“The network of global corporate control”?

This paper, by Vitali, Glattfelder, and Battiston, has been getting a lot of publicity, here is part of the abstract:

…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.

I did not find this paper easy to follow, but I can show you the top few control holders, with Wikipedia links supplied by me:

1. Barclays, 2. Capital Group Companies, 3. FMR (Fidelity), 4. AXA, 5. State Street Corporation, and 6. JP Morgan.

The rest of the list, especially the top 25, is heavily financial, see  a reproduction of it here.  What does Barclays own on the commercial side?  The paper is silent on this.  CGC is a batch of mutual funds, far more decentralized than the aggregate measure from this paper would suggest; lately it’s been doing major layoffs.  Fidelity is also a batch of investment funds and it is misleading to think of Fidelity shareholders as exercising control over what is held through the various funds, even though they are appointing managers to run the funds.  AXA is a French insurance company and financial conglomerate.  State Street is another umbrella of funds and investment companies, again proxying for a wide degree of dispersed investment.  JP Morgan Co., chartered as a bank in the United States, faces serious limits on what it can own commercially, although it does run private equity services for clients.

Think about it: Fidelity proxies for millions of individual (and institutional) investors, and so it is not a corporate Blofeld in disguise.  That it “owns itself” does not change this basic fact.  Here is an interesting new paper on the role of mutual funds in current corporate governance; here is a somewhat older paper.

Mathematically derived linkages do not equal control or necessarily point in that direction.  This paper needed a big dose of verstehen, it is more misleading than illuminating.  Start again, distinguishing between ownership/control and financial intermediation and see what comes out of the mix.  Comcast does own and control NBC and that relationship is different from the large network of assets held through Fidelity mutual funds.  The real lesson of this paper is simply that a large chunk of financial intermediation is run through a few dozen firms, hardly a revelation.

I thank a loyal MR reader for the initial pointer.  Addendum: Tim Worstall also nails it.


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