We are going to need a sizeable stick to keep the banks in order

Former US president Theodore "Teddy" Roosevelt.

For months, everyone has been talking about the government’s big stick, code for a suite of unlegislated get-tough laws to bring down power prices, perhaps even break up electricity companies seen to be abusing their market power.

Australia doesn’t have a tradition of breaking up companies. Maybe it should. Repeated waves of mergers have dramatically increased the power of big business across many industries. Liberal-National Party senator Barry O’Sullivan was right last week to call for any big stick not to be applied only to electricity.

The share of household disposable income spent on financial services is more than double that spent on electricity, and no one considers competition keen there.

Being pro-competition or pro-free market shouldn’t mean being pro big-business or the corporate executive class.

Businesses typically don’t become more efficient after merging, and they certainly don’t become more ethical, as our present royal commission proves. Former Commonwealth Bank chief executive Ian Narev told his successor to “temper his sense of justice”.

The growing thicket of job advertisements for “thought leaders”, “chief agility officers” and “diversity specialists” at our largest listed businesses, jobs that typically command many hundreds of thousands of dollars a year, should be a clue as to how dedicated they are to passing on savings to customers.

Mergers benefit the management and executive class: the bigger the revenue, the more lavish the pay. It’s less clear they benefit customers. Rigorous studies show big businesses are marking up their prices over cost far more than they have, especially in concentrated sectors.

A handful of companies now controls each of electricity, banking, computing, air travel, supermarkets, internet services and telecommunications. It’s the same in the US, where you can add defence, pharmaceuticals and media.

The world over, giant institutional investors — Fidelity, State Street, Blackrock, Vanguard, for instance — and pension funds control the votes attached to huge chunks of listed stocks.

Commerce is unrecognisable from the models of the economy imagined in the 18th, 19th, even last century. Firms are as powerful as governments; in Australia the big five banks collectively employ more people than the federal public service.

Far from taking on big business, successive Australian governments tend to wave mergers through. Banks and fund managers in particular have been allowed to consolidate for a generation.

Since the rate of antitrust action in the US collapsed in the 1980s, behemoths have emerged with small armies of “government relations” staff determined to thwart anything that would undermine market power.

At the dawn of the 20th century, politicians in the US, on both sides, were worried about excessive corporate power. In a speech in 1902, president Theodore Roosevelt, a Republican, said of the “great corporations” that the government not only had “the right to control them but (was) duty bound to control them wherever the need of such control (was) shown”.

Roosevelt, whom historians typically put among the top five US presidents, was pushing back against what is known as the Great Merger Wave of 1895 to 1904. His administration initiated legal action against Du Pont, Standard Oil and American Tobacco, breaking up the last two into 33 and four companies, respectively, which he said was “one of the most signal triumphs for decency which has been won”.

His Democratic opponent in the 1912 election, Woodrow Wilson, said “America is never going to submit to monopoly. American is never going to choose thraldom instead of freedom.”

Fast forward to Australia in the 21st century, and former Reserve Bank governors, Treasury secretaries, even premiers, have taken board or top executive positions at the country’s biggest banks or their lobby groups, unthinkable a generation ago.

In the US, the Trump administration is full of executives from Goldman Sachs, which wouldn’t exist were it not for US taxpayers’ generosity in the financial crisis.

The shocked reaction of big business here to the possibility the federal government might have the power to break up large electricity companies — let alone actually use such power — shows how dominant big business has become. For all the excitement the royal commission has generated, let’s see what changes structurally. Very little is my bet.

Progress on implementing Ian Harper’s review into how to lift competition, more than three years old, has been glacial at best.

Jonathan Tepper, the top London-based analyst who famously called out Australia’s property bubble in 2016, says the growing dominance of giant firms is undermining capitalism, which hitherto has been “the greatest system in history. It has lifted people out of poverty and created widespread wealth for billions of people.”

His provocative book, The Myth of Capitalism: Monopolies and the Death of Competition, published this week, says Facebook and Google, “a global utility in private hands”, in particular warrant far greater public scrutiny. Tepper’s book, praised by a rollcall of the top names in economics and finance, calls for a revival of the antitrust action that galvanised political parties a century ago.

“The unbridled competitive free markets the Right cherishes don’t exist today. They are a myth,” he writes. “The Left attacks the grotesque capitalism we see today, as if that were the true manifestation of the essence of capitalism rather than the distorted version it has become.”

Google, Amazon, Apple, Facebook and Microsoft bought more than 436 companies in the past decade.

Governments will need a stick the size of a log, and the will to use it, to have any hope trimming these giants down to size.