Monopoly power
November 16, 2018

£7.1m

The amount EE and Virgin overcharged switching customers

Ofcom has ruled that Virgin and EE have been charging customers an excessive amount when they cancelled their contracts early.

Early termination charges are permitted by the regulator as long as fees are made clear to the customer and are not so high as to make switching provider too costly. Ofcom determined that the price was indeed too high for the 400,000 EE customers who were overcharged at an aggregate cost of £4.3 million, and Virgin Media’s 82,000 customers who together were fleeced for £2.8 million.

Frequent mergers and the bundling of services have conspired to reduce competition in telecoms, leading broadband and mobile telephony to be the second and third most concentrated consumer markets in 2017. EE’s history perfectly encapsulates this trajectory—born from the merger of T-Mobile and Orange in 2010 and then snapped up by BT in 2016.

While Ofcom levied a fine of more than £13 million on the two firms, it’s unclear whether the scandal will affect the attitude of a government who’ve hinted at support for further consolidation.

Lobbying
November 15, 2018

$144k

Health lobby’s Michigan spend buys them seat at Governor’s table

State finance rules were skirted in Michigan’s gubernatorial race as health insurance giant Blue Cross Blue Shield (BCBS) helped Democrat Gretchen Whitmer see off a pro-single-payer challenger. In return, they were given a place on her transition team.

Since corporate funds cannot be given directly to a candidate or their PAC in Michigan, BCBS – which was once run by Whitmer’s father – gave her campaign ‘one-time permission’ to invite all 8,000 of its employees to a fundraiser. In this one night, Whitmer took in $144,000, helping her defeat her primary challenger and go on to take the Governor’s mansion.

Immediately after her victory, in a campaign which had seen her criticised for her closeness to the industry, she announced that Daniel Loepp – CEO of BCBS Michigan and the man who Whitmer credits with getting her into politics – would be heading up her transition team.

Living in the sixth least competitive US state for health insurance, Michiganders face a struggle for affordable health care. While moderate Democratic reforms at a national and state level have lowered costs and increased coverage among the poorest, they have also allowed insurers to lock-up regional markets, meaning higher costs for government and consumers. In Michigan, for instance, BCBS control roughly 70% of the entire market.

Short-termism
November 14, 2018

£1.5m

Wasted state investment in Michelin plant

As the Amazon HQ2 saga made clear, US corporations today have the bargaining power to dictate terms to government and expect compliance.

The situation is no better in the UK. After spending £1.5 million of Scottish government money on its state-of-the-art tyre curing technology, French giant Michelin announced that it would be closing its Dundee factory in 2020. The company can easily relocate the tech. However, there is no way for the government to recover its wasted investment.

Since plenty of cities across Europe are – like Dundee – desperate to attract business, companies are able to play regional governments off each other. Michelin was offered “four or five times” more by the Scots by any other administration in Europe.

In a bid to save the plant, the Scottish Economy Minister has set up a task group, but a successful proposal would presumably mean yet more state money being handed over to Michelin – and in return for what?

Lobbying
November 14, 2018

Gambling lobby's 'discredited' report behind FOBTs delay

Fixed-odds betting terminals (FOBTs) have been called the ‘crack cocaine’ of gambling. And with 400,000 problem gamblers in the UK, it’s no wonder that the Government was expected to intervene in the Autumn budget with a de facto ban.

Instead, May’s ministers caved to a lobbying campaign built on dubious statistics, delaying the reforms until next autumn. After one minister resigned, suspecting the gambling lobby had gone over her head to secure the delay, the Chancellor, Philip Hammond, defended the decision by pointing out that the restrictions could put up to 21,000 out of a job.

It has since emerged that these jobs stats, widely circulated in the Treasury, came from a “discredited” report commissioned by the Association of British Bookmakers (ABB). KPMG, the accountancy firm which wrote the report, included a disclaimer noting that their results were based on assumptions provided by the ABB and should not be used to draw wider conclusions.

Last year, the Treasury collected £457 million from taxes on FOBTs.

Gilded age
November 13, 2018

£96m

What ousted Persimmon boss will take home, despite promised cut

“I’d rather not talk about that” mumbled housebuilding executive Jeff Fairburn sheepishly as a BBC interviewer quizzed him on the controversy surrounding his huge bonus.

Persimmon, Fairburn’s then-employer, probably feels the same. The CEO was forced out because his remuneration was becoming a “distraction”, yet he and his bonus refuse to budge from the headlines. It has now emerged that the company’s attempts at damage control were less punitive than was advertised.

Having promised to reduce the total number of shares that Fairburn would be entitled to by 50%, it has transpired that the housebuilding giant craftily allowed him to keep those assets which would be of most value to him – and carve off the ones he would have had to pay for.

According to BBC estimates, this reduced the value of his bonus from £100 million to £75 million; a more arbitrary cut to his stock would have reduced it to £60 million. On top of this, he will be allowed to collect dividends, meaning that his total package could be worth as much as £96 million over three years.

Like many companies, Persimmon ties its bonuses to stock performance. The fuss about Fairburn’s pay package was because it had precious little to do with his own performance. Persimmon did post a 13% rise in profits for the first half of 2018 – but this was attributed to increased demand as a result of the Government’s Help to Buy scheme and low interest rates.

While the aim of the Government’s policy is to get people on the housing ladder – which according to housing charity Shelter, it is failing to do – the connection between share price and bonuses means that the cheap Government-backed credit is being channelled straight into executives’ pockets.

Revolving Door
November 12, 2018

645

Number of ex-government workers hired by top US defence contractors in 2018

The US government’s neglect of the defence department’s revolving door could be costing it billions.

So far this year, according to the Project on Government Oversight, 645 former government workers have been hired by the top 20 defence contractors. Half of them came directly from the Department of Defence, and a quarter of those took up positions with one of the big five defence firms. Of all the recruits, 90% became registered lobbyists.

While – mostly – no laws have been broken, the weak scrutiny of the Senate Armed Services Committee is allowing perverse incentives to creep into the system, leading public officials negotiating contracts to favour future employers.

Large federal contractors, for example, are headhunting soon-to-be retired military officers with recruitment programs such as “From Battlefield to Board Room”. Major General Mike Boera (USAF Ret.) signed up to Raytheon through the program in the same year the company received $2.9 billion in Air Force contracts.

Given the opacity of many of these exchanges, it is only when the line of legality is crossed that the scale of the cost to the taxpayer waste becomes clear. In 2004, former Principal Deputy Under Secretary of the Air Force Darleen Druyun was sentenced to nine months in prison for helping Boeing win billions of dollars in contracts while negotiating for jobs there for herself and her son-in-law.

The Congressional Budget Office found that she had overpriced a deal on an aerial refuelling aircraft by £5.7 billion.

Lobbying
November 9, 2018

Since saving lives pays dividends, we can expect smiles on the faces of executives at DaVita and Fresenius Medical Care, the two largest dialysis providers in the US. After a record-breaking spend to crush a California ballot initiative which would have lowered healthcare costs for millions, the two companies saw their stocks soar.

In an industry dominated by only a handful of suppliers, Proposition 8, drafted by a health care union, would have capped what patients could be charged for the treatment – and brought in better regulation for the centres.

DaVita and Fresenius operate nearly three-quarters of all dialysis clinics in California and roughly the same portion nationwide, a share which allows them to set prices with little competition. They fought their turf with the help of a record breaking war chest – between them, DaVita and Fresenius accounted for more than 90% of the $110 million spent to defeat the proposition – and the message: “If you can’t get dialysis, you will die.”

In response to the victory, DaVita’s stock rocketed by 10%, closing at $76.08; Fresenius was up almost 9%, closing at $43.17, as the markets celebrated their campaign of fear.

Monopoly power
November 8, 2018

AT&T labelled 'anti-competitive' after HBO blackout

When AT&T and TimeWarner were given the go-ahead for a $85 billion merger in June, concerns about competition were waved away. Judge Richard Leon of the Columbia District Court accepted AT&T’s assurance that it wouldn’t leverage ownership of content to drive users from rival distributors towards its own service – after all, it was going to make good money from those licenses.

Yet barely five months on, we are watching the media giant strip access to HBO, its premium cable channel, from a rival distributor over a licensing dispute. HBO, meanwhile, denies that its parent company is using them to squeeze more money out of Dish, the satellite broadcaster.

Dish claims it is being forced to pay for a set number of HBO subscribers, regardless of how many actually sign up; it is, it says, being asked to subsidise AT&T’s own wireless subscribers, who are offered HBO for free.

This kind of hard-balling will only increase as companies such as Comcast, AT&T, and Disney conquer larger portions of the media landscape. As they establish their own streaming services and platforms, the smaller distributors will lose their bargaining power.

There is, perhaps, some hope to found in the US government’s upcoming appeal of the original merger ruling. The Department of Justice will argue that Judge Leon ignored important evidence from AT&T’s own FCC filings, in which the company acknowledged that the vertical integration of a high-value programmer with a large distributor would lead to higher fees for rivals.

A successful appeal, which could force AT&T to undo the merger, would be a huge win for US antitrust, potentially paving the way to a future in which smaller distributors do not have to choose between paying up and being shut out.

Monopoly power
November 7, 2018

Amazon wins again, and everyone else loses

Amazon has always known how to play the long game.

Through bargain basement pricing, it has forced out competitors in every market it’s entered, surviving on zero-profit by focusing on relentless growth. The fact that the end-game to its most recent project – the long search for a home for HQ2 – benefits nobody but Amazon will come as no surprise to any of its former rivals.

Since announcing the initiative last September, over 200 cities and states across America have bent over backwards to woo the tech giant. Newark and New Jersey offered $7 billion in tax-incentives, while New York Gov. Andrew Cuomo joked that he’d change his name to ‘Amazon Cuomo’ if that was what it took. In return, the company promised to bring 50,000 employees and more than $5 billion in investment to the lucky winner.

But Bezos’ word is worth very little: having extracted highly favourable terms from many applicants, Amazon recently announced its intention to split its second headquarters between two locations, halving the benefit to each.

No final decision has been made, but it has been reported they’re in late stage discussions with Crystal City in Northern Virginia (a suburb of D.C.) and New York City. That Bezos has homes near both has led critics to suggest that the whole extended process was a pre-determined sham, designed to play-off competitors.

If that’s so, one has to salute their execution. In the process of taking bids, Amazon has not only attained extremely favourable terms, but also managed to collect valuable data on local resources. Insight which most probably would not have been available to them otherwise.

The tech giant’s ability to stay on the right side of the consumer welfare rule (read: ability to keep prices low) has historically protected it from the scrutiny of antitrust regulators. But if a company can dictate terms to government, those rules aren’t working.

Revolving Door
November 6, 2018

$20bn

Citigroup bailout organised by regulator John Dugan, new board Chair

Another day passes and the revolving door completes one more rotation. Citigroup has announced that the man once charged with regulating the bank is to be appointed head of its board.

John Dugan, who will replace outgoing chair Michael O’Neill at the end of the year, may not have quite the profile of Larry Summers, Robert Rubin, and Alan Greenspan, but he was as much an architect of the financial crisis as any of them; and as head of the Office of the Comptroller of the Currency (OCC), he was said to be instrumental in orchestrating an extra $20 billion taxpayer-funded bailout for Citi.

Dugan has moved through the Senate and Treasury during his career, as well as working in private sector law work, and lobbying. But his support for deregulatory policies has remained a constant.

While working in George H.W. Bush’s Treasury, Dugan wrote the ‘Green Book’, in which he laid out the case for deregulation of the banking sector and recommended the repeal of the Glass-Steagall Act.

His tenure as the OCC chief was similar in tenor. The OCC’s nominal role is to ensure the safety and soundness of the national banking system; Dugan’s pro-bank policies often risked this. He opposed efforts by state officials to crack down on abusive lending practices, insisting that national banks were not in their jurisdiction. This allowed banks to manipulate their legal status to escape regulatory threats. When a subsidiary of Wells Fargo took fire from Illinois regulators, the company simply moved the sub-company under its nationally chartered bank.

Dugan will bring all this priceless insight to the Citi board. The price paid by the American consumer for the recklessness of Dugan and his Citi pals, however, is another matter.

Short-termism
November 5, 2018

$928m

Value of Warren Buffet’s recent stock repurchase

Warren Buffet’s multinational conglomerate Berkshire Hathaway has just spent nearly $1 billion buying back its own stock.

While much of the financial press is focusing on the lack of attractive investments for Buffet’s company, the issue of repurchasing itself deserves greater scrutiny.

According to Goldman Sachs, US company boards are expected to authorise $1 trillion in share buybacks this year, a 46% rise on 2017 – and an all-time record for a practice that was still illegal in 1982. The controversial measure allows companies essentially to manipulate their stock, keeping value inflated and ensuring big payouts for executives, whose compensation is often tied to market performance. Meanwhile, capital is diverted from more productive investment in the real economy.

Last year, House Speaker Paul Ryan told workers at a Harley-Davidson factory that the planned Trump tax cuts would allow American manufacturers to compete globally and “keep jobs here in America” through investment in development and wage increases.

Instead, many companies simply splurged on buybacks, with disastrous effects for rank-and-file workers. Harley-Davidson itself closed a factory only a few hundred miles from where Ryan had delivered his speech, and announced, days later, a $700 million stock buyback plan.

The distortions caused by buybacks disguise weaknesses in the real economy. Some analysts have suggested that corporate buybacks are the only thing keeping the stock market afloat in 2018. It is worth remembering that the previous record for buybacks was set in 2007, just as the first signs of crisis began to emerge.

Monopoly power
November 5, 2018

17%

Wage drop associated with overconcentrated labour market

Wages aren’t generally thought of as an antitrust issue.

When regulators come together to discuss whether a merger should go ahead, or whether a company should be broken up, the focus is typically on whether the verdict will lead to a rise in consumer prices, while the potential consequences for wages are largely ignored.

But research has suggested this negligence is misguided, and that the failure to deal with ‘monopsony’, not just monopoly, could be a cause of declining wages for US workers. Monopsony is monopoly’s naughty twin; a market dominated by a single buyer. And in the case of the labour market, this means the employer.

In order to determine its effects on wages, researchers had to get an idea of the extent of the monopsony problem – but national statistics are not very useful in this regard. For obvious reasons, most workers are hesitant to uproot themselves and their families to move across the country for a job, and so a realistic depiction of employment opportunities has to take into account the constraints levied by commuting.

By dividing the US into a map of these commuting zones, researchers could see the concentration of the labour market at a regional – rather than aggregate – level. This revealed how many employment options were practically accessible to working Americans, and the extent to which market concentration was hurting wages.

Their results showed the average US labour market to be “highly concentrated” (according to the Department of Justice and Federal Trade Commission’s guidelines on horizontal mergers), which is, according to their calculations,  associated with a 17% decline in posted wages.

Revolving Door
November 2, 2018

Auditing giant uses insider leaks to cheat regulator

In yet another scandal to hit the accounting sector, former KPMG Executive Director Cynthia Holder has pled guilty to facilitating the defrauding of the Securities and Exchanges Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB).

Previously an Inspections Leader at the PCAOB, a nonprofit which scrutinises the audit work of registered accounting firms, Holder directed inspections of KPMG, one of the ‘Big Four’.

What she didn’t tell her bosses is that, while applying for a job with KPMG, she had also been leaking valuable confidential information to them, including lists of the audits that the PCAOB were intending to review. As a result, KPMG had been able go back over those cases, identifying deficiencies and performing new work to address the failings.

Faith in the sector has been repeatedly undermined in recent years by revelations of malpractice in a range of cases involving Tesco, Carillion, and Quindell. Auditing has a crucial stewardship role within the economy, which is why the revolving door between regulatory bodies and industry needs far better scrutiny.

Lobbying
November 1, 2018

15x

Real estate industry body's lobby spend compared with rival

The National Association of Realtors (NAR) is the second biggest spender on lobbying in America, having committed over $53 million so far this year.

What’s of particular concern, though, is how dominant this trade association is within its own industry – the Real Estate Roundtable, the next biggest spender, has only laid out $3.5 million.

Trade associations have always been difficult territory for antitrust authorities. On the one hand, information-sharing between companies can be extremely beneficial for the consumer. On the other, there is always a risk that companies will collude to rip off customers. The apparently strong convergence of interest within the Real Estate industry ought to raise exactly such competition worries, particularly given the NAR’s history.

In a 2008 case, the Department of Justice ruled that the NAR had inhibited competition from internet-based brokers. What’s more, the NAR has also been accused of abetting practices which deliberately inflated the perceived market values of homes in the run up to the financial crisis. Buyers were subsequently encouraged to take out larger mortgages than need, contributing to the scale of the subprime mortgage crisis.

 

 

Lobbying
November 1, 2018

$30m

Record-breaking spend by Big Oil in Washington state

The oil lobby is spending big this election cycle in an attempt to squash green initiatives in north-western states. Some of their campaigns are breaking spending records in Washington state alone.

For years, this sort of campaigning has helped oil companies preserve their business interests against mounting evidence that their practices are a threat to the public and the long-term health of the economy.

Oil’s opposition to Washington’s Proposition 1631, which would charge the state’s climate polluters, has been funded to the tune of $30 million – double the $15.2 million raised by the initiative’s supporters and a fundraising record.

Meanwhile, in Colorado, the supporters of Proposition 112, an initiative which would limit the locations of new oil and gas sites in the state, have raised nearly $1 million from individuals and green groups. But they are organising in the face of $35.6 million of mostly oil money, and against a campaign of harassment.

The ballots in both states are on a knife-edge.

 

 

Lobbying
October 31, 2018

90%

One health insurer's market share in Alabama

With the exception of Pharmaceuticals, Insurance has been by far the highest spending industry lobby so far this year at $121 million.

But within the industry, one company spends far more than any other. So far in 2018, Blue Cross/Blue Shield has spent nearly $10 million more on lobbying than the next biggest spending insurer.

With nearly 40 insurance companies spending between $1 million and $6 million on lobbying, one might think there is little reason to worry about monopoly. However, in the US much of the insurance market is divided up geographically, with insurers rarely stepping onto one another’s turf. In Alabama, a state with half a million uninsured people, Blue Cross / Blue Shield commands over 90% of the health insurance market, rendering the idea of free choice in the market laughable.

Hope may lie in the courts, however, as last April a federal judge overseeing a case involving 36 Blue Cross plans ruled that a 1980s-era plan to divvy up service areas may violate antitrust laws, thereby allowing the case to proceed.

 

Lobbying
October 31, 2018

64%

of tech lobby spend is by big three

Just three companies account for more than half of lobbying spend by internet companies.

The ‘Big Three’ – Alphabet (the artist formerly known as Google), Amazon, and Facebook – have spent just over $37 million on lobbying so far in 2018, 64% of the $58 million spent by the industry as a whole.

  • Alphabet Inc – $16,760,000
  • Amazon – $10,600,000
  • Facebook – $9,790,000

The next biggest is Chinese tech giant Alibaba at a little over $2 million.

The level and concentration of spending is perhaps not surprising given the increasing levels of criticism each of these powerful firms has been subject to over the past few years.

Lobbying has worked well for tech in the past. During the Obama era, Google’s political support for the Democrats gave them unprecedented access, with company representatives attending White House meetings more than once a week on average. In 2013, the Obama’s FTC voted unanimously to drop its investigation into Google after it agreed to some voluntary tweaks to its practices.

However, with such strong public scrutiny, it might require a more significant effort on behalf of the tech lobby. In his budget announcement on Monday, UK Chancellor Philip Hammond announced a new digital services tax on these firms, hoping to raise $500 million annually, and the WSJ reports that others are likely to follow suit.

 

Lobbying
October 30, 2018

83%

of defence lobbying spend is by just four companies

Last year, the US Navy began rolling out the F-35 fighter jet. It has cost $1.1 trillion and taken twenty years to make. During those two decades of development by Lockheed Martin, plagued by delays, technical problems, and cost overruns, the project has become a symbol of the wasteful inefficiencies within the US defence procurement system.

The dire failure to deliver may have something to do with the uncompetitive concentration of the sector (a merger wave between 1993 and 1997 saw 20 US contractors reduced to just six) and its excessive lobbying power. Lobbying spend by the defence sector so far in 2018 totals $49,273,028 – and the bulk of this has come from just four big contractors:

  • Northrup Grunman ($11,573,000)
  • Boeing Co. ($11,270,000)
  • Lockheed Martin ($10,117,561)
  • United Technologies ($7,940,000)

Last week, Lockheed Martin criticised Boeing for being too aggressive in its pricing, forcing competitors to drop out of the bidding process or build military products at a loss. Essentially, that’s one multi-billion dollar public contractor criticising another for… competing.

 

Gilded age
October 29, 2018

SEC investigating claim Goldman tried to silence whistleblower

The Securities and Exchanges Commission (SEC) has opened an inquiry into the case of a Goldman Sachs partner who left the firm after his complaints about unethical practices were ignored. The SEC is interested in whether Goldman might be using over-broad confidentiality terms that would prohibit an employee from disclosing misconduct.

In 2014, Goldman partner James Katzman phoned his employer’s whistle-blower hotline to complain about a range of unethical practices at the bank – including claims that his colleagues had sought to obtain confidential client information and that the bank inappropriately tried to hire a customer’s child.

Goldman’s general counsel determined that there was no ill-practice and Katzman, disillusioned, left the firm.

David Solomon, a senior Goldman executive had tried to persuade Katzman to stay, noting that he would be forced to sign a nondisclosure agreement if he wanted to receive the $10 million in stock-based compensation he was eligible for – effectively gagging him. Solomon was made CEO of Goldman earlier this month.

Katzman took this as an attempt to silence him, and it is this contention that is the central subject of the SEC inquiry.

The pressure by employers to sign non-disclosure agreements, common across such firms, can damage corporate transparency. According to a 2017 survey, 55% of US managers said they would avoid calling out misconduct amid worries that their reputation and job outlook might take a hit. This reticence to stand-up against such powerful employers might explain why scandals like Libor-fixing were able to continue for so long without the whistle being blown.

 

Gilded age
October 26, 2018

$230bn

Money laundering by Russia and other former Soviet states

“If you wanted to launder money all you need to do is find an obscure branch in a bank with a good name”.  That’s how Howard Wilkinson, the British trader who uncovered the $230 billion that had flowed through Dankse Bank’s Estonian branch, described the state of play in our global banking system.

It was revealed that the biggest group of account holders were British limited companies. Oliver Bullough, author of ‘Moneyland’, has estimated that up to £67.5 billion in secret holdings has been invested by Russians in London and UK real estate since the early 1990s.

Yet despite increasingly strong rhetoric from the Prime Minister following the Skripal poisoning – “to those who seek to do us harm, my message is simple: you are not welcome here” – authorities have so far been hesitant to take action.

Investigatory powers were bolstered last year by the introduction of the Unexplained Wealth Order, which allows the National Crime Agency to investigate individuals who buy expensive items or property without the apparent wealth to do so. As of September, only three orders had been made.

 

Monopoly power
October 25, 2018

$86bn

The value of a "clearly anticompetitive" industrial gas merger

Another day, another spineless decision by the FTC.

In a 4-1 verdict, Praxair and Linde won U.S. antitrust approval for their $86 billion merger.

The new company will be the biggest supplier of industrial gases like oxygen, nitrogen, and helium to factories and hospitals around the world. Approval was granted on the condition of divestiture from a range of each company’s assets.

However, in a dissenting opinion, FTC commissioner Rohit Chopra argued that the merger would be “clearly anticompetitive” and have a “high likelihood of harming manufacturers of a wide range of industrial and consumer products.”

Chopra pointed out the fact that the FTCs own research has shown that merger approvals granted on the condition of divestiture often fail to preserve competition, as spun-off assets are stripped by hedge funds or re-purchased down the line by the merger entity.

Under the power-sharing agreement agreed by the two companies, the new company will be registered in tax-light Dublin. After the decision, shares in Linde and Praxair rose by 4% and 2.4% respectively.

 

Gilded age
October 25, 2018

42%

Increase in Wall Street's pre-tax profits

In 2017 pre-tax profits for the broker-dealer operations of New York Stock Exchange member firms was 42%, double the 21% achieved in 2016, the bounty of what is now the longest bull market in American history.

The long period of low interest rates, along with the sugar hit of Trump tax cuts, have supported the booming market, and instead of investing in R&D or worker wages, most companies have pocketed the benefits with record dividends in the first quarter of 2018.

Today, only 54% of Americans own stock (down from nearly two-thirds before the crash), with the richest 10% owning nearly 85% of stocks. What’s more, wage growth has failed to keep pace with the S&P 500, with growth mostly found among top earners.

 

Lobbying
October 24, 2018

2x

Increase in UK lobbyists employed by big tech in just 2 years

The number of lobbyists now employed in the UK by Facebook, Google, and Amazon is up to fifty, with half of those working for Facebook, who are currently advertising five more UK-based lobbying roles on their website.

With regulatory scrutiny of big tech increasing, Facebook et al are spending big on lobbying – the social media giant’s recent hiring of former Deputy Prime Minister Nick Clegg being a case in point, with speculation that he will enjoy a pay package in the millions. In the US, Facebook spent in excess of $11.5 million on lobbying in 2017, up from $8.7 million the previous year.

Earlier this year, the UK Information Commissioner’s Office fined the company the maximum £500,000 for its lack of “transparency and security issues” relating to third party data harvesting.

 

Monopoly power
October 24, 2018

43%

Of businesses do not realise that price fixing is illegal

That’s according to polling conducted by the market research agency ICM for the UK’s Competition and Markets Authority (CMA). Surveying 1,200 businesses of all sizes, they found that a quarter of respondents also thought that it was permissible to discuss prices with competitors when bidding for work.

The CMA identified a number of sectors which are particularly open to cartels: estate agents, property management, construction, manufacturing, and recruitment.

The survey was conducted as part of a campaign by the CMA to crack down on cartels, with the regulator paying for advertisements for the first time in an effort to encourage potential whistleblowers to come forward.

 

Short-termism
October 23, 2018

Announcing the biggest tax cuts in American history, Trump promised that his sweeping reforms would “provide tremendous relief for the middle class and small business”. Republican Representative Chris Collins was somewhat more transparent saying: “My donors are basically saying, ‘Get it done or don’t ever call me again.’”

New analysis from the Brookings Institute confirms that the middle class are not the winners. Over the long run Trump’s tax cuts will simply exacerbate the trend of lagging wage growth for this squeezed middle.

Supporters of Trump’s bill had suggested that the tax cut for big business would encourage investment, leading to higher productivity and higher wages. Predictably, corporate America took a different approach. 2018 is breaking records for share buybacks – the rewards of which go to investors and senior corporate executives. At least Rep. Collins’ phone will still be ringing.

 

Lobbying
October 23, 2018

$70m

Billionaire spending on out-of-state ballot measures

According to analysis by the The Center for Public Integrity, at least 25 billionaires have donated over $70 million to statewide ballot measures being held in states in which they do not live. The measures include restoring felon voting rights, adopting rent controls and restricting gun ownership.

Ballot initiatives or ‘propositions’ are proposals to change constitutional or statutory law which are placed on the ballot at election time for approval or rejection by the electorate. Voters in 37 states will decide 156 statewide ballot measures in November 2018.

The largest single spend by a non-resident donor was $30 million contributed by Henry Nicholas, co-founder of Broadcom, to the Florida Amendment 6 campaign to enact a crime victims’ bill of rights. Nicholas is also pushing the bill in Nevada, Kentucky, Georgia, and Oklahoma.

 

Lobbying
October 22, 2018

$435k

The amount drugmakers have spent trying to undermine research on unfair pricing

Billionaire John D. Arnold made his money by placing bets on prices in the energy market. But since retiring he has spent over $100 million of his own money on grants and research for companies developing generic drugs and think tanks researching price within the industry.

That includes $19 million to the Boston-based Institute for Clinical and Economic Review, which has produced research suggesting that the prices of many drugs on the market do not reflect their relative health benefits.

Drugmakers including Amgen Inc. and Celgene Corp. have spent the last year trying to discredit the organisation, setting up the ‘Patients Rising’ group with $435,000 of funding to publish articles criticising ICER’s methodology.

The US has some of the highest drug prices in the world, with the global 20 top-selling medicines costing, on average, three times more than they do in the UK.

High prices mean high profits for pharmaceutical companies, who are keen to keep it that way. In 2017, the pharmaceuticals industry spent a total $280 million on lobbying.

 

Revolving Door
October 19, 2018

Crossing the floor: what former Deputy Prime Minister Clegg did next

Amid a long and ongoing battle with regulators in Europe, Facebook today announced it has hired Nick Clegg to head up its global affairs and communications team. Sheryl Sandberg, Facebook COO, celebrated Clegg’s appointment as someone who “understands deeply the responsibilities we have to people who use our service around the world”. The appointment no doubt bolsters Facebook’s lobbying power this side of the Atlantic.

His deep European ties – the former Deputy PM’s CV includes several years as an adviser and trade negotiator at the European Commission before a stint as a Member of the European Parliament – will no doubt come in handy for the tech giant facing off with Margrethe Vestager, the EU’s fearsome antitrust cop.

Clegg isn’t the first senior member of the Coalition government to cross the aisle. Former colleagues now using their talents, insight and connections in the corporate world include George Osborne, former Chancellor of the Exchequer, who is now advising the world’s biggest asset management firm BlackRock on a salary of £650,000 a year (not bad for four days’ work a month) and Rupert Harrison, his former chief of staff, who now directs the same firm’s strategy.

 

Gilded age
October 19, 2018

7

The number of traders convicted for rigging Libor

Yesterday’s conviction of two former Deutsche Bank traders, Matthew Connolly and Gavin Campbell Black, for conspiracy and wire fraud charges relating to their part in the Libor rate rigging scandal, brings the total number of people convicted to a meagre seven.

Libor, the global benchmark interest rate, is used to set rates for an estimated $350 trillion worth of mortgages, student loans, financial derivatives, and other financial products.

Banks, including Deutsche Bank and Barclays, have agreed to pay more than $9 billion in fines for their role in rigging this key benchmark.

Yet despite these huge fines, and, according to a former Morgan Stanley trader, the fact that such illegal manipulation may have been common practice since 1991, barely anyone has been criminally punished.

In fact, in the US in 2015, two Rabobank traders had their convictions overturned on appeal, and in London six former brokers were acquitted in 2016. The Criminal Cases Review Commission in the UK has also agreed to review the convictions of two of the traders originally jailed.

Monopoly power
October 19, 2018

This week the Competition and Markets Authority (CMA) set out the scope of its investigation into the merger of supermarket chains Sainsbury’s and Asda.

A successful merger would give the combined company control of almost a third of the UK grocery market. Together with Tesco, that would leave almost 60% of the entire market in the hands of a “Big Two”.

The grocery market is already the fifth most concentrated of the ten consumer sectors analysed by the Social Market Foundation, and had only just begun to see price drops as a consequence of new entrants Aldi and Lidl. The SMF’s measurement of the fluctuations in market concentration and grocery prices clearly shows a correlation between consolidation and price increases – demonstrating once again that competition, not concentration, serves consumers.

 

Gilded age
October 19, 2018

11%

Increase in median FTSE 100 CEO pay

Analysis by the High Pay Centre earlier this year shows median chief executive pay at FTSE 100 companies increased by 11% in 2017. The mean increase was even higher at 23%.

This compares to a 2% rise in median pay for full-time workers over the same period.

The mean pay ratio between these CEOs and their employees is 145:1. That’s up on the previous year’s 128:1 ratio.

Are these executives deserving of their sky-high salaries? Research suggests not, that in fact executive pay and performance is broken. One academic study concluded: “excess pay appears significantly negatively linked to forward profitability”.

 

Lobbying
October 18, 2018

$3.4bn

Total US lobbying spend in 2017

Lobbying is big business, and, despite President Trump’s campaign pledge to “drain the swamp”, 2017 saw the highest spending on lobbying since 2010.

The top three spending industries according to the Open Secrets database were:

  • Pharmaceuticals: $280 million
  • Insurance: $160.5 million
  • Tech & Electronics: $147 million

Some people have pointed to Donald Trump’s harsh rhetoric on drug pricing to explain the pharmaceutical industry’s eye-watering spend ($30 million up on 2016). During his first press conference as president-elect he described the industry as “getting away with murder”.

 

Revolving Door
October 18, 2018

600

The number of former ministers and senior civil servants taking up business roles between 2000 and 2014

According to the Advisory Committee of Business Appointments, hundreds of senior public servants have walked through the revolving politics-government-business door into 1,000 different corporate positions.

HSBC is a case in point.

Over the past ten years their gamekeeper-turned-poacher hires include, among others:

  • Ruth Kelly, the former Transport Secretary, who was appointed as a Senior Manager for HSBC Europe in May 2010
  • Dave Hartnett, former Permanent Secretary for Tax, who in 2013 was recruited as an adviser to the HSBC Board Committee on Financial Systems
  • Michael Ellam, formerly head of policy at the Treasury, who was made managing director of HSBC’s public sector banking team in 2013

In February 2015, it was revealed that HSBC had been complicit in assisting its wealthy clients dodge millions in tax.

And while the number of ministers and civil servants moving into business roles has been gradually growing, there does not appear to be a difference between Labour and Conservative ministries.

 

Monopoly power
October 18, 2018

2-3%

The number of US workers who quit when wages fall by 1%

That’s compared to the 9-10% you’d expect in a properly competitive labour market. The new research on labour market power adds to the evidence that monopsony power in the United States is depressing wages.

Monopsony is monopoly’s lesser known twin. Where the latter describes the dominance of a single producer, the former relates to a single purchaser. Importantly, the two can often be related through the labour market – if an industry is heavily concentrated, then the monopoly producer will also be the sole buyer of labour, weakening the bargaining power of workers.

What’s more, monopolised or oligopolised industries can result in collusion between employers to keep wages suppressed. In 2016, a former LG sales manager claimed that LG and Samsung had agreed not to recruit each others’ employees. A year earlier, a $415 million settlement was reached after similar accusations were made about Apple and Google.

 

Gilded age
October 17, 2018

13%

Increase in average Wall Street pay

Compensation on Wall Street is now at the highest level since the collapse of Lehman Brothers in 2008.

Unfortunately, the fortune of New York bankers is an anomaly when it comes to US wage growth. Despite unemployment being at its lowest level for two decades, wage growth – 2.7% this year – has barely beaten inflation. In fact, in real terms, today’s average hourly wage has around the same purchasing power as it did in 1978.

Back in Manhattan, a quarter of securities industry workers earned more than $250,000 in 2017.

 

Lobbying
October 17, 2018

81%

Increase in lobbying spend by US Savings & Loans industry

Overall, the Savings & Loans saw the biggest percent increase in lobbying spending between the second quarter of 2017 and the second quarter of 2018.

And their spend seems to have paid off. Earlier this year, President Trump signed into law S.2155, exempting many community banks from legislation which was introduced after the financial crisis to prevent risky practices.

Savings and loan companies place a stronger emphasis than commercial banks on residential mortgages and are thus typically more locally orientated and regionally specific. While the 2008 crisis is typically associated with big investment banks, risky practices by these community banks can also harmed consumers – most famously in the savings and loans crisis of the 1980s, when hundreds of community banks collapsed.

 

Short-termism
October 17, 2018

87%

Percentage of executives who feel pressured to deliver in the short-term

A 2017 survey by the McKinsey Institute found that corporate decision making is heavily influenced by the need to satisfy shareholders rather than deliver sustainable, long-term performance.

The survey also found that:

  • 65% of executives and directors believe that short-term pressure has increased over the past five years
  • 55% at companies without a strong long-term culture say their company would delay a new project to hit quarterly targets even if it sacrificed some value.

Corporate short-termism can depress private business investment, limit innovation and reduce economy-wide growth in the long-run.

 

Short-termism
October 17, 2018

£4.5tn

The cost to the British economy of an oversized City of London

According to a new paper published by the Political Economy Research Institute at the University of Massachusetts Amherst, “too much finance” cost the UK £4.5 trillion in lost growth between 1995 and 2015.

The figure is arrived at by combining the £1.8 trillion in lost economic output caused by the global financial crisis since 2007  and the £2.7 trillion in ‘misallocation costs’ resulting from the sector diverting activities away from useful roles – like converting savings into business investment – toward activities that distort markets and seek rent.

 

Monopoly power
October 17, 2018

24%

The combined electricity market share of SSE and Npower

This month, the Competition and Markets Authority gave the two energy providers final clearance to go ahead with their merger, taking the Big Six down to the Big Five.

The decision, which makes an already highly concentrated market even more concentrated, was taken at the same time as the Government is introducing a price cap to tackle what the Prime Minister called “rip-off” prices.

In a statement released when the merger was announced, the consumer group Which? noted that “mergers of such big players in essential markets, such as energy, are rarely a good thing for consumers, especially given the low levels of competition”.