Take the privatisation of large chunks of the police service uncovered last week in The Guardian. In brief, a £1.5bn contract for Surrey and West Midlands is up for grabs by the private sector, covering such upfront functions as ‘investigating crimes, detaining suspects, developing cases, responding to and investigating incidents, supporting victims and witnesses, managing high-risk individuals, patrolling neighbourhoods, managing intelligence, managing engagement with the public …’

Privatisation in this context means outsourcing to cut costs. As Sir Ian Blair, previously Met commissioner, obligingly wrote, also in The Guardian, the aim is to allow police forces to ‘modernise their budgets in the way any other institution would do, namely by reducing unit costs’. But approaching the issue through unit costs and outsourcing is as worrying as any of the political considerations. It is based, says Vanguard Consulting’s Richard Davis, on two false premises: first, that unit costs tell you anything useful about the real cost of policing; and second, that privatisation and competition saves money. On the contrary. You might just as well hand over sacks of the police budget to burglars.

To outsource services, tasks have to be simplified and standardised so that they can be carried out by cheaper, less skilled labour, often following instructions from a computer script. This may reduce unit costs (cost per phone call, arrest, court attendance, whatever). But that’s a red herring. The costs that count are end to end, from the first call-out to the disposal of the case in the courts. The act of simplifying and standardising severs the relationship between the police and the individual and turns the interaction into a commodified transaction (often literally: ‘press 1 for this, 2 for the other’). If you reduce people to a few broad categories, you can’t respond accurately to the variety of demand. There’ll be mistakes and miscategorisations as people try to fit themselves into the artificial boxes. So they’ll call again – and again – until, many interactions later, the demand is met, or frequently ‘closed’, at which point the dreary cycle starts all over again. More call centres will be built and agents hired to deal with the additional demand. In this way, more interactions leverage costs up enormously more than lower unit costs bring them down.

Privatisation via outsourcing spectacularly misses the point. What matters is not ownership but method. Not only does the private sector not have a monopoly of good method – it has a vested interest in selling the bad. And just as outsourcing/privatisation to lower costs of transactions often misses the point for firms, so it does also for the economy. Bob Bischof, chief economic adviser to German Industry UK, notes that for a number of reasons, not least the desire to retain jobs, German firms have on the whole not succumbed to the outsourcing frenzy. Instead of simplifying and standardising, German companies have learned to manage complexity – which in turn has enabled the country to maintain a highly sophisticated, integrated manufacturing sector and in consequence retain a balanced economy and avoid the damaging inequality which so disfigures the UK and US. By contrast, progressive outsourcing has left a hollowed-out UK shorn of almost any enterprise that requires complex joined-up thought: a flim-flam economy based on the City, the ‘creative’ industries, advertising and consultancy – in a word, bullshit. As Davis notes: ‘In 10 years time, what will real policemen be doing? What will there be left for them to do?’

The second heroic point-missing of the week is a report by the National Audit Office on the shared-services programme across government departments initiated by the Gershon efficiency review in 2004. The NAO findings are stark. It’s an anit-cost-saving programme. Five centres have cost £1.4bn to build and operate so far instead of £0.9bn – an overrun of more than 50 per cent. Only one centre has broken even, and planned savings of £159m have not materialised. The centres are not value for money, the NAO says – moreover, ‘the benefits of shared service centres are not clearly demonstrated’.

Well, I never. In fact, there is no evidence anywhere that shared services deliver real savings, and plenty that they don’t, and for exactly the reason outlined above: the promise of shared services is that they reduce the cost of transactions – yet any gains from lower unit costs are dwarfed by the costs of fragmenting workflows, making it more difficult for people to get the service they need, and thereby multiplying failure demand.

The coalition came to power on the promise of doing things differently. But as these examples show, in practice it’s the opposite, with much more – Universal Credit, for example – on the way. How many more trillions need to be wasted before ministers accept what the evidence and common sense is spelling out for them? There are no economies of scale in services, only economies of flow: joining the pieces up, not splitting them apart, to solve people’s problems in the minimum amount of time. Shared services, and most current variants on the outsourcing theme, don’t work not because people are doing them badly – as the NAO scolds in its recommendations – but because they’re the wrong thing to do. It’s a perfect Einstein moment, on a truly national scale.