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New Network Study Suggests Tight Connectivity in Global Economies is Inevitable and Dangerous

Posted By Prucia Buscell, Thursday, November 10, 2011

If there is indeed a tiny elite with disproportionate control over the world economy, it may be more a matter of science than conspiracy, new research suggests.

A study by complex systems theorists at the Swiss Federal Institute of Technology analyzes the relationships among 43,000 international corporations and identifies a small tightly interconnected group that wields exceptional global power. A New Scientist story by Andy Coghlan and Debra MacKenzie reports that their paper, soon to be published in PloSOne, is the first to reach beyond ideology to empirically identify such a power network. As a story in Fast Company puts it, the ultra wealthy one percent criticized by Occupy Wall Street may be inevitable because of the way networks work.

The Swiss researchers used mathematical modeling used in studying natural systems to analyze comprehensive corporate data of ownership among the world's transnational corporations. "Reality is so complex, we must move away from dogma, whether it's conspiracy theories or free market," researcher James Glattfelder told the New Scientist

"Our analysis is reality based." The researchers found 1,318 companies with interlocking ownership that were on average connected to 20 other companies. The 1,318 appeared to collectively own a portion of the economy representing 60 percent of global revenues. Untangling the ownership web further, the team found a "super entity" of 147 companies that was even more tightly knit. All of the ownerships in those companies were held by other owners in the super entity - and the super entity controlled 40 percent of the total wealth in the network. In effect, according to Glattfelder, less than one percent of the companies were able to control 40 percent of the network.

Concentration of power isn't a bad thing in itself, the team says, implying that greed and corruption are not inevitable. But tight interconnectivity suggests distress for one or a few players can have disastrous cascading effects. The researchers think identifying the architecture of global economic power can help make it more stable and identify means to ward off large scale future collapses. Glattfelder suggests there maybe a need for global anti-trust rules to limit over connectivity.

The study has its critics. Yaneer Bar-Yam, who heads the New England Complex Systems Institute, notes ownership doesn't always mean control, and he thinks more analysis of the system is needed. Company owners buy shares in other companies for business reasons, not necessarily for power.

George Sugihara, a complex systems scholar at the Scripps Institution of Oceanography in La Jolla, California, stresses the importance of understanding how interconnected world economic entities really are. He told the New Scientist that the Zurich study offers evidence that simple rules governing the transnational corporations "give rise spontaneously to highly connected groups." In a Seed Magazine essay, Sugihara explains the phenomenon of rapid shifts in complex systems of all types and tells why ecological systems offer insights into the connectedness and fragility of complex financial systems.

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