Economic Power, Who Has It, How to Get It

How Studying Economic Power Can Help You Get It for Yourself

strong dollar
•••  Photo by BergmannGroup / Getty Images

Economic power is the ability of countries, businesses, or individuals to improve their standard of living. It increases their freedom to make decisions that benefit themselves alone. It reduces the ability of any outside force to reduce their freedom. 

Purchasing power is a significant component of economic power.  Countries, companies, and individuals can acquire economic power by improving their income, thereby adding to their wealth. That allows them to purchase more and better goods and services to meet their needs. 

The way to increase income is to produce a good or service that provides a real benefit to the world.  The laws of supply and demand will see to it that customers will pay the highest price to receive that benefit. For a country, it might mean manufacturing high-tech equipment, providing cheap labor to make consumer products, or having lots of oil.

Examples of companies that provide a real benefit include Apple, Google, and Amazon. The first sells high-tech products, the second a great search engine, and the third fast delivery from a wide selection of goods.

Individuals increase income and gain economic power by providing a skilled service. People who do this include doctors, software engineers, and athletes. 

Monopolies have huge economic power. They own most of a desired good or service. Google almost has a monopoly on the internet search market. People use Google for 65 percent of all searches. Its closest competitors, Microsoft's Bing and Yahoo, make up 34 percent combined. But Google is always updating its search algorithms to help it control 80 percent of all search-related advertising. 

Economic Power Versus Political Power

Political power is granted by people. In a democracy, that's votes. It is gained by giving people what they want, whether that's shared values or jobs. In an autocracy, it's military support. 

Economic power is granted by money. But it, too, is gained by giving people what they want. In this case, it is the goods and services they are willing to purchase.

Ranking

The economic power of nations is measured by gross domestic product. To compare between countries, you must use purchasing power parity to neutralize the effect of exchange rates.

In 2014, China became the world's largest economy. It is closely followed by the European Union and the United States. Much further down the list are India,  Japan, and Germany.

Why U.S. Economic Power Is More than Its GDP

The United States has an economic power that exceeds its GDP. One reason is that its currency, the dollar, is also the world currency. The dollar is used for most international transactions, including all oil contracts. Its position was established after World War II, at the Bretton Woods Conference. The United States also has 

The power of the U.S. economy is reflected by its GDP per capita, which was $54,800 in 2014. It measures a country's standard of living. Nineteen nations have a higher GDP per person than America, but that doesn't make them powerful. Most of these are either financial centers, oil-exporting countries, or both.

For example, Norway and Bermuda have a higher GDP per capita, but they aren't the driver of the global economic engine like the United States. Although China is the world's largest economy, its GDP per capita was only $12,900. It's not an economic power if it can't create a high standard of living for its residents.

Think of the incredible economic power it takes to be both one of the largest economies in the world while producing one of the highest standards of living per person. In fact, the GDP of most countries are the same as many U.S. states. For example, California produces as much as France, Texas as much as Canada, and even tiny Rhode Island as much as Vietnam. Here's a map that shows more. Find out the States With the Best Economies.

America's economic power came from its abundance of natural resources. It has thousands of acres of fertile land, lots of fresh water, and abundance of oil, coal and natural gas. Its large land mass is bordered by two large coastlines that provide ports for commerce. 

Also, the United States is governed by one political system, monetary system, and language. This gives it a comparative advantage over the world's second-largest economy, the European Union. The EU is made up of 28 separate member countries with different political systems and languages. This makes it more difficult to manage its single monetary system unified by the euro.

A third advantage is that America has two peaceful neighbors, Canada and Mexico. That means it doesn't have to defend its borders. It also allowed the creation of the world's largest trade area, the North American Free Trade Agreement. It gives America an advantage over the world's largest economy, China. That country's neighbors, India, Russia, and Japan, don't have the same peaceful natures or history. That makes any trade agreements enormously more difficult.

A fourth advantage is its large and diverse population. This allows companies to test market products before incurring the expense of bringing them to market. That lowers product development costs.