Graphic: The 1318 transitional companies that form the core of the economy
Superconnected companies are red, very connected companies are yellow. The size of the dot pepresents revenue ( Image: PLos One)
by
Andy Coghlan and
Debora Mackenzie
AS PROTESTS against financial power sweep the world this week, science may have confirmed the protestors' worst fears.
An analysis of the relationship between 43,000 transnational cororations has identified a small group of companies, mainly banks, with disproportionate power over the global economy.
The study's assumptions have attracted some criticism, but complex systems analysrs contacted by New Scientist say iy is a unique effort to untangle control in the global econony. 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 rlsewhere. But the study, by a trio of complex system theorists at the Swiss Federal Institute of Technology in Zurich, is
the first to go beyond ideology to empyeically identify such a network of power. It combines the mathematics longused to model 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 ownership, so could not say how this affected the global economy - whether it made it more stable 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 owning 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 has ties to two or more other companies, and on average they were connected to 20. What's more, although they represented 20 percent of global operating revenues, the 1318 appeared to colectively 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 og 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 superentity - that controlled 40 per cent of the total wealth in the network," says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JP Morgan Chase & Co, and the Gold man Sachs Group.
John Driffil of the University of London, a maroeconomics expert, says the value of the analysis is not just to see if a small number of people controls the global economy, but rather it's insights into economic stability.
Concentration of poer 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 propogates."
" 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 nor 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 hep make it more stable. By finding the vulnerable aspects of the system, economists can suggest measures to prevent future collapses spreading throgh the entire economy. Glattfelder says we need global anti-trust rules, which now exist only at national level, to limit over-connection among TNCs. Sugihara says the analysis suggests one possible solution: firms should be taxed for excess interconnectivitity 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.
Nwecomers 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 NECS1: 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 waelth 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 ehether 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.
When this article was first posted, the comment in the final sentence of the paragraph beginning "Crucially by identifying the achitecure of global economic power..." was misattributed.
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 Plc
9. UBS AG
10. Merrill Lynch & Co Inc
11. Wellingtom Management Co LLP
12. Deutsche Bank AG
13. Franklin Resources Inc
14. Credit Suisse Group
15. Walton Enterprises LLC
16. Mank 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. Societe Generale
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 Brother Holdings Inc*
35. Sun Life Financial Inc
36. Standard Life plc
37. CNCE
38. Nomura Holdings Inc
39. The Depositary Trust Company
40. Massachussetts Mutual Life Insurance
41. ING Groep NV
42. Brandes Investment Partners LP
43. Unicredito Italiano SPA
44. Deposit Insurance Corporation 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
Republication from
Newscientisthttp://www.newscientist.com/article/mg21228354.500-revealed--the-capitalistnetwork-that-runs-world.html
