Introduction

In Our Common Agenda, the Secretary-General of the United Nations called for finding measures of progress that complement gross domestic product (GDP), in line with target 17.19[1] of the Sustainable Development Goals (SDGs). As noted by the United Nations Department of Economic and Social Affairs, “The 2030 Agenda has shed new light on the long-recognized shortcomings of GDP for measuring critical policy objectives beyond economic growth, notably the social and environmental impacts and sustainability of economic activities, with attention to both people’s well-being and preservation of the planet”.[2]

The present report is motivated by the search for a new measure of progress beyond GDP and by the need to find plausible measures of development. Plausibility implies that any proposed measure should have four basic attributes. First, it should reflect present-day realities and strive to realistically capture challenges of concern to all countries in all regions, rich and poor. Second, it should be as simple as possible to understand and explain. Third, it should have wide coverage, geographically and over time, to allow in-depth analyses and understanding of development challenges. Last, but by no means least, it should be based on a sound conceptual framework.

The report accepts the capability approach[3] as a basic foundation and capitalizes on its many strengths. It also seeks to address fundamental tenets of this approach that are not reflected in current global development indices, notably the Human Development Index (HDI).[4] The main objective is to capture the complexity of development and its broad spectrum of enhanced human capabilities.[5] Consequently, the report proposes the Development Challenges Index (DCI) to measure shortfalls in three crucial pillars: quality-adjusted human development achievements, environmental sustainability and good governance.

Addressing both quantitative and qualitative aspects of core human development dimensions reflected in the HDI is crucial. Some countries have made progress on basic quantitative indicators of health, education and income without necessarily achieving much progress on quality. The first innovation of the present report is that it uses appropriate qualitative variables to discount the quantitative income, health and education dimensions of the HDI.

In the spirit of the SDGs, environmental sustainability is critical to ensure intergenerational justice.[6] This report’s proposed measurement framework therefore integrates two broad aspects of sustainability, namely, environmental health and energy efficiency and climate change, as a starting point for capturing an inherently complex and multifaceted global challenge.

The report considers governance achievements as enablers of human capability, as reflected in political participation, accountability guarantees, the rule of law and effective State institutions, all of which complement well-being and sustainability. Good governance leads to better systems of justice and decreases spatial and gender inequalities, which reduce political instability and induce inclusive economic growth.[7] This in turn leads to better social development and sustainability outcomes, further enhancing individual capabilities and peace and security conditions required for maintaining systems of good governance.[8] The adoption of the SDGs makes a strong case for the inclusion of governance as a measure of progress, especially under SDG 16.

In short, the report applies a broader perspective to assessing development challenges. Issues related to measuring capabilities in health, education and income, as captured by the HDI, are only one aspect.

This quality-centred and expanded approach to assessing and responding to development challenges presents a better policy link to the SDGs. As the global community implements the 2030 Agenda for Sustainable Development to address the wide-ranging challenges that humanity faces, such as poverty, hunger, inequality, climate change and environmental degradation, the proposed DCI focuses on overcoming deficits that fundamentally constrain achievement of the goals, especially amid challenges such as the COVID-19 pandemic. This approach may help policymakers better scrutinize their national development policies. By measuring challenges rather than achievements, the index brings the least developed countries to the forefront, as they face the most severe challenges and remain the main focus of efforts to leave no one behind.

The report covers 163 countries, finding all have challenges to address. For instance, even the least challenged nations, such as the Nordic and other European countries, and some countries in East Asia and the Pacific, namely Japan, New Zealand and Singapore, are far from achieving a zero-challenge score under the DCI. This is mainly due to the inclusion of indicators on climate change and energy efficiency, which underlines the importance of measuring and improving environmental performance. To mitigate these challenges, governments must act on international environmental treaties, encourage the participation of civil society organizations and guarantee media freedom to increase environmental awareness.[9]

Many Latin American countries, such as Brazil and Mexico, have witnessed the largest deteriorations worldwide in their DCI scores in the past two decades, for several reasons. Governments in this region have largely failed to take advantage of an economic boom to ensure that growth becomes sustainable and truly inclusive. Productivity has not significantly improved while inequality remains stubbornly high, whether measured by income or other well-being outcomes. Education quality lags that of other regions, with unequal access to education, high dropout and repetition rates, and poor teacher quality. The region also faces a wide array of environmental issues. A lack of sewage waste treatment, oil spills and the dumping of industrial and heavy metal waste have led to high levels of water pollution. Vehicle emissions and stationary source fuel combustion have increased air pollution. Other challenges relate to ineffective democratic governance, corruption and the lack of transparency and accountability in political institutions.

South and East Asian and the Pacific economies, notably China, have made remarkable progress in sustaining high economic growth rates, raising incomes and lengthening life expectancy. Their pattern of economic growth, rapid industrialization and urbanization, however, has not been environmentally sustainable. These processes pressure the environment, including surface and groundwater, air quality, land and natural resources. This in turn has adversely affected human health and the productivity of natural resources. In addition, although these regions have made significant improvements in government effectiveness in recent years, democratic backsliding has shifted the political tides, leading to a resurgence of illiberalism. Several countries still lack accountability, independent rule of law, participation in decision-making and legal transparency.

Sub-Saharan Africa is the most challenged region in the world. Most countries there confront a double deficit in basic quantitative and qualitative aspects of human development. They struggle with low-quality education, slow economic growth, high indebtedness, poverty and the fallout of the COVID-19 pandemic. They also face numerous environmental issues, including water, air and solid waste pollution, with dire implications for human health. Poor governance and horizontal inequalities have fuelled protracted subnational conflicts.[10]

The Arab region faces severe deficits in governance. The region contends with poor-quality public services, restricted freedoms, limited autonomy, constrained political participation, and low levels of voice and accountability. These governance challenges have led to a rapid escalation in political instability and conflicts and significant losses in income per capita for conflict-affected countries, especially the Syrian Arab Republic. Most countries, rich or poor, have severe deficits in the quality of education. This has played a role in widening skills and knowledge gaps between education and labour markets outcomes. Environmental challenges have surged in recent years, ranging from water scarcity to land degradation and biodiversity loss, with consequences that include diminishing food security. Arab States fare significantly worse on the DCI compared to other global development indices. None are present in the very low or low development challenges groups. Oil-rich Arab countries are particularly affected, incurring some of the highest losses in ranking compared to the HDI.

As with other global development indices, the DCI is grounded in the capabilities approach, contributes to global and regional discourse on measuring development progress, and provides countries with a valuable tool to assess national comparative performance on key development indicators. It has three main novelties. First, by factoring in the quality of human development achievements and by integrating the contextual dimensions of environmental sustainability and governance, it establishes a more relevant measurement yardstick. Second, by shifting the analytical focus to the most challenged countries, or those with the highest DCI scores, it encourages more informed dialogue on priorities to genuinely leave no one behind. Finally, as each of the three challenges is of critical importance, it is enlightening to look at them independently as well as when amalgamated into a single index. The proposed methodology allows for an easy decomposition of results for each challenge and its components.

The Fourth Industrial Revolution poses major challenges and opportunities to countries worldwide. It is a cross-cutting issue that has major implications for all aspects of development including quality of human development, environmental sustainability and governance. However, the vast majority of highly and very highly challenged countries are ill equipped to reap its benefits and are the most vulnerable to its negative impacts. In this report, we were not able to award sufficient attention to this challenge due to data insufficiency. However, closely related indicators including those on innovation, knowledge production and decent employment were discussed in the quality-adjusted human development section. The analysis shows that there is a significant knowledge deficit that hampers the ability of the most challenged countries to close the digital divide. As more data becomes available, this issue will certainly receive additional attention in future reports.

The report is structured as follows. Chapter 1 introduces the DCI and analyses results over 2000-2020 at the global and regional levels, comparing findings with those of other global development indices. Chapters 2-4 cover the results of quality-adjusted development, environmental sustainability and governance challenge indices, respectively, focusing on global and regional level challenges. The chapters analyse index findings and their correlation with major influencing factors and policy drivers. Chapter 5 concludes with general policy recommendations.