Economic Aspect of International Relations

Unit 9.4: Economic Power

 LEARNING OUTCOMES

Concept of Economic Inter- Concept of International Concept of Economic

dependence with Causes
Economic Liberalism Power and Its
political Economy
importance in IR
 Economic Power
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 and 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.
 Private-Sector Economic Power
Examples of companies that provide a real benefit include Apple, Google, and Amazon. The first
sells high-tech products, the second capitalized on a great search engine, and the third offers fast
delivery from a wide selection of goods. Under what is rather barrenly termed “globalization”-
the process by which people, information, trade, investments, democracy and the market
economy tend more and more to cross national borders.

Monopolies have huge economic power by owning most of a desired good or service. Google has
65% the internet search market, while its closest competitors - Microsoft's Bing and Yahoo make
up 34% combined. However, Google is always updating its search algorithms to help it control
80% of all search-related advertising.
 U.S - An Economic Super Power
The United States has an economic power that exceeds its gross domestic product (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 power of the U.S. economy is reflected by its GDP per capita, which was $62,641 in 2018,
according to the World Bank. The figure measures a country's standard of living.

Nineteen nations have a higher GDP per person than the U.S., but that doesn't make them
powerful. Most of these are either financial centers, oil-exporting countries, or both. For exam-
ple,
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 $16,600. 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 in 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.
The U.S.'s economic power comes from its abundance of natural resources. It has thousands of
acres of fertile land and lots of fresh water. It also has an abundance of oil, coal, and natural gas.
Its large landmass 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 the U.S. has two peaceful neighbors, Canada and Mexico. 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 the U.S. 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 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, lowering product development
costs.
 References

• The Economic Factor in International Relations: A Brief Introduction by Spyros Economides & Peter Wil-
son, (London: I.B.Tauris Publishers).

• http://bbs.binus.ac.id/ibm/2018/03/the-economic-liberal-perspective/
• https://www.youtube.com/watch?v=cJRQkwMyup8