J.B. Glattfelder and S. Battiston Backbone of complex networks of corporations: The flow of control

Diagramming the relationships between more than 43,000 corporations reveals a tightly connected core of top economic actors. In 2007, a mere 147 companies controlled nearly 40 percent of the monetary value of all transnational corporations, researchers report in a paper published online July 28 at arXiv.org.

“This is empirical evidence of what’s been understood anecdotally for years,” says information theorist Brandy Aven of the Tepper School of Business at Carnegie Mellon in Pittsburgh.

The analysis is a first effort to document the international web of relationships among companies and to examine who owns shares — and how many — in whom. Tapping into the financial information database Orbis, scientists from ETH Zurich in Switzerland examined transnational companies, which they defined as having at least 10 percent of their holdings in more than one country. Then the team looked at upstream and downstream connections, yielding a network of 600,508 economic actors connected through more than a million ownership ties.

This network takes on a bowtie shape, with a large number of diffuse actors in the wings and a few major players tangled up in the tie’s knot. So while it’s true that ownership of publicly held corporations is broadly distributed, says complex systems scientist James Glattfelder, a coauthor of the new work, “take a step back and it’s all flowing into the same few hands.”

While any man on the street may have predicted this outcome, the economic literature portrays markets as so dynamic that they lack hot spots of control, Glattfelder says.

Researchers aren’t sure what to make of the core’s interconnectedness. On the one hand, it could expose the whole network to risk.

“Imagine a disease spreading,” says Aven. “If you have a high school where everyone’s sleeping together and one person gets syphilis, then everyone gets syphilis.”

But on the flip side, she notes, interconnectedness can lead to better self-policing and positive behaviors, such as fair labor practices or environmentally friendly policies.

And even though the status of many players in the analysis has changed drastically since 2007 (now-defunct Lehman Brothers is a key element of the core), the analysis shows that ownership is becoming increasingly concentrated and increasingly transnational, says Gerald Davis of the University of Michigan in Ann Arbor.

This is scientific proof of conspiracy theories. Enjoy!