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Osborne again shows his preference for uncompetitive capitalism

So Osborne is still determined to return RBS and Lloyds to the private sector before the election. This is despite all the arguments to the contrary – that the private banking system produced the financial crash in the first place with utterly calamitous results, that no significant measures have been put in place to prevent the recurrence of another crash, that the Big Five (HSBC, Barclays, RBS, Lloyds, and Standard & Chartered) already have grossly excessive market power, that there is abundant evidence that they have repeatedly abused that over-dominant power (through Libor market-rigging, breach of international sanctions, money-laundering, reckless use of foreign speculation and tax havens, pensions and interest swaps mis-selling), and that excessive economic power regularly leads to abuse of supply chains and the erection of overt and covert barriers to entry. So why re-invent the wheel again, especially when it’s known to be a dysfunctional and uncompetitive wheel?

The central fact about banking power in Britain today is that 85% of the public’s money is held by just these 5 banks alone, and these banks can and do use this money with little or no accountability to the public. Investment in the UK economy therefore reflects not the interests of the society at large, but rather the interests of the top decision-makers in the 5 largest banks.

Given that the total gross lending of the banking sector has been £7 trillions, 5 times the entire British GDP and exceeding total government spending of some £650bn by a factor of more than 10, this tiny clique of decision-makers in the banks now commands more spending power to shape the UK economy than the whole machinery of government. Given their appalling record over the last decade, does it make sense to restore this overweening power to them again?

It’s not just that they would then once again be ‘too big to fail’, it’s even more that the banks would once again be profoundly uncompetitive. Nor is it just the banks. The Big Six energy companies control 99% of the domestic energy market and have used it, as described a few days ago, for ‘cold-blooded profiteering’.

The UK’s 4 biggest supermarket retailers account for 76% of total grocery sales. The world’s top 10 commodity trading houses, which largely determine the wholesale price of food and energy utilities, control as much as 60% of global markets for some raw materials.

The whole concept of over-dominant market power needs to be radically reviewed. No single economic enterprise in any market should be permitted to control more than 15% of it. Beyond that pointthey shouold be forced to divest themselves of sufficient assets to downsize below that ceiling, exactly as the EU is now compelling RBS to rid itself of 316 branches and Lloyds of 632.

If that rule were applied to energy companies, commodity traders, supermarkets and banks, Britain would have a far healthier economy.

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