Backbone of Complex Networks of Corporations: The Flow of Control
August 31st, 2009From: Backbone of Complex Networks of Corporations: The Flow of Control, by J.B. Glattfelder, S. Battiston:
Having identified important shareholders in the global markets, it is now also possible to address the following questions. Who holds the power in an increasingly globalized world? How important are individual people compared to the sphere of influence of multinational corporations? How eminent is the influence of the financial sector? By looking in detail at the identity of the power holders featured in the backbones, we address these issues next. If one focuses on how often the same power holders appear in the backbones of the 48 countries analyzed, it is possible to identify the global power holders. Following is a top-ten list, comprised of the company’s name, activity, country the headquarter is based in, and ranked according to the number of times it is present in different countries’ backbones: the Capital Group Companies (investment management, US, 36), Fidelity Management & Research (investment products and services, US, 32), Barclays PLC (financial services provider, GB, 26), Franklin Resources (investment management, US, 25), AXA (insurance company, FR, 22), JPMorgan Chase & Co. (financial services provider, US, 19), Dimensional Fund Advisors (investment management, US, 15), Merrill Lynch & Co. (investment management, US, 14), Wellington Management Co. (investment management, US, 14), and UBS (financial services provider, CH, 12). Next to the dominance of US American companies we find: Barclays PLC (GB), AXA (FR) and UBS (CH), Deutsche Bank (DE), Brandes Investment Partners (CA), Soci´et´e G´en´erale (FR), Credit Suisse Group (CH), Schroders PLC (GB), and Allianz (DE) in the top 21 positions. The government of Singapore is at rank 25. HSBC Holdings PLC (HK/GB), the world’s largest banking group, only appears at position 26. In addition, large multinational corporations outside of the finance and insurance industry do not act as prominent shareholders and only appear in their own national countries’ backbones as controlled stocks. For instance, Exxon Mobil, Daimler Chrysler, Ford Motor Co., Siemens, and Unilever. Individual people do not appear as multinational power holders very often. In the US backbone, we find one person ranked at ninth position: Warren E. Buffet. William Henry Gates III is next, at rank 26. In DE the family Porsche/Piech and in FR the family Bettencourt are power-holders in the top ten. For the tax-haven KY one finds Kao H. Min (who is placed at number 140 in the Forbes 400 list) in the top ranks.
Via: Inside Science:
A recent analysis of the 2007 financial markets of 48 countries has revealed that the world’s finances are in the hands of just a few mutual funds, banks, and corporations. This is the first clear picture of the global concentration of financial power, and point out the worldwide financial system’s vulnerability as it stood on the brink of the current economic crisis.
A pair of physicists at the Swiss Federal Institute of Technology in Zurich did a physics-based analysis of the world economy as it looked in early 2007. Stefano Battiston and James Glattfelder extracted the information from the tangled yarn that links 24,877 stocks and 106,141 shareholding entities in 48 countries, revealing what they called the “backbone” of each country’s financial market. These backbones represented the owners of 80 percent of a country’s market capital, yet consisted of remarkably few shareholders.
“You start off with these huge national networks that are really big, quite dense,” Glattfelder said. “From that you’re able to … unveil the important structure in this original big network. You then realize most of the network isn’t at all important.”
The most pared-down backbones exist in Anglo-Saxon countries, including the U.S., Australia, and the U.K. Paradoxically; these same countries are considered by economists to have the most widely-held stocks in the world, with ownership of companies tending to be spread out among many investors. But while each American company may link to many owners, Glattfelder and Battiston’s analysis found that the owners varied little from stock to stock, meaning that comparatively few hands are holding the reins of the entire market.
“If you would look at this locally, it’s always distributed,” Glattfelder said. “If you then look at who is at the end of these links, you find that it’s the same guys, [which] is not something you’d expect from the local view.”
Matthew Jackson, an economist from Stanford University in Calif. who studies social and economic networks, said that Glattfelder and Battiston’s approach could be used to answer more pointed questions about corporate control and how companies interact.
“It’s clear, looking at financial contagion and recent crises, that understanding interrelations between companies and holdings is very important in the future,” he said. “Certainly people have some understanding of how large some of these financial institutions in the world are, there’s some feeling of how intertwined they are, but there’s a big difference between having an impression and actually having … more explicit numbers to put behind it.”
Based on their analysis, Glattfelder and Battiston identified the ten investment entities who are “big fish” in the most countries. The biggest fish was the Capital Group Companies, with major stakes in 36 of the 48 countries studied. In identifying these major players, the physicists accounted for secondary ownership — owning stock in companies who then owned stock in another company — in an attempt to quantify the potential control a given agent might have in a market.
The results raise questions of where and when a company could choose to exert this influence, but Glattfelder and Battiston are reluctant to speculate.
“In this kind of science, complex systems, you’re not aiming at making predictions [like] … where the tennis ball will be at given place in given time,” Battiston said. “What you’re trying to estimate is … the potential influence that [an investor] has.”
Glattfelder added that the internationalism of these powerful companies makes it difficult to gauge their economic influence. “[With] new company structures which are so big and spanning the globe, it’s hard to see what they’re up to and what they’re doing,” he said. Large, sparse networks dominated by a few major companies could also be more vulnerable, he said. “In network speak, if those nodes fail, that has a big effect on the network.”
