Understanding Climate Risk

Science, policy and decision-making

The Network of Global Control

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As the Occupy Wall Street movement transforms into Occupy X, and the protests against control of the world’s financial power spread, a new study has quantified the global network of ownership that concentrates that power. A paper published on October 26 in PloS ONE, The Network of Global Corporate Control by Stefania Vitali, James B. Glattfelder, Stefano Battiston from ETH Zurich, shows the 1%-40% figure of control is bang on the money.

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.

As reported in New Scientist, of 37 million companies and investors in the Orbis 2007 database, 43,060 of those can be classified as transnational corporations (TNCs). A network analysis of those revealed a core of 1,318 that were interlocking. They represented 20% of global revenues but through their shares in blue chips and manufacturing represented a further 60% of global revenue. A super-group of 147 companies themselves controlled 40% of revenue – the 1:40 ratio being promoted by Occupy X. Most of these are financial institutions.

The main thrust of the paper though is not control, but stability. They explored whether the network was a set of clusters, isolated components or a core-periphery structure. The largest network contained three-quarters of all nodes and accounted for 94% of TNC revenue and contained the core 1,318. The issue is whether this structure, which they describe as a bow-tie like structure is stable, or whether it is inherently unstable at the global level amplifying certain risks. Systemic risk, which has been associated with highly concentrated networks has already been identified as a risk in economic networks. There is also the risk of “lock-in” where a dominant narrative maintained by the super group carries its own risks.

Human nature and narrative structure will play a dominant role in a small network. Ironically, 147 interlocked TNCs forms a global village – is this very human reflection of a small interlocking group of around 150 members commonly quoted in sociological analysis is a coincidence or not? One of the risks in such a system is that the narrative of the 147 members will dominate,  subsuming lesser narratives from the outer (this insight thanks to Colin Higgins of VU). There is also the question of privilege and reward. This group – indeed, the larger core network of TNCs can reward themselves for their efforts but also controls the level of reward available to labour in the broader economy and also the supply of commodities.

Following is a comment I made on Larvatus Prodeo earlier this week before seeing this research, which, I reckon, justifies the points I was making:

I want to link Occupy X and the AGW issues. We are in a position where the current situation is unsustainable. A disproportionate number of people control a disproportionate amount of global resources. Neither the conventional left not the conventional right wish to dismantle that control – indeed, after the GFC the foxes were given back the keys to the hen-house and told to behave. As if. The taxpayer is paying for the broken eggs.

At the same time, we are in a globalized world that needs to support ~7 billion people. Dismantling that support won’t help, but nor will turning a blind eye to current system excesses and the sociopathic notions of a disproportionate few (this is a reference to hyper-individualistic notions of competition and control in the political narratives of the English-speaking developed countries).

Developing a system the understands and supports iterative risk management is not simple. It is an ethical project, as detailed above, and out of that needs to come a clear view of what constitutes the social licence to operate in that global environment. This is one of the issues that Occupy X needs to consider because none of the “old” solutions will work this time around.

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Written by Roger Jones

October 28, 2011 at 10:19 am

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