That will happen either way. If you remove government controls, it only means the wealthy don't need to worry about usurping the government anymore. Wealth will still snowball, and other methods of crushing competition become available when the government method is removed. This is why I'm an anarchist. We can pendulum back and forth for eternity, and we'll never get a desirable result.
Given a choice between two directions in the meantime, I'd rather stay on the side that is at least ostensibly supposed to be about serving the people, instead of 100% ruthless winner-take-all-and-losers-can-go-die competition. That way when it is proven that the system has been sabotaged, there is the slimmest potential for people to organize on the basis of a common idea. At least when things suck, everyone knows it's because something is broken. On the other side everything can simultaneously suck but also be working exactly how it's supposed to even in theory, which thins the sociological glue of common understanding necessary for change.
Yet without the many government imposed barriers to entry, entrenched wealth would only last so long as it's possessor was capable with it (Shirtsleeves to shirtsleeves in three generations and so on). It's pretty damn easy to hold onto your wealth when your stock investments are basically guaranteed to go up by the Central Bank, your companies shielded from competition by high entry costs, and your bank grows by default because it's the first to receive cash from the Central Bank (meaning it gets the benefit of however many billion dollars, and the inflation doesn't kick in until some other chump receives it). Plus, if despite all this things go sour, you have nothing to fear because the government will pay you back for your losses should you be in danger of, god forbid, failing! Hell, if you're a bank in a "progressive" country, the government will promptly drop everything else and fleece it's unfortunate population for tax revenue on your behalf! Furthermore, when the economy is on the brink and things are looking bad, the fellows within the government will prioritize what will get them reelected above what might help; hence, you end up with passionate arguments about cutting a few million or hundred million from a budget of trillions, or else argue about things like the income tax on the richest 1% (which won't affect the absolute richest and most powerful anyway because THEY make money through investments and effective tax shelters like Berkshire Hathaway).
Yeah... just like you said, the system has been sabotaged. All you've done here is point out specific indicators that the government has been usurped, and turned against its intended purpose. And those who have the resources to spare will always dedicate some to the making sure things are that way. It's a dumb set-up that is doomed to fail repeatedly, but at least it provides people some channel for collective struggle. That's really the only difference. On the one hand, you have some means for people to pool their resources and have a chance of sticking up for themselves. On the other hand, you have get rich or be subjugated by the rich and that's it.
As for your claim about the longevity of entrenched wealth, I don't see it. Those who own the world's resources impose conditions for the rest of the world to partake of those resources, and they structure those conditions to be in their favor. That's how wealth entrenches itself. Whether they do that through influencing the government or through ruthless business tactics doesn't really matter. Actually, it does matter, because the average person has some theoretical voice in one, but not the other. Competition can challenge entrenched wealth, but so can a determined political movement.
If market competition were really so good at weeding out corruption while rewarding hard work and innovation, then Nikola Tesla wouldn't have perished destitute and forgotten, and elementary schools wouldn't teach children that Thomas Edison was the greatest inventor in American history.