Who rules the economy?

Leaving the world's income in the hands of a few companies puts global economy at risk.

April 16, 2012 14:41
4 minute read.
Eyal Ofer

Eyal Ofer 390. (photo credit: REUTERS/Havakuk Levison)


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A revealing study of the prestigious Swiss Federal Institute of Technology based in Zurich, identifies 147 transnational corporations, which together control 40 percent of worldwide economic activity.

The research, conducted by Stefania Vitali, Stefano Battiston and James Glattfelder, analyzes the ownership structure of over 37 million organizations globally. The final report identifies 43,000 companies whose equity interests are linked to each other. Among them, 1,318 firms hold 60 percent of the total yearly revenues of the global economy.

The revelation of the high degree to which transnational corporations integrate leads to one of the analysis' most striking findings. "The super-entity," as the authors call it, is a set of 147 companies—mostly banks and financial institutions— which hold a controlling interest in major companies around the world that collectively handle 40 percent of the world's income.

The super-entity list is led by the British bank Barclays, and includes other well-known financial firms such as JP Morgan, Merrill Lynch, Goldman Sachs, Deutsche Bank and Credit Suisse. More than 60 percent of the top 25 companies in the super-entity are American, followed by British, French, German and Japanese corporations.

Tycoons in Israel

The Israeli economy is not immune to the phenomenon of global concentration. During last summer's protests, participants made claims similar to those of groups in other countries, concerning the oppressive, and sometimes imperceptible, actions of monopolies.

A recent report by Forbes magazine identifies 13 billionaires in Israel. At the top of the select group are brothers Idan and Eyal Ofer, owners of Bank Mizrahi-Tefahot; Shari Arison of Bank Hapoalim; former Knesset member and recent acquirer of the country's largest insurance company, Shlomo Eliahu; and the real estate tycoon, Nochi Dankner.

While social demands focus on the real economy, future consumption is less secure because a small group of financial corporations still control most savings, retirement funds and investments of the pension system in Israel.

It is estimated that of the $675 billion invested in the stock exchange in Israel, $540 billion belong to Israeli capitals, 50 percent of which correspond to the extended pension funds mentioned above.

Although retirement assets belong to all of Israeli society, control is concentrated in the hands of seven tycoons, whose financial firms manage at will the fate of these funds. The reports show that the 25 companies listed on Israel's main stock index, the TA-25, operate pension funds which both in the past and present are partially used to fund companies belonging to their own holdings.

If, with just 2 percent of capital invested, seven tycoons hold the savings of all Israelis, it is appropriate to ask whether the depositors' money really belongs to them, or whether it should instead be considered an indirect asset of those, who, blessed by the government’s generosity, manage the destinies of these crucial financial stocks.

Regaining control

Socialism or capitalism? Planned or free market economy? Protectionism or liberalism? The conflict about the role of government in the economy–one that has skewed economic thought from its beginnings –has reached a historic saddle point. Indifferent to the classic debate between supporters of laissez-faire and public sector fans, globalization has developed an organizational structure with far greater influence than that of any national government.

The economic concentration profiles the DNA of the 21st century, capturing the will of state bureaucracies and ensuring a regression to medieval conditions, where the welfare of a few is secured out of the suffering of the many.

In the case of Israel, restoring control of financial resources to society requires simultaneous action on two fronts: the ethical and practical.

On the ethical front, Israel must return to the original values that lit the dawn of the state, rebuilding the moral boundaries that the parents of Zionism proposed for all of its inhabitants.

In the material realm, those who believe in Israel and continue to invest in the country, should reconsider how they manage their financial resources. In general, a good conservative family investment must involve a moderate risk, an accurate return, dynamic access to the monitoring of the investment and especially, the ability to liquidate the asset at all times. In this sense, real estate investments in Israel and in industries related to the influence and expertise of the investor can provide adequate control and protection.

It is time the public sector and free market forces interact to provide more competition and greater equality. At the end of the day, as Adam Smith writes in The Wealth of Nations: "No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable".

The writer  is managing director of Bacalor Strategic Consulting: www.bacalor.com


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