Monday, January 2, 2012

Network of Power

As protesters rise in New-York and elsewhere, a scientific study carried out by the Swiss Federal Institute of Technology reveals that 147 multinational groups control over 40% of financial power. This is not news since previous studies had reached a similar conclusion though analysts failed to capture all interconnections between groups and their subsidiaries. The merit of the study is that it is based on a complex model which analyses the web of  interconnections and draws on  a database of 37 million companies and investors worldwide from which they pulled out 43060 transnational corporations and the share ownerships linking them. It revealed a core of 1318 companies with interlocking ownerships. Each one had ties with two or more other companies and on average they were connected to 20. These companies appear to collectively own through their shares the majority of global operating revenues.

Most of these powerful groups are financial institutions such as Barclays, JP Morgan Chase and Goldman Sachs. But they control directly large manufacturing firms, so that they also control most of the trade flows worldwide. The hegemony of financial capital, as already explained  in the early 20th century by R.Hilferding (das Finanzkapital, 1910) is based on the idea of an organized system and a relatively stable concentration of economic power.  K.Marx, on the contrary, believed, that the system was structurally unstable and was condemned to an eventual breakdown.

The key issue is the extent of the interconnectedness between these groups and the variety of links, which are not always conducive to ownership but may entail other forms of control. The authors of the study argue that such links may be beneficial in a context of economic expansion for the stability of the whole capitalist system. However, in times of crisis, they may represent a danger in the meaning that  if the core ties between groups are unstable, this could destabilize the whole global economy. As it happened in 2008, if one group (say Lehman Brothers) suffers massive financial losses, this propagates to the others as well.  The cause is that financial institutions arrange financial contracts with others to diversify risks but at the same time contagion may occur in such an inextricable situation marked by ownership relations, hence the risk of a domino effect.

The 1318 transnational corporations that form the core of the economy. Superconnected companies are red, very connected companies are yellow. The size of the dot represents revenue 

The Occupy Wall Street movement claims that 1 per cent of people having most of the wealth tend to exert an influence on government decisions. It's not just conspiracy theory; it has a list of concrete proposals for the US Congress which include the  reintroduction of the Glass Steagall act (which was introduced in 1933 to avoid excessive concentration of financial power by separating commercial and investment banks); more powers for investigation and prosecution of financial criminals; fair taxation 'as suggested by  Warren Buffett and other super-rich people!...

By identifying the architecture of global power, this study contributes to a better understanding of the global crisis of capitalism and provides to its opponents key tools for challenging financial power in the name of social justice for all.

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