Wednesday, October 26, 2011

Two studies of concentration of power -- government and industry

A study of the relationships between 43,000 transnational corporations has identified a relatively small group, including many banks, with disproportionate power over the global economy.

(Study details are available in this paper).

The image shown here (click to enlarge) represents the 1,318 transnational corporations that form the core of the economy. Superconnected companies are red and very connected companies yellow. The size of the dot represents revenue. Each of the 1,318 had ties to two or more other companies, and on average they were connected to 20. The anlysis revealed that 147 even more tightly knit companies controlled 40 percent of the 43,000 corporations analyzed.

Characterizing the concentration of power in this way is time timely in light of the recent "occupy Wall Street" demonstrations, and provides background for James Allworth's suggestion that we may be facing a choice between capitalism and democracy.

This sort of concentration is worrisome from the standpoint of stability as well as equity. What is the effect of the failure of one of a limited number of large entities -- like banks that are "too big to be allowed to fail?" Note that the database used in the study was compiled in 2007, so it does not refelct changes that have occured during the current economic crisis.

This study reminds me of another case of concentration of control. Around ten years ago, I worked on a study of the state of the Internet in Singapore for the International Telecommunication Union (ITU). I noted at the time that the government played a central role there. They picked critical areas of the economy -- oil, shipping, banking, information technology, biotechnology -- and acted as a heavy-handed venture capitalist. With the help of my nephew, who was working for Goldman Sachs in Singapore, I put together this diagram showing government ownership in the telephone and ISP industries.
The government was not a passive investor. They hired the best and the brightest coming out of the universities. They created some of the earliest strategic IT forecasts and plans, which were put into effect through significant investment. (The best and the brightest avoid government in the US, but that has not always been the case).

This approach has served Singapore well. Today, they are ranked 19th in the world on the ITU ICT Development Index. The top twenty nations all have powerful governments -- most would be considered socialist failures in tea party circles.

We've seen two studies of the concentration of power -- one in the hands of business, the other government. No study or theory will ever be able to fully comprehend anything as complex as an economy or an industry, but these cases indicate that government has a place in ensuring stability and encouraging the development of infrastructure.