To refute your second point, there are probably more firms trading today then there ever were before. It's really an economy of scales issues. The large firms have the capital and the resources to: lease fiber lines, buy servers, and hire analysts/developers to build the systems required to be an efficient player in the market players. Many smaller firms simply employ the services offered by these institutions.
To reply to a previous point, the article is very biased and tells a small part of the story. Most of the noise in the media and in blogs today about HFT is very one-sided. The fact is that these HF proprietary trading systems which trade on behalf of the big wall st firms are competing against similar systems offered as "algorithms" to the Institutional investors. To use an example, a mutual fund manager will try to buy 100,000 shares of IBM. That fund manager will go to an investment bank and route his order through a VWAP Algorithm. That Algorithm may be competing in the market against the same investment bank's HFT Black Box trading app. These two "Algos" don't know about each other due to "Chinese Wall" restrictions. I digress.
Bottom line is that these systems which are "gaming" the market are competing against similar systems which aim to prevent such practices. The playing field is much more level than the author leads his audience to believe.
Hope that offers some insightful perspective.
There are markets where the entire order book is transparent, and the bulk of investment dollars don't even go to equities. Hard to see this as the end of the world.
Their 401ks, IRAs and the like only work as tax shelters if they invest and (for the most part) they don't even have a choice of which firm they work with.
So long as the firms don't skim more than the tax benefit is worth to the average investor, it's still in the investor's best interest to keep contributing.