Posted on October 20, 2011 6:12 pm

capitalist network runs the world


capitalist network that runs the world


Revealed – the capitalist network that runs the world

·


19 October 2011 by Andy
Coghlan
 and Debora
MacKenzie

·


Magazine issue 2835Subscribe
and save

·


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and Economics
 Topic Guide


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 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 (see
photo
). 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)