[Note added 14 September 2021:
An update to the Index of Power, with some improvements to data, especially that of using total foreign investment assets, not just FDI, is published here
This is an update of the
statistics for my Index of Power, using data for 2018-19 and discussing what a
country’s ranking reflects. The major change is that China’s rank has shifted
up and it has now taken the UK’s place at number 2 in the world. The US still
remains in a commanding position, well ahead of the other major countries, but
its lead has shrunk in the latest reading, especially versus China. Countries
in positions four to ten, when the Index was last updated in early 2018, remain
in the same rank positions with the new data.
The Index highlights the
dramatic inequality of power in the world. In the top group, only China, the
UK, Japan, France and Germany have an index value that is more than 20% of that
for the US. Only 30 countries have a total index value that is more than 2% of
the US number; the world’s remaining 170 or so countries count for even less.
Index of Power
I first constructed this Index
in early 2012 and named it an ‘Index of Imperialism’. My objective was to use
readily available data to gauge different dimensions of the international
status of countries. Since then, I have changed the title of the Index and also
some of the components, but the underlying logic is the same.
The title was changed to the
‘Index of Power’ because this seemed a better description of what it was
measuring. It didn’t make much sense to call the lower ranking countries
‘imperialist’, but only little ones, or having an implicit assumption that the
higher a country’s ranking, the more imperialist it was.
I had always pointed out that
any description of a country as imperialist would have to depend upon first
assessing its role in the world economy. Taking Luxembourg as an example, it is
only a small cog in the world system (number 24 in the new Index), but it is an
integral part of the European-based imperial machine and plays a particular
role within it. The Index number, nevertheless, is meant to reflect relative
positions of power in the world economy.
Which brings me to which aspects
of political and economic power are covered. Largely they are based on economic
data, and they are also biased in favour of those measures that reflect a
country’s international reach. These do not directly measure political
power, but it is evident, for example, that a bigger economy will tend to have
more weight in its dealings with the rest of the world than a smaller one. I
would have been happy to include some more directly political components, but
could think of none that seemed relevant and easily measurable for a wide range
of countries. That the top fifteen countries ranked by the Index include all
the permanent voting members of the UN Security Council, and also the G10
members, confirms that there is a broad correlation of the components used with
real-world political power.
The five original components of
my Index in 2012 were: GDP, foreign direct investment assets, military
spending, the importance of a country’s currency in central bank FX reserves
and a country’s ownership of the major international banks. The first three –
GDP, FDI and military spending – have stayed in all the later versions. But I
found much better and more representative measures for the final two components
during my later investigations, including data for more countries. For these
latter two, I now use the global volume of trading in particular currencies and
the value of international bank loans and deposits centred in different
These revised Index components
were fully discussed in my 2016 book, The City
, Chapter 5, ‘The World Hierarchy’, including the
rationale for the particular data items used and the limitations they had. Yet,
people being what they are, some writers have still managed to misinterpret
what I said, so I will again review the key points below. I will also note the
small amendments to how I have dealt with data for China in the latest Index
values (which, however, is not the reason for China’s rise to #2), and discuss
how to interpret China’s position in the world economy.
The five components of my Index
of Power are:
GDP: GDP measured in
nominal US dollars, using IMF data for 2018.
FDI: The stock of foreign
direct investment assets, using UNCTAD data for end-2018.
FX: The volume of global
transactions in a currency, with April 2019 as the base period, using the
latest BIS survey of September 2019 (euro transactions are allocated among the
19 euro members).
Banks: The outstanding
international loan assets and deposit liabilities of banks in a particular
country, using data from the BIS for end-2018.
Military: the military
spending of countries, measured in nominal US dollars, using data from SIPRI
Three data components – GDP, FDI
and Military – are available for most countries in the world, although the data
may be a little old or not available in some cases. The two other components
are available only for a smaller group of countries – 57 for FX (including all
euro members) and 47 for Banks – although it is very likely that the countries
left out will have minimal readings.
Each of the components is
weighted equally in the Index. The country with the largest component reading
gets a score of 100 for that item, and other countries get a scaled down
number. So, for example, if Country A has the biggest GDP, then it is 100, and
country B, with a quarter of that GDP is 25. To complete the Index, components
are added up for each country then divided by 5.
If a country is the biggest in
all components, its final Index number will be 100. That is almost true for the
US, which has a value of 92.4, with the biggest GDP, FDI, FX and Military, but
coming second to the UK as a location for Banks (rather, international
Below I discuss the limitations
of the available data used for the index components.
One can always doubt whether an
economic statistic really does measure what it claims to measure. Nevertheless,
Gross Domestic Product (GDP) has the big advantage of being an easily available
item of data for almost all countries. For my current purpose, one problem with
GDP is that it overstates the value of output that accrues to a particular
country when it has net payments of income to foreign investors, and
understates that value when the country has net income from foreign investment.
For example, Ireland’s GDP is overstated in this respect, because it has to
make big payments to foreign investors – more is produced in the country than
ends up staying there. By contrast, Norway’s GDP underestimates how much
revenue Norway receives because it gets big net payments from its foreign
investments. An alternative measure, GNP, includes that difference, but is much
less easily or widely available.
In any case, it is worth
pointing out that GNP and GDP do not allow for the way economic data count
value produced. As John Smith
these measures are better understood as measuring value appropriated
a country, rather than value created
in that country.
GDP does not measure a country’s
international influence directly. But a country’s ‘weight’ in the world economy
is an important factor in its potential influence, and GDP is one measure of
that weight. It is also better to look at nominal GDP, not on a Purchasing Power
Parity basis, as a truer measure of this global weight. You cannot buy anything
on the world market with PPP dollars, which do not exist.
GDP’s value as a component of a
power index can be seen in another way: one can look at GDP as measuring
population multiplied by GDP per head of population. This allows for the fact
that in the world economy people count only insofar as they also have incomes,
and how much income!
In the case of China’s GDP, the
number I have used is the GDP of China itself, plus that for Hong Kong and
Macau, which are counted separately in official data. Macau is a new addition
compared to the last Index calculation, but this increases China’s total index
number by less than 0.1.
Foreign direct investment is one
measure of a country’s foreign ownership of assets, and its ability to exploit
others in the world economy. However, especially given the registration of FDI
in tax havens, a problem is that not all of the ultimate country owners of
these assets are identified. In the case of the Republic of Ireland and the
British Virgin Islands, and also for some other countries, they would score
relatively highly on this index measure, but little of the FDI recorded as
coming from these locations is owned by their residents.
Also, FDI is distinguished from portfolio investment in official data. To count
as FDI, the investment has to account for more than 10% of a foreign company’s
assets; otherwise it is counted as ‘portfolio’ investment.
Portfolio investment in equities
and bonds is huge, but data covering it is much more patchy than for FDI, and
is even less likely to identify the ultimate country-based owners. A very high
proportion of portfolio investment is done through global investment funds that
also make use of tax havens.
Another weakness of FDI data is
that it does not include the economic privileges in economic relationships that
major companies in the rich countries have with their suppliers in poor
countries, or others in their ‘supply chains’, privileges backed by their states
in international trade and investment deals. This omission is difficult to
rectify, but the FDI numbers are one measure of a country’s international
reach, and so will likely be correlated also with such privileges. I use FDI
data as a rough guide to a country’s ability to exploit labour and resources in
other countries. Though it has obvious flaws, I have not found any better data
with a wide international scope for this purpose.
Data for China raise a problem
under this heading. Some of China’s FDI is into Hong Kong, and some of Hong
Kong’s is into China, so just adding up the two figures would exaggerate the
international reach (outside China/HK) of the FDI for all of China. Previously,
I included only China’s FDI number and left out that for Hong Kong, thinking
this would give a decent estimate of the number for China as a whole. After
recently finding a report on the source and destination of the FDI stock, it
turns out that it did. Using figures in that report for the FDI stock at
end-2018, I am confident that the latest FDI index component for China as a
whole is reasonably accurate.
Every three years, the Bank for
International Settlements conducts a survey of the trading in foreign exchange.
It is the most comprehensive account of how far a country’s currency is used in
international markets, something that I think is one important reflection of
that country’s international influence. As discussed in The City,
Chapter 7, ‘The Imperial Web’, there are certain market privileges that accrue
to a country’s companies and governments if their currency is used widely in
This updated Index of Power uses
the latest BIS survey published on 16 September 2019, with a base month of
April 2019 for counting the volume of trading. As in previous Index
calculations, the US dollar is by far the dominant currency used worldwide,
being involved in 88% of all transactions in 2019. By comparison, the euro,
consisting of 19 countries, is involved in just 32% of all transactions. (Note
that two currencies are involved in an FX deal, so the total shares add to 200%
when counting all of them) The Index weight for the euro’s FX component is
allocated among all euro members according to their relative GDPs.
In the latest 2019 survey, the
market share of the Chinese renminbi (CNY) has remained at 4%, the same as in
2016. It remains the 8th most traded currency, up from 17th in 2010. Given that
part of China’s territory is Hong Kong, which has its own currency the Hong
Kong dollar (HKD), I have had to judge how to use data on its trading. For
simplicity, I have just added up the two numbers for the CNY and HKD. This
boosts the China ranking, since the HKD’s share of currency trading rose from
2% in 2016 to 4% in 2019. But this does little to exaggerate the figure for China
as a whole. Not all CNY or HKD currency trading is in the CNY versus the HKD,
and the FX component has only a small impact on China’s overall index number
when divided by five.
International bank lending and
borrowing based in a particular country is another measure of a country’s
importance in the financial sphere. It does not include other bank activities,
or the operations of other financial institutions, but the scale of such
borrowing and lending is a reasonable proxy for a country’s international
financial status. That conclusion would have to be questioned when a country is
the base for large-scale international banking activity that is operated almost
exclusively by foreign banks, since, usually for tax reasons, the country is
favoured as a financial dealing hub.
As noted before, this is the
only index component in which the US falls short of the top position, coming in
second behind the UK. That may well change in future with the impact of Brexit,
if/when it goes ahead, on reducing the operations of banks based in the UK,
especially with regard to the rest of Europe, an important part of their
business. But it was true at the end of 2018. While banking activity in the US
is much bigger than elsewhere, a large portion of it is oriented towards the
domestic US economy, so does not count in this index calculation.
The China-Hong Kong relationship
emerges again in how to deal with the data for international banking. Hong Kong
has a slightly bigger international banking sector than China, having initially
been developed as a regional commercial and finance hub for British imperialism
well before the growth of mainland China’s banking business. I do not have
enough information to judge how much of their ‘international’ dealing is
between each other and how much is with external countries, and have taken the
simple approach of using an average of the index score for China and Hong Kong
as an estimate of the external number for China as a whole.
Big spending on the military
does not necessarily mean that a country has military clout and an ability to
intimidate other countries, but it usually does. Despite the record of
exorbitant cost overruns in military projects, ships crashing into each other
and missiles or missile defence systems that don’t work, the scale of such
spending is a measure of military power, the most explicit political component
of my Index of Power.
As before, the US is by far the
biggest spender. China comes second, but with less than 40% of the US number.
The only other countries with even around 10% of the US number are France,
Russia, Saudi Arabia and India. On the latest SIPRI numbers, the UK was at
One might well argue that China
can buy more firepower with $1bn than the US, given cheaper costs and probably
less scope for armaments producers to milk the taxpayer. Also, while China is
likely to be behind the US in overall technological capability, this may not be
true in all areas. Many of the US advances could prove to be unworkable, or be
as effective as the Boeing software ‘upgrade’ to its 737 Max jets.
US military power is also
boosted beyond its own huge spending by how it encourages other capitalist
countries to join in and follow its strategic aims, in particular with NATO.
This acquiescence adds to the influence it can project by the large number of
military bases it has all over the world,
China: Duck theory versus
With China at number 2 in my
global power ranking, the question arises as to whether it should be considered
an imperialist country. My view is that it should not. Nevertheless, this is a
big topic that I will deal with only summarily here, noting what should be
taken into account when deciding how to characterise China.
Firstly, it is not so much the
actions of a country that should define it as the dynamic of the economy and
society that produces such actions. In turn, this will also depend upon the
international situation and a country’s position in it as much as on the
internal political system. The term ‘imperialist’ should apply only to those
capitalist countries with a dominant position in the world that are, directly
or indirectly, part of the system of oppression, control and violence that acts
to keep that system in place.
China is not a fully-fledged
capitalist country with politicians and companies joining in the carve up of
the world. Its newly minted billionaires do not have free rein to do more or
less what they like within China, and even its privileged bureaucrats could
find themselves jailed, or dead, if they step too far out of line with what the
ruling party thinks is best for the country.
Critics of China would seem to
be able to point to many things to justify calling it imperialist. For example,
there is China’s political oppression of the 11 million population of the
Uighur ethnic group in its Xinjiang region; China’s many deals for raw material
supplies from Latin America and Africa; big loans to corrupt politicians for
infrastructure projects that might later be paid off by being switched into
Chinese ownership of ports, etc; its attempt to control territorial waters in
the South China Sea, including creating a number of islands, and its growing
volume of foreign investment.
But this is only a ‘duck
theory’, pointing to similar things that the classic imperialist countries have
done, or are still doing, to conclude that China is the same as them. In some
respects, China may ‘look like a duck’, ‘swim like a duck’, etc, but that does
not mean it has duck DNA. In other words, the dynamic of China’s economic and
political system is not that of an imperialist power.
Above all, the imperialist
dynamic is based upon a country trying to boost capitalist profitability and
being in a position to do so, especially through the control of foreign markets
and areas of investment. By contrast, China’s policy since the founding of the
People’s Republic in 1949 has been largely defensive, trying to develop without
being dismembered by the major powers, as it had been throughout the previous
century. Its objective is to find a means of surviving in a hostile world
economy run by the major capitalist countries.
Initially, this had disastrous
results, as with the ‘Great Leap Forward’ in 1958-62 and millions of deaths by
famine. By the 1970s, however, China began a cautious engagement with the world
economy. It aimed to limit the impact of market forces in special economic
zones, restricted the influence and property rights of foreign businesses, held
back the formation of a domestic capitalist class and tried to build the foundations
of an industrial economy through state spending and investment plans. Despite
many negatives, including lots of pollution and wasted resources, this proved
to be successful. It brought hundreds of millions of people out of grinding
poverty and ended up with China as a major producer, one that has even begun to
be successful in areas of modern technology, such as 5G mobile communications –
much to the alarm of the US!
This striking record does not
endorse China’s often repressive, and sometimes politically stupid, government
policies. But it should serve at least as a counter-weight to the critiques of
rich country, liberal democracy enthusiasts who are so eager to find fault with
China, but who pay little or no attention to the depredations of their own
governments, and all too often act to echo the anxiety of their own ruling
elites that China has out-competed them.
The Index of Power is a summary
way of representing each country’s importance in the world economy and can be
used to track changes in status over time. For the top 20 countries there had
previously been minor changes in ranking. This time around, the major changes
concern the advance of China and the slipping back of the UK. Such a
development counts for more than it might at first appear to do, because it
reflects the diminished influence of the Anglo-American system.
Both changes in status were
fairly predictable, with economic growth and investment boosting China’s, while
Brexit turmoil has helped lower the UK’s rank. That has not made it any easier
for the US. While the US index value remains way ahead of all the others, it
has shrunk in absolute terms, and particularly in relative terms with respect
This move, under way for a
number of years, has been reflected in an increasingly aggressive policy of the
US government towards China. The US does not only have multiple military bases
surrounding China, in Okinawa, Japan, South Korea and elsewhere (China has none
around the US), it has also stepped up its more specifically economic
offensive. A key US target here is China’s flagship telecoms and electronics
company, Huawei, and its 5G technology, the latter an area in which US
companies are well behind the competition. The US uses its influence over
allies and other subordinates to encourage them to boycott Huawei on laughable
China is also a problem for the
US in other respects. For example, it has recently offered Iran, a longstanding
bête noire of American imperialism, huge investments worth several hundred
billions of dollars, in contradiction to US edicts. By incorporating Iran into
its mega development project, the Belt and Road Initiative, China is not only
ignoring US sanctions, it will also be dealing with Iran in non-US dollar
currencies. This puts a further squeeze on US global influence and is another
threat to its formerly unrivalled hegemony.
Tony Norfield, 17 September 2019