http://arxiv.org/PS_cache/arxiv/pdf/1107/1107.5728v1.pdf August 19, 2011 by Bob Yirka http://www.physorg.com/news/2011-08-powerful-corporations-world.html Conventional wisdom says a few sticky, fat fingers control a disproportionate slice of the world economy’s pie. A new analysis suggests that the conventional wisdom is right on the money. Diagramming the relationships between more than 43,000 corporations reveals a tightly connected core of top economic actors. In 2007, a mere 147 companies controlled nearly 40 percent of the monetary value of all transnational corporations, researchers report in a paper published online July 28 at arXiv.org. “This is empirical evidence of what’s been understood anecdotally for years,” says information theorist Brandy Aven of the Tepper School of Business at Carnegie Mellon in Pittsburgh. The analysis is a first effort to document the international web of relationships among companies and to examine who owns shares — and how many — in whom. Tapping into the financial information database Orbis, scientists from ETH Zurich in Switzerland examined transnational companies, which they defined as having at least 10 percent of their holdings in more than one country. Then the team looked at upstream and downstream connections, yielding a network of 600,508 economic actors connected through more than a million ownership ties. This network takes on a bowtie shape, with a large number of diffuse actors in the wings and a few major players tangled up in the tie’s knot. So while it’s true that ownership of publicly held corporations is broadly distributed, says complex systems scientist James Glattfelder, a coauthor of the new work, “take a step back and it’s all flowing into the same few hands.” While any man on the street may have predicted this outcome, the economic literature portrays markets as so dynamic that they lack hot spots of control, Glattfelder says. Researchers aren’t sure what to make of the core’s interconnectedness. On the one hand, it could expose the whole network to risk. “Imagine a disease spreading,” says Aven. “If you have a high school where everyone’s sleeping together and one person gets syphilis, then everyone gets syphilis.” But on the flip side, she notes, interconnectedness can lead to better self-policing and positive behaviors, such as fair labor practices or environmentally friendly policies. And even though the status of many players in the analysis has changed drastically since 2007 (now-defunct Lehman Brothers is a key element of the core), the analysis shows that ownership is becoming increasingly concentrated and increasingly transnational, says Gerald Davis of the University of Michigan in Ann Arbor. Because interpreting and analyzing these kinds of data is difficult, he says, the analysis serves more as “an impression of the moon’s surface you get with a telescope. It’s not a street map.” Ownership can be difficult to study internationally because holding shares in a mutual fund doesn’t necessarily mean the same thing in the U.S. as it does in communist China. And even within a single country ownership can be hard to tease out, says economist Matthew Jackson of Stanford University. For example, when an individual invests in a mutual fund or even purchases shares through an institution like Merrill Lynch, the firm is often still the official owner of the assets. And even when shareholders do have voting rights, they may not exercise them. “This becomes worrisome if everyone is like me and says I’ll let Vanguard do the voting,” says Jackson. “Maybe we should be a little bit worried. I don’t know if we should be.” http://www.physorg.com/news/2011-08-powerful-corporations-world.html (PhysOrg.com) -- For many years conventional wisdom has said that the whole world is controlled by the monied elite, or more recently by the huge multi-national corporations that seem to sometime control the very air we breathe. Now, new research by a team based in ETH-Zurich, Switzerland, has shown that what we’ve suspected all along, is apparently true. The team has uploaded their results onto the preprint server arXiv. Using data obtained (circa 2007) from the Orbis database (a global database containing financial information on public and private companies) the team, in what is being heralded as the first of its kind, analyzed data from over 43,000 corporations, looking at both upstream and downstream connections between them all and found that when graphed, the data represented a bowtie of sorts, with the knot, or core representing just 147 entities who control nearly 40 percent of all of monetary value of transnational corporations (TNCs). In this analysis the focus was on corporations that have ownership in their own assets as well as those of other institutions and who exert influence via ownership in second, third, fourth, etc. tier entities that hold influence over others in the web, as they call it; the interconnecting network of TNCs that together make up the whole of the largest corporations in the world. In analyzing the data they found, and then in building the network maps, the authors of the report sought to uncover the structure and control mechanisms that make up the murky world of corporate finance and ownership. To zero in on the significant controlling corporations, the team started with a list of 43,060 TNCs taken from a sample of 30 million economic “actors” in the Orbis database. They then applied a recursive algorithm designed to find and point out all of the ownership pathways between them all. The resulting TNC network produced a graph with 600,508 nodes and 1,006,987 ownership connections. The team then graphed the results in several different ways to show the different ways that corporate ownership is held; the main theme in each, showing that just a very few corporations through direct and indirect ownership (via stocks, bonds, etc.) exert tremendous influence over the actions of those corporations, which in turn exert a huge impact on the rest of us. The authors conclude their report by asking, perhaps rhetorically, what are the implications of having so few exert so much influence, and perhaps more importantly, in an economic sense, what the implications are of such a structure on market competitiveness.
More information: The network of global corporate control, Stefania Vitali, James B. Glattfelder, Stefano Battiston, arXiv:1107.5728v1 [q-fin.GN]http://arxiv.org/abs/1107.5728 Abstract
Via Sciencenews.org
© 2011 PhysOrg.com
Study shows powerful corporations really do
control the world's finances
The structure of the control network of transnational corporations affects global market competition and financial stability. So far, only small national samples were studied and there was no appropriate methodology to assess control globally. 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.
Thursday, 25 August 2011
Financial world dominated by a few deep pockets
Economic “superentity” controls more than one-third of global wealth
Web edition : Monday, August 15th, 2011
POWER BALLA central core of extremely powerful actors (red dots) dominates international corporate finance, a new mathematical analysis finds.Vitali et al, 2011
Posts
