The Human Development Index and Canada's own third world

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There's a fascinating new report from the Centre for the Study of Living Standards that calculates Human Development Index (HDI) scores for all of Canada's provinces and territories. Here's the citation:

The Human Development Index in Canada: Estimates for the Canadian Provinces and Territories, 2000-2011, by Elspeth Hazell, Kar-Fai Gee, and Andrew Sharpe (Ottawa: Centre for the Study of Living Standards), May 2012, 79 pp.

It can be downloaded from the Centre's website.

The HDI, of course, is published annually by the UN Development Program. Canada used to rank first (in the mid-1990s), now we've fallen to sixth (Norway is first). The index is a composite of life expectancy, education, and income. Income is proxied by Gross National Income (GNI) per capita, compared across countries at PPP exchange rates. (For those who care, GNI is equivalent to GDP adjusted to exclude the value of indirect taxes, to exclude factor payments generated internally but paid to foreigners, and to include factor payments generated abroad but paid to domestic residents.) These scores are all averages, and hence do not capture the inequality dimension, but at least the HDI is broader than the usual GDP comparisons and rooted at least partially in actual social outcomes.

The clever folks at CSLS have carefully replicated the UNDP's methodology to generate separate HDI scores for each province and territory. In so doing, they have shone some interesting light on quality of life across the provinces.

According to straight-up GDP per capita, there are three "have" provinces now -- namely, the ones that HAVE oil (Alberta, Saskatchewan, and Newfoundland). They are the only three with above-average GDP per capita. Thanks to that oil, Alberta also marginally tops the provincial HDI scores. It's in a virtual tie with Ontario, NWT, and B.C.; all four of those jurisdictions would rank third in the global HDI if they were separate countries.

However, Saskatchewan and Newfoundland only rank sixth and seventh among the provinces, respectively, according to HDI. Oil wealth has not translated fully into social well-being there. And I suspect that their scores are overestimated by the method by which the CSLS researchers imputed provincial GNI estimates (which are not calculated by Statistics Canada) on the basis of the overall Canada-wide relationship between GNI and GDP (namely, GNI equals about 98 per cent of GDP). This approach misses the unique structural impact of external direct investment in places like Newfoundland (where corporate profits equal as much as one-third of GDP, a large proportion of which never touches down in Newfoundland).

If we examine the two direct measures of human well-being (life expectancy and education), B.C. and Ontario do the best of all provinces on both counts. Alberta is well back, and Saskatchewan and Newfoundland are near the bottom. Even with a one-third weighting in the overall HDI, therefore, estimated GDI levels exert a strong and in some ways distortionary influence on these rankings. The quality of life for average people in Alberta, and especially in Saskatchewan and Newfoundland, is not nearly as strong as oil-inflated per capita adjusted GDP numbers would suggest.

Nowhere is the gap between GDP/GNI and well-being is more clear than with the northern territories. Consider Nunavut, for example. If it were placed in the international rankings, it would rank a shocking 100th on the list of countries according to life expectancy (just below Lebanon, Antigua and Paraguay) and 89th according to expected years of schooling (right behind Fiji, Peru, and St. Kitts). Thanks to a high apparent income, however (Nunavut seems to rank 11th in the world according to GNI per capita), Nunavut's overall score is lifted to a much more respectable 38th (just below Slovakia, Malta and Qatar). I don't think that GNI estimate (of over $40,000 for each man, woman and child in the territory) really tells an accurate story of what incomes are actually like in the Arctic (especially if we adjust for the very high nominal price levels up there).

So on the one hand this fascinating CSLS study reveals some shocking new information about the polarization of social conditions in modern Canada. But on the other, it also speaks volumes about the failures of aggregate economic indicators (like GDP or GNI) to reflect the real quality of life for most people.

I recommend the study heartily; it adds some interesting backdrop to current debates in Canada about the social impacts of resource developments, and the differences between have and have-not provinces.

Jim Stanford is an economist with the Canadian Auto Workers union. This article was first posted on The Progressive Economics Forum.

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