Frequently Asked Questions - 2013 Human Development Report (HDR)

The 2013 Human Development Report examines the profound shift in global dynamics driven by the fast-rising new powers of the developing world, and its long-term implications for human development. China has overtaken Japan as the world’s second biggest economy, while lifting hundreds of millions of its people out of poverty. India is reshaping its future with new entrepreneurial creativity and social policy innovation. Brazil is raising its living standards through expanding international relationships and antipoverty programs that are emulated worldwide. But the “Rise of the South” analyzed in the Report is a much larger phenomenon: Turkey, Mexico, Thailand, South Africa, Indonesia and many other developing nations are also becoming leading actors on the world stage.

The Report shows how this growing diversity in voice and power is transforming global politics and economics and challenging assumptions that have guided the major post–Second World War international institutions. Leaders of the South are asking for more representative international governance structures that better incorporate principles of democracy and equity. Countries of the South are increasingly driving global economic growth and broad-based social change.

The Report demonstrates that the rise of the South is the result not of adherence to a fixed set of policy prescriptions, but of pragmatic policies responding to local circumstances and opportunities—including a deepening of the developmental role of states, a dedication to improving human development (including through better education, health care and social welfare programs) through policy innovation, and an openness to engaging with the world economy through trade and investment.

Even so, future progress will require policymakers in the South as well as in the North to address such critical challenges issues as equity, accountability, environmental risks, changing demography and meaningful civic participation.

The report describes a global shift of power and resources on a historic scale that should continue well into the 21st century. For the first time since the early 19th century, the combined output of the developing world’s three leading economies—Brazil, China and India—is about equal to the combined GDP of the long-standing industrial powers of Western Europe and North America—Canada, France, Germany, Italy, the United Kingdom and the United States. This represents a dramatic rebalancing of global economic strength. The Report shows the three biggest Southern economies overtaking those six traditional industrial powers by the end of the decade (calculating GDP in purchasing-power terms), and continuing to expand beyond 2020.

No, this is about much more than the BRICS countries. The Report shows clearly that the phenomenon of the ‘Rise of the South’ embraces more than 40 developing nations that have all notably accelerated their human development progress in recent years. Some of the largest countries have made especially rapid advances, notably Brazil, China, India, Indonesia, South Africa and Turkey. But there has also been impressive human development progress in smaller economies such as Bangladesh, Chile, Ghana, Rwanda, and Tunisia.

One way to identify high HDI achievers is to look at countries with positive income growth and good performance on measures of health and education relative to other countries at comparable levels of development. These include some of the largest countries— Brazil, China, India, and Indonesia— as well as smaller economies: Bangladesh, Chile, Ghana, Malaysia, Mauritius, Mexico, Thailand, Tunisia, Turkey, Uganda and Viet Nam. Another way of identifying high achievers in human development is to look for countries that have been more successful in closing the “human development gap,” as measured by the reduction in their HDI shortfall (the distance from the maximum HDI score). We also identify high HDI achievers by the positive and statistically significant “residuals” obtained from a regression of the change in log of HDI between 2012 and 1990 on the log of HDI in 1990 in a cross-country sample of 132 countries. This way, more than 40 developing countries are identified as having made rapid progress in HDI between 1990 and 2012, relative to countries at similar levels of HDI in 1990.

The human development consequences of the rise of the South have been profound: the proportion of people living in extreme income poverty was slashed from 43% in 1990 to 22% of the world’s population in 2008, with more than 500 million people lifted from poverty in China alone. As a result, the world community achieved well ahead of schedule the poverty eradication target of the first of the eight Millennium Development Goals, which was to halve the proportion of people living on less than $1.25 a day between 1990 and 2015.
The number of countries with a Human Development Index (HDI) value below the 25th percentile in 1990 dropped from 33 to 30 between 1990 and 2000 and was halved from 30 to 15 between 2000 and 2012. Between 1990 and 2012, almost all countries greatly advanced in human development terms, as measured by the HDI. Indeed, no country for which complete data was available had a lower HDI value in 2012 than it did in 2000.

The term refers to a state with a proactive government that pursues economic growth as a pathway to human development. A developmental state is characterized by strategic interventions that shape a country’s future: promoting targeted economic sectors; clearly articulating social and economic goals; and directing competent bureaucracies to achieve those goals. The developmental state ultimately derives its political legitimacy from delivering better social services and living standards to its people.

Income inequality is on the rise in many countries. Between 1990 and 2005, the Inequality-adjusted HDI for 66 countries shows overall inequality falling only marginally, because declining inequality in health and education was offset by rising inequality in income.
Globally, there have been much greater reductions in inequality in health and education in the last two decades than in income. This is partly because of the measures used—life expectancy and mean years of schooling have upper bounds to which all countries eventually converge. But for income, there is no upper limit. Virtually all studies agree that global income inequality is high, though there is no consensus on recent trends. One study that integrated the income distribution of 138 countries over 1970–2000 found that although mean income per capita has risen, inequality has not. Other studies conclude the opposite. Still others find no change at all. Inequality is not just a feature of developing countries. The rising income inequality in the United States and some European countries highlights fairness in how incomes are distributed and who benefits from growth.
Yet much can be done to narrow these gaps. In Latin America, long the region with the greatest inequality, the trend has begun to reverse due to poverty reduction initiatives and other government interventions, including public spending aided by high commodity prices internationally. Brazil and Mexico are leaders of this trend, using cash-transfer programs and other mechanisms to raise living standards in poor communities.

Education is “one of the most powerful instruments for advancing equity and human development,” says the Report. It “builds people’s capacities and expands their freedom of choice. Education boosts people’s self-confidence and makes it easier for them to find better jobs, engage in public debate and make demands on government for health care, social security and other entitlements. Education also has striking benefits for health and mortality.” Education is a common denominator in many national success stories, in the Republic of Korea, China, India, and Ghana, for example.
There is overwhelming evidence of the importance of education for women. Educated women contribute to society in multiple ways, as citizens, as highly productive members of the work force, and as mothers, sisters, and daughters. Educated mothers tend to have fewer, healthier and better educated children. Educated women have better access to contraception. Mother’s education is more important to child survival than household income or wealth, data in the Report shows. A modeling exercise conducted for the Report projects the impact of differences in education levels on child mortality over 2010– 2050 under two scenarios. The “base case” scenario assumes current trends in educational attainment continue. The “fast track” scenario assumes much more ambitious education policy targets, similar to those achieved in recent decades by the Republic of Korea. The results from the fast track scenario show substantially fewer child deaths as mother’s level of schooling rises. Projection in the Report estimate that between 2045 and 2050 in India, six million children are likely to die before the age of five projected to die under the base-case scenario, but that would be reduced to three million under the fast track scenario.

Between 1980 and 2010, developing countries increased their share of world merchandise trade from 25% to 47% and their share of world output from 33% to 45%. One major contributor to this trend is that developing nations of the South are trading not just with the North but also increasingly with one another. Between 1980 and 2011, South–South trade increased from less than 8% of world merchandise trade to more than 26%, with growth particularly remarkable in the 2000s. Over the same period, the share of North–North trade declined from 46% to less than 30%. Projections show that trade between developing countries will soon surpass trade between developed countries.
If foreign trade is managed well, with proceeds directed to the long-term benefit of the public, this engagement with the world economy can be a positive force for human development, the Report says. Data show a correlation in developing countries between human development gains and a rising contribution of foreign trade to the national economy.
Even more important than being integrated with global markets are the terms of engagement with these markets. Without investment in people, returns from global markets can be limited and transitory. Success is more likely to be the result not of a sudden opening but of gradual and sequenced integration with the world economy, according to national circumstances, and accompanied by investment in people, institutions and infrastructure. A number of smaller economies have successfully focused on niche products, whose success is often the fruit of years of state support built on existing competencies or the creation of new ones.

The Report shows that foreign direct investment (FDI), like foreign trade, can help contribute to human development if it is strategically managed to benefit a country’s specific needs and potential, including through greater education opportunities and other public services. Successful performance in trade, investment and international production ultimately depends on rising levels of human development, as illustrated by the association between high export earnings per capita and achievement in education and health. The more globally integrated economies also tend to offer better opportunities to women.
The capacity of people and institutions also affects the benefits from FDI. Host countries need to invest in the capacity of their people to identify, assimilate and develop the useful knowledge embedded in foreign capital and ideas. Indeed, an educated and healthy workforce is often a key factor in influencing the decision of foreign investors on where to locate. A positive correlation between FDI inflows and achievements in health and education was evident in a study of 137 countries carried out for the Report.

As their economies soared, many countries have piled up large amounts of foreign exchange reserves. This represents a change in global finances, but also in the global economic balance of power. Between 2000 and the third quarter of 2011, global foreign exchange reserves rose from $1.9 trillion to $10.1 trillion, with a dominant share of the increase accumulated by emerging and developing countries (including Brazil, China, India, Indonesia, the Republic of Korea, Malaysia, Mexico, Thailand and others) whose reserves totaled $6.8 trillion. China alone holds more than $3 trillion in foreign reserves.
Developing countries have also amassed sovereign wealth funds. According to data by the Sovereign Wealth Fund Institute, these had an estimated $4.3 trillion in assets at the end of 2010, with $3.5 trillion held by developing and emerging economies and $800 billion in East Asia alone.
The report argues that this mountain of money could be used better if invested in development. “The resources could be deployed in more productive ways to support the provision of public goods, to provide capital to projects that enhance productive capacities and economic and human development and to promote regional and subregional financial stability,” it argues. “Allocating just 3% of liquid international reserves of the nine G20 countries of the South would increase the share of public investment in these countries by 4.1%–11.7% of GDP, close to the average level of public investment for all developing countries.”

The Report strongly contends that all developing countries have a right to pursue and attain higher levels of human development – and that this can and indeed must be achieved without imperilling the environment. Fossil-fuelled growth is not a prerequisite for a better life, as defined in human development terms. Investments that improve equity—in access to renewable energy, water and sanitation, and reproductive health—can advance both sustainability and human development. Stronger accountability and democratic processes, including through active civil society engagement and independent media, can also improve policy outcomes. The 2011 Human Development Report analysed these questions in detail.

The Report argues that the formation of a new South Commission is one way to look at how countries in the South can develop new institutions and partnerships, and share knowledge, experiences and technology. In 1987, the first South Commission was organized under the leadership of Julius Nyerere, then president of Tanzania, and the renowned economist Manmohan Singh, who is now prime minister of India. Its 1990 report “The Challenge to the South” was a landmark document, urging countries of the South to act in solidarity in North-South negotiations, arguing for people-centred development, presciently identifying climate change as a long-term development issue, and identifying societal challenges such as endemic poverty, social exclusion and inequality.
Since then, the world and the South have been thoroughly transformed. The possibilities for co-operation are greater than ever, but the political context is very different. Decolonization is now a fading memory in most states; the Cold War, which helped shape the Non-Aligned Movement, is long finished; and many of the states of the South are themselves emerging as political and economic superpowers. “A new South Commission, building on the legacy of the first commission but reflecting the strengths and needs of the South today, could provide a fresh vision,” the Report argues, “based on recognition of how the diversity of the South can be a force for a new kind of solidarity, aimed at accelerating human development progress for decades to come.”
The dominant institutions of global governance - the UN, the IMF and the World Bank - were created in and reflect a very different era. The South is under-represented. The rising countries of the South are now often finding alternative mechanisms for cooperation in trade, finance, development and assistance, including regional arrangements and bilateral partnerships. Global governance is becoming a mosaic of new arrangements and old structures, which need to interact and cooperate more systematically and efficiently, in what the Report terms “coherent pluralism.”
But some urgent issues such as climate change can be resolved only globally. Here, it matters that states from the South are given less representation than their population and economic size merit. For example, China, which is the world’s second largest economy and its largest cache of foreign reserves, has a smaller voting share in the World Bank than France or the United Kingdom.
Similarly, the United Nations Security Council makes decisions on global peace and security with a permanent membership that reflects the post-war geopolitical structure of 1945, excluding all of Africa and Latin America, as well as India, poised to soon surpass China as the world’s most populous country. “The major international institutions need to be more representative, transparent and accountable,” argues the Report. “The Bretton Woods institutions, the regional development banks and even the UN system all risk diminishing relevance if they fail to represent all member states and their people adequately.

The report analyses and reports on policies across a very wide range – health, education, social, economic, industrial – and in every region. Often, it is the combination of policies rather than one alone. Here are some examples:

Brazil’s industrial and trade policy: When Brazil’s inward-oriented economic strategy switched to an export focus, individual firms that benefited from large domestic markets could rely on capacities built up over decades. Embraer, for example, is now the world’s leading producer of regional jet commercial aircraft of up to 120 seats. The country’s steel industry has a similar story. Government intervention meant that agricultural technology has also been strength of Brazil. The System for Agricultural Research and Innovation has contributed to the nearly fourfold growth in agricultural efficiency per worker.

Chile’s support of agriculture and food: Chilean firms have had major success in expanding exports of processed agricultural food and beverages and forestry and fish products. Support from a nonprofit corporation, Fundación Chile, helped make the country’s commercial salmon cultivation one of the highest in the world.

Bangladesh’s industrial, social and education policy: Bangladesh took advantage of market distortions in world apparel trade, and learnt how to succeed in international markets, combining built-up competitiveness with trade preferences in favor of least developed countries (LDCs). By 2010, its share of world apparel exports had increased to about 4.8%, from about 0.8% in 1990. More than 95% of women in the garment industry are migrants from rural areas. This unprecedented employment opportunity for young women has narrowed gender gaps in employment and income. At the same time, the higher participation of girls in formal education has been enhanced by nongovernmental organizations like BRAC. One result has been a halving of the infant mortality rate.

Indonesia’s technology policy: Indonesia used telecommunications technology to connect its large cluster of far-flung islands and to open the country to the outside world. This required extensive private and public investment and policy guidance. By 2010, an estimated 85% of adults owned phones, as state encouragement and market competition slashed the prices of handsets and phone service. In July 2012, there were 7.4 million registered Facebook users in greater Jakarta alone—the second most of any city in the world.

India’s industrial and education policies: India’s state-led, import-substituting industrialization was accompanied by a deliberate effort to build human capabilities and invest in world-class tertiary education. After the reforms of the 1990s, these investments paid off when India was unexpectedly able to capitalize on its stock of skilled workers in emergent information technology–enabled industries, which by 2011–2012 were generating $70 billion in export earnings. In pharmaceuticals there is a similar story.

China’s trade policy: Rapid market opening in China would have shut down state enterprises without creating new industrial activities, so the state reformed gradually. To attract foreign direct investment, create jobs and promote exports, it established special economic zones. At the same time, it increased the competencies of its workers and firms by requiring foreign firms to enter into joint ventures, transfer technology or meet high requirements for domestic content. By 2011, China had completed 10 years of membership in the World Trade Organization and overtaken Germany as the largest exporter of goods and services.

Social policy in Mexico and Brazil: Conditional cash transfer programmes in Mexico, Brazil and other countries are designed to increase beneficiaries’ incomes and their access to health and education by making transfers conditional on requirements such as visits to health clinics and school attendance. They target individuals from low-income or disadvantaged households and provide support in cash. Mexico’s Oportunidades, for example, is conditional on children’s school attendance and medical checkups and parents’ attendance at community meetings. It distributed about $3 billion to some 5 million beneficiary households in 2012. Brazil’s Bolsa Familia and Oportunidades, the two largest programmes in Latin America, cost less than 1% of GDP.

Agricultural and economic policy in Ghana: In the 1970s and early 1980s, Ghana’s cocoa sector – the main pillar of the economy - faced near-collapse. Ghana restored its international competitiveness by devaluing the currency, increasing the capacity of the private sector, and giving farmers a much higher share of prices received. Between 1983 and 2006, the country doubled its production of cocoa per hectare, and today the sector supports 700,000 people. It has also invested in helping farmers connect to world markets: A recent survey found that around 61% of cocoa farmers owned mobile phones.

Health policy in Rwanda: Rwanda has introduced community-based health insurance to boost access to health services. As a result, health care became more affordable in rural areas, and under-five mortality fell from 196 deaths per 1,000 live births in 2000 to 103 in 2007, and the maternal mortality ratio declined more than 12% a year over 2000–2008. Rwanda is on track to reach the Millennium Development Goal for maternal health.