Whose Global Pulse: Diagnosing Sickness or Health?

Whose Global Pulse: Diagnosing Sickness or Health? Wim Naudé UNU-WIDER Global Pulse Workshop, Tarrytown, USA, 8-10 September 2010.

20 Years Ago...
Nelson Mandela stepped as a free man from prison
The Berlin Wall had just fallen
It was the end of the Cold War
The Human Development Index was adopted by the UN
Britain ceased to be an Island;and
The Three Tenors sang for the first time...

Since then human-made and natural disasters struck
Financial crises
13 Oct 1989: Friday the 13th mini-crash Wall St.
16 Sept 1992: Black Wednesday UK (withdrawal of pound from the ERM)
1992: Nordic Banking Crisis
December 1994: The Mexican crisis of 1994-1995 ( el error de diciembre )
1995 Argentinian Crisis
July 1997: Asian Financial Crisis
17 August 1998: Russian Financial Crisis
The Brazilian crisis of 1998-1999
The Argentinian crisis of 1999-2002
10 March 2000: Dot-com bubble burst
27 February 2007: The Chinese Correction plunge
15 September 2008: Subprime Mortgage Crisis
2009 : Global Economic Crisis (global recession)
February 2010: Greek sovereign debt crisis
....to name but a few of the more than 120 financial crises endured since the 1970s

Since then man-made and natural disasters struck
Natural disasters:
Source of data: CRED

Since then man-made and natural disasters struck
Food and energy price shocks
Source: FAO Source: UNCTAD Commodity Price Bulletin

The exhorbitant cost of recent disasters Impacts of the Food, Fuel and Financial Crises on Selected Global Development Indicators (Source: Adapted from Heady et al., 2009:14) (Note: a Taken from Friedman and Schady, 2009; b Based on the ILO (2009a) worst case scenario forecast)

The exhorbitant cost of the financial crisis

UNU-WIDER thinking about human wellbeing

Measuring Human Development and Wellbeing
Why:
Track progress (or decline)
Inform policy, inform responses
How
UN SNA (national economy)
Quality of life : (i) objective (ii) subjective indicators
Multidimensional Poverty Indexes, Deprivation Indexes, transient vs chronic poverty measurement, etc.
Examples
HDI, MPI, MDGs, Happy Planet Index, Global Peace Index, Global Prosperity Index, Gallup World Poll, Competitiveness Index, etc etc.

Shortcomings
Future dimension
The world has become ‘risk sensitive’
Impact of and possibilities for further disasters
Human-made disasters
Natural disasters
Hence growth, GDP, HDI, MPI and MDGs are subject to risk and uncertainty
How can this risk be measured, so as to track whether we are more or less at risk and inform policy ?
so to reduce risk, mitigate risk or assist risk coping

Vulnerability Initiatives
Vulnerability is the risk of some negative event taking place.
It refers to a specific source of risk (hazard): poverty, natural hazards, environmental degradation, conflict, climate change, etc.
Measurements
Macro-level indexes (UN-DESA /Guilliamont, Briguglio etc)
Vulnerability to natural disasters (see e.g. UN-EHS)
Micro-focus: household vulnerability to poverty (risk to fall into or remain in income poverty)

What is ’Vulnerability to poverty’?
Micro-level : = the risk of households falling in or remaining in poverty due to either idiosyncratic hazards or covariate/aggregate hazards.
Macro-level : = the risk that a ‘system’ (such as a country) will be adversely affected by a shock or ‘perturbation’ - which include natural hazards, macro-economic shocks, or political conflict shocks – resulting in rising poverty.

Measurement of Vulnerability -II
Examples: Vulnerability to poverty can be measured either as
(a) uninsured exposure to risk,
(b) expected poverty or
(c) lower expected utility, as a result of shocks which affects income or consumption.
Some Examples on macro-level:
Commonwealth Vulnerability Index (CVI)
Inter-American Bank’s Prevalent Vulnerability Index (PVI)
Environmental Vulnerability Index (EVI) developed by UNEP and South Pacific Applied Geoscience Commission (SOCAP.

Examples: Typical components of a macro-economic vulnerability index
Size of (local) economy
Structure of the local economy
International trade capacity
Peripherality
Development level of a place
Income volatility
Demography and health
Governance
Environment and geography, and
Financial system

Examples: ‘Intervention index’ for South Africa Source: Naudé, W.A. , McGillivray, M. and Rossouw, S. (2009). ‘Measuring the Vulnerability of Sub-National Regions’, Oxford Development Studies , Sept. 37 (3): 249-276.

Shortcomings of Vulnerability Measures
Largely based on existing national macro-data or household and labor surveys
Problems with data availability and comparisons over time.
Data frequency, lags.
Cannot predict a hazard from occurring.
Number of risks and VIs multiplying – a catastrophizing industry)
Says little about responses or reactions
Black Swan problem (e.g. Oil spill in Gulf of Mexico)

Resilience (coping)
Is it better to measure resilience?
Resilience refers to the ability to withstand shocks, to recover and bounce back.
Ex ante households often attempt to diversify their sources of incomes,
ex post they rely on various forms of ‘insurance’ (insurance, migration, networks, wealth)
Household capabilities, household assets, and the fragility of their contexts (including state and natural environment fragility) play an important role in resilience
It is not the inverse of vulnerability (sometimes reducing vulnerability does not mean improved resilience and vice versa – see e.g. trade)
Resilience may also refer to a more long-term, stable ability than vulnerability

So how to measure resilience?
Institutional quality
Governance (accountability, effectiveness, freedom, control of corruption)
Entrepreneurial economy response (ease of doing business)
Macro-economic stability and management
Shared society
Infrastructure, public assets
Aid effectiveness
Household / Individual capabilities
Education and skills, incl . Entrepreneurial orientation (diversification, innovation)
Health
Networks
Assets
Insurance
Migration
Starting on a national level is a begin, but sub-national geographically referenced data is ultimately needed

Vulnerability to Poverty and Resilience focusing on the household Source : Naudé, Wim, Santos-Paulino, Amelia and Mark McGillivray, eds. 2009. Vulnerability in Developing Countries . Tokyo: UNU Press

Responding to Vulnerability, a Generic Approach Source : Naudé, Wim, Santos-Paulino, Amelia and Mark McGillivray, eds. 2009. Vulnerability in Developing Countries . Tokyo: UNU Press

Example: Vulnerability and resilience in Africa during the financial crisis -1

Example: Vulnerability and resilience in Africa during the financial crisis -2 Source : Naudé, W.A. (2010). Africa And The Global Economic Crisis: A Risk Assessment And Action Guide. RSCAS Working Paper no 2010/27 , European University Institute, Florence.

Questions
Frequency of measurement?
Correlations with income? (NMR – ‘intervention index’)
Confidence in predictive ability?
Only relative measures: what level of resilience is enough and for what type of hazards?
Complacency (e.g. financial crisis)
Threshold levels: circuit breakers and signals
Dangers of labels?
Moral hazards in resilience measures?

Thank you!

Whose Global Pulse: Diagnosing Sickness or Health?

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