PART-I
References:
1. Standard of Living: A.K.Sen (Lecture-I & II), CUP 1987
2. Thinking, Fast and Slow: Daniel Kahneman, Allen Lane 2011
Standard of living, well-being, agency achievements are all aspects of life quality. Keeping their nuanced differences on hold, let us first focus on quality of life.
To assess quality of life in a country three things need to be done:
1. To identify object(s) of value
2. To value the object(s) in possession of each individuals
3. To aggregate over individuals
Identification of the object: Since human condition encompasses diversity the valuation process must deal with diversity in concepts. It is crucial to distinguish two types of plurality of concepts.
1. Competitive plurality: In which object does the value lie? -- Pleasure? Commodity? Capability? Acceptance of one as an object of value implies a rejection of the rest. Note that each one in the above list is causally related to the others, but that only makes the latter possess derived (indirect) value if the former is assigned primary (direct, intrinsic) value. In choosing the object of value exclusive focus is on direct and intrinsic relevance to human condition.
2. Constitutive plurality: Variety within one object of value – If ‘pleasure’ is the chosen object of value, there are many types of pleasure: hunger-relieving, gastronomical, communicational,…
Thus, constitutive plurality involves seeing human condition as a basket of attributes. Competitive plurality demands we choose only one from many such baskets.
Aggregation: Along any dimension within a basket, an average value can be calculated, say, average life expectancy. A vector can thus be constructed to describe a position for the economy. Principle of Dominance Partial Ordering can then be invoked for many binary comparisons. However, for a complete ordering relative importance of different objects of value are to be assigned – think of relative weights in HDI calculation.
I. Utility as an object of value and as a valuation exercise: the pitfalls
The distinction is important, and the two are often confused. Take this example.
You consume commodity bundles x and y in period X and period Y respectively, with UX(y) > UX(x) > UY(y) > UY(x). If commodities are the objects of value and utility a valuation exercise, y is preferred to x and you are better off in period Y. However, if utility is the object of value, you are better off in period X!
IA. Utility as pleasure/happiness: As an object of value it looks tenable, but incomplete. Life of a happy but deprived person can hardly be considered good. The incompleteness of pleasure as an object of value also renders metric of pleasure inappropriate as a valuation exercise. Though the mental state of (un)happiness is causally linked to the dimensions like deprivation, they are not the same.
Important advances have been made in the last 15 years in the measurement of happiness as a signifier of human condition. There are two aspects to this measurement exercise (Kahneman, pp.391-397):
· The experienced pleasure/pain as a life is lived (say, by asking people to reconstruct the previous day by dividing it into different slices and report their states of mind on a scale – the Day Reconstruction Method which gives rise to the U-index, the percentage of the waking hours spent uncomfortably in different activities). Implications for individuals: shift your time from more uncomfortable/ less pleasant activities to less uncomfortable/ more pleasant activities.
Implication for the State: lessen discomfort – make daily commuting less uncomfortable, provide for child care to raise quality of interaction between parents and children….
· The life evaluation of the respondents.
IB. Utility as Desire Fulfillment: Not tenable as a seat of value. We desire an object of value, but do not value desire itself. Though desiring has a strong valuation aspect, as a valuation exercise too it is not perfect. Desire may not correspond value, because desiring may be socially and economically conditioned.
IB. Utility as Choice: Choice is the result of valuing, i.e., value leads to choice and does not reside in it. It has, however, some role as a valuation exercise. Consider this question: Would you rather be Mr. A or Ms. B? (Vickrey 1945, Harsanyi 1955).
Choice may have underlying motivation that may not always lie in the living condition of one’s own. Think commitment as a motivation behind choice.
II. Opulence/Commodity Possession as an object of value and as a valuation exercise: the pitfall
Being well-off is not the same thing as being well. Human condition is closer to the latter, and some extra steps removed from the former. Between food intake and nourishment lies the physiological factor of metabolic rate, the medical factor of parasitic ailment or breastfeeding, the climatic factor, the social and gastronomical factors. Two 18th century contemporaries, Adam Smith the social scientist and Joseph Louis Lagrange the mathematician had the following to say.
Lagrange: There is a varying relation between opulence and physical functionings.
Smith: There is a varying relation between opulence and social functionings.
III. Capability as an object of value: Physical and social functionings expressed as different ‘doings’ and ‘beings’, i.e., achievements: living long, living healthy, being literate/educated, participating in social and political events/decision making with dignity, doing so in the family,…
Therefore, it is possible to think of many vectors of functionings. Capability is the freedom to choose from the set of vectors. Alternatively, description of each functioning may be refined to define capability as a single vector of refined functionings.
Example: Functioning: having a short life
Refined functioning-I: having a short life with no alternative
Refined functioning-II: having a short life when there is an option of a long
life.
A possible way to do a capability-based evaluation of a country is to include an index of liberty in the set of different indices of functionings, e.g., average life expectancy, mean years of schooling, expected years of schooling, etc.
Quality of Life as Agency Achievement, as Well-being, as Standard of Living
A person has different motivations in life and the things she can do with these motivations define the state of her life and the lives around her.
There are certain things that she does out of commitment to others – these doings are her agency achievements, and do not contribute anything to the state of life she lives. She may even die to fulfill her commitment. Though agency achievement is very much an aspect of her life (or death), this does not relate to the state of her own life.
There are certain other things we do out of sympathy to others. Such doings have bearings on our personal well-being by making us happy, but do not by itself add anything to our lives in terms of physical or social functionings.
The functionings that survive the removal of the two underlying motivations, namely commitment and sympathy, are the relevant ones for the concept of standard of living.
PART-II
1. HDR 2011: UNDP (Technical Notes)
2. Mis-measuring Our Lives: Joseph E. Stiglitz, Amartya Sen, Jean-Paul Fitoussi, Bookwell 2011 (Indian Edition)
3. Development Economics: Debraj Ray, OUP 1998
HDI incorporates health and education indices to capture mean functionings in these two areas. However, it attempts to capture other functionings by per capita GNI (PPP $) index.
Caveat: A typical individual is not the person with the mean value, but the median value.
Therefore, more relevant index is an inequality-adjusted HDI.
Adjustments to GNI value required to capture ‘other’ functionings (Stiglitz et al, pp.23-59): Focus on the Household
· Values should be expressed in PPP International $ and in real terms to make international and temporal comparison valid. (HDR, p.169, Ray, pp.12-14, class lecture)
· GNI includes disposable income, undistributed profit, net tax and depreciation of manufactured capital.
Exclude
i) Undistributed profit, net tax and depreciation of manufactured capital as they do not directly impart any functioning.
ii) A part of disposable income spent on defensive consumption – say, of transport service to go to the place of work, of paid child care services... blame these exclusions on structural and institutional changes like urbanization and inclusion of erstwhile non-SNA activities into SNA activities.
Household Saving
iii) Household saving should not be excluded as it acts as a security, but should be discounted because a part of it is to compensate for the loss of security due to the erosion of social capital.
Add
iv) Both monetary and in-kind transfers from the government and other non-household sectors – free or subsidized health care, education…
v) Non-market consumtion – of voluntary leisure, environmental amenities, non-SNA cum non-defensive activities, properly imputed and adjusting for overlaps.
Caveat: Wealth, which saving augments, is superior to only saving as an indicator of security enjoyed by an individual. If this weakness of the HDI vision is attended to and the scope of wealth is broadened to include human capital, natural capital, and institutional capital the issue of sustainability can be addressed.
