International Networks of Banks and Industry

INTERNATIONAL NETWORKS OF BANKS AND INDUSTRY STUDIES IN INDUSTRIAL ORGANIZATION Volume 2 Advisory Board Professor W. Adams, Michigan State University, East Lansing, Michigan, USA. Professor R.E. Caves, Harvard University, Cambridge (Mass.), USA. Professor K.D. George, University College, Cardiff, United Kingdom. Professor E. Heusz, Friedrich Alexander University, ErlangenNiirnberg, West Germany. Professor H.W. Lambers, Erasmus University, Rotterdam, The Netherlands. Professor R. Prodi, University of Bologna, Bologna, Italy. Professor W.G. Shepherd, University of Michigan, Ann Arbor, Michigan, USA. Professor T. Wilson, University of Glasgow, Glasgow, United Kingdom. Board of Editors Professor A.P. Jacquemin, University of Louvain, Belgium. Professor H.W. de Jong, University of Amsterdam, The Netherlands. International Networks of Banks and Industry by M. Fennema 1982 Martinus Nijhoff Publishers The Hague/Boston/London Dlslrlbutors for the Umted States and Canada Kluwer Boston, Inc. 190 Old Derby Street Hmgham, MA 02043 USA jor all other countnes Kluwer Academic Pubhshers Group Distnbutlon Center P.O. Box 322 3300 AH Dordrecht The Netherlands Llhl dn 0. ("ong:rt"''t ('atdlogmg III "ublu.'atlOn Udtd Fennema, M., 1946International networks of banks and industry. (Studies in industrial organization ; v. 2) Includes bibliographies and indexes. 1. Interlocking directorates. 2. International business enterprises. 3. Banks and banking, International. I. Title. II. Series. HD2755.5.F46 1982 338.8'7 82-8243 ISBN-13: 978-94-009-7525-5 DOl: 10.1007/978-94-009-7523-1 ISBN 9O·247·2434·I(senes) e-ISBN-13: 978-94-009-7523-1 Copyright © 1982by Martmus Nyhoff Publishers, The Hague Softcover reprint of the hardcover 1st edition 1982 All rights reserved. No part of thiS publication may be reproduced, stored m a retneval system, or transmllIed in any form or by any means, mechamcal, photocopymg, recordmg, or otherWise, without the prIOr written permissIOn of the publisher, Martmus Nljhoff Publishers, P.O. Box 566,2501 CN The Hague, The Netherlands. v Acknowledgements The idea of this study originated in 1911 when Robert J. Mokken and Frans N. Stokman released a first internal draft of their pioneering study on interlocking directorates in the Netherlands, which was finally published in 1915 under the title Graven naar Macht (Traces of Power). A group of graduate students decided at that time to start with a similar study at the international level. It soon appeared, of course, that repeating a national study of interlocking directorates at the international level created many problems which are not included in the term 'repetition'. At the time I decided to carry the project to its end I was not aware of all of them, but fortunately I had the active and enthusiastic support of Frans Stokman, and especially Robert Mokken. Mokken worked through the different versions of the book with me, discussing many of the theoretical issues and shaping my thinking on them. In 1914, I received a grant from the Netherlands Organization for the Advancement of Pure Research (ZWO), which enabled me to work that year full time on the project. In 1911 an additional grant from ZWO enabled me to profit from the invaluable assistance of Peter de Jong, who did most of the computer work. His critical mind and friendship helped me through several crises. In 1918 Willem Kleyn collected the 1916 data. Of the many others to whom I am indebted I can only mention a few. Wladimir Andreff made me aware of theoretical problems involved in the institutional approach. His comments and exhortations helped me very much. Jac. M. Anthonisse was very helpful in the initial stage of the research, while he himself was engaged in writing a library of graph-programs. Frans J. van Veen helped me with GRADAP and also produced the manuscript. Henry W. de Jong read several drafts of the first three chapters and suggested useful solutions to awkward theoretical problems. With Huibert Schijf I wrote a survey of the research of interlocking directorates (Fennema and Schijf, 1919) which formed the basis of the Introduction. Helen M. Borkent-Richardson corrected the English. Leonie van Veen typed the final manuscript. Finally, I want to mention Troetje Loewenthal, my companera de vida, without whom the book might have been finished long ago, and I with it. M.F. Baard, August 1981 VII page Contents INTERNATIONAL NETWORKS OF BANKS AND INDUSTRY o INTRODUCTION •••••••..•.•.•.•••.••.•..••••.....• I THEMES AND PROBLEMS 11 1.0 1•1 1.2 Introduction ••••••••••••••••••••••••••••••••••• The theory of finance capital •••••••••••••••••• Interlocking directorates and economic power ••• 11 11 1.3 Financial groups •••••••••••••••••...•••••..•••• 1.4 Corporate elite and capitalist class ••••••••••• 1.5 Summary •••••••••••••••••••••••••••••••••••••••• 24 31 36 II BETWEEN MARKET AND HIERARCHY 39 2.0 Introduction ................................... 39 2.1 The organization of firms and markets: a nee-classical explanation •••••••••••••••••••• Some definitions of firms •••••••••••••••••••••• 39 46 Power and control •.••••••••••••••.•.•••••.•..•• Ownership and control ••••••.•••••.....••••••••• 49 53 2.5.2 Competition, cooperation and control ••••••••••• Concentration and centralization ••••••••••••••• The level-of-analysis problem •••••••••••••••••• 58 58 61 2.6 Summary •••••....•.••••••••.••••••••••••••••.••. 63 III IMPERIALISM IN THE SEVENTIES: two models ••••••• 65 3.0 Introduction ••••••••••••••••••••••••••••••••••• Theories of imperialism •••••••••••••••••••••••• 65 67 Their origins •••••••••••••••••••••••••.••..•••• After World War II •••••••..••.••••.••••••..•••• Two model s ..................................... 67 72 76 Research design ••..•••••••••••••••••.•.••..••.• 78 Summary •••••••••••••••••••••••••••••••••••••••• 81 2.2 2.3 2.4 2.5 2.5.1 3.1 3.1. 1 3.1.2 3.2 3.3 3.4 20 VIII page IV THE INTERNATIONAL CORPORATE ELITE ••••••••••••.•• 83 4.0 4.1 Introduction ••••••..•••.•.••...••••....••.....• The organization of the supervising and executive function in different countries •••••• Selection of the international corporate elite. Network characteristics of the international corporate elite •••••••••••••••••••••••••••••••• Introduction •..•....••.•.....••.•..•••..•..•.•• The finance capitalists •••••••••••••••••••••••• The big linkers •••••••••••••••••••••••••••.•••• Types of interlocking directorates ••••••••••••• Introduction ••................•••••••..••..•..• Multiple interlocks •••••••••••••••••••••••••••• 83 4.2 4.3 4.3.0 4.3.1 4.3.2 4.4 4.4.0 4.4.1 4.5 V 5.0 83 88 89 89 89 92 96 96 96 Summar y •••.•.•......••••.•.•.....••...••....... 101 NATIONAL VERSUS INTERNATIONAL INTEGRATION •••••• 103 Introduction to some graph-theoretical concepts ....................................... 103 5.4 General patterns in the international network •• Compactness of the international network •••••• International integration of national networks. The international network of Western firms ••••• Introduction ••••••••••••••••••••••••••••••••••• Local centrality ••••••••••••••••••••••••••••••• Global centrality •••••••••••••••••••••••••••••• Overall centrality ••••••••••••••••••••••••••••• Industrial concentration versus economic centralization .••..••..•.••.•..•...•..••......• Summar y •••••••••••••••••••••••••••••••••••••••• VI DOMINATION AND CONTROL ••••••••••••••••••••••••• 123 6.0 6.1 6.1.1 6.1.2 6.1. 3 6.2 6.2.0 6.2.1 6.2.1.1 6.2.1.2 6.2.2 6.2.3 6.3 Introduction ••••••••••••••••••••••••••••••••••• Clusters of heavily interlocked firms •••••••••• The network at multiplicity-level two •••••••••• The network at multiplicity-level three •••••••• Conclusions ....••....••...•.•..•••....•.•..•••. The network of officer-interlocks •••••••••••••• Introduction ••••••••••••••••••••••••••••••••••• Domination and control ••••••••••••••••••••••••• The network of all officer-interlocks •••••••••• The network of control •••.••••••••••••••••••••• Financial groups •••••••••.••••.••••••••••.••••• Constellations of interests •••••••••••••••••••• 5.1 5.1.1 5.1.2 5.2 5.2.0 5.2.1 5.2.2 5.2.3 5.3 107 107 110 113 113 113 115 116 118 121 123 124 124 126 130 132 132 134 134 136 141 144 Summary •••••••••••••••••••••••••••••••••••••••• 147 IX page VII COMPETITION AND COOPERATION: the role of banks • 149 7.0 7.1 7.2 7.3 7.4 7.5 Introduction •...........•...•.•..........•..... Interlocks among banks •••••••.••.••.•••..•••••• Overlapping spheres of interests •..••..•••••••• International bank consortia •.......•...•.••••• The American banks ••••••..••.......•••••...•••• Summary .....•.................................. VIII THE IMPACT OF WORLD CRISIS: changes in the 149 151 159 164 169 172 network ........................................ 175 8.0 8.1 8.2 8.3 8.3.1 8.3.2 8.4 8.5 8.6 8.7 Introduction ..••••.•••.....•.......••••.......• A new economic world order? ••••••..•••••.•••••• Selection of the 1976 sample •.••••.••••••..•... The international corporate elite .•••••••••••• Finance capitalists •••..•••••.••.•.......•.•••• 175 176 181 182 182 IX SUMMARY AND CONCLUSIONS •••..••••••..••••••..••• 199 9.1 9.2 Introduction •••••••••.••••..••••••••••••••..... 199 The structure of the international corporate Big linkers .................................... 183 International versus national integration •.•••• 185 Centrality in the nested networks (1976) ...... 189 Domination and control in the 1976 network •.... 193 Summary •••••••••••••••••••••••••••••••••••••••• 197 elite .......................................... 200 9.3 9.4 9.5 Conflict or cooperation ••.••.•.•••...•...•••..• 203 The meaning of interlocking directorates •..... 206 The international corporate elite •.••.....••••• 207 REFERENCES •••••••••.....•.....••••....••......•••••...•• 211 AUTHORS INDEX 233 SUBJECT INDEX 237 FIRMS INDEX ••••••••..••••••••••••••.•••..•••••••••....•• 241 APPENDIX A .............................................. 247 x List of Tables -Table 1.1 page Interlocking directorates between banks and industry in Germany, 1902, 1910 and 1927 ••••••• Interest groups according to Sweezy, Perlo, Menshikov and Dooley ••••••••••••••••••••••••••• 26 3.1 Number of firms per country in the sample 1970. 80 4.1 4.2 Distribution of international interlocks ••••••• Distribution of directorships among the international corporate elite •••••••••••••••••• Distribution of positions over the populations of persons in the interlock networks ••••••••••• Lines in the network according to their multiplicity ••••••.••••••.•••••...•..•••••••••• Interlocking directorates according to the position of the multiple directors ••••••••••••• 91 1.2 4.3 4.4 4.5 5.1 13 93 94 97 98 Adjacency matrix of a completely connected graph ..........••••.......•...........•........ 103 5.2 5.3 5.4 5.5 5.6 Distribution of isolated firms according to nationality .•.••..••••••••......••....•••...... Densities between the national networks and bipartite densities between national networks and the rest of the Western network (1970) ••••• Top ten percent in component Morgan 127 according to the local centrality •• ::: ••••••••• Top ten percent in component Morgan 127 according to the global centrality.::: ••••••••• Global and local centrality in component 109 111 114 116 Morgan 127 ••••••••••••••••••..••••••••••••••••• 117 5.7 Relation between industrial concentration and internationalization of industry and banking ••• 119 6.1 Top ten percent in component Dresdner Bank 58 according to local centrality •••••••• ~.: ••• Top ten percent in component Dresdner Bank 58 according to global centrality ••••••• ~.: ••• Top ten percent in local centrality of the component Morgan 79 (officers-interlocks) Top ten percent in global centrality of the component Morgan 79 (officers-interlocks) Percentage of the-outstanding shares of the company's stock held by the banks and the corresponding interlocking directorates •••••••• 6.2 6.3 6.4 6.5 125 125 135 135 140 XI 6.6 7.1 Group affiliation according to Menshikov (1969). 142 Bank concentration in several European countries ...................................... 154 7.2 7.3 7.4 7.5 American banks: shares of foreign earnings in total earnings (1970-1976) •••••••••.••••••••••• Scales of three or more banks based on meeting pOints of industrial firms (in 1970) ••••••••••• Scales of three or more banks based on international bank consortia and joint-ventures ( 1 974) •••••••••.•••••••••.••••••••••••••.•••••• American banks: interlocking directorates and international consortia •••.••••.••••••••••••••• 158 162 166 171 8.1 Gross national product and outflow of direct investment for developed market economies 8.2 Changes in the share of total foreign investment of the advanced capitalist countries, 1971-1976 Euro-currency market size •••••••••••••••••••••• 177 World's largest 50 banks by country of origin, size of total assets and number of foreign affiliates, end 1971 and 1976 ••.•••••••••..•••• 179 Distribution of interlocking directorates 1971-1976 ............•........•.•..........••.. 177 8.3 8.4 8.5 (1970-1976) ••••••..••••••..••••••••••••••.•.••• 180 8.6 8.7 8.8 8.8 8.9 National and international densities ••••••••••• Multiplicity of the lines in 1970 and 1976 ••••• Top ten percent in component Chase 134 according to local centrality (1976~ •••••••••• Top ten percent in component Chase 134 according to global centrality (197~ •••••••••• Interlocking directorates according to the position of the interlocking director in both fi rms (1 976) •••....•....••••••••••..••••••••••• 184 186 189 191 195 XII List of Figures Figure 1.1 page Increase of deposits in the three largest British, French and German Banks between 1885 and 1918 • •••••••••••••• •••••••••• •••••• •••..••• 16 4.1 Person-cliques ................................. 92 5.1 Point-centrality •..••..•..........••...•...•.•. 106 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 Component Dresdner Bank 17 ••.••.•.•....•••••••. 127 Component Morgan 1Q~.: ...................... 128 Component Brown Boveri 7 •...•...•••••.•••••...• 129 Nested components in the Western network of interlocking directorates at multiplicity-level one, two and more, and three and more •••••••••. 131 Component Chrysler 13 ..•••••.•••.•••.•••••••.•• 137 The grouping around-Chrysler and Morgan ••••...• 138 Strong component Alusuisse 4 •••••••••.•.••••••• 145 Strong component Morgan 2 ...................... 145 Strong component Volkswagen ~ .••••....•••••.•• 146 7.1a 7.1b Interlocking directorates between banks (1970) • 152 Interlocking directorates between banks (1976) 153 8.1 Nested components in the international network in 1970 and 1976 ••••••••••••••••••••.••••.•..•• 194