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Breathing Life into Numbers: Power Asymmetry as Revealed by Nodal Analysis in Professor Cezar Mereuță’s Compendium

Breathing Life into Numbers: Power Asymmetry as Revealed by Nodal Analysis in Professor Cezar Mereuță’s Compendium Triple review from Aurelian Dochia, Octavian-Dragomir Jora and Adrian-Ioan Damoc

In his latest book, the esteemed Professor Cezar Mereuță, Ph.D. embarks on a journey that is as ambitious as it is demanding, but also fruitful and rewarding. Writing about Carl Friedrich Gauss’s religious views and opinion of divine revelation, biographer G. Waldo Dunnington remarked that “a book is inspired when it inspires”. The same can be said of Professor Mereuță’s compendium, Analiza nodală – abordare micro și macroeconomică [Nodal Analysis – A Micro and Macroeconomic Approach], insofar as the value of one’s research lies not only in the answers it offers, but also in the questions it generates that necessarily invite more research to further travel the paths the questions point towards. [N.B. The book is published in Romanian for now, but an English version of the research is being taken into consideration by the author. The launch of the Romanian edition: October 29, 2019, under the auspices of the Faculty of International Business and Economics, the Bucharest University of Economic Studies.]

 

The Mysterious 80%

 by Aurelian Dochia, Ph.D. 

For two decades, Professor Cezar Mereuță, Ph.D., founder and president of the Romanian Centre of Economic Modelling, has patiently and perseveringly gathered and compiled data on the companies operating in the Romanian economy. I have no doubt that, to this day, the databases he created are the most complete and well-organised source of information on the Romanian economic system at a microeconomic level, i.e., “the real economy”. However, gathering and compiling information on a crucial aspect of the economy is only the first step in an extensive and ambitious project to understand and explain its structure, which resulted in a series of highly valuable works, put in print as of 1994. Beginning with a diagnosis of Romanian companies as classified by branches of operations, his research efforts focused on various topics such as the analysis of managerial transitions in companies and how organisational cultures then change – highly original subjects, of great interest to our understanding of the microeconomic transformations that take place in the context of transitioning from a planned economy to a market economy. Among the papers coordinated and written by Professor Mereuță, one can find topics of immediate usefulness to economic policy, such as the analysis of the competition in the Romanian economy, the analysis of the Romanian manufacturing industry, the analysis of the service sector or the competitive advantages of the Romanian manufacturing industry in the context of Romania’s integration into the European Union. The most well-known and popularised use of Professor Cezar Mereuță’s research is undoubtedly the TOP 100 Romanian Companies, a series of yearly punctilious investigations.

Beyond the results of these “primary” analyses, Professor Mereuță noted that there are certain recurring patterns and dominant structures in the organisation of a system of companies that operate in a given economy, which open the path towards a meta-analysis yielding new, often-surprising results which can be generalised at a broader level. This avenue of investigations opens with a nodal analysis of the system of companies and concludes with the praised work, The Classes of Economic Concentration and the 80% Factor, published in 2012 by Editura Economică. Making rigorous use of statistical and mathematical instrumentation, the author reaches a conclusion of great practical relevance: in taxonomically classified markets (that is, markets which comprise at least 30 participating companies), we witness the manifestation of a phenomenon of concentration which leads 10% of the participating companies to account for 80% of the total results of the sector they operate in. In other words, only a relatively small number of companies really matter to the performance of a given economic sector. It is specifically for this reason that Professor Mereuță is right in asserting that the TOP 100 ranking issued every year has a strong predictive value for the national economy in its entirety.

Mysteriously enough, this discovery by Professor Mereuță is confirmed again and again in various fields of economic activity, such as banking, but also in the power structures of the world economy. What’s more, stable relationships between the leader’s position, the number of companies and the structure of a market are empirically confirmed. We must underscore that at present there is currently no theory that can provide a general explanation as to the patterns of market dominance revealed by Professor Mereuță, which again highlights their originality and innovative nature. Among the most interesting applications of Professor Mereuță’s research, I would first and foremost point out those in the analysis of competition and the extent of its distortion on various markets. The author puts forth two indices, the combined values of which define a matrix we can use to assess the degree to which competition is distorted on a scale of five levels, ranging from very low to very high; this matrix is then used to examine the structure of competition in the main sectors of the Romanian economy.

Professor Mereuță’s research gifts us with such a vast horizon that it will likely take a whole generation of researchers to continue his work in order to fully capitalise upon its results.

 

The Alchemy of Intra-Economy and Inter-Polities Power

 by Associate Professor Octavian-Dragomir Jora, Ph.D. 

The analysis carried out by Professor Cezar Mereuță, Ph.D. is nodal in the strongest sense of the word, i.e., a junction where several paths of scientific research and its dissemination to the public meet. At least four such nodes emerge from “reading into” both the elaborandum (the final product / the compendium / its dissemination) and the elaboratio (the process / search / research in and of itself). What the author achieved lies not only in the pages of the present work, but also in its generous subtext, context and motivation. One such point is where the “micro” and “macro” levels of the economy intersect (if not interweave) with the science of economics that concerns itself with it. Far from being part of various, disjointed (scientific) taxonomies of economics, as (far too) many economists were quick to discern in the message of the “Keynesian-neoclassical” synthesis, macro-level phenomena are rooted in micro-level foundations, just as micro-level phenomena are organically enmeshed in aggregated macro-structures. The study of the concentration of power and the ability of competitors to discipline them (or, on the contrary, enhance them) is part of a logical and methodological continuum found within and between entities, as well as within and between systems, ranging from the facile household economy to the fascinating global one.

The second point of contact is between the author’s engineering-oriented mind, which organised this project to begin with (noteworthy, Professor Mereuță is an economist originally trained as an engineer, as were many notable forerunners and contemporaries, such as Vilfredo Pareto, William Phillips or Vernon Smith) and its socio-humanistic bent. The temptation of the archetypal engineer-turned-economist is (positivistic) pan-physicalism, enforced by a (proactive) aspiration towards technocracy; yet, the author of the present research does not yield to this temptation, instead he invites specialists from a wide spectrum of complementary disciplines to join in, this invitation being grounded in a well-understood inter-/multi-/transdisciplinarity foundation. The data on the statistics of power, acquired and processed with the utmost care by the author, deserve to be meticulously decoded (praxeologically, psycho-socially and anthropologically).

The third zone of interference is between elements pertaining to geopolitics and geoeconomics, displayed in an apparently hyper-abstracted statistical framework. These two highly publicised, popularised and, ultimately, trivialised fields are nowadays met with a certain aloofness, in spite of the obvious “cultural” print they bear, as is typical of international relations (where we witness cooperation and conflict, diehard consumerism as well as anti-globalisation, naive patriotism vs. cynical corporate loyalties) and of vestigial “scientific” limitations (the extent to which a national economy can be likened to a company, a country’s gross internal product to a company’s turnover, or “government” to “governance”). For all their candid frankness, the numbers don’t “just speak for themselves”.

Finally, the fourth point of confluence is between Professor Mereuță’s work and important threads from the history of global economic thought. The analysis in this compendium is original owing to the innovative, as yet unthought-of approach to issues and processes of great public relevance. This analysis is also original in that it challenges a “constant” of human inconsistency: the magic Paretian “80:20” rule, which is empirically amended through the calculation of nation-level “power indicators”. Could it be that we’re dealing with a difference between the “state of nature” in the world economy and a (politically-flavoured) state of hyper-competitiveness in the new “80:10”? Is this state firmly rooted, or just a fleeting occurrence? The answers will only come through broader and ampler research.

Beyond the truths contained within a scientific paper, the value of the latter truly blossoms the moment it is communicated. Here, we have the issue of the “mixed economy” of desirable communication: what portion of it will travel only the often labyrinthine paths of academia, and what portion can be “translated” to the general, educated public? Economics is blessed with its status as “a civic science”, causing wealth – both personal and national – to increase when its workings are well-understood, or to collapse into ruin, when its puzzles remain unsolved. Spreading the results of economic research through mass-media has always been a matter of civility which Professor Mereuță has been mindful of, and I myself have the privilege to be its editor, both academically and journalistically, in the market of ideas worth spreading.

 

Statistics as a Codifier and Decoder of Reality

 by Adrian-Ioan Damoc, Ph.D. 

Statistics is one of those disciplines that tend to evoke highly polarised reactions from laypeople. Some will view it with an almost religious, unquestioning reverence, especially to the fruits of its application. Others would take the opposite stance and treat it rather scornfully, viewing it as an amusing codification of reality into numbers at best, and as obfuscating, misleading number-crunching at worst. To many, it is full of arcane jargon and notations, mysterious and convoluted, and they meet it with either boredom or reluctance, or yet with fascination. Nevertheless, there is an underrated beauty to this discipline, for beyond its formulae, notations, use of Greek letters and jargon, statistics is primarily a mathematics-based language and instrument used to better understand reality. Numbers are, perhaps, the most abstract tool we can use to describe reality, as a number merely tells you the two most basic characteristics about an object: its existence and its quantity. Mathematics concerns itself with far more than just numbers, however, as it examines the patterns among numbers, both constant and variable – how they relate to each other, how their relationship changes under varying circumstances etc., which is then further condensed into theorems, conjectures, laws and formulae.

Obviously, statistics does not deviate much from this principle, as it works with data gleaned from the world around us – numbers we can use and find relationships between. By its nature, statistics provides us with useful instruments to make sense of the world, for instance to define and understand the norm, normality and abnormality in a given context with the aid of descriptive statistics, to paint our level of uncertainty on a canvas of probabilities, or even to help a machine think and learn (if only rudimentarily, for now, and on a narrow scope) with its use in artificial intelligence techniques. Thus, statistics becomes a tool for story-telling, decision-making and foresight, as valuable as it is fragile, for it is up to its user to be careful in interpreting its workings, to neither stretch them too far nor disregard crucial details, to acknowledge the limitations of the results thus obtained without ignoring their merits altogether, to responsibly derive patterns from them, to clearly communicate them to others and / or to act upon them.

In his latest book, the esteemed Professor Cezar Mereuță, Ph.D. embarks on a journey that is as ambitious as it is demanding, but also fruitful and rewarding. Writing about Carl Friedrich Gauss’s religious views and opinion of divine revelation, biographer G. Waldo Dunnington remarked that “a book is inspired when it inspires”. The same can be said of Professor Mereuță’s compendium, Analiza nodală – abordare micro și macroeconomică [Nodal Analysis – A Micro and Macroeconomic Approach], insofar as the value of one’s research lies not only in the answers it offers, but also in the questions it generates that necessarily invite more research to further travel the paths the questions point towards. The author’s approach is mainly scientific, being centred on an econometric analysis of the structure of competition on a macroeconomic and microeconomic level. Yet, this would be an oversimplification of what the book is about, for it doesn’t capture the immense effort on the author’s part to collect and organise a wide array of economic data over a span of more than two decades, failing also to underscore the innovative use of techniques from electric circuit analysis to shed light on the structural similarities between competition and power structures among companies on a market and competition among states on a global economy, and these intriguing results in and of themselves speak about the originality of the research in this compendium.

Briefly put, this is the unifying theme of the book: asymmetry and inequality. The author’s research has led him to make several noteworthy discoveries: firstly, markets tend to be characterised by a high level of inequality, where a handful of companies hold the vast majority of the market share. Secondly, this very same pattern is poignantly noticeable among states, where a restricted number of countries account for over two thirds of the world’s GDP, and these same states dominate the global production of 50 essential goods. Thirdly, this small number of states is overwhelmingly represented in the world’s top 100 largest multinational corporations, thus being among the main drivers of economic globalisation and all that it entails. Fourthly, inequality and variation is present and more pronounced in the top echelon of the power structure than it is in its lower echelon. The results of this research are fascinating both through their implications as well as the further avenues they open up to research and the theoretical developments they give way to.

For a start, this is a most comprehensive, well-researched study of the asymmetry of inter-company and inter-state economic power and, as the author states, its contribution to geostrategic tensions and competition. Professor Mereuță notes that these results must be complemented by further research into the historical causes of the observed inequality to yield further insight that would enable us to predict its dynamics. Also of interest is to investigate the geostrategic role of multinationals and the use of their clout to gain access to (or even dominance over) a country’s key economic sectors (e.g., through mergers and acquisitions or green-field investments), to exert their influence over geo-economic projects (e.g., by investing in a the construction of an international oil pipeline) or to promote certain political and economic interests by proxy (e.g., via lobbying). The increased variation and asymmetry among the states and companies at the top ranks as opposed to the lower ranks is, in itself, a generous source of insights and questions to be further explored. For instance, we can infer that competition increases when the competing actors can avail themselves to more methods in order to attain a better position and eventually overtake the dominant player. Moreover, it can also reflect the employment of innovative technologies and business models that are more likely to occur in more developed economies and thus more likely to produce disruption in rankings. Then again, there is also the issue of how dominant actors, by the use of lobbying and political and economic leverages, can shape the competitive environment and influence existing regulations to restrict market entry from other players.

Furthermore, the results of this research can be further applied not only to understand inequalities among states and organisations, but also socio-economic inequality and their implications (the “Occupy Wall Street” movement and the clash between the so-called 1% versus the 99% come to mind). Lastly, as we see the similarity between the behaviour of organisations on markets and that of states as geo-economic actors, it reminds us of Sun Tzu’s maxim in The Art of War: “the control of a large force is the same principle as the control of a few men” – and indeed, whether we speak of companies or of national economies, the principles governing their competition are remarkably alike.

As a conclusion, it can be stated without a doubt that the author’s journey from the raw, untamed data to carefully sculpting its numbers into meaningful information on both a quantitative and a qualitative level has resulted into a very insightful and intriguing piece of research which, if adequately exploited, can significantly enhance economic theory and drive public policy. While the innovative methodology and the meticulous compilation of data form the backbone and skeleton of the research, it is ultimately the food for thought it provides, the inspiration it sparks and developments it beckons to that breathe life into its numbers and give it its soul.

 
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OEconomica No. 1, 2016