| 13 mins read
SUMMARY
- Military power remains essential for deterrence and national security. But it is no longer the primary driver of economic success.
- Influence is created by shaping global culture, dominating technological networks, maintaining strong institutions, and building deep international economic ties. This attracts investment, talent, and innovation.
- Over time, this influence translate into economic growth, meaning that countries with stronger soft power grow faster.
- This is demonstrated by the Global Soft Power Index, which tracks multiple dimensions of national influence across a large set of countries over time.
The world hasn’t felt this dangerous in decades. Russia’s invasion of Ukraine has shattered Europe’s post–Cold War security order. U.S.–China tensions stretch from the Taiwan Strait to the South China Sea, and the Middle East continues to convulse with renewed conflict. Across multiple regions, great powers are maneuvering in ways not seen since the Cold War.
The response has been predictable: a global military buildup. Defence spending has climbed to record levels, reaching over $2.7 trillion in 2024. The United States alone spends roughly $1 trillion annually on its military. European governments are rearming after decades of restraint, while Asian powers—from Japan to China—are expanding their defence capabilities.
This renewed emphasis on military strength reflects a familiar assumption: that national power—and ultimately economic prosperity—rests on military might.
That assumption is only partly correct. Military power remains essential for deterrence and national security. But it is no longer the primary driver of economic success. In the twenty-first century, prosperity increasingly depends on a different form of power: influence.
Countries that shape global culture, dominate technological networks, maintain strong institutions, and build deep international economic ties enjoy a powerful advantage in the modern global economy. Their influence attracts investment, talent, and innovation. Over time, those forces translate into faster and more durable economic growth.
Evidence from a broad cross-country analysis supports this conclusion. Looking across 66 economies over nearly two decades reveals a striking pattern: military spending bears little systematic relationship to long-term growth. Instead, countries that cultivate what political scientist Joseph Nye famously called soft power—the ability to shape the preferences of others through attraction rather than coercion—consistently outperform those that rely primarily on military strength.
In a world defined by global supply chains, digital networks, and mobile talent, influence—not firepower—has become one of the most powerful engines of prosperity.
Measuring influence
The idea of soft power has long been central to discussions of international relations. Nye introduced the concept in 1990 to describe how countries achieve their goals through appeal rather than force or payment. Cultural prestige, political values, diplomacy, and economic networks all shape how nations influence others.
Yet for decades, soft power remained difficult to analyse systematically. Most attempts to measure it relied heavily on opinion surveys or subjective rankings. That made it hard to evaluate whether soft power actually produces measurable economic outcomes.
To address this challenge, I developed a Global Soft Power Index (GSPI) that tracks multiple dimensions of national influence across a large set of countries over time. The index aggregates objective indicators capturing how countries project influence through commerce, culture, technology, education, diplomacy, and institutional strength.
The results reveal substantial differences in global influence. In 2021, South Korea ranked first in the GSPI, followed by Japan, Germany, and China. At the lower end were countries with limited global reach, weaker institutions, and smaller commercial footprints.
More revealing are the changes over time. Between 2004 and 2021, China’s soft power expanded dramatically, reflecting its integration into global trade networks, growing technological capabilities, and expanding diplomatic presence. The United Kingdom’s score declined over the same period as Brexit strained institutional credibility and disrupted European ties. These shifts illustrate how influence evolves alongside economic and political change.
But the central question remains: does soft power actually affect economic performance?
The evidence suggests it does—and strongly.
What Comprises The Global Soft Power Index?
The GSPI measures six dimensions of national influence using objective indicators drawn from international databases:
- Commercial Prowess: Export sophistication, global trade share, foreign direct investment inflows, and presence of internationally recognised firms and brands.
- Culture: Tourism flows, UNESCO heritage sites, international cultural exports, and global cultural recognition.
- Digital Footprint: Internet connectivity, mobile penetration, technology exports, digital innovation, and globally competitive technology firms.
- Education: Public investment in education, research output, and performance in international academic assessments.
- Global Reach: Diplomatic networks, participation in international organisations, foreign aid, and multilateral engagement.
- Institutions: Governance quality, rule of law, regulatory effectiveness, corruption control, and political stability.
These indicators capture the economic, cultural, and institutional channels through which countries project influence globally.
What actually drives growth?
When these measures of influence are compared with economic performance, a clear pattern emerges.
Countries with stronger soft power grow faster.
Across countries and over time, nations with greater soft power consistently achieve stronger economic growth. A one-standard-deviation improvement in soft power—roughly the difference between mid-ranking economies such as Portugal and top performers such as South Korea—is associated with significantly higher economic growth over time.
Military spending, by contrast, shows little connection to long-term economic performance across both advanced and developing economies.
The relationship holds even after accounting for traditional drivers of economic growth such as investment, education levels, financial development, trade openness, and macroeconomic stability.
Perhaps the most striking finding is the difference between advanced and developing economies. Soft power’s growth effects are particularly strong in the developing world—nearly an order of magnitude larger than in high-income countries. In economies where traditional growth engines may be weaker, global engagement, institutional credibility, and cultural appeal can provide powerful catalysts for development.
The new power map
These patterns help explain several striking developments in the global economy.
South Korea offers perhaps the clearest example. Over the past two decades, the country has combined technological sophistication, cultural exports, and global commercial integration to build extraordinary international influence. Korean entertainment—from K-pop music to films such as Parasite—has captured global audiences. Companies such as Hyundai and Samsung have become household names worldwide. The country’s digital infrastructure ranks among the most advanced anywhere.
This cultural and technological visibility reinforces Korea’s commercial reach. Consumers who encounter Korean culture often develop strong preferences for Korean products. Foreign investors increasingly view Korea as an innovative and reliable economic partner.
Japan tells a similar story. Despite decades of modest economic growth, the country retains formidable soft power through cultural exports, technological leadership, and global commercial networks. Anime, cuisine, robotics, and design all sustain Japan’s international influence and economic relevance.
China’s rise illustrates another dimension of soft power. Although Beijing’s political system limits its cultural appeal in some regions, China’s growing commercial and diplomatic reach has transformed its global influence. Massive infrastructure investments, expanding trade relationships, and digital platforms have strengthened China’s presence across Asia, Africa, and Latin America.
Russia provides a stark contrast. Despite vast military capabilities, Russia’s global influence remains limited outside security affairs. Its economy relies heavily on energy exports rather than diversified commercial networks, and its institutions struggle to attract investment and talent. Military power has not translated into sustained economic dynamism.
For smaller states, the lessons are equally clear. Countries such as Singapore, Switzerland, and the Nordic nations wield outsized global influence not through military strength but through strong institutions, advanced technology sectors, and active diplomatic engagement. These nations demonstrate that influence can amplify economic success even without large populations or massive defence budgets.
Why soft power matters
Soft power shapes economic performance through several reinforcing mechanisms.
First, strong commercial reputations facilitate trade and investment. Countries known for innovation and reliability attract foreign capital and command premium prices in global markets.
Second, cultural influence creates powerful demand effects. Cultural exports—from entertainment to cuisine—often stimulate interest in related products and services, expanding export opportunities.
Third, digital connectivity has become a critical driver of economic growth. Nations that build advanced technology ecosystems attract talent, entrepreneurship, and venture capital.
Fourth, global engagement expands economic opportunities. Diplomatic networks and participation in international institutions help countries shape trade rules, coordinate investment flows, and access new markets.
Finally, institutional quality underpins all of these channels. Countries with strong rule of law, transparent governance, and effective regulatory systems attract investment and retain skilled workers.
These factors interact to create virtuous cycles. Economic success reinforces cultural influence and institutional credibility, which in turn attract further investment, talent, and innovation.
Answering the skeptics
Skeptics may argue that soft power merely reflects wealth rather than causing it. Rich countries can afford cultural diplomacy, quality education, and institutional development. But the historical record suggests otherwise. China's soft power grew dramatically during its rise, not after achieving wealth. South Korea built soft power while still developing. And Britain's soft power declined despite remaining wealthy. The evidence points to soft power as driver, not merely consequence
Others might argue that military spending enables soft power projection—that American cultural influence rests partly on U.S. military dominance providing global security. Yet Japan and South Korea punch far above their military weight in soft power, while Russia's massive defence spending buys little influence beyond intimidation. Germany rebuilt soft power while maintaining minimal military capabilities for decades. The causal arrow runs primarily from soft power to growth, not from military might to either soft power or prosperity.
A final objection is that soft power matters only in stable periods and becomes irrelevant during geopolitical conflict. Yet the relationship persists even during periods marked by geopolitical tension. Countries that remain globally connected, technologically dynamic, and institutionally credible continue to attract investment and talent even in uncertain times.
Rethinking national strategy
If soft power drives prosperity more effectively than military spending, governments should rethink how they allocate resources.
Defence remains necessary for deterrence. But beyond certain thresholds, additional military expenditures produce diminishing economic returns. Investments in education, technology, cultural exchange, and diplomacy often generate far greater long-term benefits.
Governments seeking sustainable growth should therefore prioritise several areas.
First, they should expand educational and cultural exchanges that strengthen global networks and attract international talent.
Second, they should invest in digital infrastructure and innovation ecosystems that support emerging industries.
Third, they should deepen commercial integration by promoting exports and strengthening global supply-chain partnerships.
Fourth, they should reinforce institutional quality, ensuring that legal systems and regulatory frameworks encourage investment and entrepreneurship.
For developing economies, these priorities are even more critical. Investments in education, connectivity, and governance can rapidly enhance credibility and unlock new economic opportunities.
The soft power dividend
The evidence points to a simple conclusion: influence has become one of the most powerful drivers of economic success.
Countries that cultivate strong soft power—through culture, commerce, digital innovation, education, and diplomacy—consistently achieve stronger economic outcomes than those that rely primarily on military strength.
This does not mean that military power is obsolete. Security threats remain real, and deterrence remains essential. But the sources of prosperity have shifted. In an era defined by globalisation and technological transformation, attraction increasingly matters more than coercion.
For policymakers, the implications are profound. The real competition among nations today is not simply a race for military superiority. It is a contest for global influence—over ideas, technology, culture, and institutions. The countries that understand this shift—and invest accordingly—will shape the global economy of the twenty-first century.
