Thread by @Maksimiljian

Summary:

The paper by Vitali, Glattfelder, and Battiston investigates the global structure of corporate control among transnational corporations (TNCs).arxiv.org/PS_cache/arxiv…

They use complex network analysis to uncover the architecture of international ownership networks and compute the control held by each global player.

They find that TNCs form a giant bow-tie structure, with a small tightly-knit core of financial institutions holding a large portion of control. This core acts as an economic "super-entity," raising important issues for researchers and policymakers.

The study highlights the implications of such control structures on market competition and financial stability. They also introduce a new methodology to overcome issues of control overestimation in large networks.

Key findings include the dominance of a single strongly connected component within the largest connected component, indicating a highly interconnected core of corporations with significant control over each other.

The paper delves into the concentration of control within the global corporate network, a dimension that hasn't been quantitatively estimated before.

By constructing a Lorenz-like curve, they reveal that a small fraction of top holders accumulate a significant portion of network control over the value of all transnational corporations (TNCs).

Specifically, only 737 top holders hold 80% of this control, showcasing a high level of concentration. This concentration exceeds that of wealth distribution in developed countries, highlighting the significant influence of a few actors in the global economy.

Furthermore, they find that powerful actors tend to belong to the core of the network, with nearly 40% of control over TNCs' economic value held by 147 TNCs in the core.

This core, predominantly composed of financial intermediaries, acts as an economic "super-entity" with substantial influence over global corporate activities.

The study raises questions regarding implications for global financial stability and market competition, suggesting that the intricate network structure may exacerbate systemic risk and hinder market competition.

Despite potential concerns about combining data across diverse legal settings, the findings remain robust across different models.

The methodology employed in the study can be extended to analyze other real-world networks where a scalar quantity flows along directed weighted links.

This analysis sheds light on the structural dynamics of complex networks and invites further exploration into the interplay between network structure and control concentration.

The Orbis 2007 marketing database contains detailed information on approximately 37 million economic actors, including both individuals and firms across 194 countries, along with roughly 13 million directed and weighted ownership links.

This dataset primarily focuses on tracking control relationships rather than mere ownership ties, with emphasis placed on voting rights associated with ownership shares.

The selection criteria for identifying transnational corporations (TNCs) are based on the OECD definition, focusing on companies with significant influence over operations in multiple countries.

Subsidiaries of large TNCs are considered TNCs themselves if they hold at least 10% of shares in companies located in more than one country.

Recursive searches downstream and upstream from these TNCs are conducted to map out the network of corporate relations, resulting in a comprehensive understanding of global corporate control.

Different methodologies are employed to compute network control, including the linear model, threshold model, and relative control model. These models estimate direct control from ownership relations and then compute network control considering all paths in the network.

The resulting network portfolio value accounts for both direct and indirect control over economic entities, with operating revenue serving as a comparable measure across sectors.

Overall, this methodology provides insights into the complex structure of global corporate control, shedding light on the distribution of influence and the interconnections among economic actors worldwide.

The concept of network value, akin to a Hubbell index centrality measure, is introduced as a related quantity to network control.

Network value reflects the overall value a corporation possesses in an ownership network, encompassing both intrinsic value and the value gained from network control.

It is highlighted that network value and network control can significantly differ, as illustrated by examples such as Wall Mart, which ranks high in operating revenue but has zero network control, and smaller firms with substantial network control through shares in corporations

with large operating revenue.

However, existing methodologies for computing network control and network value suffer from several drawbacks, including overestimating control in the presence of cycles in the network and yielding paradoxical results in certain situations.

To address these issues, a novel algorithm is proposed, which involves decomposing the network into its bow-tie components and computing network value and control separately for each component.

This approach rectifies problems associated with cycles and ensures a more accurate estimation of control for each node in the network.

The algorithm works by sequentially computing network value and control for different parts of the network, including the OUT (outgoing links), SCC (strongly connected component), IN (incoming links), and T&T (tubes and tendrils).

By applying this algorithm, the overestimation of control in cycles and the accumulation of control at root nodes are effectively mitigated, allowing for a more precise analysis of control distribution within the network.

The work builds upon previous research by introducing the notion of network value and refining methodologies for computing network control in the context of ownership networks.

Initially proposed in [6], network value and the integrated ownership matrix were further refined in [10]. Previous definitions of network control lacked corrections for certain issues, which were addressed in the current work.

While earlier studies, such as [5], focused on listed companies and direct shareholders, the present study necessitated a more comprehensive methodology due to the presence of long indirect paths in the network.

The study also delves into the analysis of degree and strength distributions within the network.

Degree distribution, representing the number of incoming and outgoing relations, follows a power-law distribution with a specific exponent, indicating patterns of portfolio diversification and control fragmentation.

Additionally, strength, defined as the sum of weighted participations in other companies, provides insight into the strength of ownership relationships.

Connected component analysis reveals the structure and fragmentation of the market, with a majority of nodes belonging to the largest connected component (LCC), and the rest distributed among smaller components.

Geographically, the LCC spans various countries, with a concentration of TNCs in fewer countries compared to shareholders. Sector analysis within the LCC highlights the representation of different industries and their respective shareholder distributions.

Finally, the study examines bow-tie component sizes to understand whether the observed structure arises from specific economic mechanisms or random network formation processes.

While theoretical predictions for correlated networks are lacking, the study refrains from employing random reshuffling due to economic constraints and computational complexity.

The analysis of strongly connected components (SCCs), also known as cross-shareholdings, reveals sub-network structures where companies directly or indirectly own each other, forming cycles.

These cross-shareholdings have garnered attention from economic institutions, such as antitrust regulators, and companies themselves, as they can influence market competition and strategic decisions.

In the studied sample, there are 2219 direct cross-shareholdings involving 2303 companies, representing a small percentage of all ownership relations. Various combinations of indirect paths exist within cross-shareholdings, with different implications for control and influence.

SCCs vary in size, with the majority embedded within the largest connected component (LCC). The LCC's dominant SCC contains 1318 companies, shaping the bow-tie structure of the network.

The concept of network control extends beyond voting influence to encompass the economic value a shareholder can influence across its portfolio of owned firms.

Financial institutions' control over companies has been debated, with some studies suggesting they exert control through informal means, while others find conflicting evidence, often attributed to conflicts of interest.

The rich club phenomenon, where highly connected nodes form a core within a network, has implications for understanding control in ownership networks.

The top control-holders ranking reveals that many influential actors, particularly in the financial sector, are interconnected within the core of the network.

This finding underscores the interconnectedness of top players in global corporate control, shedding light on previously unexplored aspects of network dynamics.

The table presents the top 50 control-holders in the network, ranked by their network control according to the threshold model (TM).

The economic actors are listed along with their country, NACE industrial sector code, position in the bow-tie sections, and cumulative network control percentage.

Notably, many of the top control-holders belong to the financial sector, as indicated by NACE codes starting with 65, 66, or 67. Some key observations from the table include:

1. **Barclays PLC** ranks first with a network control of 4.05%, positioned within the SCC.

2. Several well-known financial institutions, such as **Capital Group Companies Inc., FMR Corp, State Street Corporation, JPMorgan Chase & Co.,** and **AXA**, occupy top positions, indicating their significant influence within the network.

3. The table illustrates the diversity of countries represented among the top control-holders, including the US, France, Switzerland, Germany, Japan, and the UK.

4. The position of economic actors within the bow-tie sections varies, with some located in the IN, SCC, or T&T sections, reflecting their different roles and connections within the network.

Overall, the table provides insights into the distribution of network control among the top economic actors, particularly within the financial sector, and highlights the interconnectedness of global corporate control.

/////////////////////////////////

////////////////////////////////

Analysis / Comment

In the wake of Vitali, Glattfelder, and Battiston's groundbreaking research, a startling revelation has emerged: the global corporate landscape is not just a collection of individual entities, but a tightly interwoven web of power and influence, with a select few pulling the

strings.This study, utilizing complex network analysis, has unveiled the true nature of corporate control, exposing the hegemonic grip of transnational corporations (TNCs) and financial institutions over the world economy.

At the heart of this revelation lies the concept of the "super-entity" – a small, elite core of corporations holding disproportionate control over the global economic system.

This core, resembling a giant bow-tie structure, is dominated by financial behemoths such as Barclays PLC, Capital Group Companies Inc., and AXA, whose tentacles reach far and wide, shaping the destiny of nations and markets alike.

This concentration of power flies in the face of free-market rhetoric, revealing the inherent contradictions of capitalism.

What does this mean for the average citizen? It means that our economic fate is dictated not by democratic principles or market forces, but by a group of corporate elites whose interests often diverge from those of the broader society.

The study's findings underscore the urgent need for radical systemic change, a call to arms for the disenfranchised masses to reclaim control over their own destinies.

Moreover, the concentration of control within the financial sector lays bare the parasitic nature of modern capitalism, where wealth is siphoned away from productive endeavors into the speculative casino of Wall Street.

This vampiric system enriches the few at the expense of the many, perpetuating inequality and exploitation on a global scale.

But perhaps most damning of all is the revelation that this system is not a product of natural market forces, but a deliberate design crafted by those in power to maintain their stranglehold over the world economy.

The study's methodology exposes the mechanisms through which this control is exerted, providing a roadmap for resistance and revolution.

In conclusion, Vitali, Glattfelder, and Battiston's research is a wake-up call to all those who believe in a more just and equitable world.

It lays bare the rotten core of global capitalism and points the way toward a future where economic power is vested in the hands of the many, not the few. The time for change is now.

The companies mentioned in the study by Vitali, Glattfelder, and Battiston are led by a diverse group of individuals, including executives, board members, and major shareholders. Here are some key figures associated with the top companies mentioned in the study:

Barclays PLC: The leadership of Barclays PLC includes a Board of Directors chaired by Nigel Higgins and led by CEO Jes Staley.

Other notable executives include Tushar Morzaria (Group Finance Director) and Paul Compton (Group Chief Operating Officer).

Capital Group Companies Inc.: Capital Group is a privately held company, and its leadership structure may not be as publicly accessible as that of publicly traded companies. However, Timothy D.

Armour serves as Chairman and CEO of Capital Group, while Rob Lovelace and Greg Johnson hold key leadership positions.

AXA: AXA is led by a Board of Directors chaired by Denis Duverne. Thomas Buberl serves as the CEO of AXA Group. Other key executives include Etienne Bouas-Laurent (Chief Financial Officer) and Astrid Stange (General Secretary).

State Street Corporation: State Street Corporation is led by Ronald P. O'Hanley, who serves as Chairman and CEO. Other key executives include Eric Aboaf (Chief Financial Officer) and Hannah Grove (Chief Marketing Officer).

JPMorgan Chase & Co.: JPMorgan Chase is led by Jamie Dimon, who serves as Chairman and CEO. Other key executives include Jennifer Piepszak (Chief Financial Officer) and Mary Callahan Erdoes (CEO of Asset and Wealth Management).

These individuals play crucial roles in shaping the strategies and operations of their respective companies, influencing not only their own organizations but also the broader economic landscape.

@threadreaderapp unroll please