non-discriminatory trading and financial system”. At present, says UNDP, the EU’s cash subsidy to each dairy cow exceeds its total per capita aid to the region, while US subsidies to cotton growers more than triple US government aid to sub-Saharan Africa. “Unless rich countries keep their pledges to deliver financing for development, the goals will not be met,” it says.

Powerful stuff, somewhat vitiated by the UNDP’s atrocious track record in statistical methodology. [How does that matter?–ed. I’m glad you asked.] As recently as last year, the Human Development Report used currency market exchange rates, rather than purchasing power parity (PPP) exchange rates, to measure income disparities across nations. There is a consensus among economists that PPP exchange rates are far more accurate at converting income across countries (long story short, PPP rates cover nontradeable services better). Market exchange rates drastically understate the size of developing country economies. By using market exchange rates, the Human Development Report concluded that global income inequality was vastly increasing. In committing this methodological sin, the UNDP provided prestigious but factually incorrect ammunition for anti-globalization activists. One could go even further to argue that in muddying up the clear positive correlation between globalization and reductions in global income inequality, the UNDP set back the development debate by half a decade. This screw-up eventually led to the creation of a UN commission to study such gross statistical whoppers, but as of last year, no change in their calculation of income inequality. According to their web site, Jeffrey Sachs is guest editor of this year’s HDR. The general consensus is that Sachs is not an idiot, and this note suggests that the 2003 report should be an improvement over its predecessors.