Ray Dalio, who built the world’s largest hedge fund firm with an eye toward global macroeconomics, is now in the business of ranking nations. He has concocted an annual tabulation grading the top 24 economic powers determined by economic size, according to their present strengths and weaknesses, plus their prospects.
At the top of the Country Power Score Index is the U.S., yet its position is precarious. No. 2 China is gaining on it fast. The eurozone is in third, although in decline.
The index’s commentary says the U.S. owes its leading status to its high level of education, military strength and technology capability. But the nation is on the downslope for the future because of economic inequality and internal political strife.
According to the Dalio analysis, China is on the upswing, as the result of its expanding economy and international trade, quick infrastructure improvements, investment, innovation and technology. The Dalio study ended in January and thus doesn’t take into account China’s pandemic lockdowns, which is hindering its economic growth, however temporarily.
In the view of the Dalio index, the eurozone is in relative decline due to low productivity gains and inefficient allocation of labor and capital.
Dalio’s gauge weighs 18 different qualities that it describes collectively as a “good leading indicator of future conditions” and “a guide for policymakers to produce improved outcomes.” The factors the list uses include education, innovation and technology development, civility of people, economic output, incomes and balance sheets, reserve currency status and military power.
In a tweet on Wednesday, Dalio pointed to his half-century career as a worldwide investor who “likes to quantitatively measure” investments to understand them better. That same approach is what he takes to the countries in his roster.
The investor’s themes are well-known. His latest book is 2021’s “Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail.” In this treatise, he speaks glowingly of China’s cohesion and resolve, and some critics have faulted the book for overlooking its authoritarian ways that could well threaten the very innovation vital for world economic dominance in the long term.
Regardless, the new index offers an interesting, if familiar, take on geopolitics and its handmaiden, economics.