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Revealed – the capitalist network that runs the world

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.

http://www.newscientist.com/article/mg21228354.500-revealed--the-capitalist-network-that-runs-the-world.html

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again, the problem isn't capitalism, it's this "global economy" we (the west) have crafted for ourselves, with the IMF and world bank socialistically spreading the wealth from greaters to lessers, in conjunction with all of our governments running up massive amounts of international debt, to the point where somehow if a country like greece or ireland defaults, it means global economic catastrophe again.

but capitalism itself, being paid for goods and services provided, competition of prices, there's nothing wrong with that. in fact, all these banks have been doing lately is propping up debtor nations.

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Originally Posted by Dødherre Mørktre:
again, the problem isn't capitalism, it's this "global economy" we (the west) have crafted for ourselves, with the IMF and world bank socialistically spreading the wealth from greaters to lessers, in conjunction with all of our governments running up massive amounts of international debt, to the point where somehow if a country like greece or ireland defaults, it means global economic catastrophe again.

but capitalism itself, being paid for goods and services provided, competition of prices, there's nothing wrong with that. in fact, all these banks have been doing lately is propping up debtor nations.

Capitalism is only good when practiced fairly and with an eye for posterity.  Unfortunately neither of those two traits are favored by capitalism.  

The only goal is to make as big a profit as possible, and the easiest way to do that is to knock off the competition and form a monopoly.  This results in a lock of competition to force innovation and to help control prices (that is to say, if Crest was allowed run its competitors out of business by selling its product below the manufacturing price, it could then raise its price to $10 dollars a tube of toothpaste, and you'd either have to pay that or have your teeth rot because there wouldn't be a choice left).

Lack of consideration for the future is another problem that plagues the system.  Many companies and individuals make investments or business decisions that can turn a large, quick profit but will otherwise poison the well down the road by either recklessly over consuming resources or crashing the system.  When this happens everyone suffers except the ones responsible.

So to reiterate, so long as companies are forced to remain competitive and aren't allowed to wreck the place/harm the public capitalism is great.  Sequoia-Tioga Brewing Company (a great brewery if Fresno) makes a profit by producing a product in demand (good beer) and selling it at a reasonable price ($5 pint, $2.75 during NFL games, which is a damn good price for high quality microbrew!).  They do all this without trying to destroy competition (the other weekend they hosted an Oktoberfest celebration where they invited several other breweries) and without doing any damage to society (actually they invest in many community events, which works as a combination of advertising and a means of building a sense of community that otherwise doesn't exist in most parts of Fresno).  Unfortunately this doesn't happen very often with larger companies (those with the most power to destroy tend to be the ones taking the largest risks).