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, Erlangen- Niirnberg, 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., 1946- International 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 e-ISBN-13: 978-94-009-7523-1 DOl: 10.1007/978-94-009-7523-1 ISBN 9O·247·2434·I(senes) Copyright © 1982by Martmus Nyhoff Publishers, The Hague Softcover reprint oft he 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 Contents page INTERNATIONAL NETWORKS OF BANKS AND INDUSTRY o INTRODUCTION •••••••..•.•.•.•••.••.•..••••.....• I THEMES AND PROBLEMS 11 1.0 Introduction ••••••••••••••••••••••••••••••••••• 11 1 • 1 The theory of finance capital •••••••••••••••••• 11 1.2 Interlocking directorates and economic power ••• 20 1.3 Financial groups •••••••••••••••••...•••••..•••• 24 1.4 Corporate elite and capitalist class ••••••••••• 31 1.5 Summary •••••••••••••••••••••••••••••••••••••••• 36 II BETWEEN MARKET AND HIERARCHY 39 2.0 Introduction ................................... 39 2.1 The organization of firms and markets: a nee-classical explanation •••••••••••••••••••• 39 2.2 Some definitions of firms •••••••••••••••••••••• 46 2.3 Power and control •.••••••••••••••.•.•••••.•..•• 49 2.4 Ownership and control ••••••.•••••.....••••••••• 53 2.5 Competition, cooperation and control ••••••••••• 58 2.5.1 Concentration and centralization ••••••••••••••• 58 2.5.2 The level-of-analysis problem •••••••••••••••••• 61 2.6 Summary •••••....•.••••••••.••••••••••••••••.••. 63 III IMPERIALISM IN THE SEVENTIES: two models ••••••• 65 3.0 Introduction ••••••••••••••••••••••••••••••••••• 65 3.1 Theories of imperialism •••••••••••••••••••••••• 67 3.1. 1 Their origins •••••••••••••••••••••••••.••..•••• 67 3.1.2 After World War II •••••••..••.••••.••••••..•••• 72 3.2 Two model s ..................................... 76 3.3 Research design ••..•••••••••••••••••.•.••..••.• 78 3.4 Summary •••••••••••••••••••••••••••••••••••••••• 81 VIII page IV THE INTERNATIONAL CORPORATE ELITE ••••••••••••.•• 83 4.0 Introduction ••••••..•••.•.••...••••....••.....• 83 4.1 The organization of the supervising and executive function in different countries •••••• 83 4.2 Selection of the international corporate elite. 88 4.3 Network characteristics of the international corporate elite •••••••••••••••••••••••••••••••• 89 4.3.0 Introduction •..•....••.•.....••.•..•••..•..•.•• 89 4.3.1 The finance capitalists •••••••••••••••••••••••• 89 4.3.2 The big linkers •••••••••••••••••••••••••••.•••• 92 4.4 Types of interlocking directorates ••••••••••••• 96 4.4.0 Introduction ••................•••••••..••..•..• 96 4.4.1 Multiple interlocks •••••••••••••••••••••••••••• 96 4.5 Summar y •••.•.•......••••.•.•.....••...••....... 101 V NATIONAL VERSUS INTERNATIONAL INTEGRATION •••••• 103 5.0 Introduction to some graph-theoretical concepts ....................................... 103 5.1 General patterns in the international network •• 107 5.1.1 Compactness of the international network •••••• 107 5.1.2 International integration of national networks. 110 5.2 The international network of Western firms ••••• 113 5.2.0 Introduction ••••••••••••••••••••••••••••••••••• 113 5.2.1 Local centrality ••••••••••••••••••••••••••••••• 113 5.2.2 Global centrality •••••••••••••••••••••••••••••• 115 5.2.3 Overall centrality ••••••••••••••••••••••••••••• 116 5.3 Industrial concentration versus economic centralization .••..••..•.••.•..•...•..••......• 118 5.4 Summar y •••••••••••••••••••••••••••••••••••••••• 121 VI DOMINATION AND CONTROL ••••••••••••••••••••••••• 123 6.0 Introduction ••••••••••••••••••••••••••••••••••• 123 6.1 Clusters of heavily interlocked firms •••••••••• 124 6.1.1 The network at multiplicity-level two •••••••••• 124 6.1.2 The network at multiplicity-level three •••••••• 126 6.1. 3 Conclusions ....••....••...•.•..•••....•.•..•••. 130 6.2 The network of officer-interlocks •••••••••••••• 132 6.2.0 Introduction ••••••••••••••••••••••••••••••••••• 132 6.2.1 Domination and control ••••••••••••••••••••••••• 134 6.2.1.1 The network of all officer-interlocks •••••••••• 134 6.2.1.2 The network of control •••.••••••••••••••••••••• 136 6.2.2 Financial groups •••••••••.••••.••••••••••.••••• 141 6.2.3 Constellations of interests •••••••••••••••••••• 144 6.3 Summary •••••••••••••••••••••••••••••••••••••••• 147 IX page VII COMPETITION AND COOPERATION: the role of banks • 149 7.0 Introduction •...........•...•.•..........•..... 149 7.1 Interlocks among banks •••••••.••.••.•••..•••••• 151 7.2 Overlapping spheres of interests •..••..•••••••• 159 7.3 International bank consortia •.......•...•.••••• 164 7.4 The American banks ••••••..••.......•••••...•••• 169 7.5 Summary .....•.................................. 172 VIII THE IMPACT OF WORLD CRISIS: changes in the network ........................................ 175 8.0 Introduction ..••••.•••.....•.......••••.......• 175 8.1 A new economic world order? ••••••..•••••.•••••• 176 8.2 Selection of the 1976 sample •.••••.••••••..•... 181 8.3 The international corporate elite .•••••••••••• 182 8.3.1 Finance capitalists •••..•••••.••.•.......•.•••• 182 8.3.2 Big linkers .................................... 183 8.4 International versus national integration •.•••• 185 8.5 Centrality in the nested networks (1976) ...... 189 8.6 Domination and control in the 1976 network •.... 193 8.7 Summary •••••••••••••••••••••••••••••••••••••••• 197 IX SUMMARY AND CONCLUSIONS •••..••••••..••••••..••• 199 9.1 Introduction •••••••••.••••..••••••••••••••..... 199 9.2 The structure of the international corporate elite .......................................... 200 9.3 Conflict or cooperation ••.••.•.•••...•...•••..• 203 9.4 The meaning of interlocking directorates •..... 206 9.5 The international corporate elite •.••.....••••• 207 REFERENCES •••••••••.....•.....••••....••......•••••...•• 211 AUTHORS INDEX 233 SUBJECT INDEX 237 FIRMS INDEX ••••••••..••••••••••••••.•••..•••••••••....•• 241 APPENDIX A .............................................. 247 x List of Tables --- Table page 1.1 Interlocking directorates between banks and industry in Germany, 1902, 1910 and 1927 ••••••• 13 1.2 Interest groups according to Sweezy, Perlo, Menshikov and Dooley ••••••••••••••••••••••••••• 26 3.1 Number of firms per country in the sample 1970. 80 4.1 Distribution of international interlocks ••••••• 91 4.2 Distribution of directorships among the international corporate elite •••••••••••••••••• 93 4.3 Distribution of positions over the populations of persons in the interlock networks ••••••••••• 94 4.4 Lines in the network according to their multiplicity ••••••.••••••.•••••...•..•••••••••• 97 4.5 Interlocking directorates according to the position of the multiple directors ••••••••••••• 98 5.1 Adjacency matrix of a completely connected graph ..........••••.......•...........•........ 103 5.2 Distribution of isolated firms according to nationality .•.••..••••••••......••....•••...... 109 5.3 Densities between the national networks and bipartite densities between national networks and the rest of the Western network (1970) ••••• 111 5.4 Top ten percent in component Morgan 127 according to the local centrality ••: ::• •••••••• 114 5.5 Top ten percent in component Morgan 127 according to the global centrality.:::• •••••••• 116 5.6 Global and local centrality in component 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 ••••••••~ .:: ••• 125 6.2 Top ten percent in component Dresdner Bank 58 according to global centrality ••••••• ~.:: ••• 125 6.3 Top ten percent in local centrality of the component Morgan 79 (officers-interlocks) 135 6.4 Top ten percent in global centrality of the component Morgan 79 (officers-interlocks) 135 6.5 Percentage of the-outstanding shares of the company's stock held by the banks and the corresponding interlocking directorates •••••••• 140 XI 6.6 Group affiliation according to Menshikov (1969). 142 7.1 Bank concentration in several European countries ...................................... 154 7.2 American banks: shares of foreign earnings in total earnings (1970-1976) •••••••••.••••••••••• 158 7.3 Scales of three or more banks based on meeting pOints of industrial firms (in 1970) ••••••••••• 162 7.4 Scales of three or more banks based on international bank consortia and joint-ventures ( 1 974) •••••••••.•••••••••.••••••••••••••.•••••• 166 7.5 American banks: interlocking directorates and international consortia •••.••••.••••••••••••••• 171 8.1 Gross national product and outflow of direct investment for developed market economies 1971-1976 ............•........•.•..........••.. 177 8.2 Changes in the share of total foreign investment of the advanced capitalist countries, 1971-1976 8.3 Euro-currency market size •••••••••••••••••••••• 177 8.4 World's largest 50 banks by country of origin, size of total assets and number of foreign affiliates, end 1971 and 1976 ••.•••••••••..•••• 179 8.5 Distribution of interlocking directorates (1970-1976) ••••••..••••••..••••••••••••••.•.••• 180 8.6 National and international densities ••••••••••• 184 8.7 Multiplicity of the lines in 1970 and 1976 ••••• 186 8.8 Top ten percent in component Chase 134 according to local centrality (1976~ •••••••••• 189 8.8 Top ten percent in component Chase 134 according to global centrality (197~ •••••••••• 191 8.9 Interlocking directorates according to the position of the interlocking director in both fi rms (1 976) •••....•....••••••••••..••••••••••• 195