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From Energetics to Economics

From Energetics to Economics Starting from the nodal analysis concept, engineer Cezar Mereuță opens up a new domain of inter-disciplinary research for economists

The fine connoisseurs say that statistics are perfectly comparable with the beach attire of an attractive young woman: reveals what everyone is allowed to see, but hides from the public eye the most appealing details. Because statistics is a science preferred by the economists, and in the economy some of the most intensively used benchmarks are turnover and gross domestic product (GDP), here are some very relevant examples:

  • Did you know that in the world economy only 10% of the companies together make 80% of the global turnover?
  • Did you know that in the world economy also 10% of the countries cumulate 80% of the GDP?

You probably did not know this and have found out right now. And, until very recently, no one knew. The merit for highlighting such amazing truths, supported by non-contradictory data provided by the most trustworthy organizations that monitor the world statistics, belongs to the Romanian engineer Cezar Mereuță, Ph.D. in energetics and university professor, twice laureate of the Romanian Academy Prize for Economics.

As many truths that nowadays look simple and easy to grasp, they also stem from an engineering concept – that of nodal analysis, developed by the Romanian Academician Paul Dimo, first published in 1968, applied in the theory and practice of power systems and internationally validated. A disciple of the Academician Dimo, the engineer moved wholesale to the economic research domain a long time ago and took with him this concept. He had the brilliant idea to define as node companies in a classified market those companies that together achieved 80% of the total turnover of that market. And from here to what you have read above was, apparently, only a single step. But one that required many years of hard work: 20 – of microeconomic research by investigating 1009 markets, 3 – of macroeconomic testing on the results of world economy between 1970 and 2016, and 2 – of publishing the results. Along the way, increasingly surprising discoveries and multidisciplinary collateral researches have strongly outlined the fact that the microeconomic studies bring into focus views that were previously unanticipated by the macroeconomic research, especially after the idea of defining as node countries those cumulating 80% of the world’s GDP has come into existence. All these practically open up an entirely new domain of inter-disciplinary research in economics: the nodal analysis.

The domain is surprisingly welcome and necessary in the current century, because the nodal analysis is in fact a research tool with two main components:

  1. a) the identification of the power structures at work within the competition among companies;
  2. b) the qualitative assessment of the business environment regarding competition.

And the times we are living in strongly confirm its necessity, because we see that fewer companies sell increasingly more and dictatorially dominate the markets, that some companies were “too big to fail” during the crisis and had to be supported by the states, that the “tech giants” tend to become masters not only of the economy, but also of people’s thoughts and habits. What happens at the micro level is increasingly reproduced at the macro level, on a planet ongoing a process of redefining the power structures in which competition for markets opens up trade wars of unprecedent extent and we will be lucky if that is all they stir up.

The power – that is in fact the topic of nodal analysis; and whether it is quantified via turnover or GDP does not make much difference. Nothing is more expressive than a glance from another angle to something that seems a trivial contemporary fact: globalization. Studying the involvement of the node countries through the lens of the Top 100 multinational companies at world level developed on a yearly basis by UNCTAD, the results undoubtedly demonstrate the paramount significance of the multinational companies with headquarters located in the node countries. In 2015, 14 node countries had 87 companies in this top 100, with impressive shares (ranging between 83% and 90%) in turnovers and numbers of employees in the host countries, and in the amount of purchases abroad.

Far from being a node country, Romania is a “handbook” example for the issues above. And that is because the local studies made since 1995 by Cezar Mereuță have revealed long ago the surprising concentration degree within the Romanian economy, where 10% of the companies account for 80% of total turnover on each classified market… Equally, the Romanian Top 100 of companies developed for 15 years by Prof. Mereuță on the basis of the European Classification of Economic Activities (NACE) codes shows us the gradual withdrawal, down to the point of utter disappearance, of the Romanian companies in favor of the multinational ones and the doubling of share of the retail companies to the detriment of the manufacturing industry.

Over the past 30 years, Professor Mereuță has made several proposals addressed to the political and economic decision makers in Romania. Currently, we may say that one of the most important (and neglected!) proposal was that from 1995-1997 regarding the importance of the large industrial platforms (Tractorul and Roman Brașov, ARO, ROCAR, Semănătoarea, the electronics platform of Pipera, etc.), in which he argued for the gradual privatization only towards strategic investors, able to bring new technologies and access to the international markets. Nowadays, we can only count the shopping malls, hypermarkets and office buildings raised on the respective locations and talk (only to hear one selves) about re-industrialization…

The nodal analysis offers Prof. Mereuță the opportunity to make one more very important proposal: to define as strategic goal of Romania to reach and to exceed the level of the average world GDP. The countries with higher than the average GDP are reservoirs for gaining the node country status, and their influence (not just economic) on the world arena is substantial. Romania is a member of the European Union, which is host to four node countries with permanent status: Germany, France, Italy and Spain (of course, there were five with the United Kingdom…). However, such a goal does seem attainable only by attracting new foreign investment, by speeding up the increase in value added in the food production and by stimulating the creative sectors of the economy. And all these require infrastructure, education, health. What a great political program such a proposal could entail!

If the nodal analysis is one of power structures, it is also one of inequality, because the two are inseparable. Cezar Mereuță started from the inter-organizational inequality, among the companies, and has also inexorably arrived at the inter-country one. The data are undeniable in the interpretation he has given. More that 100 years ago, another researcher in economics became famous by approaching inequality, but among the individuals, and starting from the fact that 20% of the Italians owned 80% of property – he gave to the science the currently well-known 80-20 Principle, further generalized by Joseph M. Juran. His name was Vilfredo Pareto, and, similarly to Cezar Mereuță, was educated as an engineer and worked as such until after 50 years of age. Moreover, his studies in economics and sociology show obvious influences from his Ph.D. dissertation defended at the Turin Polytechnic School.

Is Cezar Mereuță a contemporary Pareto? Indisputably – although he has also approached other domains, he validated and deepened Pareto’s principle to 80-10. Will he become similarly famous? We cannot but hope and be glad that an important step has been taken: the publication with the Editura Economică of the study The Nodal Analysis. Micro and Macroeconomic Approach. Compendium. A well-deserved tribute, the book is a rare translation of a Romanian scientific work directly accessible to the world pool of knowledge. The temporal context is exceptional, now that the competition in the process of globalization among the node countries, on the one hand, and their multinational companies, on the other hand, has turned fierce.

 

 
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OEconomica No. 1, 2016