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The geopolitical order is clearly shifting, and it is often asserted that the world has become “multipolar.” Previous eras of multipolarity, where power is spread across multiple countries and regions, created spheres of opportunity for countries and their companies, as well as significant restrictions on their freedom of action.

But is the world today truly multipolar? To understand the answer, executive leaders must understand what constitutes “power” and “poles” in an era of fast-changing economic and trade dynamics, shifting alliances, widely dispersed control over critical natural resources and industrial technologies, and increasingly asymmetric warfare.

To help leaders identify poles and measure their influence, we have developed the BCG Institute Power Index. Our methodology analyzes data spanning more than 50 indicators across three dimensions through which nations can build power: economic, military, and soft power. It also allows us to track how the keys to global power have changed historically along with shifts in polarity, going back as far as the early 20th century and even to the early 19th century for some metrics. (See the sidebar “Our Methodology.”)

Our analysis shows that the US currently has a strong lead militarily, while China is essentially its economic equal. Europe leads on soft power and, when united and acting in a coordinated way, can be considered a pole—despite lagging the US and China in the military and economic dimensions.

The index also reveals the crucial role that alliances play in global power dynamics. These alliances can broaden, deepen, and amplify the projection of power much more quickly than any single power can strengthen or weaken through organic growth or decline. Using the index, it is possible to test different alliance-based scenarios for the current structure of global power. As mentioned, Europe, allied and united, would be a pole in itself. And if Europe were tightly allied with the US, this North Atlantic pole would vastly outrank China across all three dimensions. Against a divided US and Europe, however, a tightly aligned China and Russia pole would roughly rank as the US’s equal in the index when all three dimensions are combined.

For leaders in governments, businesses, and international organizations, these considerations are not merely theoretical. Although a truly multipolar world has not been a reality since before the Second World War, today it would create a cascade of impacted markets, supply chains, and regulatory implications. Leaders who are aware of these geopolitical dynamics will be best positioned to adapt to the changes.

The Core Drivers of Power
The BCG Institute Power Index brings together the following factors to assess the economic, military, and soft power of nations and alliances. We also consider two capabilities that enable the projection of power through these three dimensions—namely, control over strategic technologies and the characteristics of governing institutions.

• Economic Power. This factor includes metrics that indicate economic scale, such as GDP, export volumes, and financial strength, including foreign direct investment, human capital, the depth of capital markets, and the use of the national currency in global reserves. It also assesses control over strategic industries and resources whose importance has shifted through history. In the 19th century, dominance in manufacturing and control over energy resources such as coal were key drivers of power. Today, leadership in state-of-the art semiconductors and digital technologies, as well as the processing of critical minerals, are powerful sources of leverage.
• Military Power. Decisive military capabilities have also shifted through history. A dominant navy enabled the British Empire to project power in the 19th century, for example, before Germany, the US, and Japan bridged much of that gap before World War I. Nuclear weapons helped define the balance of power between the US and Soviet Union during the Cold War. Our index also measures the ability to project power within and outside a given nation’s region. It includes the scale of military spending, personnel, and stocks of material as well as the capacity to project force, such as through overseas bases and possession of advanced weaponry.
• Soft Power. This composite metric considers many factors, including the provision of international public goods, such as through overseas development assistance programs and contributions to the United Nations. It also takes into account attractiveness to global migrants and measures cultural influence, such as exports of entertainment, and the ability to drive narratives, such as through the control and reach of digital platforms.

Projecting economic, military, and soft power assets into achieving global influence requires several enablers. Among the most important are:

Technological Capabilities. Key power-enabling technologies change over time. Today, for example, it is clear that leadership in AI, next-generation robotics, semiconductor design and manufacturing, and emerging fields such as quantum computing are critical to national power. Their importance is evidenced by the measures being taken by today’s great powers not only to master these technologies but to control them.

Such technologies help define global economic competitiveness and are increasingly critical on modern battlefields (especially in an era of asymmetric warfare). Leading digital platforms, meanwhile, enable nations to project soft power through news, entertainment, and social media.

Governance. Strong and stable governance is another enabler for sustaining state power. Throughout history, many countries and empires have fallen not because another power invaded their territory, seized their capital, and took charge. Rather, their declines were fueled by domestic dynamics that led to regime change or collapse. Sound institutions allow states to mobilize and direct military and economic capabilities effectively. In nations with weak governing institutions, by contrast, strategic advantages can be undermined by corruption, poor planning, and an inability to adapt and innovate. READ MORE

By Michael McAdoo and Chikara Onda

Source: bcg.com