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Concentrated Corporate Control Is Evidence Of Oligarchy

Picture of a financial oligopoly (image: D. Garcia, using a program called "Cuttlefish")

I’ve read the paper, The Network of Global Corporate Control, and I think it is convincing evidence of the unnatural accumulation of corporate power and control in the hands of a few, the very definition of Oligarchy. The authors conclude that 737 holders accumulate 80% of the control over the value of all Transnational Corporations (TNCs), and 147 have 40% of the control over those TNCs.

Some of the media folks who have written about it want you to think the concentration of 40% of the control of the largest companies is just a natural thing, like this snotty piece from Forbes, The 147 Companies that Control Everything. Or they want to tie it to OWS, like this from Canada’s Globe and Mail, It’s True: Bankers Really Do Control the World: Study.  The New York Times, the Wall Street Journal and pretty much the rest of the national media ignored it, their usual solution for information that raises questions about control by the rich. Before you draw any conclusions, it’s helpful to see what the authors did, what they think, and what they concluded.

The paper uses network control theory to map out the relations between 43,060 transnational corporations (TNCs) and about 30 million economic actors (individuals and business entities) included in the Orbis 2007 database. This is a collection of information, including ownership and revenues, prepared by the Organisation for Economic Co-operation and Development, widely used by researchers and investors.  [cont’d.]

Considering that it is an academic work, the paper isn’t that hard to understand.The basic technique of the paper is to consider ownership of entities in the form of a graph. If Corporation A owns 60% of the voting stock of Corporation B, the graph would be

A ? B

and the number .6 would appear over the arrow. Now suppose that B owns 70% of Corporation C. The graph would look like this

A ? B ? C, and the number .7 would appear over the second arrow. In this case, A also has an interest in C, which we would get by multiplying .6 by .7, and we would say that A has a 42% interest in C.

Now let’s assume A owns 10% of C directly. We would graph that with a looping arrow that goes over B directly to C, with .1 over it. We would say that A has an interest in C of 42% plus 10% for a total of 52%.

Next, let’s say B also has a 50% interest in D. That would look something like this (remembering the line from A to C):

A ? B ?? C

Alongside the down arrow, we would put the number .5. We would say that A has a 30% interest in D. Finally, suppose C has a 50 percent interest in D, and D has a 50% interest in C. There would be two arrows between C and D, and each with .5 above them. A has a larger interest in C and D as a result of the cross-ownership, but it isn’t obvious how to calculate it, so for the moment let’s just call it a problem.

The cool thing about graphs is that you can describe them with a matrix. Mathematicians know a lot about how to deal with matrices, and it is straightforward to do matrix calculations with computers. Of course, even on a fast computer it takes a while when there are more than 30 million entries.

The authors then introduce the concept of control. They assign total control to the entity with majority control. In our example, A controls B and C, and has a substantial interest in D, so it gets a 3. B controls C and D, so it gets a 2, and C and D control each other, so they get a 1. That last one is a problem. What sense does it make to say that these two control each other? Doesn’t A control both? Ignoring the problem for the moment, we could make a matrix to show this control.

Then we have value of control. For each entity, we could calculate the value of control by adding up the value of each entity it controls. If we say that the value of each entity is 5, A has control over three others, so its control value is 15, and the value to the owner of A is 20.

The authors use operating revenue as a measure of value, because it is available, and the calculation is fairly standard around the world. On page 22 of the paper, you will find a description of some of the calculations and an example showing how the authors correct for the problem of calculating control in cases of cross-ownership.

(image: D. Garcia, using a program called "Cuttlefish", click to embiggen)

This is a schematic outline of the connections among the 43,060 TNCs, the ownership interests in those companies, and their ownership interests in other companies in the whole Orbis database. It demonstrates the bowtie shape, with the “In” section on the left, a strongly-connected component (SCC)in the middle, and the “Out” section on the left. It also shows interests that do not involve the SCC, called tubes and tendrils.

(image: D. Garcia, using a program called "Cuttlefish", click to embiggen)

This is a 3-D view of the actual calculations scaled logarithmically by the operating revenues of the TNCs. The In side is much smaller than the Out side, and the SCC is really dense. About 75% of the control over firms in the SCC is in the SCC.

(image: D. Garcia, using a program called "Cuttlefish", click to embiggen)

This is the SCC. It shows a lot of connections among a relatively small group of companies.

(image: D. Garcia, using a program called "Cuttlefish", click to embiggen)

This is a graph of the connections among the TNC financial companies. If you look at the upper right hand side, you see the kinds of connections we are talking about. Prudential Financial owns an interest in Citigroup. Citigroup owns an interest in Morgan Stanley. Morgan Stanley owns an interest in Prudential Financial. The data is from 2007, so Lehman Brothers shows up at the bottom, and Merrill Lynch is a separate entity from Bank of America. We should assume things are much more concentrated now than they were before the Great Crash.

The authors tell us that 737 firms have 80% of the control of the Transnational Corporations.  If anyone complains that this isn’t proof that they exercise Oligarchic power, ask them about the last time one of these favored few had power it didn’t exercise.

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Marco Pinocchio



I read a lot of books.