Aug 25, 2009
By Lauren Schenkman
Inside Science News Service
http://www.insidescience.org/research/study_says_world_s_stocks_controlled_by_select_few
WASHINGTON -- A recent analysis of the 2007 financial markets of 48
countries has revealed that the world's finances are in the hands of
just a few mutual funds, banks, and corporations. This is the first
clear picture of the global concentration of financial power, and point
out the worldwide financial system's vulnerability as it stood on the
brink of the current economic crisis.
A pair of physicists at the Swiss Federal Institute of Technology in
Zurich did a physics-based analysis of the world economy as it looked
in early 2007. Stefano Battiston and James Glattfelder extracted the
information from the tangled yarn that links 24,877 stocks and 106,141
shareholding entities in 48 countries, revealing what they called the
"backbone" of each country's financial market. These backbones
represented the owners of 80 percent of a country's market capital, yet
consisted of remarkably few shareholders.
"You start off with these huge national networks that are really big,
quite dense," Glattfelder said. “From that you're able to ... unveil
the important structure in this original big network. You then realize
most of the network isn't at all important."
The most pared-down backbones exist in Anglo-Saxon countries, including
the U.S., Australia, and the U.K. Paradoxically; these same countries
are considered by economists to have the most widely-held stocks in the
world, with ownership of companies tending to be spread out among many
investors. But while each American company may link to many owners,
Glattfelder and Battiston's analysis found that the owners varied
little from stock to stock, meaning that comparatively few hands are
holding the reins of the entire market.
“If you would look at this locally, it's always distributed,”
Glattfelder said. “If you then look at who is at the end of these
links, you find that it's the same guys, [which] is not something you'd
expect from the local view.”
Matthew Jackson, an economist from Stanford University in Calif. who
studies social and economic networks, said that Glattfelder and
Battiston's approach could be used to answer more pointed questions
about corporate control and how companies interact.
"It's clear, looking at financial contagion and recent crises, that
understanding interrelations between companies and holdings is very
important in the future,” he said. "Certainly people have some
understanding of how large some of these financial institutions in the
world are, there's some feeling of how intertwined they are, but
there's a big difference between having an impression and actually
having ... more explicit numbers to put behind it."
Based on their analysis, Glattfelder and Battiston identified the ten
investment entities who are “big fish” in the most countries. The
biggest fish was the Capital Group Companies, with major stakes in 36
of the 48 countries studied. In identifying these major players, the
physicists accounted for secondary ownership -- owning stock in
companies who then owned stock in another company -- in an attempt to
quantify the potential control a given agent might have in a market.
The results raise questions of where and when a company could choose to
exert this influence, but Glattfelder and Battiston are reluctant to
speculate.
"In this kind of science, complex systems, you're not aiming at making
predictions [like] ... where the tennis ball will be at given place in
given time," Battiston said. “What you're trying to estimate is … the
potential influence that [an investor] has."
Glattfelder added that the internationalism of these powerful companies
makes it difficult to gauge their economic influence. "[With] new
company structures which are so big and spanning the globe, it's hard
to see what they're up to and what they're doing,” he said. Large,
sparse networks dominated by a few major companies could also be more
vulnerable, he said. "In network speak, if those nodes fail, that has a
big effect on the network."
The results will be published in an upcoming issue of the journal Physical Review E.
That's like Singapore being controlled by only a select few.
Originally posted by angel3070:That's like Singapore being controlled by only a select few.
Isnt Singapore already controlled by a select few?