“This massive concentration of economic resources in the hands
of fewer people presents a significant threat to inclusive political and
economic systems. People are increasingly separated by economic
and political power, inevitably heightening social tensions
and increasing the risk of societal breakdown.”
Oxfam International reported about the huge gap
between the rich power-elite versus half the world's poor
on January 21, 2014, as the World Economic Forum was set
to begin in Davos, Switzerland, the next day with the most influential
money-power players in international trade, business, finance and politics.
January 31, 2014 Zurich, Switzerland - The World Economic Forum began on January 22, 2014, in Davos, Switzerland, where the most influential money-power players in international trade, business, finance and politics came together to make more deals and solidify their elite hold on the world's barter system. The day before on January 21st, Oxfam International reported that the 85 wealthiest individuals on this planet have assets equal to the bottom 3.55 billion poorest combined.
Only a month before in mid-December 2013, a Switzerland systems theorist named James Glattfelder put out his own report after analysis of 43,060 transnational corporations based on statistics from the Bureau Van Dijk in The Netherlands. BvD, as it's known, specializes in business intelligence with some 30 offices around the world. James Glattfelder collaborated with the Zurich office and used the BvD Orbis global companies database. His conclusion: 730 shareholders in those 43,060 transnational corporations control a whopping 80% of the entire revenue of that Orbis network he studied.
Further, when the 730 shareholders were further analyzed, only 146 had potential control of 40% — nearly half — of the entire revenue in all those corporations!
The top 20 of the 146 corporations that control 40% — or nearly half — of the entire
revenue in the Orbis database of 43,060 transnational corporations.
I called him to ask if he thought 20% controlling 80% would perpetuate itself for the foreseeable future, or self-destruct. I heard for the first time about the "Pareto Principle" from an Italian economist who studied distribution of income and wealth among populations. He found that 80% of the land in Italy was owned by 20% of the population and that 20% of the pea pods in his garden contained 80% of the peas. This 80-20 rule, or power law of distribution, is found throughout financial and natural systems down to biochemistry that keeps bodies alive. But why?
Play MP3 interviews.
James Glattfelder, 41, Ph.D., Systems Theorist, Zurich, Switzerland: “Unless you actually track all these network connections, you don’t really see who is in the end controlling what companies. And this is something we tried to figure out with our methodology.
So we ended up finding out that there was this tiny core where all of the control in the network was flowing to. Within that, there was this even smaller group — 146 companies — and they have the potential to control 40% of all the value of the companies in this network. These are actually corporations because it’s interesting that individual people, shareholders, they turn out to not be as important as they used to be. So, people like Warren Buffet or Bill Gates — they show up later in the ranking of shareholders.
The top shareholders are all U. S. or British financial institutions. This is where the power is going to.
U.S. AND U. K. AND 146 CORPORATIONS AND 730 SHAREHOLDERS DO CONTROL 80% OF THE ENTIRE REVENUE OF THAT NETWORK?
I GUESS I’M SURPRISED THAT IT COMES DOWN TO THE U. K. AND THE U. S. IN A WORLD WHERE WE HEAR THAT CHINA AND INDIA ARE THE TWO LARGEST EMERGING NATIONS. YOU WOULD THINK THEY WOULD DOMINATE PERHAPS THIS LIST?
Yes, that’s a good question.
1% OF THE PLANET IS RUNNING ALL THE REST OF THE 99%. THAT 1% TO THE 99% IS CLOSE TO WHAT YOU ARE REPORTING.
Yes. I also see this as a great problem with this huge concentration of power and wealth distributed among fewer and fewer people. What we’re actually looking at here is called the Scaling Law Distribution. The question always is: Is this a conspiracy? Is this engineered? Are there masterminds behind this trying to manipulate the way the world works to get more wealth?
It actually turns out that this particular distribution, which is very undemocratic because it says that very few nodes in the network are extremely important and most of the nodes in the network you can ignore.
Power Law of Distribution
This is something that turns up over and over in Nature when you are dealing with complex systems. It’s a natural thing that is actually happening, so I think this is a very important insight that we need to have is that we are fighting against kind of like a law of gravity because it’s something, which is going to happen on its own in these complex systems. And it’s something that is always the same distribution.
If it’s 1% versus 99% or 20% versus 80%, this skewed distribution is something, which is natural which keeps popping up and the question is: We don’t want this from a democratic feeling that what do we have to do to change this something that keeps happening naturally?
If you think of this as a conspiracy, we have to see who is behind this? And then we get rid of the people and we change it, but that’s not going to solve this problem. It’s something encoded into how these complex systems interact. This is something which we have to research and find out. I don’t think at the moment anyone really knows what we would have to change to make this system more equal.
BUT ARE YOU INFERING THAT THERE IS SOMETHING DARWINIAN HERE — THAT ONLY THE STRONGEST ALWAYS SURVIVE — AND THAT THERE IS AN INGREDIENT ABOUT BEING KING OF THE MOUNTAIN?
No, because there is a threshold of how many links you can have in a network above which the network becomes unstable. So this is maybe where the network its self, self-organizes into a state which then allows it to destroy itself.
One thing will be that we limit the amount of interconnections of these key players. If something goes wrong in the network, if one experiences distress, then this whole problem can just spread through the whole network like an epidemic. The higher the inter-connectivity is, the higher this probability is (of self-destruction).
This is quite a new insight because not too long ago, people thought the more links in the network, the more the problems are diversified. But actually it’s the inverse effect (opposite).
2008 Great Global Recession
AREN’T YOU DESCRIBING EXACTLY WHAT HAPPENED IN 2008 AMONG ALL THE CONTROLLERS OF MONEY AND BANKS AND MORTGAGES IN THE WHOLE PLANET — THAT BECAUSE A FEW CORRUPT COMPANIES WERE SO INTERLINKED MULTI-NATIONALLY THAT THE WHOLE SYSTEM BEGAN TO COLLAPSE?
I don’t think you even need the element of corruption. You can just have a company, which just failed for whatever reason and this spread through the network. Actually, that’s what we see now — that people on the regulators’ radar, the whole idea of systemic risk, has come up and this is something new, which also comes from these network analyses because before it was like ‘too big to fail.’ And it’s actually, NO, it’s too connected to fail.
Does Power Law of Distribution Mean
Another Economic Crash Is Inevitable?
RIGHT NOW IN JANUARY 2014 GOING FORWARD, DO YOU THINK THERE IS A BIG RISK WITH ALL OF THIS INTER-CONNECTIVITY OF 730 SHAREHOLDERS CONTROLLING 80% OF THE ENTIRE REVENUE IN THE TRANSNATIONAL NETWORK THAT VAN DIJK HAD IN ORBIS? ARE WE ON A PRECIPICE WHERE THERE COULD BE GIGANTIC ECONOMIC FAILURE AGAIN?
Yes … and no. I think this is the problem for me personally that it’s so hard to make predictions at the moment because it’s so unclear that indirect effects from some actions will have. I do see at the moment that the whole financial world is very volatile. Small changes in the rules of how banks are allowed to interact could have a huge impact on the system and make it a lot more stable within a short time. So these are things you can’t exclude.
It doesn’t look very good at the moment, but still from this (analyses), I think it could go either way — Is it going to stabilize itself? Or is it just going to fall apart?
WHAT DO YOU THINK AFTER ALL THE WORK THAT YOU HAVE DONE THAT MAKES THE POWER SCALING LAW OPERATE ON SYSTEMS — WHETHER IT IS THE WEB, BANKS, POPULATIONS — WHAT DO YOU THINK CAUSES THE POWER SCALING LAW SO THERE IS ALWAYS AT LEAST A 20% CONTROLLING AN 80% AND NOW IN MANY WAYS, 1% IS CONTROLLING 99%?
One (cause) is preferential attachment. So if you start to build the network controlling new nodes, then the existing nodes in the network — the longer they have been there, the more they have become powerful. So this is one explanation that is the longer in the network and if you add new nodes, then ‘I’m going to be more important than the new nodes.’
But what this means – all these diverse phenomena — that we see scaling laws and we see it in like the intensity of wars or the size of craters on the moon and in metabolism there are very few chemicals, which are in all metabolic processes. There are very many, which only contribute to a few metabolic processes.
I have no idea why this is such a universal phenomenon. I really have no idea. I think all explanations that I’ve seen — I don’t know, I don’t get a feeling that they are really grasping why this structure — Power Law Distribution — is emerging.
SO YOU’RE TALKING ABOUT SOMETHING THAT SEEMS TO BE IN THE VERY FABRIC OF THE COSMOS — SOME MATHEMATICAL RHYTHM IN WHICH EVERYTHING, FROM METABOLISM TO WHO DOMINATES THE WEB, WHAT HAPPENS IN BANKING SYSTEMS, TO POPULATION DISTRIBUTION — THAT IT ALL COMES DOWN TO THIS SCALING LAW WHERE 20% OF SOMETHING IS ALWAYS GOING TO BE CONTROLLING 80%.
Yes, although I wouldn’t necessarily call it a mathematical law, but more a kind of algorithmic phenomenon. So, it’s something which happens if you have many agents interacting in a system.
There’s another interesting thing that in the last four billion years of life on Earth, there have been like ten or twelve near-extinction events where life was nearly wiped out on Earth. From all of these catastrophic events, life continued again and became even more complex. The last extinction event was when people think that the dinosaurs got wiped out by a comet and from then on, the mammals could suddenly spread and they suddenly start to become more dominant. They grow their brains, they start language, and then we have computers and rovers on Mars! What would have happened if the asteroid wouldn’t have hit?
It’s really, really very hard to know if an event is going to be bad — or good in the long run. That’s why I’m so unsure about climate change and all these threats. I mean, are they going to make life in the long run worse? Or maybe enable a whole new complexity of life, which we can’t even imagine now? Although I look at the world now and think, ‘OK, things could be a lot better and it’s not heading in the right direction. But still, this does not necessarily mean that it will actually end up in such a bad state as I would predict.”