The bankers that rule the world

New Scientist reports: As protests against financial power sweep the world this week, science may have confirmed the protesters’ worst fears. An analysis [PDF] 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. 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.

The top 25 of the 147 superconnected companies

1. Barclays plc
2. Capital Group Companies Inc
3. FMR Corporation
4. AXA
5. State Street Corporation
6. JP Morgan Chase & Co
7. Legal & General Group plc
8. Vanguard Group Inc
10. Merrill Lynch & Co Inc
11. Wellington Management Co LLP
12. Deutsche Bank AG
13. Franklin Resources Inc
14. Credit Suisse Group
15. Walton Enterprises LLC
16. Bank of New York Mellon Corp
17. Natixis
18. Goldman Sachs Group Inc
19. T Rowe Price Group Inc
20. Legg Mason Inc
21. Morgan Stanley
22. Mitsubishi UFJ Financial Group Inc
23. Northern Trust Corporation
24. Société Générale
25. Bank of America Corporation

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2 thoughts on “The bankers that rule the world

  1. Christopher Hoare

    This information gives the lie to the Western pretenses of being democracies. None of these corporations is controlled by the population or by the electorate anywhere, and the idea that they are ‘responsible’ to their shareholders is a lie that can be seen from the workings of any shareholders’ meeting (unless the shareholders happen to be billionaires).

    On the other hand, these superconnected corporations are the only ones ‘consulted’ by governments to pronounce upon their proposed changes to legislation. The clear opportunity to control those governments can be seen from the results of the analysis. An opportunity never allowed to pass by, only a fool would argue against.

    What do we (the people of the world) do about the situation? I see two remedies; either a sunset clause on corporate charters or outright nationalisation. We are under the control of huge oligarchies.

  2. Internationalist

    I linked to that paper in the comments section of an entry on this site that linked to [url=]a silly, glib Guardian piece [/url] that seized on the high-modernist oversimplifications of one Leopold Kohr to spin a reactionary fantasy of a world of tiny, tightly-knit “communities”. Apparently, those tiny polities would be so idyllic and chock-full of “the human factor” that it wouldn’t matter what regime each would choose for itself. Haha.

    The problem with nationalising the big global players is that big global player X, originally from country A, has copious assets in country B, which is the country of origin of big global player Y, that has in its turn copious assets in country A. World wars have started for less than the power struggle that would ensue from the kind of dissolution of economic union that is envisaged here.

    No, what is needed is to take the law to the global players, instead of taking the global players to the law. What is needed in the tightly networked world revealed by that paper is greater, more accountable global governance.

    “The law” is a key concept here. Laws are the means –ever evolving, ever subject to revision– which regulate the civilised resolution of conflict within political communities. Those who deny the necessity of stronger international laws, such as that bogus leftie Guardian bloke, deny the possibility that a sense of transnational community –of interests, if nothing else– may be coalescing in our age. This, in the early XXI century, is nothing short of pernicious. The notion of “community” bandied about by nationalist populists is, in our day and age, a corruption of the term, a kind of gated community. Free marketeers find nationalist populists to be easily manageable, of course.

    The global protests that started in the wake of the crisis have been fairly ambiguous on what kind of transnational institutions they envisage. The manner in which the different local movements are feeding off each other, however, shows that “community” is no longer a concept that ends with the nation state.

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