The Good, the Bad, and the Stranger

Once upon a time, in a land far away, there lived two brothers. The first brother was like an ox: strong, dutiful, and hard-working. The second brother was like a rotten apple – useless, menacing, and foul. The first brother set up a small enterprise, which quickly took root and sprawled. Soon, he needed to hire a helping hand. He could either employ his brother, who was wicked and lazy but still a relation, or a Stranger, who was diligent and qualified, but came from some distant God-forsaken place.

At this point the story forks and you, the reader, have to choose which path to take:

– You hire the stranger. The enterprise grows and prospers. Your brother vanishes in misery. Every Christmas you send him a present to an address he has long abandoned. This is the way of the capitalist.

– You hire the brother. He might be trouble, but he is of your own blood. And, on his advice, you close your community to strangers. Soon, your brother stops showing up for work, and when he does, he shows up drunk. You quarrel and curse, but you stay loyal, and the enterprise rapidly goes into wreck. But you go down together. This is the way of the nationalist.

– You hire the stranger. Every month you take a generous slice from your profit and a big cut from the stranger’s salary, and you give them to your brother. Your brother acquires a big TV, junk food addiction, and a feeling of entitlement that leads him to riot every time your contributions are late. But the enterprise survives, and your conscience is clear. This is the way of the socialist.

But, whichever path you chose, the good times come to an end, the fat years are over, and a long and painful crisis settles in the land.

In the capitalist path of the story, the stranger, who has been saving during all the good years, buys the enterprise from you. You ask him to employ you, but he hires his brother instead, and kicks you out of the door.

In the nationalist path of the story, the good times were over long time ago anyways. You had long since reached the bottom, and what only keeps you alive is the deep hatred of your neighbors, which is the one remaining thing that you share with your brother.

In the socialist path of the story, your brother suddenly feels the pain when your monthly contributions dry up. He accuses the stranger of stealing his job and having no right to be here anyways and causing too much trouble altogether. He starts to pester you, to beg, and to threaten. Finally, you succumb, kick out the stranger, and hire your brother instead. But he has never done an honest day of work, so he quickly develops back problems and sues you for damage, which drives the enterprise to its end.

So what is the moral of this story?

I don’t know, you tell me, I’m just the stranger.

Concentration of control in the global economy

All conspiracy theorists know that the global economy is concentrated in the hands of a few. But even they will be blown away by this paper which maps the network of global corporate ownership and control. Here is the (somewhat understated) abstract:

“The structure of the control network of transnational corporations affects global market competition and financial stability. So far, only small national samples were studied and there was no appropriate methodology to assess control globally. We present the first investigation of the architecture of the international ownership network, along with the computation of the control held by each global player. We find that transnational corporations form a giant bow-tie structure and that a large portion of control flows to a small tightly-knit core of financial institutions. This core can be seen as an economic “super-entity” that raises new important issues both for researchers and policy makers.”  (Vitali, Glattfelder and Battiston)

Some of the findings:
– almost 40% of the economic value of transnational companies in the world is in the hands of a group of 147 tightly-interconnected companies “which has almost full control over itself” (p.6)
– “[N]etwork control is much more unequally distributed than wealth…[T]he top ranked actors hold a control ten times bigger than what could be expected based on their wealth” (p.6)
10 companies control 20% of the network; 50 companies control 40% of the network (!)
– 35 of these 50 companies belong to a strongly connected core, meaning that they are all “tied together in an extremely entangled web of control” through co-ownerships (p.32)
77% (463 006) of the firms in the entire network belong to a single connected component [formally, in a connected component all firms can reach each other along the paths of the network]. The second largest connected component has only 230 firms.  

Here is the map of the core of the core of the network itself; not very informative as such but beautiful nonetheless:  (Superconnected companies are red, very connected companies are yellow)


(Image: PLoS One, via New Scientist)
 
This is the first paper to include indirect and weighted control paths in constructing the global economy network and it introduces a new method for measuring control that is suitable for such complex networks. Although quite technical, the paper does a remarkable job of walking the reader step-by-step through the analysis. New Scientist has a less-technical presentation of the research here.

The implications of this work for the stability of the economy and competition should be quite obvious, but the authors (all from ETH Zurich) also explicitly discuss them in the paper. One can only hope that economic policy makers and politicians take note.