New Scientist has a heads up on a study to be published soon at PloS One. The application of techniques used to model complex systems combined with a large economic database to work from has given us: Revealed – the capitalist network that runs the world.
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).
Their findings should worry everyone who hasn't drunk the Kapitalist Kool-Aid.
(more below the squiggle)
The researchers used computing power and systems analysis techniques to map out the interlocking relationships and ownerships of 43,000 transnational corporations to elucidate the underlying structure. To further quote from the New Scientist article by Andy Coghlan and Debora MacKenzie,
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.
emphasis added
The article goes on to state that this concentration of power does not necessarily imply a global conspiracy. It's a consequence of the process by which such relationships form, and similar structures are seen elsewhere. (Here's a link to the map of the structure.)
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."
That being said, such a concentration of power is worrisome. Such a small group can have an outsized effect on the entire system - with consequences for stability of the global economy.
To extrapolate from the article, the ad hoc nature of these relationships means the connections may not be fully understood by the group, or how their interactions can have larger consequences. More to the point, a small group with no oversight by any other body, a group that is self-selected by processes that are antithetical to democracy, a group that has no mandate to consider the broader public in its actions nonetheless has an alarming amount of power at its disposal. There is no international mechanism to counterbalance it or hold it accountable. If it seems like governments and politicians around the world are floundering in their efforts to come to grips with the global economy, this suggests why: they simply don't have the tools to apply leverage where it can be effective. (That, and they keep coming up with the wrong answers.)
As a point of interest, the New Scientist article concludes with a partial list of 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
And if you want an additional alarming tale of plutocracy gone wild, here's one from the Wall Street Journal:
Here’s another stat that the Occupy Wall Streeters can hoist on their placards: The world’s millionaires and billionaires now control 38.5% of the world’s wealth.
According to the latest Global Wealth Report from Credit Suisse, the 29.7 million people in the world with household net worths of $1 million (representing less than 1% of the world’s population) control about $89 trillion of the world’s wealth. That’s up from a share of 35.6% in 2010, and their wealth increased by about $20 trillion, according Credit Suisse.
The wealth of the millionaires grew 29% — about twice as fast as the wealth in the world as a whole, which now has $231 trillion in wealth.
Robert Frank has more at the link - but how much more do we need to realize the world is seriously out of balance?
Thu Oct 20, 2011 at 4:09 AM PT: UPDATE: mrboma also saw the New Scientist article and diaried about it. More important, he found a link to the study in question. (pdf file)
http://arxiv.org/...