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Who Controls Capital? What Does Capital Control?

Who controls capital, and what does capital control?  The concept of “capital” in this context must be corporate enterprise.  By this metric the commanding heights of capital in the United States would be the Fortune 500 or 1,000, perhaps a thousand or so more, with an array of satellite firms numbering in the tens of thousands.

How should control of capital be measured?  To begin with, one way not to measure it, or anything that might relate to it, is demonstrated in a study now making the rounds of observers of capital everywhere: The Network of Global Corporate Control by Stefania Vitali, James Glattfelder, and Stefano Battiston (19 September 2011), at <>.

These systems and organization analysts have hit upon the idea that network topology — used in biology and more recently in the internet (wires, routers, busses) — can be applied to business organizations by means of commonly owned or shared assets or liabilities, or claims upon them.  They find that “transnational corporations [TNCs] 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 conclusion comes from a 2007 database from which 43,060 TNCs were pulled to construct a model of companies controlling others through shareholding networks that contain the operating revenues of all the interlocked firms.  Out of the data emerged a map of the structure of economic power worldwide, with a core consisting of 1,318 companies with ties to two or more other ones.  This map in turn revealed a “super-entity” of 147 even more tightly knit companies controlling 40 percent of the entire network.  The great majority are financial institutions — bank holding companies, investment banks, investment companies (mutual funds), and insurance companies.  Of the top fifty in fact, only one cannot be strictly classified as a financial institution — Walton Enterprises (number 15), the holding company of Sam Walton and family.  The top twenty include Barclays Bank, JP Morgan Chase, Axa, Vanguard, Goldman Sachs, Merrill Lynch, Deutsche Bank, Legg Mason, TIAA-CREF, Nomura Holdings, BNP Paribus.

This is a list dominated by financial firms that own or hold securities of all types — stocks, bonds, mortgages, cash balances, options contracts — but hardly for their own account: they manage them for hundreds, often thousands, of client firms, as well as for rich individuals in a fiduciary capacity.  Their activities are essentially passive and do not involve them in the active management of the entities whose securities they own or hold.  Some influence they can exert, but not nearly enough, certainly not consistently enough, to control any significant part of the operating decisions of top corporate executives, in production, pricing, product development, wages and salaries, investment, financing, as well as mergers and acquisitions that they carry out for their firms.

The authors of The Network of Global Corporate Control do round up the usual suspects:

In the literature on corporate control there is a debate on whether financial institutions really exert the control associated with their ownership shares.  On the one hand, they are not supposed to seek an active involvement in the companies’ strategies.  However, some works argue that institutional investors, including banks and mutual funds, do exert control to some extent . . . .  According to some theoretical arguments, in general, financial institutions do not invest in equity shares in order to exert control.  However, there is also empirical evidence of the opposite. . . .  In particular, the outcome of votes can be influenced by means of informal discussions, in which pro-management votes are used as a bargaining chip (e.g., in exchange of business related “favors” or in negotiating the extension of credit).

This is thin gruel.  None of it addresses the heart of the matter — the active management and direction of the company or companies in question by a handful of executives directly reporting to the Chief Executive Officer him/herself.  The sources cited by Vitali, Glattfelder, and Battiston never touch this issue.  They focus on the post-Berle and Means1 world of institutional investors, rather than dispersed individuals, as the major holders of corporate securities — and go on to claim that they rather than inside management actually control the corporations.  Coordinated groups of institutional investors (particularly pension funds and mutual funds) have had some success, the authors claim, in pressuring corporate management to pursue reform, by means of “shareholder activism” in the voting process.  “Gadfly” investors by contrast have nothing to show for their efforts.  In the United States ERISA2 regulations also “oblige pension funds to cast their votes in their portfolio responsibly.”  Little empirical evidence is put forth, and what there is of it adds up to less.

Another of their sources (João Santos and Adrienne Rumble, in Journal of Financial Economics 80 [May 2006]) shows — once again — that banks, through their trust departments, hold large blocks of stocks in public companies and often are represented on their boards.  But studies have long shown that such board members generally adopt a “hands-off” approach to corporate governance, and there is no evidence that this has ever changed.  Thus, the sources cited nearly all relate to the hoary theme of “banker control” of corporations, which was effectively laid to rest years ago.  And the control associated with share ownership has become more widely diversified than Vitali, Glattfelder, and Battiston seem to recognize.3

Separation between share ownership and managerial control was in progress over a century ago and became established by 1930, when Berle and Means chronicled it.  This separation remains the standard reference point for explaining not only the historical development of the present-day corporate giant but how it is governed as well.  Even though the authors overstated conflicts of interest between management and stockholders, their work still constitutes the core analysis of managerial control and strategy in the modern corporation.  Operating control rests firmly in the hands of top management, the personification of capital in our times.

Exactly what is it then that capitalists control?  The question would not be who rules “the global economy” — an irrelevancy, and a careless and misleading term in an age of transnational capitals one after another expanding their reach around the world, in specific domains.  For trackers of corporate capital, control is something that is exerted over markets, incomes, labor power, and property in various amounts and proportions.  What about the extent of this control?  And what are its domains?

For the moment, a short list might suffice: shares of product markets held by oligopolistic firms, concentration and centralization of capitals, concentration in industrial production and finance in terms of revenues and profits, value of acquisitions made by the largest companies national and global — all subject to change by the forces of competition that remain undiminished, if not intensified, by the power of the players.  A fine starting point, for anyone unfamiliar with the field, probably others too, is “Real World Trend: Growth of Monopoly Power” and “A New Wave of Competition?” as described by the editors of Monthly Review 62 (April 2011) in “Monopoly and Competition in Twenty-First Century Capitalism.”


1  The Modern Corporation and Private Property by Adolf Berle and Gardiner Means (1932).

2  The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for pension plans in private industry.

3  See Edward S. Herman, “Do Bankers Control Corporations?” Monthly Review 25 (June 1973) and “Kotz on Banker Control,” Monthly Review 31 (September 1979).  For a recent summary of these issues, see Brian Cheffins and Steven Bank, “Is Berle and Means Really a Myth?” Business History Review 83 (Autumn 2009).

Richard Du Boff is an economic historian who taught at Bryn Mawr College, University of Pennsylvania, and Institute of Social Studies in The Hague and has been writing for Monthly Review since 1968.

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