The Transnational Super Network If a bit of...

The Transnational Super Network

If a bit of network theory will help buttress your arguments about how powerful transnational corporations run our lives, a recent paper exploring the interrelationships between them is a good place to start.

In “The Network of Global Corporate Control,” a team of Swiss economists tease out global ownership structures and “network” influence of the world’s most influential companies. That is, they find which organization is connected to which other organization, and what the ownership and influence structure is between them.

What they find is that a core group of 787 corporations controls 80% of this super-elite network, and a tightly-knit “super-entity” of 147 companies controls 40% of the network’s transnational corporations.

Not surprisingly is the presence of financial institutions in the network. Also not surprising, the implications such a tight network has on 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. 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. 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. Indeed, while in good times the network is seemingly robust, in bad times ﬁrms go into distress simultaneously. This knife-edge property was witnessed during the recent ﬁnancial turmoil.

The study (PDF).