Monopoly power
February 8, 2019


Value of the biggest bank deal since the financial crisis

SunTrust and BB&T have announced they will merge, raising concerns about mounting concentration in the banking sector.

The two regional banking giants will become the US’ sixth largest bank in the biggest deal since the financial crisis. The merger seems to have been spurred by last year’s federal banking reform bill, which reduced federal oversight of banks worth between $50 billion and $250 billion. Kevin Barker, a senior research analyst at Piper Jeffrey & Co., told the Wall Street Journal“I think the green light for this deal was the relaxation of regulatory rules”.

That bill itself sparked some controversy. As it was going through Congress last Spring, concerns were raised by Senator Elizabeth Warren and others that it would reduce competition, hurting consumers as well as smaller banks, and increasing risk in the economy at large. The bill passed after a lobbying splurge from the Savings and Loans industry – between Q2 2017 and Q2 2018, their increase in lobbying spend (81%) exceeded any other industry.

Concentration in the banking sector has risen continuously, with the number of banks in the US falling 40% since 2000. Not even the 2008 financial crisis stemmed this tide. As of 2017, the six largest banks controlled 70% of US financial assets.

With the size of large banks blamed in part for causing the 2008 crisis, what are we doing creating another institution that is too-big-to-fail.

Monopoly power
February 7, 2019


Increase in 3rd-party sales revenue as Amazon exploits monopoly position

Amazon’s revenue from third-party sellers using its marketplace grew by 34% over the course of 2018, a sign that the company is reaping the benefits of its e-commerce monopoly.

The retail giant now accounts for nearly half the online commerce market, with its nearest competitor, eBay, accounting for only 6.6%. As a result, vendors have little choice but to use the company’s marketplace service, even as it engages in predatory practices.

While marketplace sales accounted for nearly 70% of Amazon’s retail revenue last year, they only rose by just 11%, half the pace of the previous year. Meanwhile, sellers in a number of markets saw Amazon raise the ‘referral fee’ – essentially its cut of each sale – indicating that 2018’s growth in revenue was achieved in part by exploiting its dominant market position.

Abusive marketplace practices are not out of character for the company. Amazon have been accused appropriating designs that have been popular on the marketplace and then producing their own version, often sold at prices which undercut the original seller.

It’s entirely reasonable that a platform like Amazon marketplace takes a fee for use of its service, but it is becoming clear that the company’s dominance is facilitating rent-seeking and harming small vendors.

Gilded age
February 6, 2019


In secret state aid offered to Nissan by UK government

It has been revealed that the Business Minister misled the public over a secret state aid deal with Nissan.

In 2016, Greg Clark, Secretary of State for Business, Energy, and Industrial Strategy (BEIS), wrote to the carmaker offering as much as £80 million in investment, contingent on the production of the Qashqai and X-Trail in Sunderland. At the time, however, Clark insisted that, contrary to public speculation, he had “no chequebook” with which to compensate the Japanese manufacturer.

The Government had previously refused to release the minister’s correspondence with the company. But after Nissan backed out of its planned investment in the North East, Clark passed the letter on to the BEIS select committee.

The proposed deal fits a long-established pattern of UK governments offering inducements to select companies. Nissan alone has extracted £800 million corporate welfare since it began negotiating to come to the UK in 1980, and the UK is currently under investigation by the EU Commission for using tax policy as an unfair inducement to multinationals.

The motivation to protect jobs is understandable, but if the Government wants to use its fiscal powers in this way it should be done openly and in a way that doesn’t just benefit multinational corporations.

Gilded age
February 5, 2019


Number of times McKinsey mentioned in opioid lawsuit

McKinsey & Company, one of the world’s most prestigious management consultancies, has been drawn into the scandal surrounding America’s opioid epidemic.

It has emerged that consultants from the firm instructed drug company Purdue Pharma on how to “turbocharge” sales of the painkiller OxyContin, while also providing advice on how to disrupt the efforts of drug enforcement agents and “counter the emotional message from mothers with teenagers that overdosed”.

These actions were made public by Massachusetts’ Attorney General in the course of a lawsuit against Purdue and its owners, the Sackler family, who have been accused of abetting the deadly opioid crisis by misleading doctors and patients about the safety of their drugs. After sales of OxyContin dipped in 2014, Richard Sackler and other executives pushed sales teams to focus on “high-value” prescribers – often doctors who the company had been warned were involved in diversion and abuse.

It has now been shown that this policy came recommended by McKinsey. In 2013, consultants suggested that Purdue increase the quota for visits to high-value prescribers, noting that prescriptions rose proportionally with visits from sales reps and that the most prolific prescribers wrote “25 times as many OxyContin scripts” as less prolific doctors.

Clearly, such abusive corporate practices are not just the product of ‘bad eggs’ like the Sacklers. As one of the most well-respected consultancies in the world, McKinsey is clearly falling short of its pledge to meet “highest ethical standards”. In business, the prioritising of profit over public welfare has become an epidemic in itself.

Gilded age
February 4, 2019


Complaints about bank behaviour in Australian Commission

The Australian Government has promised a sweeping reform of its banking, insurance, and pension sectors after a damning report from the country’s Royal Banking Commission.

After 12 months of evidence and 10,000 complaints about the behaviour of financial institutions, the Commission published its report detailing how financial services firms systematically failed consumers.

In one instance, bribes were paid to bank employees to wave through loans based on fake documents; in another, a bank enabled a problem-gamblers’ addiction by raising his credit limit; and during one Commission hearing, an AMP bank executive lost count of the number of times his company had misled regulators.

The report also proposed a variety of reforms focused on bolstering oversight and banning certain types of commissions paid to brokers, advisors, and intermediaries. Australia’s ‘Big Four’ banks may even face criminal action in relation to the ‘fees-for-no-services’ scandal, in which customers – including, in one case, dead customers – were charged for services they never received.

But while the report states that “in almost every case, the conduct in issue was driven not only by the relevant entity’s pursuit of profit but also by the individual’s pursuit of gain,” few of its suggestions tackle this root cause.

Rather than forcing companies to fix the perverse incentives they’ve created for front-line sales people to cheat consumers, the Commission has placed even greater responsibilities onto the very regulators which have consistently been captured and deceived by profit-hungry banks.

Gilded age
February 1, 2019


In 'lose-lose' loans sold to councils by Barclays

Seven local councils have lodged a high court claim against Barclays over the terms of the bank’s Lender-Option Borrower-Option loans – so called ‘lobos’. These were popular with local authorities because they appeared to have lower interest rates than loans from the Government.

However, councils now say that they were misled, claiming the bank knew customers would rely on Libor rates – the basic rate of interest used in lending between London banks, commonly used as a benchmark rate for other loans – when deciding whether to sign up for the loan. But the bank had been rigging the Libor rates since the financial crisis, which made the loans look more appealing to borrowers.

The bank, according to the contract, was able to raise interest rates over the lifetime of the loan. The councils could, of course, reject the new rate, but would be forced to repay the loan immediately and in full. Inevitably, rates on some lobos have increased to double those of government loans. Newham council now pays more in loan interest than it receives in council tax.

After the Libor-rigging scandal came to light, a number of councils decided to seek restitution in court. It remains unclear how much money they are likely to recoup if they succeed in their claim, but so far lobo loans have together cost the seven councils as much as £573 million.

Gilded age
January 31, 2019

"We're not looking for fraud"

CEO of major accountancy firm

Accountancy firms do not look for fraud when checking their clients’ books, the CEO of a major auditor has told MPs.

This week David Dunckley, the new head of Grant Thornton, was questioned by the Business, Energy & Industrial Strategy (BEIS) Committee over his firm’s failure to spot a £40 million black hole in Patisserie Valerie’s accounts, just months before the firm collapsed.

Clashing with MPs over the role of auditors, Dunckley told the committee: “We’re not looking for fraud, we’re not looking at the future, we’re not giving a statement that accounts are correct.”

Rachel Reeves, the committee’s chair, responded by highlighting the Financial Reporting Council’s accountancy rules, which specifically state that auditors should detect misstatements caused by fraud or error.

“In a shop that sells tea and cakes, you’d sort of think that might be spotted,” Reeves said.

According to the GuardianGrant Thornton’s failure to spot misstatements stretches back to at least September 2014. Perhaps the problem was that they weren’t looking.

January 30, 2019


Pharma payments to doctor testifying on drug costs

For its first session of the new Congress, the Senate Finance Committee has set itself the important task of tackling sky-high prescription drug costs. But if the witness list is anything to go by, the hearing isn’t going to rock the Big Pharma boat.

Among those giving testimony is Douglas Holtz-Eakin, president of American Action Forum (AAF), a conservative think tank based in Washington. In 2016, PhRMA – a trade group representing the pharmaceuticals industry – donated $6 million to the American Action Network, who in turn fund the AFF. PhRMA also gave smaller donations directly to the AFF in 2014 and 2015.

Senators will also hear from Dr Peter B. Bach, a physician at Sloan Kettering, who in 2017 received $16,000 from Gilead Sciences, a biopharmaceuticals company, for consulting, travelling and lodging.

Finally, Kathy Sego will address Congressmen about her experience as the mother of a boy with insulin-dependent diabetes. The high cost of insulin led her son, Hunter, to begin skipping doses in 2016, an incredibly risky practice.

Sego’s son now receives a scholarship through the Team Type 1 Foundation, which is funded through donations from organisations including pharmaceutical companies. Sego is also a volunteer for the American Diabetes Association, which receives industry funding.

Witness line-up aside, the committee is hardly an exemplar of independence. Data from Open Secrets shows that the Pharmaceuticals industry donated just under $20 million to Senators on the committee in the last two election cycles.

January 29, 2019


Total 2018 US lobbying spend

Total US spending on lobbying hit $3.42 billion in 2018 according to the Centre for Responsive Politics, the highest since 2010.

Lobbying costs peaked during the battle over Obamacare before flattening out for several years, but with numerous big industries like Pharma and tech facing concurrent regulatory challenges, companies are once again spending big to influence.

Pharmaceuticals were once again the biggest-spending industry, dedicating nearly $280 million to tackling regulatory threats, including a costly bipartisan plan to make them pay a larger share of Medicare drug costs.

The tech sector also ramped up lobbying efforts – the big five increased their collective spend by 10% on 2017. Amazon, frequently targeted by the President last year, spent a company record of $14.19 million and doubled its lobbying staff, as it built tech’s largest in-house lobbying team.

After several years of relatively modest spending, 2018 has been a reminder that when it comes to government influence, big business will always have the deepest pockets.

Monopoly power
January 25, 2019


EU fine for Mastercard's anti-competitive behaviour

The European Competition Commission has handed a €573 million fine to US card giant Mastercard, claiming that the company artificially increased the cost of payments within the trading area.

Mastercard, the second-biggest supplier of credit card services in the EU, historically charged an ‘interchange fee’ on transactions between the cardholder’s bank and the retailer’s bank. Until new regulations were introduced in 2015, these fees varied across Europe, but Mastercard’s rules at the time forced banks receiving payments to apply the fee set in their home country. The EU argued that by impeding merchants from looking for better options at banks in other member states, these rules harmed consumers and retailers.

Competition Commissioner Margrethe Vestager has gained a reputation for her strong actions against the US tech giants – Google has been fined more than $7 billion by the commission over eight years – but she has also been tough on card companies.

Mastercard previously had a seven-year dispute with the antitrust authority over cross-border fees to retailers, which ended in 2014 when the European court sided with the commission. Last year, Visa was accused of charging tourists excessive fees when they use cards in the European Union.

Revolving Door
January 24, 2019


Hourly wage of ex-Brexit minister in new job with Tory donor

David Davis, formerly Secretary of State for Exiting the European Union, has taken up a £3,000-an-hour job with a major donor to the Conservative Party.

The latest register of MPs interests reveals that Davis will serve as an external advisor to JCB, a major digger firm whose billionaire owner Lord Bamford gave £2.5 million to the Conservatives in 2017, topping the party’s donor list for that year.

Davis expects to be paid £60,000 for 20 hours of work – working out at about £50 per minute – on top of his basic MP’s salary of £77,379 per year. He is also expected to receive more than £35,000 in compensation for his position as a board member of a German manufacturing company.

The register entry says that the job was cleared by the Advisory Committee on Business Appointments, the “toothless” watchdog tasked with monitoring the appropriateness of jobs for former ministers and senior civil servants.

Gilded age
January 23, 2019

First criminal trial of UK bank execs begins

The first criminal trial of a UK banking chief executive for misconduct during the financial crisis has begun.

A jury at Southwark Crown Court will hear the Serious Fraud Office’s (SFO) case against four Barclays executives – including John Valley, the company’s CEO until 2011 – who stand accused of defrauding the market during the financial crash.

At the height of the crisis, Barclays attempted to remain liquid by raising funds from Middle Eastern investors, thereby avoiding a government bailout. The central question of this case is whether that fundraising was done legitimately and whether shareholders were properly informed of its details. During two capital calls in the autumn of 2008, Barclays loaned millions of pounds to Qatari investors, which in the eyes of the SFO constitutes a bribe.

The SFO originally sought to bring suit against the Barclays group as a whole, not just the senior executives, but this plan was dismissed by the judge in a ruling which has been kept private.

Revolving Door
January 22, 2019

NHS tech chief's conflict of interest

The chief digital officer for NHS England has been criticised for publicly praising a health app without disclosing that she had been hired by the company who made it.

Juliet Bauer had been involved with the creation of a long-term plan for the NHS which called for a major expansion into the health tech sector, including a commitment to offer digital consultations to everyone in the UK.

She wrote in an article for The Times online that Livi, the UK brand for Swedish doctor app Kry, showed “higher levels of patient and GP satisfaction while at the same time delivering higher patient safety and medical quality”. Bauer’s article appeared under her NHS title and she did not disclose that she would be joining Kry later this year.

Kry have been quite clear about their motivations for the hire: Luke Buhl-Nielson, the company’s UK chief, acknowledged that the desire to increase their share of NHS contracts was “part of the thinking [behind] bringing Juliet on board”.

Monopoly power
January 21, 2019


Increase in opioid deaths for every three payments made to doctors

New research has found that payments from Big Pharma to doctors is associated with increased overdose deaths.

The study looked at payments worth $39.7 million made to doctors in 2,200 US counties between August 2013 and December 2015. These payments were primarily for meals, travel costs, speaking, and consulting. It found that in a given county of 100,000 people, three additional payments to physicians were linked to 18% more prescription opioid deaths.

These results attest to the devastating effect of Big Pharma’s cosy relationship with doctors. This research comes in the same week as the release of Massachusetts court documents which detail the appalling marketing practices of Purdue Pharmaceuticals, the manufacturers of addictive painkiller Oxycontin.

The Sackler family, who own Purdue Pharmaceuticals, are being sued for misleading doctors and patients about the dangers of its opioid medications in order to boost sales and keep patients away from safer, less addictive alternatives. Court documents show that when sales flattened in 2014, Purdue doggedly focused on selling more to “high value” prescribers – typically doctors who the company had been warned were involved in diversion and abuse.

Even after being warned about the risks of Oxycontin, executives continued to prioritise profits over public health. One exchange between Richard Sackler and Robert Kaiko, the drug’s inventor, is particularly revealing. Kaiko warned that oxycodone-containing products were among the most abused opioids in the US and predicted that “If Oxycontin is uncontrolled, … it is highly likely that it will eventually be abused”. Sackler responded: “How substantially would it improve your sales?”

The ability of pharmaceuticals companies to pursue such reckless and destructive business models is the product of an over-concentrated industry with little accountability to its end users. Big Pharma are working hard to keep it that way – in 2018, the industry spent over $200 billion on lobbying government.

Monopoly power
January 18, 2019


Total EU antitrust fines handed to Google

Google are expected to be fined by EU antitrust regulators in what would be the third major fine for the tech giant in recent years.

A probe by the European Competition Commission is targeting Google’s AdSense advertising service, with regulators examining whether the company’s contracts unfairly restricted rivals. The EU claims that AdSense, whose European market share is more than 80%, hindered competition by preventing customers from accepting rival search advertisements.

EU Competition Commissioner Margrethe Vestager has gained a reputation for her aggressive action against the big four technology companies. In July, the Commission broke records with a €4.3 billion fine relating to the monopolistic use of Google’s Android software to prioritise the company’s own search and web-browser functions. Vestager also opened an investigation into Amazon last September and fined Facebook €110 million in 2017 for providing misleading information about their WhatsApp merger.

If the Commission goes ahead with the fine it will only add to the $7.6 billion racked up by Google over the past eight years, a figure which highlights the consistent failure of Silicon Valley to address its competition problem.

Revolving Door
January 17, 2019

Coal lobbyist nominated to head US environmental regulator

A former coal lobbyist, now nominated to lead the US Environmental Protection Agency (EPA), helped raise funds for the Senators tasked with handling his confirmation.

In May 2017, Andrew Wheeler – then working for law firm Faegre Baker Daniels – hosted a fundraiser for Republican Senator John Barrasso, who today chairs the congressional Committee on Environment and Public Works. Wheeler also helped raise campaign funds for another Republican Senator on the committee, Jim Inhofe, for whom he had previously worked as a staffer for 14 years.

Between working for Inhofe and becoming involved with the Trump administration, Wheeler managed Faegre Baker Daniels’ energy and natural resources practice, whose clients included coal company Murray Energy, as well as Xcel Energy, a major utilities interest group. Wheeler lobbied for the firm as recently as August 2017. As EPA chief he will be regulating many of the companies he formerly represented.

This is yet another example of the all-too-cozy relationship between business, lobbyists, and government which is undermining public trust in the political process.

January 16, 2019


Of homes sold by Persimmon in 2018 were Help to Buy

Housebuilding giant Persimmon has upgraded its annual profit forecast after another year of growth backed by Help to Buy.

Based on increased building at higher prices, Britain’s second-biggest housebuilder reported a 4% rise in revenues for 2018. Almost half of those homes sold were covered by Help to Buy, a government scheme designed to get young people on the housing ladder.

But the scheme has been criticised for failing to achieve its objectives while lining the pockets of the property sector. A 2017 report by Morgan Stanley said that the subsidy had failed to reduce prices for first-time buyers, while allowing housebuilders to pocket £10 billion in taxpayer cash. Last year, the Daily Mail reported that developers, aware that first-time buyers can borrow more, were routinely overpricing properties under the scheme – some by as much as 15%.

Despite these notable failures, the Chancellor last year announced that the Government would be extending the scheme until 2023. Since 2015, property and finance have been the two sectors donating the most to the Conservative Party.

Gilded age
January 15, 2019

FRC cleared Patisserie Valerie audit six months before £40m fraud revealed

It’s been revealed that the Financial Reporting Council (FRC) approved the quality of Patisserie Valerie’s audited accounts six months before the chain revealed a huge fraud which nearly ruined the company.

The watchdog reviewed Grant Thornton’s auditing work on the accounts of Patisserie Holdings in 2017. Yet only six months later, it was revealed that the company had found “significant, potentially fraudulent, accounting irregularities”, which led to the discovery of a £40 million hole in its accounts.

On the brink of collapse, the company was forced to raise millions from its investors just to stay afloat. Nearly 2,500 jobs were put at risk, further evidence of the recklessness and negligence with which the auditing sector is rapidly becoming associated.

The consistent inability to prevent such failures shows that the FRC is inadequate for monitoring and policing the sector, and should be replaced – as per the 2018 Kingman Review – by a new, stronger regulator.

Revolving Door
January 14, 2019

Former Deloitte tax avoidance expert given government role

The Chancellor has announced Bill Dodwell, who oversaw an era of tax avoidance scandals at Deloitte, as the new Tax Director at the Office of Tax Simplification.

Between 2005 and 2018, Dodwell was head of tax policy at the ‘Big Four’ accountancy firm. Along with the other three major professional services firms, Deloitte has been consistently criticised by the House of Commons Public Accounts Committee in 2012, January 2013, April 2013, June 2013 and January 2015 for their role in arranging dubious avoidance schemes.

In 2017, Deloitte were condemned specifically by the chair of the Public Accounts Committee after the Supreme Court ruled that a tax avoidance scheme arranged for their client Ladbrokes was unlawful. The scheme involved artificially manipulating the share value of two Ladbrokes subsidiaries, leading to a loss in one of the companies, which was beneficial for tax purposes but did not cause any real economic loss.

Back in November 2013, the charity ActionAid accused Deloitte of advising big business on how they could use Mauritius to avoid potentially hundreds of millions of dollars of tax in some of the poorest countries in Africa.

In his new position, Bill Dodwell will be advising government on its approach to simplifying the tax system. There’s no doubt that Dodwell is experienced in dealing with tax policy, but should government be hiring someone who has spent the better part of his career helping big business avoid tax?

Gilded age
January 11, 2019


Ranking of the Netherlands in Oxfam tax haven list

The European Commission is investigating tax deals struck between Nike and the Netherlands.

Tax rulings made by Dutch authorities between 2006 and 2015 endorsed a method to calculate royalty payments which the commission says “may not reflect economic reality”. The implication is that Nike were allowed to pay a more favourable rate than their competitors, an arrangement which would constitute illegal state aid.

If true, the arrangement would fit a pattern for the Netherlands, which, according to Oxfam, is the third most prominent corporate tax haven in the world after Bermuda and the Cayman. The commission is already engaged in an in-depth investigation of Dutch tax rulings thought to unfairly benefit IKEA, and in 2015 the Commission found that Starbucks’ Dutch subsidiary underpaid between €20 and €30 million in corporate tax.

These deals can bring short-term benefits to the countries that offer them but they also perpetuate a crony capitalist system which benefits huge multinationals at the expense of competition, fairness, and innovation.

Gilded age
January 10, 2019


Cost of insurers' overcharge for Medicare benefit

Health insurers in the US have been strategically overestimating the cost of drug provision in order to skim extra money from a Medicare benefit program.

The Part D prescription-drug plan covers the costs of certain prescription drugs; the onus is on health insurers to predict how much that annual provision will cost. According the Wall Street Journal, these estimates have been consistently inaccurate, allowing insurers to hold onto $9.1 billion more than they otherwise would have between 2006 and 2015.

Insurers only have to reimburse Medicare if the extra money it collects from these overestimations is greater than 5% of their original estimate. If they underestimate their spend, however, they bear some of the losses, creating a perverse incentive to exploit taxpayers.

No wonder Part D spending has risen faster than any other Medicare component in recent years. In a country already blighted by unnecessary healthcare costs, the last thing taxpayers need is to be taken advantage of by self-interested insurers and a negligent administration.

Revolving Door
January 9, 2019

Ex-Obama official helps Amazon push for procurement domination

In its mission to dominate yet another market place, Amazon has been exploiting the revolving door again – this time with its sights set on government procurement.

Emails have emerged showing that Anne Rung, who was US Chief Acquisition Officer during the Obama administration and who was hired by Amazon in 2016, had been using her contacts within the General Services Adminstration to lobby the government on its new e-commerce portal.

Amazon is widely expected to take a leading role in the development of the new system, opening up a market worth $53 billion. Given the tech giant’s record, there is every reason to be concerned that this position of power could be used to direct public dollars towards the company’s own brands and those of favoured suppliers.

Rung’s emails with Mary Davie, a top official at the GSA, clearly show how the revolving door works. In one exchange, they discuss plans for the forthcoming portal. In another, Davie asks the Amazon exec for suggestions on candidates to fill a government role; in return, Rung asks Davie if she knows of someone who could run Amazon Business’s federal government business.

Gilded age
January 8, 2019


Made by Comet liquidators despite ongoing investigation

After the 2012 collapse of electrical retail chain Comet, the company’s liquidators, Deloitte, spent years racking up millions in fees even as they faced penalties from their regulator.

The Big Four accounting firm picked up £15.2 million as administrator and liquidator, before passing the business to lawyers who charged a bill of £2.5 million. There is an ongoing investigation by The Institute of Chartered Accountants’ into Deloitte’s role in the liquidation, with the company’s three administrators thought to be conflicted because of previous work advising the company.

As accountants and lawyers made a killing, 7,000 staff were left without jobs, a fact which Deloitte had misled the government about. Meanwhile, unsecured creditors, including customers, landlords, supplies, and HMRC were also left out of pocket, so far receiving a paltry £500,000 between them.

Such losses are perhaps an inevitable part of a capitalist system, but the inequitable sharing of risk is indicative of an insolvency process which is unfit for purpose.

Gilded age
January 7, 2019


Corruption probe raises questions about 'toothless' UK watchdog

Three London-based bankers have been charged by US authorities over their role in the $2 billion Mozambique loan scandal, just a year after the UK’s Financial Conduct Agency (FCA) dropped its own criminal investigation into the case.

The Justice Department probe stems from a 2013 deal in which Mozambique borrowed internationally to fund a slew of maritime projects. 

The three former Credit Suisse bankers, along with Manuel Chang, then-finance minister of Mozambique, stand accused of creating the projects as fronts to enrich themselves, intentionally diverting portions of the loan proceeds to fund at least $200 million in bribes and kickbacks.

Last year the FCA downgraded their own criminal investigation of the same activities. With hundreds of billions in dirty money flowing through the City, the failure of the FCA to take care of financial crime in its own backyard is yet another indictment of an agency which has come to be seen as “toothless”.

Gilded age
January 4, 2019


Money Google moved to Bermuda tax haven in 2017

Google shifted $22.7 billion to Bermuda in 2017. The company used a Dutch subsidiary, Google Netherlands Holdings BV, to move money to Google Ireland Holdings, which is actually based in the tax haven Bermuda.

This tax strategy, known as “Double Irish, Dutch Sandwich”, allows Google to avoid triggering US income taxes or European withholding taxes on profits.

For over a decade, Google’s arrangement has kept its effective tax rate on non-US profits in the single digits as it has moved more and more money into tax havens. The amount channelled through the Dutch subsidiary in 2017 was around $4.5 billion more than in the previous year.

What’s more, the company seems quite brazen about its activities. In a statement, the company emphasised that its finances were in line with the law, echoing Chairman Eric Schmidt’s 2012 comment that he was “very proud” of the steps that the company had taken to reduce its tax bill.

Gilded age
January 4, 2019


Amount Chancellor could raise per year with wealth tax tweaks

Just a few small tweaks to wealth taxes and subsidies could raise £7 billion a year by 2022-2023, according to a report by the Resolution Foundation.

In anticipation of the Chancellor’s 2019 Spending Review, the think tank has released analysis identifying the low-hanging fruit of tax reform.

Entrepreneur’s relief, for instance, gives a small class of taxpayers huge capital gains tax cuts with no evidence of any gains in productivity or growth. Reducing the amount of relief that entrepreneurs can claim to a tenth of its current level is estimated to save £1.6 billion annually.

In addition, the think tank finds that reforming the regressive council tax system, including increasing the top band, could raise £1.4 billion. Clamping down on inheritance tax loopholes and capping the tax-free lump sum on pensions tax relief are other wealth-related recommendations.

10% of households own 45% of all UK wealth, yet wealth is significantly undertaxed: around 50% of tax revenue comes from earnings, whereas capital-related taxes account for less than 10%. With a looming crisis in our public finances, it’s time to look seriously at taxing assets.

Gilded age
January 3, 2019


Of biggest firms paid no tax last year

BP, Royal Mail, and AstraZeneca are among a number of top UK companies which failed to contribute to the public purse in 2018, according to analysis by the Mail on Sunday

Tax details of 69 companies listed on the FTSE 100 revealed that 13 paid either no corporation tax in the UK or received a tax credit from HM Revenue & Customs (data was not available for the remaining 31).

Usually corporation tax is levied at a rate of 19% of total profits, but companies are often able to exploit loopholes and incentives in the UK’s complex tax code to dodge the full rate. BP, for instance, was a net recipient of tax money, claiming £134 million – this despite making £5.6 billion in profit last year.

When huge companies can pay less in tax than small businessmen – all while abiding by the letter of the law – it is clear that the system is in dire need of an overhaul.

Monopoly power
January 2, 2019


Proportion of national income transferred to rich as a result of monopoly

Profit-hungry monopolies are driving an increase in wealth inequality in the US, according to research soon to be published in the Oxford Review of Economic Policy.

Companies with a dominant share in a market are typically able to leverage this power to raise prices higher than they would be able to in a competitive market. Critics of monopoly have long claimed that this results in unfair prices for consumers, but the extent to which this penalty was skewed towards those on low-incomes was unclear until now.

Whether a person benefits from a corporate price increase depends firstly on how much they spend on the product, and secondly on how much of a stake in the company they have through the stock market. The problem is that these two things are not evenly distributed across the income spectrum. In 2016, the top 20% of earners only consumed as much as the bottom 60%, while possessing 13 times as much corporate equity. The result of which is effectively to “transfer resources from low-income families to high-income families”. In 2016 alone, monopolistic pricing resulted in an upward transfer of wealth equivalent to 3% of national income.

Economists have long argued, in light of the increasingly widespread ownership of stock, that what is good for the stock market is good for the economy. But as long as the concentration of corporate equity keeps increasing relative to consumption, the majority will continue to suffer from monopoly prices despite a thriving Wall Street.

December 31, 2018


Number of groups who lobbied on the farm bill

Renewed every five years, the U.S. Farm Bill is always open season for lobbyists. 2018 proved no exception, with more than 500 groups and companies hiring lobbyists over the past two years to influence the bill, making it the fourth-most lobbied bill in the 115th Congress.

The bill is so complicated and wide-ranging that it is impossible to sum up precisely what it does, and it’s exactly this complexity which makes it susceptible to manipulation by corporate interests. Those who can afford the lobbyists and lawyers are able to game the system. This much is clear in the statistics: one study notes that over the last two decades, the top 10% of farms accounted for 77% of commodity subsidies, at a total of $158 billion.

Sen. Chuck Grassley (R) summed it up best, saying the farm bill allows corporate farms to “manipulate the system” and hurt new and small farmers. One particular highlight from this year’s legislation, which passed in early December, is a loophole which will allow agri-businesses to designate family members as ‘farm managers’, who can then receive as much as $125,000 in subsidies whether they work on the farm or not.


Gilded age
December 28, 2018


Estimated cost of UK ‘loyalty penalty’

Consumers are losing millions a year to so-called ‘loyalty penalties’ levied by big businesses, with the elderly and those on low-incomes most vulnerable.

The loyalty penalty is the difference between what long-time customers and new customers pay for the same service. These price differences result from businesses lowering prices to attract new customers, knowing that many existing subscribers will not have the time or awareness to search for a better deal. Consumers face this ‘penalty’ across a range of industries, but it is most acute in insurance, mobile phones, broadband, savings accounts, and mortgages.

In September, consumer body Citizens Advice issued a ‘super-complaint’, triggering the Competition and Markets Authority to consider what action could be taken to tackle the problem, with new powers to impose fines potentially on the horizon.

Monopoly power
December 27, 2018


Number of drugmakers planning US drug price hikes in New Year

For Americans reliant upon prescription medication, 2019 is not looking good – nearly 30 drugmakers plan to increase the price of their medicines from January.

Novartis, Bayer, Allergan, GSK, Amgen, AstraZeneca, and Biogen are all among those planning price hikes, according to documents seen by Reuters. Pfizer has already announced plans to hike prices on 41 of its drugs in mid-January, with increases ranging from 4.5% to 9.9%

Big Pharma’s huge lobbying operation – valued at $216 million this year alone –  keeps these big players on top, allowing them to maintain a system of never-ending patents and ever-increasing prices, all while tens of thousands of Americans die every year due to their inability to afford healthcare.

December 24, 2018


Record-setting corporate stock buybacks for 2018

2018 will set an all-time record for corporate buybacks in the United States, with share repurchases amounting to roughly $1.1 trillion.

The practice of companies buying their own shares has been on the rise for decades, but has been enhanced this year by Trump’s huge corporate tax cut.

Buybacks increase the value of a company’s stock without necessitating real improvements in their business operations – like investing in training and technology – allowing corporate executives make big money without boosting the economy at large.

Gilded age
December 21, 2018

“Once an Amazonian, always an Amazonian”

Revolver, Deap Ubhi

The revolving door is spinning particularly quickly at the Pentagon these days. Silicon Valley start-up founder Deap Ubhi joined the agency from Amazon in August 2016 to work on the Defence Digital Service, before returning to his previous employer in November 2017.

Now, he’s being accused of using his time working for government to further the commercial interests of Jeff Bezos’ company. At the department, he had been involved in the early planning of the Joint Enterprise Defense Infrastructure (JEDI), which is the planned cloud computing infrastructure for the US military. Amazon is seen as the front-runner among four competitors for the $10 billion JEDI contract, but the procurement process has been dogged by the suggestion of bias towards Bezos’ company since the very start.

One of those companies, computing giant Oracle, is suing the Government, alleging among other things, that Ubhi engaged in business with Amazon while still employed at the Pentagon. Oracle claim that emails and Slack messages from Ubhi show him lobbying for a ‘single-award’ approach to the contract – which is perceived to favour Amazon – and note his use of social media to openly praise his former employer while he was working for the Defence Department.

Last November Ubhi rejoined Amazon, announcing on Linkedin that he would be “technical product lead for a yet-to-launch AWS service”.

Monopoly power
December 20, 2018


Big four auditors’ FTSE 350 market share

If proof were needed of the dire state of the auditing sector, it came this week in a flurry of new research and reports condemning the industry as overconcentrated and “dysfunctional”.

New research published by consultancy Proxima revealed that Britain’s blue-chip firms face a financial penalty when they switch auditors.

In a competitive market, companies would switch services seeking lower prices and a higher quality service. Instead, firms that rotated auditors in the five years from 2013 found their fees rose by 45% – for those who maintained the same service, costs increased by an average of 38%. Rising prices have been accompanied by a decline in the quality of service. Last June, the FRC found that more than half of KPMG’s audits of FTSE 350 clients required “more than limited improvements”.

Over-concentration is surely to blame for a large part of the problem: all of the 41 FTSE 100 companies that changed their auditor since 2013 selected one of the ‘big four’ auditing companies, who together also cover 97% of FTSE 350 companies.

Yet there is also blame to be aimed at the sector’s watchdog. The recently released Kingman report took the Financial Regulation Council to task, labelling its approach to work on the auditing sector as “excessively consensual” and recommending that it be rebuilt from the ground up. A new report this week from the Competition and Markets Authority went even further, suggesting deep reform of the industry itself, including the separation of audit from consulting services and the introduction of a new join-audit system.

Gilded age
December 19, 2018


Fine levied on Santander for keeping dead customers' money

The Financial Conduct Authority (FCA) has penalised high street banking giant Santander for failing to transfer funds worth more than £183 million to the beneficiaries of deceased customers’ accounts.

40,428 consumers were affected by Santander’s “serious failings”, with funds in some cases being kept from relatives and beneficiaries for “many years”.

What’s more, the bank did not disclose the nature or extent of the issues it faced with its probate and bereavement process to the FCA once it was made aware of the problem. FCA executive director of enforcement Mark Steward said that the failings “took too long to be identified and then far too long to be fixed.”

The bank did not contest this, agreeing to resolve the case. This gesture, by itself, qualified the company for a 30% discount on its fine, slashing the cost from nearly £46.9 million to £32.8 million. Such a lenient regulatory approach will never be a disincentive to big banks for whom a few million pounds is little more than pocket money. Only a regulator with teeth can keep consumers safe from such predatory practices.

December 18, 2018


Google investment in constituency of regulating congressman

Google has announced that it will invest $1 billion in a new campus in New York, right on the doorstep of the new chairman of the House Judiciary Committee. The company was Rep. Jerry Nadler’s (D) top contributor in the midterms, and in his new position he would be responsible for signing off on any subpoena of Google executives to appear before a House antitrust hearing.

The manoeuvre fits a pattern of investing in constituencies of potentially troublesome lawmakers, putting indirect pressure on politicians to go easy on the company. Between 2010 and 2013, Texas Attorney General Greg Abbott led a robust antitrust investigation into the tech giant, suing them for document production. Shortly after the state closed the inquiry, Google invested $200 million in a wind farm and the announcement of Austin as one of its ‘Fiber cities’.

Similarly, in 2011, Utah Senator Mike Lee (R) grilled Google executives in a major Senate anti-trust hearing, raising concerns about Google narrowing consumer choice by giving its own businesses advantage in search listings. The following year, Google made Provo, Utah its third Fiber City and invested $188 million in a renewable energy project for the state. Lee is now chair of the antitrust subcommittee, but no similar hearing has been held since.

While there is no suggestion of an overt quid pro quo between the company and these politicians, when Google has so much money to burn, it’s far too easy for them to throw their weight around.


Gilded age
December 17, 2018

Davos caves in to the oligarchs

The World Economic Forum (WEF) has reneged on its decision to ban three Russian businessmen from this year’s Davos conference, after pressure from Putin’s government.

The aluminium tycoon Oleg Deripaska, industrialist Viktor Vekselberg, and state bank head Andrei Kostin had been prominent members of their country’s delegation in recent years. But after the men were hit by the new US sanctions last April, they were blacklisted from the winter gathering of elites.

When Russia threatened to boycott the event, however, the WEF caved and the trio are once again welcome at the exclusive event.

The decision to allow the oligarchs to attend is another demonstration that, rather than upholding moral leadership, the conference serves to entrench the cosy relationship between big business, the super rich and the world’s political leaders. At 68,000 Swiss francs minimum – around £55,000 – the ticket price alone shows that, whatever the problem of our crony capitalist system, Davos is not part of the solution.


Gilded age
December 14, 2018


Real earnings lost by average worker since crisis

Workers are still earning less in real terms than they did in 2008 and won’t see their wages return to pre-crisis levels until 2024, according to research by the Trades Union Congress.

The findings, based on the new ONS Survey of Hours and Earnings, show that the average worker has lost £11,800 in real earnings over the last decade, amid the longest real wage squeeze in more than 200 years.

In the North West, the average worker has been deprived of £14,230, and real wages are lower than a decade ago in 34 out of 43 of the region’s local authority areas, with only four areas seeing wage growth of 5% or more.

Meanwhile, at the upper end of the pay scale, executives have been lining their pockets. Chief Executives at FTSE 100 index-listed businesses have seen their median wage surge by 11% in 2017 alone, according to the High Pay Centre – a little over 8% in real terms.

Gilded age
December 13, 2018


Defence stocks bought by Armed Services chair days after pushing for record spend

Only days after announcing that he would be pushing for a record spend of $750 billion on U.S. defence, Jim Inhofe, the chairman of the Senate Armed Service Committee reported that he had purchased stocks in Raytheon, a major military contractor.

After being asked about his investment by the Daily Beast, Inhofe said that he had directed his financial advisor to cancel the transaction and to avoid aerospace and defence stocks in future. But metadata found in that letter to the Senator’s advisor indicates it was created less than 20 minutes after the initial request for comment.

During his previous tenure as the chair of the Senate Environment and Public Works Committee, Inhofe also owned stakes in various companies under his purview, including Continental Resources and Newfield Exploration.

Since the administration’s budget plans were public when the Raytheon stocks were bought, the Senator did not break any rules on insider trading. Nonetheless the purchase still raises questions about the ethics of politicians investing in companies which stand to benefit so directly from their legislative influence.

Monopoly power
December 12, 2018


Drug companies implicated in "largest cartel" in US history

Investigators in the United States have accused more than a dozen drug manufacturers of conspiring to fix prices within the market for generic medication.

An investigation that began in 2016, initially focusing on just two drugs, has been expanded to include at least 16 companies and 300 drugs. Joseph Nielsen, the Connecticut antitrust investigator leading the case, said it was “likely the largest cartel in the history of the United States”.

The companies have been accused of divvying up their clientele and negotiating prices by phone, email and text. Sales reps would use industry functions to share sensitive information, and the coordinated market was referred to as the ‘sandbox’ – the implication being that the companies involved were expected to ‘play fair’ with one another.

This collusive behaviour is particularly damaging in the generics market because consumers are so reliant on it for affordable medications – only 18% of Americans use brand-name products for their prescriptions. Price-fixing, though,  leads to skyrocketing costs: in one instance noted by investigators, the cost of a common asthma treatment surged by more than 3400%.

With such markups coupled with active collusion in the industry, it is no surprise that healthcare remains the top issue among American voters in poll after poll, with prescription drug prices of particular concern.


Gilded age
December 11, 2018


Decline in registrations for Scottish Ltds after transparency reform

Government reforms to increase the transparency of Scottish limited partnerships (SLP) have led to an 80% drop in the number of new registrants, hinting at the extent to which this legal arrangement was dominated by illicit practices.

SLPs were a popular investment vehicle for people looking to launder money, particularly from the former Soviet bloc. This year, Scottish Television reported that the Scottish Police had received 48 requests from overseas law enforcement agencies to investigate suspicious activities relating to SLPs. In one particularly famous scheme, now known as the ‘Global Laundromat’, at least $20 billion was moved out of Russia between 2010 and 2014.

But after the UK Government introduced new rules in 2017, requiring SLPs to disclose the identity of those who benefited within 28 days, registrations for SLPs dramatically declined, breaking the trend of years of expansion.

The Government’s action on this matter has been praised by the G7’s Financial Action Task Force, who recently released a report lauding the UK as a global leader for anti-money-laundering and counter-terrorist-financing.

Not everyone was so enthused. While noting that the Government’s reforms were encouraging, Global Witness, an anti-corruption NGO, pointed out that “hundreds of billions of dirty pounds are washing through our banks and property market every year, as the government openly admits”. They contested that giving the UK so much credit before seeing real change made “a mockery of the whole process” and claimed that the watchdog was asleep at the wheel.

Either way, the years of abuse of SLPs demonstrates clearly that loopholes in Britain’s legal system can facilitate financial corruption, hiding corruption behind a veneer of respectability.

Monopoly power
December 10, 2018


Reduction of labour supply due to licensing

New analysis from the National Bureau of Economic Research shows occupational licensing laws in the US are deterring workers from regulated occupations, reducing competition.

By taking advantage of the variation in licensing laws between states, the researchers were able to examine the effect of licensing on the jobs people chose. They found that for industries subject to occupational licensing regulations, the reduction in labour supply was between 17-27%.

The past six decades have seen an explosion of licensing regulations – the portion of the labour force covered has increased from around 5% to nearly 25% today. In the EU, the level is just shy of that, with 22% of workers reporting that they have an occupational license.

When workers are put off entering a particular profession due to high barriers to entry, the result is a decline in competition and an increase in prices. Studies have shown that consumers pay a 4% premium on average for licensed services, rising to as much as 19% in some industries. This is supposedly justified by strengthening of consumer protections, however there is little academic evidence suggesting that consumers receive any benefit.

Indeed, in an era where services are comprehensively reviewed by online comparison sites, the consumer protection case for occupational licensing is tenuous at best. Instead of assuring quality for consumers, these regulations simply ensure that insiders remain unchallenged, while the enterprising poor struggle to break in.

Revolving Door
December 7, 2018


Number of conflicts of interest for US consumer protection chief

The Federal Trade Commission (FTC) have released documents showing that the head of its Bureau of Consumer Protection has conflicts of interest with 120 companies, raising questions about how effectively he can perform his duties.

Andrew Smith, who was appointed to lead the FTC’s consumer watchdog last spring, was previously a partner at the corporate law firm Covington & Burling.

During his four-year stint there, he represented a broad range of companies likely to fall under the FTC’s remit, including Twitter, Verizon, Wells Fargo, Microsoft, JPMorgan Chase, and Goldman Sachs. Remington A. Gregg, a counsel for civil justice and consumer rights, said that he had “never seen a list of conflicts so vast across so many industries”.

Smith also represented Facebook and Equifax (a consumer credit reporting agency), both of whom are the subject of “precedent-setting” investigations by the FTC.

Even if Smith recuses himself as expected, this still calls into question the wisdom of hobbling leadership in government by appointing someone with such deep conflicts of interest. Time to end the revolving door?

Revolving Door
December 5, 2018

Amazon on Democrat hiring spree after House turns blue

Amazon have begun a hiring spree of Democratic congressional aides, building a network of contacts with the new House majority.

Tina Tower, a staffer for Senator Ed Markey (D-MA), has become the third Democratic aide hired by the tech giant in just a month. Her new role will be program manager for public policy, while former House chiefs of staff LaDavia Drane and Tony Clair, hired last month, will work on diversity issues.

Amazon has been consolidating its political efforts behind the Democratic Party. Five years ago, Amazon’s campaign spend was split roughly equally, but CEO Jeff Bezos appears to have become disillusioned by a Republican Party headed by a hostile Donald Trump, who has repeatedly attacked Amazon for its failure to pay taxes and accused it of scamming the Post Office. In last month’s midterms, the company’s donation of nearly $2.4 million to the Democratic National  Convention helped the party take back the House, putting a number of key regulatory issues back in Democrat hands.

Silicon Valley’s tech giants are facing increasing scrutiny over abusive and irresponsible practices, but Amazon is particularly vulnerable to government regulatory decisions. Federal aviation rules, for example, affect their drone plans and government contracts are an important source of revenue – Amazon Web Services currently has a $600 million contract to host data for the Central Intelligence Agency.

Such an entrenched network of ‘revolving door’ relationships is no doubt designed to help the company lobby against costly restraints.

Gilded age
December 4, 2018


Companies based in British territories enabled corruption

Transparency International have released a new report documenting the scale of criminal wealth flowing through the British Overseas Territories (BOT).

Over the last 30 years, 1,201 different BOT-registered companies featured in cases of grand corruption and associated high-end money laundering.

A shocking 92% of these companies were legally based in the British Virgin Islands, and in 15% of cases this dirty money had come originally from Russia.

Together, these incidents amount to over £250 billion in assets fraudulently taken from 79 different countries. Yet this may not even scratch the surface, as detection and prosecution rates for corruption are thought to be low. And although the UK has led the way with the introduction of a central, open register of companies’ ultimate beneficiaries, the Overseas Territories taint this reputation.

Anonymous shell companies use valuable UK assets as a means to disguise their corruptly-acquired funds. Almost 28,000 properties in the UK are owned by companies based in the BOT, a level of investment which has helped stimulate a boom in luxury development and contributed to the UK’s housing crisis.

With the territories themselves unlikely to enforce a more open approach – last May, the premier of the British Virgin Islands said he was “deeply disturbed” by transparency reforms proposed by the UK Parliament – perhaps it is time for the Government to assert control over these errant isles.

Monopoly power
December 3, 2018


Increase in average funeral price over 10 years

The Competition and Markets Authority (CMA) says that skyrocketing prices in the funerals market have not been justified by significant quality improvements or cost increases and are launching a major investigation into the industry.

The average cost of a funeral is now £4,271, a 68% increase from 2008. Over the same period, prices for the historically cheap option of cremation shot up by an even harsher 84%, compared with a rise in inflation of just 25%.

For those on the lowest incomes, even a cheap funeral now accounts for around 40% of annual outgoings. This goes some way to explaining why the number of ‘pauper funerals’ – services carried out by the council for people without relatives, or whose relatives are unable to pay – rose by 70% over the three years up to 2017. In some local authorities, relatives are not even allowed to attend such services.

According to the CMA, the UK funeral market’s profit margins are thick by international standards, so there is no reason why the big players could not continue profitably while maintaining fair prices for grief-stricken consumers.


Gilded age
November 30, 2018

Deutsche hit by yet another laundering scandal

Deutsche Bank’s Frankfurt headquarters have been raided by German police as part of an investigation into suspected money laundering.

Germany’s federal prosecutor say that two Deutsche employees may have been helping clients launder money by setting up accounts in offshore branches. Since the Panama Paper’s leak in 2016, Deutsche have been investigated – and fined – for various instances of money laundering facilitated by their employees.

At the start of 2017, the bank was fined a total of $630 million by US and UK regulators for using ‘mirror trades’ to help launder Russian money, and earlier this year it was accused of helping Dankse Bank’s Estonian branch launder as much as $150 billion over nearly ten years.

In response to these repeat scandals Deutsche has beefed up its compliance division, hiring around 370 staff to their anti-financial crime division in the year up to April 2017, despite reducing their overall staffing numbers. Yet one of the employees at the core of the latest case is said to be a senior employee in compliance.

It’s not hard to see why two thirds of British adults do not trust banks to work in the best interest of society. And the true extent of financial misbehavior hinted at by the Panama Papers is only just beginning to come to light as prosecutors start to investigate complicit corporations. As more companies are exposed, that distrust is only likely to grow.


Monopoly power
November 29, 2018


Proportion of Americans ‘very concerned’ about corporate monopoly

survey conducted by Public Policy Polling (PPP) in September revealed that 88% of respondents are “at least somewhat concerned” that “big corporations have too much power over your family and your community”, and 71% are “very concerned”.

Almost two-thirds of people agreed that government “should do more to break up monopolies and reduce corporate power”. Americans’ discomfort with the power of corporations – in particular their political power – has contributed to growing populist sentiment. 83% of Trump-voting respondents to the poll said that they were wary of the political power of corporations – perhaps unsurprising given the popularity of Trump’s campaign trail promise to “drain the swamp”.

In an era of unprecedented political polarisation in US politics, this polling reveals a topic where political action could receive broad bipartisan support.

Yet advocates for robust antitrust enforcement in Washington remain a minority voice. That may have something to do with the fact that most PACs dedicate more than 90% of their spending to incumbents. Corporations are keeping congressmen in their jobs through generous donations, are they really going to bite the hand that feeds them?


Monopoly power
November 28, 2018


Market share of tobacco’s big three

A new database published by the Open Markets Institute has revealed the terrifying extent of concentration in the American economy. 

American consumers encounter monopoly from cradle to grave. In the baby formula industry four firms cover 89% of buyers, while 76% of the market for coffins and caskets is covered by just two companies.

In between, they may consume peanut butter from a market in which four players take 92%, buy beer from the three companies which take 78% of market share, and feed their cats with one of the four brands which together count for 97% of that market.

One of its most astonishing findings pertains to the tobacco industry, where three manufacturers – Altria, Reynolds American, and Imperial – have locked up 92% of the market. Lax antitrust enforcement has allowed a huge increase in concentration since 2002, when the three companies had a – still significant – 58% market share.

While the range of popular brands available in shops might give the impression of fierce and lively competition, the reality couldn’t be more different. Open Markets lists 29 cigarette and tobacco brands as being owned and produced by just these three manufacturers.

When just a few companies control a market like this, it becomes easier to pursue cartel-like pricing strategies without getting caught out by regulators. And as a result consumers getting stung. In the market for insulin for example, the three US manufacturers have raised their prices by 168%, 169%, and 325% respectively since 2010.

Oligopolies may satisfy consumers’ desire for choice, but in doing so they obscure the fact that there is next to no competition over price.

November 26, 2018


Proportion of businesses failing to ‘adequately disclose’ how they engage with politicians

The majority of big companies are not adequately disclosing their relationships with politicians according to Transparency International.

The anti-corruption body surveyed 104 multinational companies, assessing them against a set of 20 questions, across five themes, and rating from A to F.

Big tech companies, which have increased their lobbying presence in the UK over the past year as parliamentary scrutiny has grown, fared particularly poorly. Facebook and Amazon both found themselves with an F for responsible lobbying, while Amazon and Google suffered the same fate in the ‘Revolving Door’ category.

The findings raise fundamental questions about the undue influence of lobbyists on UK governance – in particular the influence of the most opaque companies. Of the 1,110 meetings held with Government ministers in 2017, 75% were with companies who scored low rankings in the index (D to F).

Revolving Door
November 23, 2018

'Toothless regulator' green-lights big bank appointment

Greg Hands MP, Former Minister of State for Trade Policy, has been given the green light by the Advisory Committee on Business Appointments (ACoBA) to join BNP Paribas UK as a political consultant.

Hands, who also worked for BNP Paribas before going into government, told the committee that he would be advising the company and its clients, mostly other financial institutions, on UK and European politics.

The Department for International Trade, where Hands worked as a Minister, holds responsibility for the trade of UK goods and services, including financial services such as BNP Paribas.

Yet ACoBA determined that because all relevant trade policy decisions Hands made as Minister of State for Trade Policy could affect all financial firms with a UK presence, there was no issue with the appointment. What’s more, the committee decided that after four months out of office, Hands would not possess knowledge which could give BNP Paribas an unfair advantage.

The committee told Hands that he should not make use of his contacts in Government to influence policy or secure business on behalf of the company. But it’s unclear how these ‘conditions’ might be policed. Indeed, last year the Public Administration Committee damned ACoBA as a “toothless regulator which has failed to change the climate of opinion and business appointments”.

Gilded age
November 21, 2018

Landlords boycott businesses who donate to homeless charity

A group of private landlords has announced a mass boycott of businesses that support Shelter, a homelessness non-profit, complaining that the charity unfairly victimises them.

In the UK, runaway house prices have led to a boom in private renting such that, by 2021, a quarter of us are predicted to be living in privately rented accommodation. But the explosion in renting has encouraged unscrupulous landlords to enter the market, resulting in a decline of standards in the industry.

Shelter has estimated that one million private renters were victims of law-breaking landlords in 2015 alone. Bernard McGowan, for example, has been convicted six times of housing offences since 2014. But he still controls a £30 million property empire, renting out properties across London.

Among the companies in the National Landlords Alliance’s sights are Marks & Spencer’s and B&Q, the latter having announced plans to raise £25,000 for Shelter this Christmas. Both companies are standing by the charity, and in a country where nearly 5,000 sleep rough while landlords collect in £54 billion a year, it’s hard to see where the NLA is expecting sympathisers to come from.

November 21, 2018

Will Big Pharma pay for the opioid crisis?

There may finally be some justice for the victims of the US opioid epidemic, as a major opiate vendor faces mass legal action and possible criminal investigation over its complicity in the crisis.

Suffolk County, New York State, has sued members of the Sackler family, who own Purdue Pharma, for causing deaths by overdose in their community. Purdue, which manufactures and sells the legal narcotic OxyCotin, is also likely to face criminal fraud and racketeering charges from prosecutors in Connecticut and New York, who allege that the company engaged in deceptive and irresponsible practices when marketing the drug to doctors.

Opioids now kill around 200 people a day in the States, yet the pharmaceutical lobby has continuously pushed to protect this lucrative business. Between 2014 and 2016, at the height of the crisis, it spent at least $106 million to ensure the passage of a bill to strip the Drug Enforcement Agency of its ability to freeze suspicious narcotic shipments. This removed one of the agency’s most effective weapons for restricting the flow of potentially dangerous and unnecessary drugs into communities across the nation.

This is not the first time the company has found itself in trouble. Purdue and senior executives (though not the Sacklers) were prosecuted and pleaded guilty in federal criminal court in 2007 to misleading regulators, doctors and patients.

November 19, 2018


PhRMA donation to pro-Trump ‘dark money’ group

Last year, the Pharmaceutical Research and Manufacturers of America (PhRMA) donated $2.5 million to America First Policies (AFP), a nonprofit dedicated to promoting President Trump’s agenda.

The donation, which represented 10% of the AFP’s revenues in 2017, coincided with a volte-face by Trump on a central campaign plank. Having initially described the industry as “getting away with murder”, suggesting that Medicare should be directly negotiating prices, Trump then slammed Medicare for ‘price-fixing’ and dropped the proposals.

The President also introduced a huge reduction in corporation tax which the pharmaceuticals industry, among others, had been pushing for. According to the recently released tax filings, PhRMA gave $1.5 million to the American Action Network, which spent millions on ads promoting the cuts in 2017.

The prices of over 2,500 drugs have increased by at least double digits since Trump took office, according to research carried out by Senator Corey Booker’s office. What’s more, none of the 10 pharmaceutical companies asked by the Senator had any intention of reducing prices in the wake of the tax windfall.

Monopoly power
November 16, 2018


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.

November 15, 2018


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.

November 14, 2018


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?

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


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


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.

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


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.

November 5, 2018


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


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.

November 1, 2018


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.



November 1, 2018


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.



October 31, 2018


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.


October 31, 2018


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.


October 30, 2018


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


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


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


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.


October 24, 2018


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


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.


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.


October 23, 2018


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.


October 22, 2018


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


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


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”.


October 18, 2018


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


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


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


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.


October 17, 2018


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.


October 17, 2018


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.


October 17, 2018


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


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”.