Too Big to Fail

New Scientist magazine has reported on the results of a study into who runs the global economy. The study was conducted by three complex systems theorists at the Swiss Federal Institute of Technology in Zurich. They studied a 2007 database of 37 million companies, from which they extracted 43,060 multinational corporations. An analysis of the relationships between them concluded that 1318 among them form the core of the global economy.

Image mapping the relationships between the 1318 multinational corporations that form the core of the global economy, with the super-cluster in red, via 'New Scientist'

Image mapping the relationships between the 1318 multinational corporations that form the core of the global economy, with the super-cluster in red, via 'New Scientist'

Each of the 1318 has an average of 20 relationships with others in the same group. The 1318 multinationals represent one-fifth of global operating revenues. Moreover, they own shares in other companies (blue-chip and manufacturing companies) that in turn represent three-fifths of the real economy.

But the study went further. The researchers found that when they plotted the relationships of the 1318, there were 147 that in effect formed a super-cluster (or “super-entity”, in the words of the New Scientist report). The 147 companies in the super-cluster are entirely owned by the 1318 and represent 40% of the wealth of the entire system of 43,000. Many of them, like JP Morgan, Barclays and Goldman Sachs, are the kind of financial institutions that nearly collapsed in the global financial crisis (the New Scientist report lists the top 50). It was precisely their interconnectedness that brought the global economy to the brink of systemic collapse in 2008, necessitating a series of government bailouts that has in turn brought several governments to the brink of bankruptcy. “In effect, less than one per cent the companies were able to control 40 per cent of the entire network,” says James Glattfelder, one of the research team, in the New Scientist report. Oddly, this coincides with the Occupy movement’s claim that, in the US, the top one per cent of the population owns 42% of the nation’s wealth.

While the research echoes Alessio Rastani’s recent assertion that “Goldman Sachs rules the world”, the researchers say the study doesn’t point to a global multinational conspiracy to rule the world. Rather, the lesson is that, under stress, the network of relationships between the largest corporations may be inherently unstable. Global anti-trust laws may be needed to ensure that, in the event of a multinational collapse, it doesn’t take the rest of the global economy under. The peer-reviewed findings of the report are due to be published on PLoS One.

More on complex system theory.

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