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[liberationtech] ETH Zürich Systems Design Publication: The Network of Global Corporate Control

Moritz Bartl moritz at torservers.net
Wed Oct 19 18:52:12 PDT 2011


http://arxiv.org/abs/1107.5728

Stefania Vitali, James B. Glattfelder, Stefano Battiston
Chair of Systems Design, ETH Zürich
(Submitted on 28 Jul 2011, last revised 19 Sep 2011)

The structure of the control network of transnational corporations
affects global market competition and financial stability. So far, only
small national samples were studied and there was no appropriate
methodology to assess control globally. We present the first
investigation of the architecture of the international ownership
network, along with the computation of the control held by each global
player. We find that transnational corporations form a giant bow-tie
structure and that a large portion of control flows to a small
tightly-knit core of financial institutions. This core can be seen as an
economic "super-entity" that raises new important issues both for
researchers and policy makers.

>QUOTE:
This is the first time a ranking of economic actors by global control is
presented. Notice that many actors belong to the financial sector and
many of the names are well-known global players. The interest of this
ranking is not that it exposes unsuspected powerful players. Instead, it
shows that many of the top actors belong to the core. This means that
they do not carry out their business in isolation but, on the contrary,
they are tied together in an extremely entangled web of control. This
finding is extremely important since there was no prior economic theory
or empirical evidence regarding whether and how top players are
connected. Finally, it should be noted that governments and natural
persons are only featured further down in the list.

(via
http://www.newscientist.com/article/mg21228354.500-revealed--the-capitalist-network-that-runs-the-world.html
, quoted below: )

AS PROTESTS against financial power sweep the world this week, science
may have confirmed the protesters' worst fears. An analysis of the
relationships between 43,000 transnational corporations has identified a
relatively small group of companies, mainly banks, with disproportionate
power over the global economy.

The 1318 transnational corporations that form the core of the economy.
Superconnected companies are red, very connected companies are yellow.

The study's assumptions have attracted some criticism, but complex
systems analysts contacted by New Scientist say it is a unique effort to
untangle control in the global economy. Pushing the analysis further,
they say, could help to identify ways of making global capitalism more
stable.

The idea that a few bankers control a large chunk of the global economy
might not seem like news to New York's Occupy Wall Street movement and
protesters elsewhere. But the study, by a trio of complex systems
theorists at the Swiss Federal Institute of Technology in Zurich, is the
first to go beyond ideology to empirically identify such a network of
power. It combines the mathematics long used to model natural systems
with comprehensive corporate data to map ownership among the world's
transnational corporations (TNCs).

"Reality is so complex, we must move away from dogma, whether it's
conspiracy theories or free-market," says James Glattfelder. "Our
analysis is reality-based."

Previous studies have found that a few TNCs own large chunks of the
world's economy, but they included only a limited number of companies
and omitted indirect ownerships, so could not say how this affected the
global economy - whether it made it more or less stable, for instance.

The Zurich team can. From Orbis 2007, a database listing 37 million
companies and investors worldwide, they pulled out all 43,060 TNCs and
the share ownerships linking them. Then they constructed a model of
which companies controlled others through shareholding networks, coupled
with each company's operating revenues, to map the structure of economic
power.

The work, to be published in PloS One, revealed a core of 1318 companies
with interlocking ownerships (see image). Each of the 1318 had ties to
two or more other companies, and on average they were connected to 20.
What's more, although they represented 20 per cent of global operating
revenues, the 1318 appeared to collectively own through their shares the
majority of the world's large blue chip and manufacturing firms - the
"real" economy - representing a further 60 per cent of global revenues.

When the team further untangled the web of ownership, it found much of
it tracked back to a "super-entity" of 147 even more tightly knit
companies - all of their ownership was held by other members of the
super-entity - that controlled 40 per cent of the total wealth in the
network. "In effect, less than 1 per cent of the companies were able to
control 40 per cent of the entire network," says Glattfelder. Most were
financial institutions. The top 20 included Barclays Bank, JPMorgan
Chase & Co, and The Goldman Sachs Group.

John Driffill of the University of London, a macroeconomics expert, says
the value of the analysis is not just to see if a small number of people
controls the global economy, but rather its insights into economic
stability.

Concentration of power is not good or bad in itself, says the Zurich
team, but the core's tight interconnections could be. As the world
learned in 2008, such networks are unstable. "If one [company] suffers
distress," says Glattfelder, "this propagates."

"It's disconcerting to see how connected things really are," agrees
George Sugihara of the Scripps Institution of Oceanography in La Jolla,
California, a complex systems expert who has advised Deutsche Bank.

Yaneer Bar-Yam, head of the New England Complex Systems Institute
(NECSI), warns that the analysis assumes ownership equates to control,
which is not always true. Most company shares are held by fund managers
who may or may not control what the companies they part-own actually do.
The impact of this on the system's behaviour, he says, requires more
analysis.

Crucially, by identifying the architecture of global economic power, the
analysis could help make it more stable. By finding the vulnerable
aspects of the system, economists can suggest measures to prevent future
collapses spreading through the entire economy. Glattfelder says we may
need global anti-trust rules, which now exist only at national level, to
limit over-connection among TNCs. Bar-Yam says the analysis suggests one
possible solution: firms should be taxed for excess interconnectivity to
discourage this risk.

One thing won't chime with some of the protesters' claims: the
super-entity is unlikely to be the intentional result of a conspiracy to
rule the world. "Such structures are common in nature," says Sugihara.

Newcomers to any network connect preferentially to highly connected
members. TNCs buy shares in each other for business reasons, not for
world domination. If connectedness clusters, so does wealth, says Dan
Braha of NECSI: in similar models, money flows towards the most highly
connected members. The Zurich study, says Sugihara, "is strong evidence
that simple rules governing TNCs give rise spontaneously to highly
connected groups". Or as Braha puts it: "The Occupy Wall Street claim
that 1 per cent of people have most of the wealth reflects a logical
phase of the self-organising economy."

So, the super-entity may not result from conspiracy. The real question,
says the Zurich team, is whether it can exert concerted political power.
Driffill feels 147 is too many to sustain collusion. Braha suspects they
will compete in the market but act together on common interests.
Resisting changes to the network structure may be one such common interest.


The top 50 of the 147 superconnected companies

1. Barclays plc
2. Capital Group Companies Inc
3. FMR Corporation
4. AXA
5. State Street Corporation
6. JP Morgan Chase & Co
7. Legal & General Group plc
8. Vanguard Group Inc
9. UBS AG
10. Merrill Lynch & Co Inc
11. Wellington Management Co LLP
12. Deutsche Bank AG
13. Franklin Resources Inc
14. Credit Suisse Group
15. Walton Enterprises LLC
16. Bank of New York Mellon Corp
17. Natixis
18. Goldman Sachs Group Inc
19. T Rowe Price Group Inc
20. Legg Mason Inc
21. Morgan Stanley
22. Mitsubishi UFJ Financial Group Inc
23. Northern Trust Corporation
24. Société Générale
25. Bank of America Corporation
26. Lloyds TSB Group plc
27. Invesco plc
28. Allianz SE 29. TIAA
30. Old Mutual Public Limited Company
31. Aviva plc
32. Schroders plc
33. Dodge & Cox
34. Lehman Brothers Holdings Inc*
35. Sun Life Financial Inc
36. Standard Life plc
37. CNCE
38. Nomura Holdings Inc
39. The Depository Trust Company
40. Massachusetts Mutual Life Insurance
41. ING Groep NV
42. Brandes Investment Partners LP
43. Unicredito Italiano SPA
44. Deposit Insurance Corporation of Japan
45. Vereniging Aegon
46. BNP Paribas
47. Affiliated Managers Group Inc
48. Resona Holdings Inc
49. Capital Group International Inc
50. China Petrochemical Group Company

* Lehman still existed in the 2007 dataset used

Graphic: The 1318 transnational corporations that form the core of the
economy

(Data: PLoS One)


-- 
Moritz Bartl
https://www.torservers.net/



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