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Saturday, October 12, 2013

MooPig's Report from the Middle :: "Network of Global Corporate Control"

PLOS ONE: The Network of Global Corporate Control: "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."

" ... A common intuition among scholars and in the media sees the global economy as being dominated by a handful of powerful transnational corporations (TNCs). However, this has not been confirmed or rejected with explicit numbers. A quantitative investigation is not a trivial task because firms may exert control over other firms via a web of direct and indirect ownership relations which extends over many countries. Therefore, a complex network analysis [1] is needed in order to uncover the structure of control and its implications. Recently, economic networks have attracted growing attention [2], e.g., networks of trade [3], products [4], credit [5], [6], stock prices [7] and boards of directors [8], [9]. This literature has also analyzed ownership networks [10], [11], but has neglected the structure of control at a global level.

" ... The TNC [transnational corporations] network has a bow-tie structure [21] (see Figure 2 A ...). Its peculiarity is that the strongly connected component, or core, is very small compared to the other sections of the bow-tie, and that the out-section is significantly larger than the in-section and the tubes and tendrils (Figure 2 B ...). The core is also very densely connected, with members having, on average, ties to 20 other members (Figure 2 C, D). As a result, about 3/4 of the ownership of firms in the core remains in the hands of firms of the core itself. In other words, this is a tightly-knit group of corporations that cumulatively hold the majority share of each other.

'via Blog this'

"... 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 of the core are financial intermediaries. Figure 2 D shows a small subset of well-known financial players and their links, providing an idea of the level of entanglement of the entire core.

" ... Thus, in the hypothesis that the structure of the ownership network is a good proxy for that of the financial network, this implies that the global financial network is also very intricate. Recent works have shown that when a financial network is very densely connected it is prone to systemic risk [16], [24]. Indeed, while in good times the network is seemingly robust, in bad times firms go into distress simultaneously. This knife-edge property [25], [26] was witnessed during the recent financial turmoil.

It turns out that "global players" are all sitting on each other's Board of Directors, and have inside knowledge of operations. It is interesting to see that they all react simultaneously when a "crisis" occurs, and it causes a "knife edge" financial environment -- such as three hundred years of boom bust cycles. Throughout our financial history the "global players" of the "super entity" must after all prefer "financial entanglement of the entire core."

Much like a social structure of betters at horse racing tracks, three out of four are distressed losers, and winners restart the betting cycle with old money. And they all go along with those odds, knowing that they may be one in four next time. But few believe they "never will" win, whether that is wishful thinking or human nature, it seems to be the structure in all financial groups large or small.

That concludes our Report from the Middle where we can't seem to hold on to our money, but the women are strong, the men are good-looking and all the children are above average.

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