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
Protesters in Hong Kong, China,
participate in the worldwide demonstrations
inspired by the Occupy Wall Street movement.
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).
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
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.
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.
Most were financial institutions.
The top 20 included,
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.
As the world learned in 2008, such networks are unstable.
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 behavior, he says, requires more analysis.
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.
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:
The Zurich study, says Sugihara,
Or as Braha puts it:
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.
* Lehman still existed in the 2007 dataset used
The 1318 transnational corporations that form the core of the economy.
Super-connected companies are red, very connected companies are yellow.
The size of the dot represents revenue
(Image: PLoS One)