The Interconnectedness of Business

    I stumbled across an interesting paper recently entitled The Network Of Global Corporate Control. It is concerned with the various links of ownership in transnationals. Here's the abstract:

Abstract:

"The structure of the control network of transnational corporations affects global market competition and financial stability. So far, only small national samples were studied and there was no appropriate methodology to assess control globally. 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."

The paper is a bit heavy but worth the read. I intend to print it off tomorrow to give it a proper read as I hate reading off computers. What aroused my interest in this was its implications for crises. If firms are so interconnected we can expect the economy to be less stable due to wealth concentration and we also have to contend with the influence of oligoply neverminding the bargaining power this gives companies when trashing out deals with states. It also brought to mind a previous study I read comparing the spread of economic crises to the spread of diseases: Worldwide Spreading Of Economic Crises.

Abstract:
"We model the spreading of a crisis by constructing a global economic network and
applying the Susceptible-Infected-Recovered (SIR) epidemic model with a variable
probability of infection. The probability of infection depends on the strength of eco-
nomic relations between the pair of countries, and the strength of the target country.
It is expected that a crisis which originates in a large country, such as the USA,
has the potential to spread globally, like the recent crisis. Surprisingly we show that
also countries with much lower GDP, such as Belgium, are able to initiate a global
crisis. Using the k-shell decomposition method to quantify the spreading power (of
a node), we obtain a measure of \centrality" as a spreader of each country in the
economic network. We thus rank the dierent countries according to the shell they
belong to, and nd the 12 most central countries. These countries are the most likely
to spread a crisis globally. Of these 12 only six are large economies, while the other
six are medium/small ones, a result that could not have been otherwise anticipated.
Furthermore, we use our model to predict the crisis spreading potential of countries
belonging to different shells according to the crisis magnitude."

Both papers have implications for the study of economic crises and are worth the read. We see that TNC's and links between various companies can have massive implications. I'm a bit pushed for time and so can't post more but I will have a post about tax shares relative to income shares soon.