Jan Fichtner

Existing studies have scrutinized the rise of states as global owners and investors, yet we still lack a good understanding of what state investment does in a globalized economy, especially in host states. Comparative capitalisms research has analyzed foreign state investment as a potential source of patient capital for coordinated and mixed-market economies. However, this patient capital framework cannot explain the recent surge of protectionist sentiments, even among the ‘good hosts’ of state-led investment. Therefore, we go beyond the patient capital argument and develop a novel framework centered on the globalized nature of foreign state investment. We create and empirically illustrate a novel typology based on different modes of cross-border state investment – from financial to strategic – and different categories of host states. Our results provide a new pathway to study the rise and effects of cross-border state investment in the twenty-first century.

This blog post, discusses existing research on the still rather opaque topic of offshore finance. Subsequently, it is outlined how the CORPNET team is going to shed some new light on this crucial topic by analyzing transnational ownership ties of multinational corporations utilizing complex networks methods and the 'big data' provided by the Orbis database. Offshore finance is no longer the small and peripheral phenomenon it once was. During the last four decades, offshore finance has become a crucial element of the contemporary international political economy. Today, offshore financial centers (which can also be called tax havens or regulatory havens) constitute central nodes within global financial markets. Gabriel Zucman has recently estimated that financial wealth to the tune of almost US$8 trillion is held offshore – a sum that amounts to almost 50% of the GDP of the EU or the US. This causes a global tax revenue loss of approximately US$200 billion. Estimates for offshore wealth by the Tax Justice Network even range between US$21 and US$32 trillion. Arguably, high-net-worth individuals (HNWIs) and big multinational corporations (MNCs) hold the vast majority of this offshore wealth, which leads directly to questions of increasing economic inequality. The impact of offshore finance not only pertains to economic inequality but also to questions of corporate accountability and transparency – both of which are pivotal to the proper functioning of any market economy. For this reason, the Tax Justice Network does not use the term offshore financial centers or tax havens, but instead calls them secrecy jurisdictions, because secrecy and opacity are major reasons why foreign economic actors use these countries and territories. With this secrecy and lack of accountability come big risks. The corporate scandals of Enron, Olympus and Parmalat as well as the near-collapse of the large hedge fund LTCM all involved subsidiaries in tax havens. In addition, these secrecy jurisdictions have functioned as legal domiciles for the creation of complex structured financial products, such as collateralized debt obligations (CDOs) and other asset-backed securities (ABSs). According to Photis Lysandrou and Anastasia Nesvetailova, these opaque financial products have contributed to the development of the global financial crisis, or at least have aggravated it significantly.

Analysing how millions of multinational corporations structure their global ownership chains reveals that Cayman acts as a 'sink' offshore financial centre where foreign capital accumulates and data trails often end, writes Jan Fichtner. Try to guess what the top destination of outward foreign direct investment (FDI) from Brazil is! Could it be the United States as the largest economy in ...

An ownership structure dominated by blockholdings is central for ‘Rhenish’ capitalism, because it provides ‘patient capital’. Analysis of the 160 largest listed German corporations shows that blockholdings have declined and foreign investors have increased. This could enable activist hedge funds – ‘impatient capital’ demanding high returns – to have greater impact on German listed companies. In order to explore this phenomenon, three case studies have been conducted. These case studies indicate that blockholders are potentially able to shield companies against hedge funds, and that impatient capital is able to gain influence over corporations that are not protected by patient blockholders – however, the behaviour of blockholders and hedge funds is more complex than commonly theorized. On balance, these developments contribute to an increased internal diversity of Rhenish capitalism.

The prediction of America’s decline is a regularly recurring phenomenon; this also pertains to the pivotal field of global finance. This article argues that, first we have to consider the United States together with the other Anglophone countries. The English-speaking countries and territories – Anglo-America – have deep common political and socioeconomic roots, of which the unique global Five Eyes intelligence cooperation is merely one manifestation. In finance, New York and London (NY-LON) constitute the decision-making core of this transnational formation. Second, to analyse the highly complex phenomenon of structural power in the globalised international political economy we have to dig deeper to uncover truly meaningful data. Thus, this article evaluates data for nine central segments of global finance from around the year 2000 to 2014. Contrary to the assertions of many declinists, these data show that Anglo-America’s dominant structural power has been persistent during this p...

Die Diskussion uber Finanzialisierung – verstanden als die zunehmende Dominanz des Finanzsektors, der Finanzmarkte sowie von Finanzmotiven und Finanzeliten (Epstein 2005) – hat sich bislang erstaunlich wenig mit der Rolle einzelner Staaten fur die Ausbreitung und Intensivierung dieses Phanomens beschaftigt. Viele Beitrage behandeln Finanzialisierung implizit als funktionalen bzw. systemischen Prozess, der zum Grosteil unabhangig von staatlichen Akteuren und Interessen wirkt. Oft wird dabei in simplifizierender Art und Weise von „den globalen Finanzmarkten“ als Triebfeder der Finanzialisierung gesprochen.

Purpose – The purpose of this paper is to examine in which ways hedge funds contribute to financialization. Design/methodology/approach – Two already identified conduits through which financialization operates are applied to hedge funds. Findings – The paper finds that hedge funds drive the phenomenon of financialization in two major ways, i.e. the financialization of corporations, and the financialization of markets. Hence, hedge funds can be conceived as agents of change for financialization. Research limitations/implications – There are indications that hedge funds possess disciplinary power. Future research should address this pivotal point, even though such power will be difficult to prove empirically. Social implications – Hedge funds have been found to potentially increase market volatility. In times of crisis, stricter regulation of these investors that take excessive risks seems prudent. Originality/value – Through linking “hedge funds” with “financialization” this paper cl...

This article argues that a nexus exists between private profit-orienteded actors (privateers and hedge funds) — being only lightly regulated by their home countries (Britain and America) — and ‘offshore’ territories located in the Caribbean and elsewhere in the Anglo-Saxon world. This article argues that the ultimate reason for this nexus is the common ‘Lockean’ state/society complex of the UK and the US. The analysis of hedge funds as privateers reveals that both benefit at the expense of others, while the geographic regions in which they are based are virtually the same — London and New York/Boston. Furthermore, this article shows that the hedge fund ‘value chain’ is clearly dominated by the US and the UK. Most hedge funds are based in Offshore Financial Centres (OFCs). While this is commonplace, by introducing the OFC-Intensity Ratio we show that the most intensive OFCs are under the sovereignty of the US and the UK.

Multinational corporations use highly complex structures of parents and subsidiaries to organize their operations and ownership. Offshore Financial Centers (OFCs) facilitate these structures through low taxation and lenient regulation, but are increasingly under scrutiny, for instance for enabling tax avoidance. Therefore, the identification of OFC jurisdictions has become a politicized and contested issue. We introduce a novel data-driven approach for identifying OFCs based on the global corporate ownership network, in which over 98 million firms (nodes) are connected through 71 million ownership relations. This granular firm-level network data uniquely allows identifying both sink-OFCs and conduit-OFCs. Sink-OFCs attract and retain foreign capital while conduit-OFCs are attractive intermediate destinations in the routing of international investments and enable the transfer of capital without taxation. We identify 24 sink-OFCs. In addition, a small set of five countries - the Nethe...

During the last decades, institutional investors gained an ever more important position as managers of assets and owners of corporations. By demanding (short-term) shareholder value, some of them have driven the financialization of corporations and of the financial sector itself. This chapter first characterizes the specific roles that private equity funds, hedge funds, and mutual funds have played in this development. It then moves on to focus on one group of institutional investors that is rapidly becoming a pivotal factor for corporate control in many countries – the “Big Three” large passive asset managers BlackRock, Vanguard and State Street.

A major shift toward passively managed index funds in recent years has led to the re-concentration of corporate ownership in the hands of just three large asset management firms, the Big Three: BlackRock, Vanguard and State Street. We propose that this trend has re-structured ownership in capital markets. Adopting a contractual view to the corporate share, we re-define share holding and suggest that the New Mandate Owners in fact hold the essence of corporate power, as their aggregated positions capture the core element of the franchise of corporate voting.

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The rise of hedge funds from the almost unnoticed beginnings in the late 1940s to the pinnacle of global finance seventy years later is one of the most pivotal developments for the international political economy. It is the central thesis of this paper that the rise of hedge funds can only be explained by the notion of inequality: inequality between nearly unregulated hedge funds and the regulated rest of financial market actors; inequality between offshore financial centers that provide minimal regulation and low taxation to hedge funds, and onshore jurisdiction that do not; inequality between very rich private individuals that invest in hedge funds and the „bottom 99 percent“ that do not. Two countries play a central role for the rise of hedge funds, the US and the UK. Both adhere to the paradigm of „indirect regulation“ of hedge funds, and both tolerated a drastically increased income inequality since the 1980s that fueled the rise of hedge funds. It is only in these two countrie...

The release of classified documents in the past years have offered a rare glimpse into the opaque world of tax havens and their role in the global economy. Although the political, economic and social implications related to these financial secrecy jurisdictions are known, their role in supporting economic activities with potentially detrimental environmental consequences have until now been largely ignored. Here, we combine quantitative analysis with case descriptions to elaborate and quantify the connections between tax havens and the environment, both in global fisheries and the Brazilian Amazon. We show that while only 4% of all registered fishing vessels are currently flagged in a tax haven, 70% of the known vessels implicated in illegal, unreported and unregulated fishing are, or have been, flagged under a tax haven jurisdiction. We also find that between October 2000 and August 2011, 68% of all investigated foreign capital to nine focal companies in the soy and beef sectors in...

ABSTRACT The rise of hedge funds from the almost unnoticed beginnings in the late 1940s to the pinnacle of global finance seventy years later is one of the most pivotal developments for the international political economy. It is the central thesis of this paper that the rise of hedge funds can only be explained by the notion of inequality: inequality between nearly unregulated hedge funds and the regulated rest of financial market actors; inequal-ity between offshore financial centers that provide minimal regulation and low taxation to hedge funds, and onshore jurisdiction that do not; inequality between very rich private individuals that invest in hedge funds and the "bottom 99 percent" that do not. Two countries play a central role for the rise of hedge funds, the US and the UK. Both adhere to the paradigm of "indirect regulation" of hedge funds, and both tolerated a drastically increased income inequality since the 1980s that fueled the rise of hedge funds. It is only in these two countries that the story of inequality that drives the rise of hedge funds could be ended.

Since the global financial crisis, there is a massive shift of assets towards index funds. Rather than picking stocks, index funds replicate stock indices such as the S&P 500. But where do these indices actually come from? This paper analyzes the politico-economic role of index providers, a small group of highly profitable firms including MSCI, S&P DJI, and FTSE Russell, and develops a research agenda from an IPE perspective. We argue that these index providers have become actors that exercise growing private authority as they steer investments through the indices they create and maintain. While technical expertise is a precondition, their brand is the primary source of index provider authority, which is entrenched through network externalities. Rather than a purely technical exercise, constructing indices is inherently political. Which companies or countries are included into an index or excluded (i.e. receive investment in- or outflows) is based on criteria defined by index provid...

Since the global financial crisis, there is a massive shift of assets towards index funds. Rather than picking stocks, index funds replicate stock indices such as the S&P 500. But where do these indices actually come from? This paper analyzes the politico-economic role of index providers, a small group of highly profitable firms including MSCI, S&P DJI, and FTSE Russell, and develops a research agenda from an IPE perspective. We argue that these index providers have become actors that exercise growing private authority as they steer investments through the indices they create and maintain. While technical expertise is a precondition, their brand is the primary source of index provider authority, which is entrenched through network externalities. Rather than a purely technical exercise, constructing indices is inherently political. Which companies or countries are included into an index or excluded (i.e. receive investment in- or outflows) is based on criteria defined by index provid...

Multinational corporations use highly complex structures of parents and subsidiaries to organize their operations and ownership. Offshore Financial Centers (OFCs) facilitate these structures through low taxation and lenient regulation, but are increasingly under scrutiny, for instance for enabling tax avoidance. Therefore, the identification of OFC jurisdictions has become a politicized and contested issue. We introduce a novel data-driven approach for identifying OFCs based on the global corporate ownership network, in which over 98 million firms (nodes) are connected through 71 million ownership relations. This granular firm-level network data uniquely allows identifying both sink-OFCs and conduit-OFCs. Sink-OFCs attract and retain foreign capital while conduit-OFCs are attractive intermediate destinations in the routing of international investments and enable the transfer of capital without taxation. We identify 24 sink-OFCs. In addition, a small set of five countries – the Netherlands, the United Kingdom, Ireland, Singapore and Switzerland – canalize the majority of corporate offshore investment as conduit-OFCs. Each conduit jurisdiction is specialized in a geographical area and there is significant specialization based on industrial sectors. Against the idea of OFCs as exotic small islands that cannot be regulated, we show that many sink and conduit-OFCs are highly developed countries.