The money Trail

The Money Trail..

As protests against financial power sweep the world, science may have confirmed the protesters’ worst fears.

An analysis of the relationship between 43,000 TNC’S (transnational corporations) has identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy which can been seen as unhealthy and unfair.

The results of the study have been criticized, but complex systems performed by analysts contacted by the online magazine New Scientist say its efforts to define the control of the global economy are not being performed in vain. Pushing the analysis further, they say, could help identify ways in which the global capitalism more stable.

Previous studies have found that a few TNC’s own large chunks of the world’s economy, but they included only a limited number of companies, so could not say how this affected the global economy – whether it made it more or less stable for an example.

The Zurich Team: they have a database listing 37 million companies and investors worldwide; they then separated them into 43,060 TNC’s and share ownerships linking them.

The work, to be published in PLoS One, revealed a core of 1318 companies with interlocking ownerships. 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 James Glattfelder (a complex system theorist)

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

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 control the global economy, but rather its insights into economic stability

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 behaviour, he says, requires more analysis.

Crucially, by identifying the architecture of global economic power, the analysis could help make it more stable. By finding the vulnerable aspects of the system, economists can suggest measures to prevent future collapses spreading through the entire economy.

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 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.

So are the protestors correct? Is there companies that are ruling the world and manipulating our way of life?

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Top 20 companies in the 147 super-connected companies:
1. Barclays
2. Capital Group Companies Inc
3. FMR Corporation
4. AXA
5. State Street Corporation
6. JP Morgan Chase and Co
7. Legal & General Group plc
8. Vanguard Group Inc
9. UBS AG
10. Merrill Lynch & Co Inc
11. Wellington Management Co LLP
12. Deutsche Bank AG
13. Franklin Resources Inc
14. Credit Suisse Group
15. Walton Enterprise 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