Why HDI matters more than GDP for the sustainability manager in sustainable development

Date: 16 January 2017

Traditionally, the Gross Domestic Product(GDP) has been used to measure the economic development of a given country. Many corporate strategists have been using the the GDP table to determine places with good potential for expansion of their businesses. GDP per capita only gives an estimate of the overall level of well being of a nation. The fact that it is rough estimate does not help in decision making especially for corporates where accuracy of information is key. 

On the other hand, the Human Development Index (HDI) measures the ‘wellbeing’ of an individual. This index being championed by UNDP as measure of human well being goes beyond simple calculation of the GDP per person. The index takes into account the income level in addition to the educational attainment and health related indicators. In other words, the index suggests that “man does not live by bread alone”. When it comes to the income level per individual, the index considers the fact that there is diminishing marginal utility on increment in income for an individual which means that a higher level of income translates to a smaller increment in HDI.

It is therefore important to note that countries will rank differently on the two measures due to the differences highlighted above. The superior index is the HDI as it uses a more holistic approach and will be more accurate in determining the level of wellness of the citizens. Well being is critical in the determining the purchase power.

By looking at the GDP per capital of Africa, corporate strategist will be very much attracted to invest in Equatorial Guinea which ranks very highly on the basis of income per person. This is the case mainly because the poor African country discovered oil which has translates to a very high GDP. On the contrary, a ranking of 138 ranking on the HDI in 2015 for Equatorial Guinea tells a different story.

On the sustainability interventions design, it is critical that private sector and governments consider ways of improving the well being of the citizens. This is more critical for the private sector because the current business environment is characterized by an unprecedented, accelerating and complex mix of risks and opportunities. Markets can be disrupted in a short time by various factors, be it a new technology or depletion of raw material or the civil unrest facing many developing countries. 

Nontheless, new opportunities and challenges are rapidly emerging due to changes such as population growth, climate change, resource scarcity or global health risks. All this requires corporate managers to re-look at how their operations address the myriad of challenges that the human race is facing with the aim of increasing wellbeing and hence improving the HDI index. This can be achieved if businesses look into their operations in a holistic manner which calls for corporate sustainability. The solution is to focus on income matters but only as one of the drivers of wellbeing. 

There is also need to consider interventions that will increase the social capital as well as the environmental capital. This will result into a more balanced citizenry which will provide better fundamentals for businesses and hence a good return on investment for the companies. By addressing issues such as the level of unemployment and social security, access to housing, clean water, food, gender equity, income distribution there will be progress in the social development. Moreover, by considering  how to green the economy at national level as well as processes within companies will result in environmental sustainability.

The 17 Sustainable Development Goals (SDG) and the related 169 targets will provide a good platform for corporates and governments to look into the possible areas of intervention that will help in the improvement of human development. The goals although universal, will apply more to the developing countries with the aim of mobilizing efforts to end poverty, fight inequalities and tackle climate change, while ensuring that no one is left behind by 2030