Companies are institutions in a global network

The expansion of the organization of production across different nation-states has been a reality since the middle 1950s. The existence of nation-states with different regulatory regimes in labour markets, social security, financial and fiscal regulations have created opportunities for specific strategies offered by transnationality.

“Who are the key economic actors holding the largest fraction of control? To what degree are the top economic actors interconnected with each other?”.  To answer these questions,  James Glattfelder develops an analysis of the global ownership network of TNCs in his 2012  book Decoding Complexity: Uncovering Patterns in Economic Networks (Springer Theses).  As a result of the complex analysis, the author uncovers the true organization of key global actors and novel features of complex systems of current real-world ownership networks. His effort lies at the interface between the realms of economics and the emerging field loosely referred to as complexity science.

Among his research conclusions, Glattfelder lists the top 50 corporate power-holders considering that the importance of the economic actors is related to their level of integrated control.  As a matter of fact, the top economic actors are highly interconnected and organize a global network of corporations. Another interesting observation is that most of the top power-holders are financial intermediaries.

From an economics point of view, these findings may suggest new questions because of their implications on market competition and financial instability. The global network of interactions between power-holders  requires  a  new systemic approach to the problem of financial instability in contemporary capitalism since companies have potentially wide and indirect influence – for example through control or counter-party risk – on the evolution of the levels of investment, production and employment at the local levels. Indeed, the density of the interconnections between the financial and non-financial companies in the context of the control’s network backbone exposes the global economy to systemic risks. As the interest of private companies does not generally coincide with the interests of society as a whole, these risks need to be dealt with new anti-trust practices and new rules on cross-ownerships among corporations.

As Grazia Ietto-Gillies highlights in her contribution to the 2014 WEA book The Economics Curriculum: Towards a Radical Reformulation, TNCs have very little impact on today’s economics curriculum, although an understanding of modern economies cannot be arrived at without an understanding of how TNCs operate. Indeed, the study of TNCs is relevant for both the micro and macro curriculum. At the micro level the issue of strategic behaviour and enhanced bargaining power – particularly towards labour and governments – should be considered. Among the macro issues, economists need to understand what are the effects of TNCs’ activities and what policies could be shaped to minimize the costs of their activities for economies and societies.

Indeed, as “TNCs are here to stay”, any fruitful attempt to reformulate the economics curriculum for the 21st century should consider that companies are not isolated entities but institutions with a position in a global network.

 

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