As the care scandals rumble on, indignant commentators are loudly calling for more resources to be thrown behind inspection and regulation.

This is understandable but wrong-headed. Just like the banks, the care homes saga does indeed throw into dramatic relief the shortcomings of regulation. But the problems can’t be solved by intensifying the arms race between regulators and regulated. Sarbanes-Oxley has made a fortune for lawyers and consultants, and corporations run rings round it as effortlessly as Spanish forwards ghosting through an English back four. Regulation and inspection put in place after Victoria Climbié were powerless to prevent the tragedy of Baby Peter.

It’s time to face up to the fact that the regulatory state that was supposed to manage the interface between the public and private sectors is not only bloated and ineffective: it is now itself part of the problem.

Don’t get me wrong. Regulation is essential, but not at the level that people think. Both banks and care homes make that case, it seems to me unanswerably: external regulation of profit-maximising organisations managed by people who believe that self interest is king is about as useful as appointing chickens to control wolves. It’s a lost cause from the start.

Regulation that works can only come from inside. That means a different conception of what companies are for, and changing the governance rules to match.

The standard line, unsurprisingly, is put forward by Sir Robert Carr, the new president of the CBI (and the man who sold Cadbury to Kraft because ‘it was the board’s duty to get maximum value for shareholders’ ). ‘We’ve got to show in a much better way that business is a force for good; demonstrate that companies invest in research, that they pay fair taxes and are good for society’, he told Maggie Pagano in the Independent on Sunday. In other words, as long as companies pay tax and do R&D, they’ve discharged their obligation to society. This is Chicago high priest Milton Friedman in more emollient terms: the business of business is business, and companies have no other responsibility than making profits.

Well, no. There was a time when demonstrating minimal compliance à la Carr might have passed muster. But no longer. To borrow Umair Haque’s sharp metaphor, when you live on the prairie, hunting/gathering is an acceptable, even logical way of managing. After you have eaten all the wildlife, burned the trees and filled up the cave with bones, you move on to the next valley and nature regenerates behind you.

But if you live on a heavily-loaded ark, with limited space and tightly constrained resources, the previous management model becomes a liability. The ‘bads’ it produces – pollution, overconsumption, resource exhaustion,gross inequalities, global and financial warming – outweigh the ‘goods’. And that’s the point that we’ve reached today. We can’t afford to have sociopathic profit-maximisers – who don’t recognise any other rights than their own – in charge of any organisations, let alone care homes and banks, because on an ark they endanger us all.

It’s not just that trying to regulate sociopaths, like taming wolves, is pointless. They will always find a way round or under the tightest fence, because that’s what they have evolved to do. It is that regulation of this kind threatens to make already difficult problems insoluble.

Consider: for free-market champions, the whole point of the market is that it does away with the need for all except minimal regulation. The case for privatisation was precisely that competition itself would be the impartial, unappealable regulator on behalf of the consumer.

But oh boy, it hasn’t turned out like that. The side-effects of putting profit-maximisers in charge of banks and care homes has proved unmanageable, their extreme and utterly unironic self interest bringing the entire edifice crashing down on all our heads. So light-touch regulation quickly becomes heavy touch. Unfortunately, the bolting of the regulatory stable door only takes place after the sociopaths have made off with the loot; but it does make it much harder for normal people to do the thing that is needed above all, which is real innovation.

There’s a similar logjam in the public sector. The effect of the crude targets regime of the last decade and a half was to ensure that nothing except the targeted priorities got measured or managed, bringing about the Kafkaesque nightmare of care homes without care and a health service without compassion. As night follows day, the resulting scandals begat tighter inspection and regulation, eventually leading to organisations entirely specified by the centre, as rigid and incompetent as anything produced in the Soviet Union. The inhuman, computer-driven (and failed) childcare management system is a good example.

To sum up: in the apt words of the Open University’s Ray Ison, problem-determined regulation has now become a huge regulation-determined problem. The delicate evolving ecology of companies, markets and state has congealed into a giant mess, an anti-ecology that gives us the worst of every element: an out-of-control private sector alongside a rigid, uninventive public sector, topped with ever-thickening layers of ineffective but incredibly expensive regulation squashing the legitimate life out of both.

Regulation for the ark differs from regulation for the prairie. But to work at all it requires a new settlement between its inhabitants – and the starting point is locking up the sociopaths and wolves.