...the capitalist network that ru(i)ns the world

I have been writing about the too big for our good capitalist entities for some time now (e.g., here).  The NewScientist features "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 size of the dot represents revenue (Image: PLoS One)

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
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

The Network of Global Corporate Control


Anonymous said...

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.

Anonymous said...

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.

fCh said...

Money Launderers
by Lesq1
It's interesting that only ONE of the top 50 appears to have any connection with real production - China Petrochem. All the rest are, as far as one can tell, just a bunch of money launderers.

There may be a few issues with this analysis but it tends to confirm what most of the world thinks is wrong with unfettered global capitalism - the vast majority of people are working their fingers to the bone to vastly increase the wealth of a tiny minority.

Global capitalism, as it currently stands, does not work for the benefit of humanity as a whole - indeed, if one were to look at the record of this top 50 on the environment and climate change, it would rapidly become obvious that it actually works contrary to the interests of humanity.

Something need to change and, sadly, it will likely be the fall of democracy before the emergence of socially responsible form of global capitalism.
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Money Launderers

by Robert North
Contrary to the previous blogger I would argue that Capitalism functions exclusively for individuals. It is not an accident that the largest companies and most connected are banks and those that work to offset and move risk about. Basically we have created a world where the biggest activity is accumulating wealth and storing it or moving it into safer forms. The combined efforts of billions of individuals acting similarly produces the efficient provider syndrome. As the article suggests the only conspiracy is our collective human nature at work

by TheLibrarianApe
"I would argue that Capitalism functions exclusively for individuals. "

The facts and economic theory show that those with capital will seek to acquire more capital, control the means of production and move from 'true competition' to 'monopolistic competition' or even 'monopoly' where competitors are eliminated from the market and demand ceases to determine the price for a commodity or service.

This is what we see with banking services, energy supply and other product markets. If one is interested in maximizing the benefit from markets one would argue that the closer to true competition we can get, the more money will circulate and therefore generate future wealth.

The over-investment of the last two decades have resulted in high prices, money leaking out of circulation and accumulating with the few at the expense of the many. This describes what we see: economic slow down and market failure.

fCh said...

by Jim R
Yes, it is interesting that one of the top 50 is a production company from China, but not in the way you think. The 49 banks and investment groups (or money launderers as you called them) is the norm, that's how the system is supposed to work, the one production company is the strange exception.

How it works is this, you earn some money and would like to save it for education or retirement or whatever (at least I hope you're doing this), you don't put the money under your bed, you save it to a bank or mutual fund, who may invest your money in production company and thus earn you some returns and collect some fee themselves.

I didn't read the paper, but I bet in this case the researcher assigned the ownership of the investment to the bank instead of to you, and this is the problem with their analysis. Since banks and investment groups manage a huge pile of money (which is not theirs, but belongs to their clients), it's quite normal for them to "own" a large part of the economy.

Now what's interesting is a Chinese petro company ends up also owning a large part of the economy, they're not a bank or mutual fund, so where did their money comes from and who is the real owner of their money?

by Dan Ogden
What this thread and the overwhelming majority of posters on it demonstrate is a lack of understanding as to how the financial services industry works.

Is it any wonder that the list so closely mirrors the top 100 largest asset managers? No, because through pension plans, 401k/403b plans and individual funds, they manage trillions in assets -- assets ultimately belonging to individuals who are predmoninantly not in the "1%".

Furthermore, the inclusion of the DTCC -- the Depository Trust Clearing Corporation -- is riduculous. It's a CLEARING HOUSE that all large, self-clearing firms participate in. Securities held in brokerage accounts in "street name" - negotiable form, but still owned by the individual account holder - get book/computer entry notation at the DTCC...but are neither owned, custodied or controlled by the DTCC. The DTCC merely acts as an intermediary, the same way your bank does when you deposit a check Joe Smith writes you -- Joe's check (and the currency it represents) is not owned or even controlled by the bank, merely processed by it.

I won't even go into detail on the mutual insurance companies on the list except to say that these companies are 100% owned by their policy holders.

Finally, there are a list of 'custodian banks' on the list -- companies who hold the assets of asset managers to ensure timely and accurate processing of things like foreign dividend and bond interest payments, name changes (as in the case of mergers), foreign currency conversion and the like. Again, they do not OWN or CONTROL the assets, they merely HOUSE the assets on behalf of a third party. And several of those custodian banks (like JPMorgan Chase, Bank of New York Mellon and Citibank) have very large custody businesses AND very large asset management businesses, further obfuscating the issue to the uninitiated.

A better list would be the actual asset *owners*, rather than the vendors who manage, invest house and clear said assets on behalf of third parties, including (primarily) the general public.

crescent said...

Yes! You're absolutely right and this is disturbing. However, I feel that the recession (and the slump since the last recession) has encouraged large companies to behave in a way that is self-protective. Long-term, this is very bad for economies however, in the short-term you could argue that this kind of nepotism actually sustains some kind of economic stability, avoiding an even worse situation from occuring. Why else would they behave in this way? OK, greed! Of course, but fear of going down the pan with many other organisations has fuelled this rather unfortunate state.

I wonder what political leaders will actually do about this situation, as in the long term it will lead to economic stagnancy? Well, very little so far.... Certainly in Europe, leading politicians are far more concerned with the Eurozone crisis. This will absorb them for some time to come. Efforts to encourage economic growth through encouraging investment in small businesses are half-soaked and half-hearted. I guess banks feel it's just too risky at the moment?

multumnonmulta said...

Simon, you raise some very interesting questions, for which I thank you.

The corporations' nepotism, as you describe it, does double duty: in addition to a corporation's being risk adverse (which means, hire more people like the ones inside), it also becomes a form of granting favors among a small circle so that it all may come back.

Political leaders won't do anything about corporate nepotism in particular. Our political leaders, US/UK, don't seem interested in doing anything else than letting the bust period close one boom and prepare for the next. Meanwhile, whatever happens to us, whether subjects of the Republic or Kingdom, is called life.

Some leaders in Europe/elsewhere may well think differently, but they need to come up with a vision and execute it. And that's when things get tricky...

crescent said...

"The corporations' nepotism, as you describe it, does double duty: in addition to a corporation's being risk adverse (which means, hire more people like the ones inside), it also becomes a form of granting favors among a small circle so that it all may come back."

Absolutely right! But this is good for the economy in the short term? Let's rephrase that, it helps to prevent a bad situation from getting completely out of hand. At least some people seem to be arguing along these lines and as angry as I am with the stultifying mediocrity, lack of opportunity for the majority and the undeniable granting of favours for ring-fenced boardrooms, I think I may actually agree with that idea!

Absolutely, capitalism seems to invite a boom and bust economy but as we are well aware, it favours those who are in power. Nonetheless opportunities do occur for more people during the "boom". Sustaining economic growth and stability seem to be the key to more prosperous times for the majority. Is this in the interests of the "take the money and run" mentality of Capitalism? It should be....

Cameron is playing the usual "one-foot-in-and-one-foot-out-of-Europe" so I personally don't hold out much hope for radical change in the Eurozone. Things may be tweaked but not fundamentally altered.

fCh said...

...with all due respect, what does "this is good for the economy" mean? FTSE, QQQQ, SPY, S&P 500?

If so, for the sake of the mechanics, let's make sure the US rating agencies, the London based Libor mechanism and their likes work properly, otherwise we risk not to be taken seriously.

At a human/societal level, as I wrote here, I'm not so sure we can entrust the whole society, as it were, to the automatic pilot of either City (NY or London).

However, most people(s) have lost trust in the above institutions, which means that it may take a whole new generation before we see another rising tide, aka boom.

Cameron is the prisoner of the recent British history. He's made a bet, the Brits pay dearly, let's hope that it won't go all to waste! On the other hand, Obama, no less a prisoner of sorts himself, has taken us on a 4-year detour--in case he decides to do something fundamentally better/different.

crescent said...

Ah! I've upset you! Not intentional.... Good for the economy means just that! In my case the FTSE which links to all other ecomomies! Many economies are in a similar situation, no? Good for the economy(ies), if you prefer...

Of course, many of us have lost trust in these corporations, banks and in politics. But, this is the way it is and surely we need to minimise the damage caused by the recession? I don't see the status quo changing and, indeed "plus ca change, plus c'est la meme chose".


fCh said...

No worries, our conversation is not about being upset, but inviting definitions, at least the operational kind, or else we remain safely in the realm of confusion/benign generalities.

For example, here in the US, we don't get much news, but we are constantly told, at least once a day, how Dow Jones and/or S&P are doing. It's been planted in our minds that these are proxies for the economy, yet most people are customers of the individual entities comprising these indexes. Theoretically, we are also shareholders, but that's a big problem, for we nominally have the ownership, but lack any control/authority over these entities we co-own. Then, we get about monthly references to the unemployment figures and consumer confidence index. Alright, the unemployment number gets close enough to how the economy is. However, how reliable are the unemployment and inflation numbers the government keeps adjusting so that the problem doesn't look so big? Not much in my book--unreported inflation is common knowledge, and the way unemployment is now calculated leaves out those people who remain unemployed after some period of time. Not to mention that the stock prices themselves are sometimes subject of manipulation. Should I continue, or we should reckon that the techno-elite operates with 'lies, damned lies, and statistics?'

At a different level, you take a stock market indexes and it will tell you just as much as a speedometer does about the well being of a car. Mighty plenty in a constant environment.

The status qvo is one for the English speaking peoples, yet, as others concerned are likely to pay increased attention to, say, China, horizons may shrink for us. In other words, the world won't go back to the status qvo ante 2008.

You see, Simon, our/the problem is that we might have lost the WEST! I know, the West has hardly been that bloc-like entity, but it had somehow managed to beat the Soviet bloc. Now, when we should come together round our common values, everyone seems focused on screwing their neighbor.

Thanks for stopping by and your comments!

crescent said...

fCh I agree with just about everything you've written! Thank you for your mature point of view.... I seem to be upsetting quite a lot of people when I write on the Net because I don't automatically agree with them or just try to suck up as many do, hoping that a bit of "kudos" will rub off on them!

Yep! I think the West as the leading power-base is definately being eroded from the core (a la ancient Rome) and from the outside. I think I just accept it now, rather than concern myself with the consequences of corruption, greed and insane approaches to immigration. I get the feeling that we have to attempt to reduce any further erosion rather than attempt to deal with the causes of the recession as these are fundamental parts of our Western societies. Certainly in the UK and, so it seems across Europe and in the US.

The revolutions across North Africa and into the Middle East indicate attempts to create more democratic societies which will probably add to the current state of global, high or late Capitalism. Of course, this is a good thing but these countries like India, China and Brazil will become serious competitors to Western economies.

Governments in UK have been massaging unemployment figures ever since we got to approx. 12 (British) million unemployed in the late 70's early 80's. The public have come to expect it!

That's why I think that we have to support huge corporations, simply to prevent any more damage to the UK economy. Pension pots of millions of pounds and rising wages for directors since the beginning of the Recession are appalling, but paradoxically, these kind of behaviours may actually be maintaining a poor UK economy rather than worsening it.

Maybe I'm falling for political rhetoric but, unusually, they may have a point in this case.

If my writing is a bit clunky I have a bad cold!

fCh said...

Simon, I hope you feel better!

Yes, we can argue whether or not too-big-already corporations are the problem, but I'm of the opinion that they are not the solution!

crescent said...

No they are certainly not a long-term solution. Indeed, when major banks get involved in criminal activities, that's another matter and they should be punished accordingly. If I remember correctly you mentioned money laundering or similar criminal activities in your original post.

I did feel better, now I have another cold! I feel like a metaphor for global markets!! Thanks for your concern! :-)

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