Lessons about size – is big normally bad?

A few weeks ago, your correspondent noted in a column (Deutsche Bank and Trump… Ump! Ump!) that the proposed merger between 2 big German banks, Deutsche Bak and Commerzbank was a foolish and dangerous proposal. This has been recognised now that the merger plans have been scrapped. Those involved, the banks, the government and their advisors are all accusing one another for the failure. None of them are looking at the root cause – the 2 banks are too big, management had little control over what is happening in their trading rooms, and too many employees were on huge salaries without producing anything useful. They are too big, with too many vested interested that are being protected at the taxpayers’ expense. When share prices fall by 90% then the problem is really obvious! When the basic organisations do not change, but carry on as before, another 90% fall is on the cards. Lending hundreds of millions of dollars to the likes of Donald Trump is a clear sign of failure. Being big is expensive as has been seen with Royal Bank of Scotland, formerly Europe’s largest bank, now saved by the taxpayers at a cost of over €50 billion. Readers should not be believe that the private sector has a monopoly on efficiency!

According to the Panama papers, the three largest Nordic banks Danske Bank in Denmark, Swedbank in Sweden and Nordea in Finland have all been involved in allowing criminals to launder money through their networks in the Baltic countries. These banks and the regulators are all saying that they tried their best to discover and stop these activities and they also said that it is very difficult to police millions of daily payments. We do know that the banks made huge profits from their payments business, and one can ask the question about good intentions to police payments. Size cannot be an excuse to allow illegal or shady activities when digital records are recorded in the computer systems. Their poorly managed activities and lack of adequate supervision has done much damage to the brand of Nordic honesty and transparency and the possible large fines from the US regulators will be passed on to customers.

In the UK, 2 huge retail shops, Sainsbury’s and ASDA thought of merging. Both have a market share of 15% in the retail market with Tesco having 27%. The competition watchdog stopped the merger because it said that their market share would be too big and that the new company would seek to increase prices for consumers! They saw that a national operator with a 30% share would restrict competition. Now in dear old Finland we have just 2 retail giants with around 36% for Kesko and 46% for S-Group. Both dominate the markets with LIDL coming third with around 9%. Can you wonder why our food prices are substantially higher than most of northern Europe! Being big means that consumers pay more…

Facebook, Google and Amazon are a force that is weakening democracy. They do not pay taxes like ordinary companies, and their aggressive growth supported by this advantage is killing our independent media companies and free press.

All this hype about the brave new world of digital solutions is the sort of nonsense that these giants promote in their self-interest with silly politicians trying to seduce these companies to open more vast logistic and cloud centres with big tax and other benefits.

These big companies are poison for us and our children and they must be regulated. Their bigness is a sign of our weakness and ignorance. No good will come from the relentless growth. The fines imposed by the EU are a drop in the ocean for them compared to the profits they make and the damage they create. 

Consolidation into bigger companies, and the explosive growth of new unbridled entrants all mean that there is a growth of market power. If these big giants cannot be properly regulated and they then receive huge benefits through monopoly power in pricing or taxation in ways that are  not available to other companies, then consumers/taxpayers will be forced to bear much higher costs. The huge profits accumulated by these companies are attractive sources of funding for political parties, and that is a hole new topic.

Photo: Wikipedia Commons

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