Capability approach

In the most basic sense, functionings consist of "beings and doings".[9] As a result, living may be seen as a set of interrelated functionings. Essentially, functionings are the states and activities constitutive of a person's being. Examples of functionings can vary from elementary things, such as being healthy, having a good job, and being safe, to more complex states, such as being happy, having self-respect, and being calm. Moreover, Amartya Sen contends that functionings are crucial to an adequate understanding of the capability approach; capability is conceptualized as a reflection of the freedom to achieve valuable functionings.[9]

In other words, functionings are the subjects of the capabilities referred to in the approach: what we are capable, want to be capable, or should be capable to be and/or do. Therefore, a person's chosen combination of functionings, what they are and do, is part of their overall capability set — the functionings they were able to do. Yet, functionings can also be conceptualized in a way that signifies an individual's capabilities. Eating, starving, and fasting would all be considered functionings, but the functioning of fasting differs significantly from that of starving because fasting, unlike starving, involves a choice and is understood as choosing to fast despite the presence of other options.[9] Consequently, an understanding of what constitutes functionings is inherently tied together with an understanding of capabilities, as defined by this approach.

Capabilities are the alternative combinations of functionings that are feasible for a person to achieve. Formulations of capability have two parts: functionings and opportunity freedom — the substantive freedom to pursue different functioning combinations.[10] Ultimately, capabilities denote a person's opportunity and ability to generate valuable outcomes, taking into account relevant personal characteristics and external factors. The important part of this definition is the "freedom to achieve", because if freedom had only instrumental value (valuable as a means to achieve an end) and no intrinsic value (valuable in and of itself) to a person's well-being, then the value of the capability set as a whole would simply be defined by the value of a person's actual combination of functionings.[9] Such a definition would not acknowledge the entirety of what a person is capable of doing and their resulting current state due to the nature of the options available to them. Consequently, the capability set outlined by this approach is not merely concerned with achievements; rather, freedom of choice, in and of itself, is of direct importance to a person's quality of life.[9]

For example, the difference between fasting and starving, on person's well-being, is whether the person is choosing not to eat.[11] In this example, the functioning is starving but the capability to obtain an adequate amount of food is the key element in evaluating well-being between individuals in the two states. In sum, having a lifestyle is not the same as choosing it; well-being depends on how that lifestyle came to be.[9] More formally, while the combination of a person's functionings represents their actual achievements, their capability set represents their opportunity freedom — their freedom to choose between alternative combinations of functionings.[11]

In addition to being the result of capabilities, some functionings are also a prerequisite for capabilities, i.e., there is a dual role of some functionings as both ends and instruments. Examples of functionings that are a direct requirement for capabilities are good nourishment, mental and physical health, and education.[12]

Nussbaum further distinguishes between internal capabilities that are personal abilities, and combined capabilities that are "defined as internal capabilities together with the social/political/economic conditions in which functioning can actually be chosen".[13] She points out that the notion of (combined) capability "combines internal preparedness with external opportunity in a complicated way, so that measurement is likely to be no easy task."[14]

An extension of the capabilities approach was published in 2013 in Freedom, Responsibility and Economics of the Person. This book explores the interconnected concepts of person, responsibility and freedom in economics, moral philosophy and politics. It tries to reconcile the rationality and morality of individuals. It presents a methodological reflection (phenomenology versus Kantian thought) with the aim to re-humanise the person, through actions, and through the values and norms that lead to corresponding rights and obligations that must be ordered. The book extends the capabilities approach in a critical form. In particular, it considers freedom in relation to responsibility, that is, the capacity of people to apply moral constraints to themselves. By contrast, Sen's capability approach considers freedom as a purely functional rationality of choice.

Amartya Sen defines an agent as someone who acts and brings about change, whose achievement can be evaluated in terms of his or her own values and goals.[11] This differs from a common use of the term "agent" sometimes used in economics and game theory to mean a person acting on someone else's behalf.[11] Agency depends on the ability to personally choose the functionings one values, a choice that may not correlate with personal well-being. For example, when a person chooses to engage in fasting, they are exercising their ability to pursue a goal they value, though such a choice may not positively affect physical well-being. Sen explains that a person as an agent need not be guided by a pursuit of well-being; agency achievement considers a person's success in terms of their pursuit of the whole of their goals.[9]

For the purposes of the capability approach, agency primarily refers to a person's role as a member of society, with the ability to participate in economic, social, and political actions. Therefore, agency is crucial in assessing one's capabilities and any economic, social, or political barriers to one's achieving substantive freedoms. Concern for agency stresses that participation, public debate, democratic practice, and empowerment, should be fostered alongside well-being.[15]

Alkire and Deneulin pointed out that agency goes together with the expansion of valuable freedoms. That is, in order to be agents of their lives, people need the freedom to be educated, speak in public without fear, express themselves, associate, etc.; conversely, people can establish such an environment by being agents.[10] In summary, the agency aspect is important in assessing what a person can do in line with his or her conception of the good.[16]

Monetary and non-monetary measures of well-being are ideal when used to complement each other.[5] Understanding the various aspects of economic development process not only helps address issues of inequality and lags in human development, but also helps to pinpoint where countries lag, which once addressed can further promote well-being and advancement. As the Organisation for Economic Co-operation and Development (OECD) (2006) notes:

Well-being has several dimensions of which monetary factors are only one. They are nevertheless an important one, since richer economies are better placed to create and maintain other well-being-enhancing conditions, such as a clean environment, the likelihood that the average person will have a right to 10 years or more of education, and lead a comparatively long and healthy life. Well-being will also be increased by institutions that enable citizens to feel that they control their own lives, and that investment of their time and resources will be rewarded. In turn, this will lead to higher incomes in a virtuous circle.[24]

Simon Kuznets, the developer of GNP, cautioned against using the measure as an indicator of overall welfare, which speaks to the unintended use of output-based measures as indicators of human welfare.

The use of GDP and GNP as an approximation of well-being and development have been critiqued widely, because they are often misused as indicators of well-being and human development when in fact they are only telling about the economic capacity of a country or an average income level when expressed on a per person basis. In particular, feminist economics and environmental economics offer a number of critiques. Critics in these fields typically discuss gender inequalities, insufficient representation of environmental costs of productions and general issues of misusing an output-based measure for unintended purposes. In sum, the conclusion of Capabilities Approach is that people do not just value monetary income, and that development is linked to various indicators of life satisfaction and hence are important in measuring well-being. Development policies strive to create an environment for people to live long, healthy creative lives.[5][25][26]

Feminist critiques

Nussbaum highlights some of the problematic assumptions and conclusions of output-based approaches to development. First, she notes that GNP and GDP do not consider special requirements to help the most vulnerable, such as women.[27] Specifically, Nussbaum mentions that output-based approaches ignore the distribution of needs for the varying circumstances of people, for example a pregnant woman needs more resources than a non-pregnant woman or a single man.[27]

Also, output-based measures ignore unpaid work, which includes child rearing and the societal advantages that result from a mother's work. Marilyn Waring, a political economist and activist for women's rights, elaborates on the example of a mother engaged in child care, domestic care and producing few goods for the informal market, all of which are usually done simultaneously.[28] These activities provide economic benefits, but are not valued in national accounting systems; this suggests that the definition of unemployment used in output-based measures is inappropriate.[28] (See the article on Feminist economics, section "Well-being").

Environmental critiques

Another critique by Waring is that the output-based measures ignore negative effects of economic growth[26][28] and so commodities that lower social welfare, such as nuclear weapons, and oil extraction which causes spills, are considered a good input. The "anti-bads" or the defensive expenditures to fight "bads" are not counted as a deduction in accounting systems (p. 11).[26][28][29] Furthermore, natural resources are treated as limitless and negative outputs such as pollution and associated health risks, are not deducted from the measures.[29]

Technical and misinterpretation critiques

When GNP and GDP were developed, their intended use was not for measuring human well-being; the intended use was as an indicator of economic growth, and that does not necessarily translate into human well-being.[24] Kuznets has often made this point, in his words, "distinctions must be kept in mind between quantity and quality of growth, between costs and returns and between the short and long run. Goals for more growth should specify more growth of what and for what" (p. 9).[30]

Nussbaum also points out that GNP and GDP omit income distribution and the opportunity or ability to turn resources into activities (this critique stems directly from Capabilities Approach).[27] Kuznets terms this as a problem of "obtaining an unduplicated total of all output", (p. 15)[31] this suggests that people are only seen as consumers and not as potential producers, hence any products purchased by an individual are not seen as "being consumed in the productive process of turning out other goods" (p. 15)[31]

These accounting measures also fail to capture all forms of work and only focus on "engagement in work 'for pay or profit'", (p. 133)[32] leaving out contributions to a society and economy, like volunteer work and subsistence farming. Kuznets provides the example of the process by which farmers devote time and energy to bringing virgin land into cultivation.[31] Furthermore, GNP and GDP only account for monetary exchanges, and place no value on some important intangibles such as leisure time.[29]

Capabilities Approach has been highly influential thus far in human development theories and valuational methods of capturing capabilities,[4] the theory has led to the creation of the HDI, IHDI and GII and their uses among international organizations such as the United Nations and others. In companies, capabilities are included in Key Development Indicators, or KDIs as measures of development, including employee development.[33] In 1990 in the Human Development Report (HDR)commissioned by the UNDP set out to create a distribution-sensitive development measure.[34]

This measure was created to rival the more traditional metrics of GDP and GNP, which had previously been used to measure level of development in a given country, but which did not contain provisions for terms of distribution.[35] The resulting measure was entitled the Human Development Index, created by Mahbub ul Haq in collaboration with Sen and others. The purpose was to create an indicator of human development, especially one that would provide a general assessment and critique of global human development to shed light on persistent inequality, poverty and other capability deprivations despite high levels of GDP growth.[23]

Currently the HDI continues to be used in the Human Development Report in addition to many other measures (based on theoretical perspectives of Capabilities) that have been developed and used by the United Nations. Among these indices are the Gender-related Development Index (GDI), the Gender Empowerment Measure (GEM), introduced in 1995, and the more recent Gender Inequality Index (GII) and the Inequality-adjusted Human Development Index (IHDI), both adopted in 2010.

The following are a few of the major indices that were created based on the theoretical grounds of Capabilities Approach.

The Human Development Index takes into consideration a number of development and well-being factors that are not taken into account in the calculation of GDP and GNP. The Human Development Index is calculated using the indicators of life expectancy, adult literacy, school enrollment, and logarithmic transformations of per-capita income.[34] Moreover, it is noted that the HDI "is a weighted average of income adjusted for distributions and purchasing power, life expectancy, literacy and health" (p. 16)[36]

The HDI is calculated for individual countries with a value between 0 and 1 and is "interpreted...as the ultimate development that has been attained by that nation" (p. 17).[36] Currently, the 2011 Human Development Report also includes the Inequality-adjusted Human Development Index which accounts for exactly the same things that the HDI considers however the IHDI has all three dimensions (long and healthy life, knowledge and a decent standard of living) adjusted for inequalities in the distribution of each dimension across the population.[37]

The Gender-related Development Index is defined as a "distribution-sensitive measure that accounts for the human development impact of existing gender gaps in the three components of the HDI" (p. 243).[35] In this way, the GDI accounts for shortcomings in the HDI in terms of gender, because it re-evaluates a country's score in the three areas of the HDI based on perceived gender gaps, and penalizes the score of the country if, indeed, large gender disparities in those areas exist. This index is used in unison with the HDI and therefore also captures the elements of capabilities that the HDI holds. In addition, it considers women's capabilities which has been a focus in much of Sen's and Nussbaum's work (to list a few: Nussbaum, 2004a; Nussbaum, 2004b; Sen, 2001; Sen, 1990.)

The Gender Empowerment Measure (GEM) is considerably more specialized than the GDI. The GEM focuses particularly on the relative empowerment of women in a given country.[35] The empowerment of women is measured by evaluating women's employment in high-ranking economic positions, seats in parliament, and share of household income. Notably this measurement captures more of Nussbaum's 10 Central Capabilities, such as, Senses, Imagination and Thought; Affiliation; and Control Over One's Environment.

In the 2013 Human Development Report the Gender Inequality Index, which was introduced in 2011, continues to adjust the GDI and the GEM. This composite measurement uses three dimensions: reproductive health, empowerment, and labor force participation.[38] When constructing the index the following criteria were key: conceptual relevance to definitions of human development and theory; Non-ambiguity so that the index is easily interpreted; Reliability of data that is standardized and collected/processed by a trustworthy organization; No redundancy found in other indicators; and lastly Power of discrimination, where distribution is well distinguished among countries and there is no "bunching" among top and bottom countries (p. 10).[39] This index also captures some of Nussbaum's 10 Central Capabilities (Senses, Imagination and Thought; Affiliation; and Control Over Ones Environment).

In 1997, the UNDP introduced the Human Poverty Index (HPI), which is aimed at measuring poverty in both industrialized and developing countries. The HPI is a "nonincome-based" measure of poverty (p. 100) which focuses on "human outcomes in terms of choices and opportunities that a person faces" (p. 99).[40] In support of this index, Sakiko Fukuda-Parr—a development economist and past Director of The Human Development Report Office—differentiates between income poverty and human poverty. Human poverty can be interpreted as deprivations to lead a long healthy and creative life with a decent standard of living.[40]

The capability approach is being developed and increasingly applied in health economics, for use in cost-effectiveness analysis. It is seen as an alternative to existing preference-based measures of health-related quality of life (for example the EQ-5D) that focus on functioning,[41][42] and can be applied within the framework of quality-adjusted life years (QALYs).[43] A number of measures have been created for use in particular contexts such as older people,[44] public health[45] and mental health,[46] as well as more generic capability-based outcome measures.[47] Caution remains when measures do not explicitly rule out people's adaption to their circumstances, for example to physical health problems.[48]

As noted above, to a great extent, Nussbaum's Central Human Capabilities address issues of equality, political freedom, creativity and the right to the self, as do the various indices that are based on capabilities. It is evident that these measures are very subjective, but this fact is in the essence of defining quality of life according to Nussbaum and Sen. Nussbaum refers to Sen in saying that, although measures of well-being may be problematic in comparative, quantifiable models due to their subjective matter, the protection of and commitment to human development are too important of matters to be left on the sidelines of economic progress. Well-being and quality of life are too important to be left without intentional focus towards political change.[22]

Measures such as the HDI, GDI, GEM, GII, IHDI and the like are crucial in targeting issues of well-being and indicators of quality of life. Anand, et al. (2009) can be summarized as demonstrating that it is possible to measure capabilities within the conventions applied to standard household survey design, contrary to earlier doubts about the ability to operationalise the capabilities approach.

Much of conventional welfare economics today is grounded in a utilitarian approach according to the classical Benthamite form of utilitarianism, in which the most desirable action is the one that best increases peoples' psychological happiness or satisfaction.[10] The "utility" of a person stands for some measure of his or her pleasure or happiness. Some merits associated with this approach to measuring well-being are that it recognizes the importance of taking account of the results of social arrangements in judging them and the need to pay attention to the well-being of the people involved when judging social arrangements and their results.[11] Amartya Sen, however, argues this view has three main deficiencies: distributional indifference; neglect of rights, freedoms, and other non-utility concerns; and adaptation and mental conditioning.[11]

Distributional indifference refers to a utilitarian indifference between different the distributions of utility, so long as the sum total is the same (note that the utilitarian is indifferent to the distribution of happiness, not income or wealth—the utilitarian approach would generally prefer, all else being equal, more materially equal societies assuming diminishing marginal utility). Sen argues that we may "want to pay attention not just to "aggregate" magnitudes, but also to extents of inequalities in happiness".[49] Sen also argues that while the utilitarian approach attaches no intrinsic value (ethics) to claims of rights and freedoms, some people value these things independently of their contribution to utility.

Lastly, Amartya Sen makes the argument that the utilitarian view of individual well-being can be easily swayed by mental conditioning and peoples' happiness adapting to oppressive situations. The utility calculus can essentially be unfair to those who have come to terms with their deprivation as a means for survival, adjusting their desires and expectations. The capability approach, on the other hand, doesn't fall victim to these same criticisms because it acknowledges inequalities by focusing on equalizing people's capabilities, rather than happiness. It stresses the intrinsic importance of rights and freedoms when evaluating well-being, and it avoids overlooking deprivation by focusing on capabilities and opportunities, not state of mind.

Another common approach in conventional economics, in economic policy and judging development, has traditionally been to focus on income and resources. These sorts of approaches to development focus on increasing resources, such as assets, property rights, or basic needs.[10] However, measuring resources is fundamentally different from measuring functionings, such as the case in which people don't have the capability to use their resources in the means they see fit. Arguably, the main difficulty in a resource- or income-based approach to well-being lies in personal heterogeneities, namely the diversity of human beings.[11]

Different amounts of income are needed for different individuals to enjoy similar capabilities, such as an individual with severe disabilities whose treatment to ensure the fulfillment of basic capabilities may require dramatically more income compared to an able-bodied person. All sorts of differences, such as differences in age, gender, talents, etc. can make two people have extremely divergent opportunities of quality of life, even when equipped with exactly the same commodities. Additionally, other contingent circumstances which affect what an individual can make of a given set of resources include environmental diversities (in geographic sense), variations in social climate, differences in relational perspectives, and distribution within the family.[11]

The capability approach, however, seeks to consider all such circumstances when evaluating people's actual capabilities. Furthermore, there are things people value other than increased resources. In some cases, maximizing resources may even be objectionable. As was recognized in the 1990 Human Development Report, the basic objective of development is to create an enabling environment for people to live long, healthy, and creative lives. This end is often lost in the immediate concern with the accumulation of commodities and financial wealth that are only a means to expansion of capabilities. Overall, though resources and income have a profound effect on what we can or cannot do, the capability approach recognizes that they are not the only things to be considered when judging well-being, switching the focus from a means to a good life to the freedom to achieve actual improvements in lives, which one has reason to value.