The financial sector is rapidly reinforcing monopoly power, and corrupting processes of competition at the same time.
Finance is not just a passive facilitator of monopolisation, but is actively driving it. For example, the Mergers & Acquisitions (M&A) departments of major investment banks are driven by a constant need for M&A “deals,” which earn lucrative fees when they assemble firms together, usually into more dominant companies.
Making matters worse, monopolists like Amazon or Apple find it extremely easy to raise cheap finance for expansion, while those competing against them face a lending drought or high interest rates, further tilting the playing field.
Gaining strategic control
Meanwhile, private equity firms and investment funds are constantly on looking out for the potential for monopolisation in many different parts of our economies, and are “rolling up” a wide range of economic sectors, often able to earn monopoly rents from sewing up particular economic niches or narrow geographical areas. (For more on this, please click here.)
More broadly, private equity firms, investment banks and hedge funds are using their superior access to finance, and the firepower of finance, to gain “strategic control” over companies that they have played little or no part in building, using the ideology of “maximising shareholder value” to legitimise using their power to extract value that others – notably workers, and taxpayers – helped to create. Monopolists use market power to extract great value, then use share buybacks and financial engineering techniques (such as the use of outsized borrowing) to extract that value for themselves, rather than investing in the real economy.
We are also seeing “competitive contagion” in many economic sectors as more aggressive financial sector actors use their superior access to finance, and their willingness to use profitable but extractive and unproductive financial engineering techniques to out-compete other more responsible actors, thus pushing our economies steadily towards more extractive and less productive kinds of business. (See an example of this here.) Those who would act more responsibly, e.g. by being more environmentally friendly, will find themselves at a competitive disadvantage.
Too much finance
We are also seeing our entire economies unbalanced by oversized finance itself. Every economy needs a financial sector, but there are parts of the financial system that extract wealth from our economies, rather than supporting them.
Indeed, there is ample evidence that “too much finance” (TMF) in the form of oversized financial sectors often inflict a range of social, economic and political harms on the countries that host them, including lost economic growth. Read more on this, here.