Global Corporate Control: A study

There is no prior quantitative estimation for control

https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0025995

Thinking over the various “clubs” of the Super Predators -WEF, Tri-Lateralists, Bilderberg, etc, I thought to go back into my notes. First, Forbes. “So of the $25.69 trillion in worldwide assets we've identified, $2.23 trillion are directly in indexes (ETFs and index mutual funds) with another $22.3 trillion indirectly beholden to indexes (that 95% of actively managed fund holdings said to be determined by an index).

You can see where I'm headed here. That means the real power to control the world lies with four companies: McGraw-Hill, which owns Standard & Poor's, Northwestern Mutual, which owns Russell Investments, the index arm of which runs the benchmark Russell 1,000 and Russell 3,000, CME Groupwhich owns 90% of Dow Jones Indexes, and Barclay's, which took over Lehman Brothers and its Lehman Aggregate Bond Index, the dominant world bond fund index. Together, these four firms dominate the world of indexing. And in turn, that means they hold real sway over the world's money.” https://www.forbes.com/sites/brendancoffey/2011/10/26/the-four-companies-that-control-the-147-companies-that-own-everything/?sh=4d0f6b88685b

The fact that control is highly concentrated in the hands of few top holders does not determine if and how they are interconnected. It is only by combining topology with control ranking that we obtain a full characterization of the structure of control. A first question we are now able to answer is where the top actors are located in the bow-tie. As the reader may by now suspect, powerful actors tend to belong to the core. In fact, the location of a TNC in the network does matter. For instance, a randomly chosen TNC in the core has about chance of also being among the top holders, compared to, e.g., for the in-section (Table S4 in Appendix S1). A second question concerns what share of total control each component of the bow-tie holds. We find that, despite its small size, the core holds collectively a large fraction of the total network control. In detail, nearly of the control over the economic value of TNCs in the world is held, via a complicated web of ownership relations, by a group of TNCs in the core, which has almost full control over itself. 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.

This remarkable finding raises at least two questions that are fundamental to the understanding of the functioning of the global economy. Firstly, what are the implication for global financial stability? It is known that financial institutions establish financial contracts, such as lending or credit derivatives, with several other institutions. This allows them to diversify risk, but, at the same time, it also exposes them to contagion [15]. Unfortunately, information on these contracts is usually not disclosed due to strategic reasons. However, in various countries, the existence of such financial ties is correlated with the existence of ownership relations [23]. 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.

Secondly, what are the implications for market competition? Since many TNCs in the core have overlapping domains of activity, the fact that they are connected by ownership relations could facilitate the formation of blocs, which would hamper market competition [14]. Remarkably, the existence of such a core in the global market was never documented before and thus, so far, no scientific study demonstrates or excludes that this international “super-entity” has ever acted as a bloc. However, some examples suggest that this is not an unlikely scenario. For instance, previous studies have shown how even small cross-shareholding structures, at a national level, can affect market competition in sectors such as airline, automobile and steel, as well as the financial one [13], [14]. At the same time, antitrust institutions around the world (e.g., the UK Office of Fair Trade) closely monitor complex ownership structures within their national borders. The fact that international data sets as well as methods to handle large networks became available only very recently, may explain how this finding could go unnoticed for so long.