Western governments and international aid organizations have done a crude job of measuring world economic and social development for decades, thus contributing to ineffective development strategies, according to a United Nations report released yesterday.

Economists traditionally have rated nations' levels of development by counting how much wealth they produce per person. But the report, prepared by the United Nations Development Program (UNDP), says this measure fails to show whether a nation's production is used for human advancement. The report uses a "human development index" that measures peoples' fundamental quality of life according to their life expectancy, literacy and ability to buy basic goods.

The study, called the Human Development Report 1990, rated this basic quality of life in 130 countries. It found that west and central Africa, immediately south of the Sahara Desert, form the world's most desperate belt of want, with eight of the 10 least developed countries.

According to the new measurements, the United States is the least developed of the major Western industrial nations. While the traditional measurement -- per capita gross national product (GNP) -- ranks the United States second, behind Switzerland, the human development index ranks this country 19th. This was mainly because of a 4 percent illiteracy rate that is comparable to or higher than rates in Cuba, Chile, Argentina and other, poorer countries.

The report, in its conclusions, challenges some basic practices of the industrialized nations and the international agencies they dominate, such as the World Bank. It cautions that, despite the global inability of communist economies to compete with capitalist systems, capitalism also frequently has failed to achieve basic human development.

Industrial democracies tend to recognize the need to temper "the ruthless efficiency of the markets . . . with the compassion of governments," said Mahbub ul-Haq, a Pakistani ex-finance minister who directed preparation of the report. Such governments routinely spend 10 to 15 percent of their GNP on health and education for their own people, Haq said, but effectively press poorer countries to cut back on such basic development.

In an interview, Haq cited pressure by the World Bank that forced Sri Lanka to cut its social spending to 7 percent from 10 percent of GNP during the early 1980s. To ensure market efficiency, Haq said, the World Bank pressed Sri Lanka to cut rice subsidies that had formed a social safety net for Sri Lankans and to impose a cumbersome food-stamp program instead.

"That would have been difficult even for a good bureaucracy," Haq said, and it contributed "to a decline in living standards that has bred ethnic strife" and civil war.

The report's human development index finds that while communist economies have failed the test of efficiency, they often have achieved favorable rates of life expectancy and literacy. "They have invested in education and health," said Haq, "which is what allowed them to create the people-led movements that produced the revolutions" in Eastern Europe. Compared to Third World nations with which they will compete for investment in coming years, Haq said, the former East Bloc "is in a favorable situation in that there is human capital there with which financial capital can combine."

Among the report's points:

Developing countries have improved quality of life for their citizens -- for example, raising life expectancy to 62 years from 46 between 1960 and 1987. But such broad average improvements conceal large gaps -- between men and women, urban and rural areas and among economic classes.

While economic growth is necessary for long-term development, even impoverished countries can make short-term gains by targeting their spending. Sri Lanka and Costa Rica have improved their peoples' health and education levels beyond those of wealthier nations, such as Saudi Arabia.

Developing countries must cut military spending, which in Zaire, Chad, Uganda and Pakistan is two to three times as much as for social programs.

Subsidies for basic goods and services of up to 3 percent of GNP can provide effective social safety nets for people in even impoverished countries without overburdening their governments' budgets.

Industrialized countries must reverse the net flow of resources between them and developing nations. In 1981, a total of $42.6 billion in resources flowed from industrialized to developing countries. But by 1988, developing nations remitted a net $32.5 billion, largely because of debt payments.

The Human Development Report is to be updated annually, U.N. officials said, and its authors are working to refine their index for measuring quality of life, in part by including measurements for democratic freedoms.