Bow Ties in the Corporate World
Recently in class, we learned about the concept of the “bow-tie structure” of the World Wide Web (WWW). The main idea is that the web consists of one giant strongly connected component (SCC), in which there is an extremely large number of sites that all have links between one another; an “in” component, in which there are smaller SCCs that have links to the giant SCC but not vice versa; an “out” component, in which there are other smaller SCCs that have links from the giant SCC but not vice versa; and tendrils that have connections to the “in” and/or “out” groups but no connections to the giant SCC. Notably, this is not a concept that solely applies to the web; rather, the bow-tie structure can be found in various areas that involve relative power and/or hierarchy. One such example is the global relationship structure between transnational corporations (TNCs).
Seven years ago, researchers found that the bow-tie structure persisted between TNCs, as a majority of the overall control in the network was possessed by a (relatively) small group TNCs that were all tightly interconnected. The researchers, who had to employ some very complicated network analysis in order to account for the variety of ways that a TNC could exhibit “control” over another TNC, sampled these corporations from a database and ultimately ended up with over 600,000 ownership nodes and over 1 million ties between nodes. A key insight was to notice that the largest connected component, which consisted of a mere 1347 corporations, contained a single SCC; furthermore, 75% of the ownership in this connected component occurred between pairs of TNCs that were both in this component, and 40% of the global TNC ownership was maintained by an extremely interconnected group of only 147 TNCs, which the article refers to as a “super-entity.”
Interestingly, two somewhat negative conclusions can be drawn from these findings. First, it intuitively seems that the existence of such a small, powerful, tightly-knit structure can weaken the market competition — consider the effects of a company that holds a monopoly on a certain product, and simply extend this idea to this existence of what I would call a multi-member monopoly. Second, while such strong interconnectedness seems like a great thing in times of prosperity, an event like the 2008 financial crisis can deliver a terrible blow to the entire economy because these top TNCs all rely on one another to such a great extent. Thus, if one is in trouble, it may not take long for all to experience devastating effects.
Overall, it is very interesting to think about the relationships between the top players in the global economy. It might be easy to naively have a simple capitalistic picture in mind in which each company directly competes with all the others to be the most successful, but diving into the details reveals that behind the competition is a very strongly-connected web of mutual dependencies that keeps the majority of control in the hands of the relatively few.