Thursday, December 26, 2019

Forbes: "The 147 Companies That Control Everything"

This is a 2011 article from Forbes that was referenced in a different article I came across today. The Forbes article was based, in turn, on "Revealed – the capitalist network that runs the world" at The New Scientist, which reported on a study, "The network of global corporate control" (PDF) by Stefania Vitali, James B. Glattfelder, and Stefano Battiston. While there has been extensive research into analyzing networks between companies for nearly a century, looking at connections based on ownership and interlocking directorates (i.e., persons serving on multiple boards of directors), the authors of this study focused on analyzing networks of control. From the Forbes article:
      Three systems theorists at the Swiss Federal Institute of Technology in Zurich have taken a database listing 37 million companies and investors worldwide and analyzed all 43,060 transnational corporations and share ownerships linking them. They built a model of who owns what and what their revenues are and mapped the whole edifice of economic power.

      They discovered that global corporate control has a distinct bow-tie shape, with a dominant core of 147 firms radiating out from the middle. Each of these 147 own interlocking stakes of one another and together they control 40% of the wealth in the network. A total of 737 control 80% of it all. 
The New Scientist article described the research thusly:
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.
The primary concern of the authors of the Forbes and New Scientist articles focused on the potential risk to stability with such a concentration of economic power. A follow up article at Forbes, "Retort: The 147 Companies That Run The World? They're You," tried to further downplay the issue by arguing that it means nothing because the concentration merely reflects broad private investment through tools such as mutual funds (such as might be used by your 401k retirement plan). The author of the "Retort" explains:
Most of the companies on the top 50 list are simply investment companies - they aren't operating companies. (The only obvious example is #50 China Petrochemical.) The enormous size of these companies is simply a reflection of the way most people invest in the public markets, through mutual funds, money funds and other vehicles. Disturbing? Nah. Simply a reflection of the way most people invest in the markets.
But that misses the issue, which is control.

     Those of you familiar with Robert Greene's The 48 Laws of Power might remember a law (or perhaps it was a corollary) that the power to control money or wealth was more important than having money or wealth. Such is the case here. As the researchers reported in their paper, "network control is much more unequally distributed than wealth. In particular, the top ranked actors hold a control ten times bigger than what could be expected based on their wealth." The authors additionally determined that "despite its small size, the core holds collectively a large fraction of the total network control. In detail, nearly 4/10 of the control over the economic value of TNCs [Trans-National Corporations] in the world is held, via a complicated web of ownership relations, by a group of 147 TNCs in the core, which has almost full control over itself. The top holders within the core can thus be thought of as an economic 'super-entity' in the global network of corporations. A relevant additional fact at this point is that 3/4 of the core are financial intermediaries."

    The author's study raise the issue of stability and risk of this interconnectedness, but then go on:
Secondly, what are the implications for market competition? Since many TNCs in the core have overlapping domains of activity, the fact that they are connected by ownership relations could facilitate the formation of blocs, which would hamper market competition. Remarkably, the existence of such a core in the global market was never documented before and thus, so far, no scientific study demonstrates or excludes that this international “super-entity” has ever acted as a bloc. However, some examples suggest that this is not an unlikely scenario. For instance, previous studies have shown how even small cross-shareholding structures, at a national level, can affect market competition in sectors such as airline, automobile and steel, as well as the financial one. At the same time, antitrust institutions around the world (e.g., the UK Office of Fair Trade) closely monitor complex ownership structures within their national borders. The fact that international data sets as well as methods to handle large networks became available only very recently, may explain how this finding could go unnoticed for so long.
(Endnotes excluded).

     Research over the last 30 years or so has shown that interlocking directorships have created a self-reinforcing, self-protecting, social network that shares normative values. Moreover, the people that sit on multiple corporate directorships are often selected to sit on government advisory boards. This suggests that if there are interlocking directorships between the 147 entities, and we must assume that there are, there is a potential for the formation of a "super-elite" social network that could use their influence to guide the policies of whole economies and political units. I cannot say for certain that such networks exist, or that they might act as a bloc, but they easily could.

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