Rethinking Power as Capability × Governance

What is power? In international relations and strategy, this question has been asked for centuries. Classical realists such as Hans Morgenthau described power as the sum of tangible and intangible elements — from geography and natural resources to morale and governance. Later, Joseph Nye introduced the notion of “hard” and “soft” power, shifting attention to the means by which states influence others. In corporate strategy, McKinsey and others have long argued that true strength lies not only in assets but in how leaders choose to allocate and deploy them.

At GINC, we propose a synthesis: power is the product of capabilities and decision rights. Capabilities provide the potential to act. Decision rights — the authority, governance, and cadence of allocation — determine whether that potential translates into effective outcomes. In short:

Power = Capability × Governance
(capacity to act × ability to decide and mobilize)

This dual lens allows us to evaluate states and firms on a common framework, revealing why some with abundant resources fail to act decisively, while others with modest means punch far above their weight.

The Two Dimensions of Power

1. Capabilities & Resources (C)

Capabilities refer to the endowments and productive base of an actor. For states, this includes population, industrial base, natural resources, technological frontier, military forces, and alliances. For firms, capabilities are human capital, intellectual property, financial assets, and operational capacity.

Capabilities can be expressed in two ways:

• Quality (performance/intensity): how advanced or effective each unit is.
• Quantity (scale): how many units exist at that quality.

Together, these determine the breadth and depth of potential power.

2. Decision Rights & Governance (D)

Decision rights capture the control mechanisms that govern how capabilities are allocated and deployed. This includes:

• Clarity of authority – who decides, and on what basis.
• Cadence of reallocation – how frequently resources can be shifted.
• Information quality – how decisions are informed.
• Accountability and legitimacy – whether decisions command support internally and externally.

Good governance amplifies capabilities. Poor governance neutralizes them.

The Capability–Governance Matrix

Bringing these two dimensions together yields a 2×2 matrix that explains four archetypal states of power:

Effective power requires both capacity and control. Without governance, capabilities remain latent. Without capability, governance is hollow. Without both, impotence. Only when both are aligned do actors achieve decisive influence.

Pathways to Power: Archetypes

Power is not static. States and firms move across the matrix over time. Four pathways describe these trajectories:

1. Capability-First Pathway (“Industrialist’s Route”)

Actors accumulate resources and capacity first, often through industrialization, natural resource exploitation, or capital raising. Governance reforms come later.

• State example: China.
  Over four decades, China invested in industrial capacity, infrastructure, and technology at unprecedented scale. Centralized governance later strengthened coordination and strategic direction, unlocking latent power into effective power in areas like shipbuilding and renewable energy.
• Corporate example: Samsung.
  Early chaebol growth was driven by massive industrial investments supported by state policy. Governance sophistication — professional management, global integration — followed after capabilities were established.

Risk: If governance lags too long, power remains latent — impressive on paper, indecisive in practice.

2. Governance-First Pathway (“Institutionalist’s Route”)

Actors build strong decision rights, legitimacy, and institutions before amassing capacity. This ensures that once resources come, they are efficiently deployed.

• State example: Singapore.
  At independence, Singapore lacked resources, but Lee Kuan Yew’s government created strong institutions, clear governance, and predictable decision-making. As investment flowed, governance ensured efficient deployment, transforming limited geography into effective national power.
• Corporate example: Amazon.
  Jeff Bezos established clear governance principles — customer obsession, frugality, long-term orientation — well before the company became profitable. As capital accumulated, these governance foundations enabled efficient reinvestment into AWS, logistics, and global expansion.

Risk: Overemphasis on governance without capability build leads to hollow authority — efficient structures with little to govern.

3. Dual-Build Pathway (“Balanced Growth”)

Actors consciously build both capacity and governance in parallel, often supported by external partnerships or unique leadership alignment.

• State example: Post-war Japan.
  With U.S. security guarantees, Japan pursued industrial rebuilding while simultaneously reforming governance and institutions. Industrial policy (MITI) and democratic structures advanced in parallel, leading to decades of effective power.
• Corporate example: Microsoft under Satya Nadella.
  Nadella reoriented governance culture (collaboration, learning, cloud-first) while simultaneously investing heavily in cloud infrastructure. Governance and capability reform reinforced each other, restoring effective power.

Risk: Requires strong leadership and external conditions; difficult to sustain without alignment.

4. Shock-Driven Pathway (“Crisis Catalyst”)

External shocks force simultaneous governance reform and capability mobilization, accelerating the move to effective power.

• State example: United States in WWII.
  Prior to Pearl Harbor, the U.S. had latent power: vast industrial capacity, but limited mobilization. Wartime shock aligned governance with capability, producing unmatched effective power.
• Corporate example: Financial firms after 2008.
  Many banks combined governance overhauls (risk management, regulation) with recapitalization and new digital capabilities, turning crisis into transformation.

Risk: If governance resists reform under pressure, crisis leads to collapse instead of effective power.

Case Studies Across Contexts

1. European Union Defense: Latent Power

Europe’s economy and population rival those of the U.S. Yet defense decision-making is fragmented across 27 member states, with unanimity rules stalling rapid deployment. Capabilities exist — defense industry, trained forces — but governance gaps render them latent. Proposals for pooled procurement and rapid reaction forces are precisely about moving from latent toward effective power.

2. North Korea: Hollow Authority

North Korea exemplifies centralized decision rights without broad capabilities. Its nuclear program provides outsized leverage, but outside that narrow domain, governance is hollow: sanctions, limited industrial base, and weak economic capacity. Leadership can decide quickly, but often lacks resources to follow through.

3. China: Capability-First to Effective Power

China pursued the “Industrialist’s Route.” Beginning with capability build-up — manufacturing, shipyards, technology — it later centralized governance under Xi Jinping to coordinate and deploy capacity strategically. Shipbuilding illustrates this: China controls ~50% of global commercial ship output, with civilian-military integration ensuring rapid conversion of capacity into naval power.

4. Singapore: Governance-First to Effective Power

Singapore’s early governance clarity enabled efficient capability accumulation despite limited natural resources. By focusing on legitimacy, rule of law, and predictable decision rights, Singapore attracted capital and talent. Governance-first ensured every increment of capability yielded maximum effect.

5. Startups: From Hollow to Effective

Early-stage startups often start with strong governance (a decisive founder, clear direction) but few resources. They occupy the hollow quadrant. Successful scaling requires raising capital and building organizational capacity — moving into effective power. Those that fail to build capabilities remain stuck, with strong rhetoric but little execution.

6. Corporates: Latent Power and Renewal

Large conglomerates often hold latent power — abundant resources trapped in silos. McKinsey’s research shows that firms that reallocate resources dynamically — shifting 8–10% of capital annually to new priorities — generate superior returns. Without such governance, latent capacity is squandered. Apple, in contrast, aligns abundant cash and IP with decisive allocation authority, sustaining effective power.

Implications for Strategy

The Capability × Governance framework yields clear insights for both national strategy and corporate leadership:

1. Measure both C and D. Traditional indices like CINC measure capability but ignore governance. Firms’ balance sheets tell you what they own, not how well they can redeploy. True power is the product of both.
2. Diagnose failure modes.
   • Latent power → governance reform needed.
   • Hollow authority → capability build needed.
   • Impotence → focus, bootstrap, sequence carefully.
   • Effective power → sustain renewal on both axes.
3. Choose the right pathway. Actors must be explicit:
   • Are we pursuing a capability-first industrialist route?
   • Are we laying governance-first institutional foundations?
   • Do we have the leadership alignment for dual-build?
   • Or are we waiting for a shock catalyst?
4. Strategy = allocation under uncertainty. As McKinsey stresses, strategy is about choices and reallocations. National strategy is no different: it is the deliberate building of capability and the decisions to deploy it.

The Future of Power

In the 21st century, power cannot be understood by capacity alone. Military arsenals, GDP, and industrial base are necessary but insufficient. Nor can governance or authority substitute for resources. True strength emerges only when capabilities and decision rights align.

• States with latent power (e.g., EU) risk underutilization.
• States with hollow authority (e.g., North Korea) risk collapse.
• Corporates with latent power (cash-rich but indecisive) lose advantage.
• Startups with hollow authority risk fading before scaling.

The lesson is universal: Power is capability × governance. Strategy, whether national or corporate, is about navigating the pathway to effective power — building the right capabilities, strengthening governance, and ensuring both evolve together.