Who Runs the World ? – Network Analysis Reveals ‘Super Entity’ of Global Corporate Control

http://planetsave.com/2011/08/28/who-runs-the-world-network-analysis-reveals-super-entity-of-global-corporate-control/

In the first such analysis ever conducted, Swiss economic researchers have conducted a global network analysis of the most powerful transnational corporations (TNCs). Their results have revealed a core of 787 firms with control of 80% of this network, and a “super entity” comprised of 147 corporations that have a controlling interest in 40% of the network’s TNCs.

But now we have the results of a global network analysis (Vitali, Glattfelder, Battiston) that, for the first time, lays bare the “architecture” of the global ownership network. In the paper abstract, the authors state:

“We present the first investigation of the architecture of the international ownership network, along with the computation of the control held by each global player. We find that transnational corporations form a giant bow-tie structure* and that a large portion of control flows to a small tightly-knit core of financial institutions. This core can be seen as an economic “super-entity” that raises new important issues both for researchers and policy makers.” [emphasis added]

Data from previous studies neither fully supported nor completely disproved the idea that a small handful of powerful corporations dominate much or most of the world’s commerce. The researchers acknowledge previous attempts to analyze such networks, but note that these were limited in scope to national networks which “neglected the structure of control at a global level.”

What was needed, assert the researchers, was a complex network analysis.

“A quantitative investigation is not a trivial task because firms may exert control over other firms via a web of direct and indirect ownership relations which extends over many countries. Therefore, a complex network analysis is needed in order to uncover the structure of control and its implications. “

To start their analysis, the researchers began with a list of 43,060 TNCs which were taken from a sample of 30 million “economic actors” contained in the Orbis 2007 database [see end note]. TNCs were identified according to the Organization of Economic Co-operation and Development (OECD) definition of a transnational corporation [see end note]. They next applied a recursive search algorithm which singled out the “network of all the ownership pathways originating from and pointing to these TNCs.”

Two generalized characteristics were identified:

1] A strongly connected component (SCC), that is, a set of firms in which every member owns directly and/or indirectly shares in every other member. The emergence of such a structure can be explained as a means of preventing take-overs, reducing transaction costs, risk sharing and increasing trust between “groups of interest.”

and

2] The largest connect[ed] component contains only one dominant, strongly connected component (comprised of 1347 nodes). This network, like the WWW, has a bow tie structure. What’s more, they found that this component, or core, is also very densely connected; on average, members of this core have ties to 20 other members. “Top actors” occupy the center of the bow tie. In fact, a randomly chosen TNC in the core has about 50% chance of also being among the top holders, as compared to, for example, 6% for the in-section. [emphasis added]

“As a result, about 3/4 of the ownership of firms in the core remains in the hands of firms of the core itself. In other words, this is a tightly-knit group of corporations that cumulatively hold the majority share of each other.”


Top 50 Control-Holders Ranking:

{source: the following is quoted directly from the research paper]

This is the first time a ranking of economic actors by global control is presented. Notice that many actors belong to the financial sector (NACE codes starting with 65,66,67) and many of the names are well-known global players.

The interest of this ranking is not that it exposes unsuspected powerful players. Instead, it shows that many of the top actors belong to the core. This means that they do not carry out their business in isolation but, on the contrary, they are tied together in an extremely entangled web of control. This finding is extremely important since there was no prior economic theory or empirical evidence regarding whether and how top players are connected.

Shareholders are ranked by network control (according to the threshold model, TM). Columns indicate country, NACE industrial sector code, actor’s position in the bow-tie sections, cumulative network control. Notice that NACE codes starting with 65,66, or 67 belong to the financial sector.

Rank , Economic actor name, Country, NACE code, Network Cumul. Network position, control (TM, %)

1 BARCLAYS PLC GB 6512 SCC 4.05

2 CAPITAL GROUP COMPANIES INC, THE US 6713 IN 6.66

3 FMR CORP US 6713 IN 8.94

4 AXA FR 6712 SCC 11.21

5 STATE STREET CORPORATION US 6713 SCC 13.02

6 JP MORGAN CHASE & CO. US 6512 SCC 14.55

7 LEGAL & GENERAL GROUP PLC GB 6603 SCC 16.02

8 VANGUARD GROUP, INC., THE US 7415 IN 17.25

9 UBS AG CH 6512 SCC 18.46

10 MERRILL LYNCH & CO., INC. US 6712 SCC 19.45

11 WELLINGTON MANAGEMENT CO. L.L.P. US 6713 IN 20.33

12 DEUTSCHE BANK AG DE 6512 SCC 21.17

13 FRANKLIN RESOURCES, INC. US 6512 SCC 21.99

14 CREDIT SUISSE GROUP CH 6512 SCC 22.81

15 WALTON ENTERPRISES LLC US 2923 T&T 23.56

16 BANK OF NEWYORKMELLON CORP. US 6512 IN 24.28

17 NATIXIS FR 6512 SCC 24.98

18 GOLDMAN SACHS GROUP, INC., THE US 6712 SCC 25.64

19 T. ROWEPRICE GROUP, INC. US 6713 SCC 26.29

20 LEGG MASON, INC. US 6712 SCC 26.92

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