Do Countries Do Well By Doing Good?

Guest article by the Central Bank of Barbados' 5th Distinguished Visiting Fellow, Professor Andrew K. Rose. The views expressed in this article are not necessarily those of the Central Bank of Barbados.  

Do countries do well by doing good? Or more precisely, does a country admired by others reap any benefit? By all indications, the answer is “yes”.

American political scientist Joseph Nye first discussed soft power, a country’s ability to attract or persuade others to do its bidding, back in 1990:

“Soft power… is the ability to attract, [since] attraction often leads to acquiescence… soft power uses a different type of currency (not force, not money) to engender cooperation – an attraction to shared values.... the ability of a country to structure a situation so that other countries develop preferences … consistent with their own.”

Soft power arises from the attractiveness of a country's culture, political ideals, and policies.

If soft power is a country’s ability to persuade, hard power is its ability to coerce. Nye considers hard power to stem from a country’s population, resources, economic and military strength. Because it grows out of a country's military or economic might, hard power, more so than soft power, is under government control.

Europeans pride themselves on their soft power. Americans tend to think highly of their hard power, though they have considerable soft power as well.

What is Soft Power Worth?

Since 2006, the BBC World Service (through its partnership with the international polling firm GlobeScan and the Program on International Policy Attitudes (PIPA) at the University of Maryland) has surveyed participants in a large number of countries to determine whether they think other countries “are having a mainly positive or mainly negative influence in the world.”

Using the results of these surveys, I was able to subtract the negative from the positive perceptions and use the difference to develop a way of measuring the net perceived influence of a country, i.e. its soft power.

Countries that are admired for their positive global influence reap the benefit of higher exports, holding other factors constant. This means that countries like France, the UK, Germany, and Canada benefit from their reputations, whereas countries like Iran, North Korea, Pakistan and Israel that are maligned as mostly negative influences in the world suffer lower exports than they otherwise would. 

The boost in exports that comes from soft power is not small. I estimate that a one percent net increase in soft power raises exports by around .8 percent, so a country whose exports are valued at $10 billion could see those exports increase by as much as $80 million for each percentage point increase in their soft power. These higher exports can be viewed as a carrot that rewards behavior admired by others, symmetric to the sticks more commonly used in international commerce.

How Does the USA Rank?

The benefit of being viewed positively seems intuitive, but its economic significance is underappreciated.  If the export boost that soft power garners remains unappreciated, countries run the risk of not focusing on the merits of increasing their soft power.

The United States currently faces such a risk. While it was rated among the top 10 countries in terms of soft power in 2017, its ranking has fallen dramatically of late, probably because of the election of Donald Trump. If the United States loses the admiration of other countries, perhaps because of the behavior of its president, it is ironically likely to lose the exports he so very much covets.

Intuitive as it should be, it bears repeating: being perceived as a force for good has a direct economic payoff. Succinctly, winning hearts and minds also wins sales.

Andrew K. Rose is the B.T. Rocca Jr. Professor of International Business in the Economic Analysis and Policy Group, Haas School of Business at the University of California, Berkeley. He is also a Research Associate of the National Bureau of Economic Research (based in Cambridge, MA), a Research Fellow of the Centre for Economic Policy Research (based in London, England), and a Senior Fellow of the Asian Bureau of Finance and Economic Research (based in Singapore).