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
Monopolies have huge economic power by owning most of a desired good or service. Google has 87.6% of the internet search market, while its closest competitors—Microsoft’s Bing and Yahoo—make up 10.4% combined. However, Google is always updating its search algorithms to help it control 73.1% of all search-related advertising.
Why the U.S.’s Economic Power Is Greater Than Its GDP
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. Sixteen 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 example, Ireland and Qatar have a higher GDP per capita as of 2020, but they aren’t drivers of the global economic engine like the United States is. Although China is the world’s largest economy, its GDP per capita was only $16,400 as of 2020. A country is 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 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 nearly the same as in many U.S. states. For example, California produces as much as India, Texas as much as Brazil, and even tiny Rhode Island as much as Tanzania as of 2019.
Sources of US Economic Power
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 27 separate member countries with different political systems and languages, making 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. A fourth advantage is its large and diverse population, which allows companies to test market products before incurring the expense of bringing them to market, lowering product development costs.
