Monday 19 August 2013

Monopoly #2


Why waste words when the numbers speak for themselves? However, a little explanation may be useful in this case. *

The numbers in the table below are taken from a study of some 43,000 international companies in 2007. That means some of the information is now a little dated, with the demise of Lehman Brothers being one example. However, the broad picture remains and it is one showing that the top 50 companies 'controlled' (ie had ownership of 50% or more of the equity in) some 40% of the network of 43,000. US monopolists account for nearly half of the entries in the table, but the UK is second in line.

Analysing these relationships is complicated since it must take into account the common fact that company A owns a share of company B; B also owns a share of company C, and C may also own a share of the equity in A and B. Such relationships are open to network analysis, however, and the results show the concentration of power in a core group of companies, of which these are the top 50.

Most of the corporations listed are in the financial sector, a fact that illustrates both how equity markets enable the centralisation of ownership through cross-shareholdings, mergers and takeovers, and how financial companies are at the centre of this relationship nexus. I have some qualms with the view that this means actual control, however. There may be an accumulation of relatively small shareholdings by a wide range of subsidiaries and loosely linked companies, so that implementing control may prove to be difficult, even if it were attempted. Furthermore, if 20 separate financial institutions owned 60% of a particular company's equity, they will not necessarily act as a group. Nevertheless, this does not change the picture of monopolistic ownership of the world's companies.

A different issue that could upset the calculation either way, and I do not think this was (or could have been) allowed for in the study, is that owning 1% of the equity does not necessarily give 1% of the voting rights. It may give more, or even zero, voting power, depending on the type of equity. Take Facebook's Zuckerberg as an example: he is reported to own 18% of the company's shares but has more than 50% of the voting rights.

The original study giving the method behind the analysis and some more information on the work done is found here.

For those who may frustrated with the way that mathematics is often used to obscure economic relationships, let this stand as one of the rare examples where it elucidates them!




Rank
Company name
Country
Cumulative % network control
1
Barclays Plc
GB
4.1
2
Capital Group Companies, Inc
US
6.7
3
FMR Corp
US
8.9
4
Axa
FR
11.2
5
State Street Corp
US
13.0
6
JP Morgan Chase & Co
US
14.6
7
Legal & General Group Plc
GB
16.0
8
Vanguard Group Inc
US
17.3
9
UBS AG
CH
18.5
10
Merrill Lynch & Co
US
19.5
11
Wellington Management Co LLP
US
20.3
12
Deutsche Bank AG
DE
21.2
13
Franklin Resources Inc
US
22.0
14
Credit Suisse Group
CH
22.8
15
Walton Enterprises LLC
US
23.6
16
Bank Of New York Mellon  Corp
US
24.3
17
Natixis
FR
25.0
18
Goldman Sachs Group Inc
US
25.6
19
T Rowe Price Group Inc
US
26.3
20
Legg Mason Inc
US
26.9
21
Morgan Stanley
US
27.6
22
Mitsubishi UFJ Financial Group Inc
JP
28.2
23
Northern Trust Corp
US
28.7
24
Société Générale
FR
29.3
25
Bank Of America Corp
US
29.8
26
Lloyds TSB Group Plc
GB
30.3
27
Invesco Plc
GB
30.8
28
Allianz Se
DE
31.3
29
TIAA
US
32.2
30
Old Mutual Plc
GB
32.7
31
Aviva Plc
GB
33.1
32
Schroders Plc
GB
33.6
33
Dodge & Cox
US
34.0
34
Lehman Brothers Holdings Inc
US
34.4
35
Sun Life Financial Inc
CA
34.8
36
Standard Life Plc
GB
35.2
37
CNCE
FR
35.6
38
Nomura Holdings Inc
JP
35.9
39
The Depository Trust Company
US
36.3
40
Massachusetts Mutual Life Insurance
US
36.6
41
ING Groep NV
NL
37.0
42
Brandes Investment Partners LP
US
37.3

43
Unicredito Italiano Spa
IT
37.6
44
Deposit Insurance Corporation Of Japan
JP
37.9
45
Vereniging Aegon
NL
38.3
46
BNP Paribas
FR
38.6
47
Affiliated Managers Group Inc
US
38.9
48
Resona Holdings Inc
JP
39.2
49
Capital Group International Inc
US
39.5
50
China Petrochemical Group Co
CN
39.8


Source: Vitali S, Glattfelder J B, Battiston S 2011, ‘The Network of Global Corporate Control’, PLoS ONE 6(10): e25995. doi:10.1371/journal.pone.0025995

Notes: 'Home countries' of the corporations are shown by their 2-letter ISO code. Note that CA is Canada, CH is Switzerland and CN is China.


Tony Norfield, 19 August 2013

* Clarification note, 20 August 2013: Vitali et al's document makes a clear distinction between ownership and control. To clarify, the table above gives figures for control, not ownership. The control estimate is based on owning 50% or more of the equity and thus having control over a company's decisions. In an extreme case, owning 50.1% of equity would give 100% control. Hence, the measure of control will overstate the actual figure of ownership. So these top 50 companies do not own nearly 40% of the network of corporations, although, by their measure they control nearly 40% of them.

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