Physics & Math
The 1318 transnational corporations that form the core of the economy.
Superconnected companies are red, very connected companies are yellow.
The size of the dot represents revenue (Image: PLoS One)
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. Sugihara 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.
When this article was first posted,
the comment in the final sentence of the paragraph beginning
"Crucially, by identifying the architecture 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 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
)
