Public Spending And Social Progress
Table of Contents
Attributes Of Social Progress
"Literacy, infant mortality and life expectancy comprise the Physical Quality of Life Index."
The first attributes of social progress I use are widely recognized measures of human welfare: literacy, infant mortality and life expectancy. These three attributes make up the Physical Quality of Life index (PQL), a widely accepted index of social progress. Testing the PQL index separately, I am able to compare it to the broader index and to see whether the additional attributes that are included in the multidimensional index add more information. Furthermore, using 1995 data for the PQL index from 112 nations, and data for the other attributes from 85 countries permits confirmation that the results are not skewed by the omission of some countries.7 Including the three PQL attributes in the multidimensional index ensures that the broader index is inclusive. In addition to the three PQL attributes, the multidimensional index includes 11 other attributes chosen by the author and two composite indices - the Index of Economic Freedom and the Freedom House index of political and civil rights.8
The Physical Quality of Life Index. The variables in the PQL index are widely accepted as measures of human welfare. Life expectancy among the 112 countries in the PQL index ranges from 37.4 to 79.25 years, infant mortality from 4.3 per 1,000 live births to 148.6, and the literacy rate from 11.05 to 100 percent.9 [See Table I for the range of values of all 16 attributes.]
The Multidimensional Index of Social Progress. Economist Amartya Sen, among others, has criticized the PQL index as too narrow.10 To more fully capture differences in quality of life across countries, a more multidimensional approach is warranted. To accomplish this, I combined the three attributes from the PQL index with 13 other measures to construct an index with 16 attributes. (For a detailed discussion of the meaningfulness of the attributes, see the author's previous joint research.)11
For example, a fourth attribute is average number of persons per household. Economist Gary Becker has argued that in modern societies children are a consumption good and that as family size shrinks "child quality" is substituted for quantity of children.12 Thus a family with fewer children can make a greater investment of household resources per child and declining household size is an advance in social progress.
A fifth attribute is military manpower per 1,000 inhabitants. While ambiguous as a measure of social progress, since troops can be used to oppress the domestic population, on the whole more troops represent greater protection from external aggression. A sixth attribute is energy use per capita in kilograms. A seventh is miles of road per square mile of land area, an indicator of infrastructure development and facility of physical movement within a country. An eighth is persons per telephone, another indicator of economic development and ease of communication.
"A more multidimensional index contains 16 indicators."
A ninth attribute is hospital beds per 10,000 population and the tenth is population per physician, both indicators of the quality of health care. The eleventh is daily caloric consumption per person, a measure of the food supply. The twelfth is persons per radio receiver, a measure of the extent to which the population can be informed as well as entertained.
Attribute thirteen is the crime rate per 100,000 persons. As long as the ratio of reported to unreported crimes is stable across countries, it is a fairly reliable measure of security of person and property.
Other Indices Used as Attributes. Personal freedom and choice (political, civil and economic) are important attributes of social progress. The Freedom House index of political and civil rights13 measures the extent to which a population is free to choose its leaders and is governed by the rule of law.14
The Index of Economic Freedom attribute is a summary measure from James Gwartney and Robert Lawson.15 This measure is based on an average of up to 17 attributes (including a number of the economic indicators used by Tanzi and Schuknecht): (i) money and inflation (money supply growth, inflation variability, foreign exchange, bank account ownership), (ii) government operations (public consumption share, state enterprise, price controls, business environment, legal system, lack of negative interest rates), (iii) takings (transfers and subsidies, top marginal tax rate, conscription), and (iv) international sector (trade taxes, black market exchange premium, size of trade sector, foreign capital transactions).
"All the indices are highly correlated."
Other Possible Indicators. Perhaps some other attributes such as the female labor force participation rate, unemployment rate, poverty rate or fraction of low-income population might be added.16 But there are real problems with the meaning of some of these attributes and the extent of their coverage. Unemployment and underemployment mean different things in advanced and backward countries; female labor force participation may mean liberation in advanced countries but forced family work in rural, agricultural, less-developed countries. Poverty is difficult to measure since reported income may not measure economic well-being,17 particularly in less-developed countries with large informal sectors and extensive barter systems.
Weighting the Attributes. Although it is standard practice to equally weight the indicators in constructing an aggregate measure of social progress, two objective methods of obtaining different weights are available: weighting by the variances through principal components analysis and weighting by regression coefficients through an instrumental variable or hedonic approach. The latter technique has the virtue of measuring the implicit value assigned to the indicator.18
Both the PQL index and the multidimensional indices used here were weighted with equal, principal component and hedonic weights. Thus a total of six indices of social progress were constructed. These indices turn out to be highly but not perfectly intercorrelated. The range in the simple correlations is from .8610 to .9725. [See Appendix Table I.]