In the real world GDP is a poor measure of a state's power.
In the post Communist world economics GDP is king, and economics is destiny. Slow growth rates in Europe is an almost existential threat, and an objective indictment of the European socio-economic model. China’s property crisis is the start of its lost decade or decades, just as Japan’s bubble bursting in the late eighties was before it. And Russia can never win against the West with a GDP smaller than Canada. So goes the thinking on Wall Street and at the IMF and World Bank. But the early 2020’s is disproving that worldview.
In reality it is clear that a state’s economy is vastly overrated as a measure of power and relevance. A low GDP and a lack of innovation does not mean that North Korea is an irrelevant minnow, it manages to be a threat to its neighbours by weighing up its economic deficiencies with nuclear weapons and its conventional military. Similarly, Iran’s economy is 20% smaller than Israel’s according to the World Bank, and yet Iran is a constant thorn in Israel’s side with militias all over the Middle East. Conversely, Italy and Canada are both in the top ten list of largest economies and still they seem to have very little influence over global events because they are overshadowed by their neighbours.
The economy is less of a determinant of a state’s power than a prerequisite, a bit like cardiovascular health in football: you can’t be a great footballer if you can’t run for 90 minutes, but as long as you are fit enough to compete you can overcome being less fit than your opponents with better game sense or technique. You need a somewhat strong economy to be a regional or great power, but you can get by with a relatively weaker economy if you have a competent diplomatic corps, or a great intelligence community, or have an abundance of energy.
I think this American overemphasis on the economy is a defensive stance adopted in the face of declining relative power. America still has the largest economy in the world in nominal terms, so it clings on to that to reassure itself of its greatness. But Russia especially has shown over the course of the war in Ukraine that the economy is far from everything, and that measures meant to hinder a rival through economic means, such as being excluded from SWIFT and being placed under severe sanctions has not been much of hassle. Indeed, being forced to build domestic capacity has been a boon for Russia now that it can no longer rely on imports to the extent it could before; just look at the Russian growth rate.
Just like being overly focused on the economy American politicians seem obsessed with preserving its innovativeness in the realm of AI, when it is still very much unclear whether or not AI is a productive technology. I would argue that Ukraine has been far more innovative than the US lately, and that innovation has been coupled with a massive reduction in the size of the Ukrainian economy. Indeed, it is precisely because Ukraine is in dire straits that it has to innovate, showing how the Silicon Valley conception of innovation as only occurring at the economic and technological bleeding edge to be false.
Any measure of power is imprecise, and I think defaulting to what is most easily measurable like number of aircraft carriers and nominal GDP is a trap. Few of the trends we are currently seeing can be adequately explained by an economics-first model, and the wars in Ukraine and the Middle East will not be decided by who has the biggest GDP.
If you liked this post you can read a previous post about Ukraine's Kursk offensive here or the rest of my writings here. It'd mean a lot to me if you recommended the blog to a friend or coworker. Come back next Monday for a new post!
I've always been interested in politics, economics, and the interplay between. The blog is a place for me to explore different ideas and concepts relating to economics or politics, be that national or international. The goal for the blog is to make you think; to provide new perspectives.
Written by Karl Johansson
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Cover photo by Dmitry Demidov from Pexels, edited by Karl Johansson
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