The FT’s John Gapper recently wrote a perceptive piece calling time on the exceptionalism of the internet. In its early days, online was treated as a kind of la-la-land where information wanted to be free, new business models would proliferate and the laws of economic gravity did not apply. This magical thinking has served the big internet firms well, and they have done their best to keep it alive – not least in consumer naivety about the extent to which their online lives are tracked and sold on to others.

But as those companies grow bigger and fatter it becomes harder to ignore their real-world effects, and, to their indignation, regulators are increasingly taking a hand. As they should, if you think of Uber as a minicab firm, Airbnb as a hotelier and Deliveroo as a courier. Through the same lens Google and Facebook are publishers (with an advertising business model at least as old as newsprint). Amazon is a logistics company, albeit an incredibly efficient one.

Viewed from this angle, a number of things come sharply into focus. Increasingly, ‘disruptive’ looks like la-la lingo for regulatory, legal, tax or just semantic arbitrage. So part of the reason Uber is cheaper is that it books its UK orders through a Dutch subsidiary, which enables it to avoid charging 20 per cent VAT on fares. Uber London is really is just a minicab firm. Another is that, like Deliveroo, Airbnb, and Facebook, sheltering under the claim that it is an enabling not a transport (or food, hospitality or publishing) company, it can shrug off the responsibilities and costs of materials, insurance and above all employing people to drive passengers (or deliver pizza, wash sheets or write news).

But slowly, as Gapper notes, the real world is catching up. Uber and Deliveroo drivers are demanding employment rights through the courts – they may get them. Transport for London (TfL) wants Uber to observe the same standards for crime reporting, driver background checking and competition that it requires from other minicab firms. It is, it explains, nothing to do with the app or preserving in aspic the cab trade, which it and its predecessors have been regulating with some success since the 17th century. TfL has to bear in mind the added (and self-defeating) congestion that Uber generates, just as planners justifiably have something to say about ‘Rooboxes’ (Deliveroo’s ‘dark kitchens’ for cooking takeaways for posh restaurants) causing real-world noise and nuisance in residential areas – or for that matter whole swathes of cities turning into tourist dormitories through Airbnb (which is now getting into the business of developing apartment blocks for let).

If it complies with the rules, will Uber get its London licence? It would be interesting to be a fly on the wall for that conversation. It could of course could be argued that in a sane world Uber’s reckless management would be disqualified from being in charge of any sort of company. But leaving that aside, the regulator will have legitimate questions to ask in that most real of real-world domains: finance.

So far Uber has spent seven years and $13bn in its quest for global domination. Growth has been spectacular – but so has the cost. In the words of one academic investigation, ‘The growth of Uber is entirely explained by massive predatory subsidies that have totally undermined the normal workings of both capital and labor markets. Capital has shifted from more productive to less productive uses, the price signals that allow drivers and customers to make welfare maximizing decisions have been deliberately distorted, and the laws and regulations that protect the public’s interest in competition and efficient urban transport have been seriously undermined.’ In purely financial terms, the losses make the eyes water. In Q1 2017 Uber was applauded for ‘narrowing’ its losses to a mere $708m compared to nearly $1bn in the previous quarter. The total loss for 2016 amounted to around $3bn, after more than $2bn in 2015.

No one has satisfactorily explained how Uber could claw back deficits of that magnitude through normal means in an industry with razor-thin margins and a commodity product. (There are similar doubts about losses piling up at Deliveroo, albeit on a less massive scale.) So how come investors haven’t pulled the plug? One answer might be that venture capitalists in Silicon Valley have all succumbed to magical thinking. OK, me neither. The other explanation is that they really believe Uber’s fair-means-or-foul methods will take it to the promised land where network effects and increasing returns turn the ugly duckling into a winner that takes all, or at least most, of the money in its industry, before the cash runs out.

What’s riding on Uber therefore is much more than today’s riders and drivers. In most analyses, the only way Uber can succeed is by establishing the critical mass (read, quasi-monopoly) that would allow it to jack prices up to cover the full cost of rides – a jump of a beefy 40 per cent on present levels, according to some reckonings. At the same time it also needs to slash costs – which it why it is pouring money into self-driving (SD) technology, which will permit it to dispense with human drivers altogether. At that stage, of course, it won’t give a toss what anyone, including the courts, think of its employment practices – although it may come as a bit of a surprise to the thousands of London drivers whose support for its licence it is happy to claim today.

Uber, in short, is in a race against time, and, some would say, to the bottom. If it succeeds (or is allowed to) it will have legitimised an innovation model that destroys more value than it creates and turns what it does create into rents for the very few winners at the top. What riders gain as consumers they lose as producers – with SD they won’t even get gigs. To say that Uber should be subject to regulation is not anti-innovation – rather, it’s a call for regulation to get to grips with the new tech-enabled monopolies that are in reality old-style robber-baron rentier capitalism brought up to date. London is the theatre for this test case, in which we are both spectators and participants.

We’re familiar enough with product and process innovation – the ‘how’ of management – but, as many business writers have noted, innovation in management and organisation itself is frustratingly rare. I would argue that this is largely due to the tramlines of shareholder value, which lock in command and control and lead undeviatingly to the straitjacket of budgeting, targets and performance management.

But even within those guidelines, innovation is possible – although it probably helps to start from (and in) a different place, and in ignorance of the accepted rules. Take the Chinese white goods manufacturer Haier, which beginning with relatively conventional tactics in the 1980s, has made business model and management innovation its central differentiator. As the academic Bill Fischer, professor of innovation management at business school IMD, tells it, Haier has gone through four incarnations, each more radical than the last.

Back in the 1980s, as Deng Xiaoping opened up China to the outside world, one of the first objects of Chinese consumer desire was the refrigerator. Consumer goods were scarce – Fischer remembers seeing would-be purchasers besieging delivery trucks with bundles of renminbi before they even reached the stores. Quality was even scarcer. Fischer also recalls the day when the CEO of a small manufacturing cooperative grabbed headlines by publicly lining up 76 defective fridges – nearly a month’s production – outside the factory and setting his workers loose to smash them up with sledgehammers.

The CEO was Zhang Ruimin and the company Haier. Zhang was a young town official and Haier a near-bankrupt municipal enterprise that he ended up running because he couldn’t refuse. Faced with an emergency rescue, Zhang decided that the only way the company could survive against worldly global rivals was to build brand and quality, both nearly non-existent in China at the time.

After trashing faulty fridges to show what he thought of them, Zhang’s first step was to instill basic discipline through a tough performance management regime (sample directions: ‘Urinating or defecating in workshops is prohibited’, ‘Stealing company property is prohibited’). That set in train a period of rising quality and work discipline, on the back of which in the 1990s he reengineered the company to privilege customer-responsiveness and innovation, which moved it into services as well as products. The front line took more responsibility, disciplined by an internal market that rewarded the best ideas and performers.

The third phase took a further step in the same direction. In an effort to get closer to customers Haier literally turned itself upside down, adopting demand ‘pull’ as its market facing mode and splitting itself up into 200 or more self-managing, customer-facing teams supported by management from below – the so-called ‘Rendanheyi’, or ‘win-win’ model. Under Rendanheyi, new-product development times and costs were slashed by orders of magnitude. Between 2005, when the model took shape, and 2014 group profits jumped twelvefold.

Haier’s latest move – dubbed Rendanheyi 2.0 – is the most startling, however. Testing uncharted waters, Haier is remaking itself as a platform organisation, opening itself up to an internet-enabled world in a way few companies have ever imagined, let alone executed.

Yet the change is anything but arbitrary, according to Fischer. The key to understanding Haier’s successive transformations, he says is that each is a fresh structural expression of Zhang’s commitment to two core principles: serving customers and making best use of the talent of employees.

On the customer side, the internet had made customers better informed and faster to react than ever before. But now, as Zhang saw it, the Internet of Things (IoT) was about to take connectivity, speed of reaction and service to a new dimension. The future would be different. A smart fridge connected to wearables was just the start of it. But while Haier was by now managerially experienced and savvy enough to make a sideways move into adjacent product areas, there was no way it could envisage the dramatic oblique shifts into otherwise unrelated domains that the internet was opening up. To be able to do that, everything about the business – business model, supply chain, organisation and the way to manage it – would have to change all over again.

In this new world, it wasn’t enough for customers to be close: they had to be inside.

Zhang’s model for Haier’s next structural makeover was an unlikely one: the iPad. Here was a standardised hardware product, turned out in millions by a consumer products company, that had altered the way people used computing devices and viewed content – and also the company that created it. But the secret of the iPad wasn’t a conventional killer app for users. The killer app was Apple’s when it opened the device to developers who could turn a standard platform into anything anyone wanted it to be.

What if, Zhang mused, Haier could become an organisational iPad, a spine or skeleton on which anyone could graft any kind of commercial operation, inside or outside Haier’s traditional spheres of activity? That would change what a company could be used for, just as the iPad had changed the scope of computing. Instead of being a closed system, an ‘iPad company’ would dissolve boundaries and act as a ‘co-creation platform’ for a myriad of micro-enterprises (more than 2000 at last count) in which Haier would take an equity stake. It anticipated that some start-ups would be in fields very different from its usual beat. One new Haier micro-enterprise is using fintech to reengineer the Chinese egg industry and aiming to do the same with pigs; another is tearing apart conventional household appliances and reengineering them as smart connected devices.

Launching Rendanheyi 2.0 in 2015, Zhang noted: ‘The traditional mission for companies is to pocket profits in the long term. Our mission following the transformation is to become a shareholder in our micro-enterprises’. At the same time the initiative turns Haier employees into entrepreneurs. He added: ‘Under Rendanheyi 2.0 all of our employees can become entrepreneurs with decision-making authority, able to distribute benefits and optimally unleash talent. Haier as a company is no longer providing jobs to employees; we are instead offering a platform to become an entrepreneur’.

This might seem like a leap into the unknown. For many managers in established businesses it is scary and incomprehensible. But Fischer takes a different view. It’s certainly true that the changes Haier is currently making seem way more radical than those of a decade ago. It’s also the case that in a company that always seems to be in motion, some of Haier’s moves have been more successful than others. But taking the rough with the smooth, they have worked: otherwise Haier, having taken over GE’s appliances arm in 2015, wouldn’t be the biggest white-goods purveyor in the world. But this move, says Fischer, may be less risky than meets the eye. ‘I think Zhang Ruimin would say that today’s radical changes are all of a piece with, and in some ways an inevitable consequence of, many smaller changes made in the past, which have all been in the direction of pushing P&L responsibility down the organisation,’ he says. Making workers entrepreneurs and leaders in micro-enterprises is just a further step in devolving that accountability.

As well, it begins to make sense of an apparent paradox. As Zhang acknowleges, Haier in its present radically devolved shape is largely his creation. So how will it fare without a great leader to guide it?

Rendanheyi 2.0, says Fischer, modifies Zhang’s job too. ‘One of the attributes of great leadership is creating a safe base from which employees can do unusual things without feeling exposed’, he notes. That’s what the reforms have been designed to do. Now the task is to convince Haier’s people that coming through the transformations has changed them as much as the company. They are already entrepreneurs with success stories to tell. What’s more, while the future is unknown, as leaders of nimble, customer-oriented enterprises on Haier’s platform they are already further into it and may be better placed to seize its opportunities than their equivalents in almost any other large company in the world. Western rivals would be unwise to bet against it.

See my article for LBS Strategy Review, ‘Adhocracy – a new management approach’, with Julian Birkinshaw and Jonas Ridderstrale, here

Almost every article printed about robots and jobs starts and ends the same way. Here’s a recent example from the FT. The first hallmark of the genre, previewed in the headline ‘Poor education leaves emerging markets vulnerable to automation shock’, is a dire prediction of job losses – in this case in the developing world, where ‘the replacement of workers by machines threatens two-thirds of jobs’, according to a UN report. Then, as always – ‘As always, the only answer is education.’

Of course, prediction and ‘solution’ vary slightly. The looming job loss can be in particular sectors, countries or continents, and the answer can be training or other preparation, or, more frequently nowadays, some form of universal basic income. But both diagnosis and are cure are characterised by the same infuriating mixture of fatalism and complacency.

Past technological surges have always ended up creating more jobs than they destroyed, albeit in unpredictable areas, the argument runs; all we can do now is to tempt employers by giving them more skilled, willing and flexible workers. There are better and worse variations on this argument – for instance, this by Tim Harford is fine. But what most share is the unquestioned assumption that the only half of the equation that can be operated on or influenced is the offer – the workers. So the FT article above is more about Indian and African education than employment. As for the demand for workers – well, it’s just what demand will be.

But this is pushing on a piece of string. What if companies don’t want to employ people? After all, it’s not ‘the whirlwind of automation’ or even ‘machines’ that create or eradicate jobs. It is investment decisions made by human beings in company boardrooms. And those decisions do not take place in a vacuum.

A recent White House report on AI, automation and the economy underlines that ‘Technology is not destiny… The direction of innovation is not a random shock to the economy, but the product of decisions made by firms, governments, and individuals’. As Brian Arthur shows in his excellent book on the nature of technology, the latter is an integral part of the evolving economy, both shaping and being shaped by it. In some areas, such as medicine, the avenues science pursues are already economically determined – cures for first-world conditions are more lucrative than those for poorer countries. In others, management motivations decide how discoveries, once made, are diffused. Technologies such as the internet, voice recognition, touchscreen, and GPS – all developed in the public sector – could have been combined in countless different ways, or none at all: it took an inspired Steve Jobs to bundle them together into the familiar shape of the iPhone. The platform economy the iPhone then made possible is a further techno-economic evolutionary twist.

How the platform economy evolved, and why it is now the go-to model for every budding start-up, is in turn in part the result of developments in other socio-technological areas, in this case the company and management. In 2014 Martin Wolf wrote in the FT: ‘Almost nothing in economics is more important than thinking through how companies should be managed and for what ends’. He went on: ‘Unfortunately, we have made a mess of this. That mess has a name: it is “shareholder value maximisation”. Operating companies in line with this belief not only leads to misbehaviour but also militates against their true social aim, which is to generate greater prosperity’.

This is the first time in history that one of the great technological spurts has taken place when companies are being operated in line with this anti-social belief: that is, under a regime where one stakeholder is supposed to maximise its returns at the expense of the others, including society, and where the most widely taught and practiced version of strategy is largely about preventing other stakeholders from eating the shareholders’ lunch.

Now put today’s gig and task-based economy in perspective. It hasn’t suddenly popped up at random from the blue. It is just the latest step in a process of corporate dis-employment which began in the 1980s. Simply put, under shareholder value employees are costs to be minimised like any other. So responding to their new incentives, managers began to pass up employment-creating initiatives they would have undertaken in the past in favour of cost-minimising measures to benefit shareholders.

The downsizing and outsourcing trends initiated then have expanded steadily to the present day. Collateral damage was first lifetime employment, then defined-benefit pensions, then corporate responsibility for career. In recent years automation and AI have further eroded the full-time permanent employment bond, with a corresponding upturn in the growth of freelance, short-term and zero-hours contracting.

Enter in 2007 the iPhone.

There are many ways the smartphone could have been used for economic and social gain – including the enabling of a real sharing economy. But in the labour-historical context there is an inevitability about executives driven by shareholder value deploying it to dismantle the last element in the traditional employment regime: the job. With labour a commodity to be contracted as easily as any other, one of the traditional justifications for the traditionally shaped company collapsed, and with it the last link between corporate growth and employment. At best new-generation companies are job-neutral (Instagram: $19bn in value, 19 employees); at worst, like Uber, they are job killers.

The blunt truth is that companies today have no intention of employing people unless they absolutely have to (which explains why the Silicon Valley titans are hypocritically rallying to the cause of the universal basic income). Next down the road: driverless cars. In this situation, expecting better qualifications to improve employment chances is a bit like hoping that faster, stronger horses would stave off the advance of the combustion engine.

So do we sit passively while employment continues to wither until it becomes the preserve of a privileged few?

Or do we decide to act on what we can still influence, the demand side of labour?

Here are some suggestions.

The first step is for governments to reinstate employment as a central plank of economic policy, as it was up to the 1980s when it was hastily abandoned as politicians let themselves be persuaded that markets know best. Tax policies should be adjusted accordingly. Companies that fail to pay a living wage should not be considered for state contracts.

Employment policy should go alongside a root-and-branch rethink of ‘how companies should be managed and for what ends’, to requote Martin Wolf. Far surpassing the timid and irrelevant tweaks envisaged by Theresa May, the aim would be to prise companies from the grasp = of short-term shareholders (and executives) and restore them to their proper mission of generating greater prosperity for society.

Individuals also have their part to play. Strikingly, Gallup surveys show that globally what more people want than anything else – more than security, family and peace – is a full-time job with a pay cheque. OK: their responsibility then is to prepare themselves to engage with the employment they want as both workers and citizens – including in the responsible trade unions that governments (and companies) should foster as counterweight to the current corporate dominance.

Employment is one of the time-bombs left un-defused by the failure to reform business-as-usual after the financial crash of 2008. It would be better to act now than to wait for a chance detonation to set it off.

Read my account of the latest Foundation forum here

In C.P. Snow’s Strangers and Brothers novel sequence, several of which are set in a fictional Cambridge college in the 1930s and 1940s, older dons could remember the time when college fellows weren’t allowed to marry. As late as the 1960s universities remained a world apart. There were just 22 in the UK, reserved for a privileged 5 per cent of the population – and in some of them students still had to be in by 12 at night.

Of all our enduring institutions (Oxbridge dates back to the !2-13th century), over recent years the universities have perhaps travelled farthest in the shortest period of time. There are now 150 of them in the UK, and Tony Blair’s target of 50 per cent participation has pretty much been met. The all-important student satisfaction survey naturally ensures that no vestiges of restraint on night-time entertainment endure (today’s equivalent may be ‘safe spaces’, but that’s another story).

That is certainly an achievement, but as recent political headlines over tuition fees and teaching attest, it is far from an unalloyed or uncomplicated one. For the recent history of the university sector is an object lesson in the unexpected consequences of opportunistic policy-making, a number of which are now coming destructively home to roost.

The first is perhaps the most straightforward. One powerful justification for university expansion was the supply-side argument that boosting educational levels would respond to employers’ demands for a more capable workforce and thus benefit the economy as a whole. Fifty years on, employers are still whingeing about the wrong kind of qualifications – and these days they’d often rather not employ anyone at all, particularly expensive graduates. It was always the demand side too, stupid.

As commentators such as Alison Wolf have consistently argued, the reverse of the coin of privileging university education is the scandalous neglect of further and vocational education such as apprenticeships. In the resulting mismatch, overqualified graduates are being employed for jobs which previously would have gone to the less well qualified, compressing the latters’ employment and social chances, and everyone’s wage rates. This not only stokes the political pressures that are now all too evident, but also ensures that the expensive loans taken out to buy an income boost that hasn’t materialised, will never be repaid.

There have been internal growing pains, too. As with much in Britain, universities, in the words of Andrew Adonis, head of Blair’s No 10 policy unit, have developed haphazardly, with ‘one thing leading to another, in a typically unplanned British way, on the part of successive governments’. As the university estate has grown, and encouraged by successive governments, notions of choice, competition and latterly value for money have steadily come to the fore. Particularly consequential (and not in a good way) has been the regime of targets in the shape of the Research Assessment Exercise and its successors instituted by the Thatcher government in the 1980s.

As with all such measures, the consequences were predictably unintended. Thus making a large chunk of university funding dependent on research quality provoked massive gaming on one hand (a burgeoning transfer market for prolific researchers, exclusion of weaker colleagues from assessment, huge expansion of conferences and learned journals to report on and in), together with reduced emphasis on teaching on the other. Teaching quality hasn’t suffered – competition for posts among a vastly increased supply of young PhDs has seen to that – but quantity has. Teaching is now to be subjected to its own assessment, with no doubt similar perverse effects, not to mention spiralling bureaucratic demands: university head of department is in practice now a full-time management job, with no time for either research or the teaching that the incumbentwas taken on to perform.

Meanwhile, tuition fees and the insidious marketisation of education generally have increasingly displaced competition between institutions from the academic to factors such as facilities and ‘the student experience’. Universities now think of themselves as ‘brands’, with a massive increase in spending on marketing and related activities – and managerial types to do it. While lecturing salaries are subject to a 1.1 per cent annual growth cap, no such restriction applies to management. Adonis points to soaring vice-chancellors’ pay, which drags other managerial ranks up with it. Bath University employs 13 managers on more than £150,000 a year, and 67 on £100,000. Many universities actually make a ‘profit’ on tuition fees: dispiritingly, this is where the money goes instead.

Which brings us back to the bottom line: who pays? Adonis is right that fees set at £9,000 a year (a cynically and supremely opportunist move by George Osborne to fund tax cuts for the better off), soon to go up again, are a ‘Frankenstein’s monster’ and in the long term untenable. No one should have to begin adult life with debts of £50,000 hanging over them. But the effects ramify out from individuals to the entire macroeconomy. For a start, starting debt levels are now so high that even after 30 years, three-quarters of students won’t have paid off their debt, according to the IFS. On the government’s own estimates total unpaid loans will hit £100bn next year and double again in a decade.

That’s unconscionable enough. But there are huge knock-on effects too. There was always a sneaking suspicion that one intended side-effect of making young adults pay for their university education might be to curb student activism. At least in the US, that seems to have been the intention. But the indirect costs are now mounting vertiginously. Indebted graduates are delaying having families while they search for reasonably paying jobs. As for buying homes, forget it – as also the furniture and other stuff that go in them. In fact, impaired credit ratings make it quite hard for them to make any substantial purchases at all. Dampened spirits and high anxiety levels are being connected with health issues such as depression, and marital failure. Finally, the debt overhang is also reckoned to be a factor in the worrying fall-off in rates of entrepreneurship and new business formation.

It takes a special kind of management to transform a policy that was presented as having only upsides into something now characterised as ‘unsustainable’, ‘in tatters’ and a ‘substantial economic headwind’. It will take something equally special to unravel it, but the other way round. But that would require an ability to register and learn the lessons of past mistakes – so don’t hold your breath.

Austerity is a disaster economically, politically and socially.

There are at least three reasons why.

The first is the Keynesian one. Paradoxically, austerity (reducing the size of the state, cutting public services, freezing wages) is a luxury. It can only be done acceptably in export-led economies like Germany and Canada where businesses depend mainly on foreign demand. The UK, on the other hand, is a low-wage economy that relies on domestic demand from consumers many of whom are earning less than before the crash of 2008, who have no savings and mountains of debt. The less they have to spend, the harder it is for UK businesses to prosper. Duh. The government’s tax take shrinks too, so that the date for paying down the public deficit continues to recede. As economist Jonathan Portes tweeted, ‘Failing to borrow long-term at negative real rates to fix roofs (& other things) over last 7 years an act of deliberate economic self-harm’. This is austerity as suicide.

The second reason why austerity doesn’t work is that the institutional framework, or social contract, that supported its logic isn’t there any more. Post-war western economies were built on the understanding that production and consumption were interdependent – one person’s wages bought someone else’s output – as embodied in the famous diagram of the circular flow of income at the beginning of Paul Samuelson’s Economics.

That began to break down in the 1970s and 1980s, when a persistent trope was that the private sector was being ‘crowded out’ by the public sector, which needed to be pruned back to allow entrepreneurial animal spirits to flourish to rev up the sluggish economy. Hence the rounds of privatisation, agencification and outsourcing that still continue.

But wind forward to today. It is quite clear that the capital markets that call the tune over corporate resource-allocation decisions aren’t remotely interested in the circular flow. They don’t care a fig about job creation – in fact the only innovation and investment they applaud is automation that cuts jobs. So whereas in the past companies automatically created employment as they grew, they no longer do. Companies now only create well-paying full-time jobs as a last resort, leading to the celebrated (possibly apocryphal) stand-off between Henry Ford II and union boss Walter Reuther as they toured an advanced new manufacturing facility:

Ford: Walter, how are you going to get those robots to pay your union dues?

Reuther: Henry, how are you going to get them to buy your cars?

The internet aids and abets this fragmentation. In a classic bait and switch, using network effects and the massive cross-subsidies afforded by our meek acceptance of the devil’s bargain of ‘free’, the internet privileges us as consumers, but only by turning our jobs into gigs and micro-tasks, with equivalent effects on our wages.

This is austerity as reductio ad absurdum.

The final reason why austerity doesn’t work is the most fundamental and paradoxical of all. It is unknown to economics, and unfortunately to most managers too. It is that, as we have learned from systems thinkers and practitioners, managing by cost doesn’t cut costs – it increases them. This sounds counterintuitive. The conventional assumption, inherited from strategy and mass production, is that there is a trade-off between quality and cost. The better the service, the higher the cost; so the only way to cut the cost is to reduce the quality (or quantity, by rationing or otherwise restricting access).‘Services for the poor are always poor services’, Richard Titmuss observed as long ago as the 1960s.

But this is not inevitable. Here is a rare case where the cake can be had and eaten too. At a recent event, the chairman of pioneering peer-to-peer lender Zopa noted that ‘businesses that win customer service awards [like Zopa] are those that people don’t have to speak to. They don’t have to speak to you because the service works as it should do, from the tin.’ Contact centres are expensive, but firms like Zopa don’t have them – why would they? What’s more, being efficient at what it does – basically credit – doesn’t only benefit Zopa’s borrowers and savers. ‘It’s more fundamental than that, because if you’re good at credit and you get a reputation for it your cost of capital goes down… By being better at credit than any UK bank our cost of funds has gone down dramatically – way lower than any of our competitors.’ In a sector with thin margins, that’s an existential advantage. Building on what it has learned, Zopa is about to launch ‘the best consumer bank in the UK’. Can’t wait.

Like profits, costs are properly thought of as a consequence of the way you do something for a customer – an effect, not a cause. Done well, as at Zopa, the consequence is that costs fall. Done poorly, as at other banks, as at Grenfell Tower, as in countless other services, and costs rise. As another speaker at the same event lamented, ‘Why is it that we never have the time or money to do something right, but we always do to do it twice’?

Just as in a coupled system efficiencies amplify each other, so do inefficiencies. Consider prisons. The easiest way to deal with criminals is to lock them up. So that’s what we do. But prison is expensive. So governments repeatedly try to cut its cost by reducing staff numbers, economising on rehabilitation, and keeping prisoners banged up 23 hours a day.

But this is austerity as sheer management ineptitude.

The outcome: overcrowded jails as dangerous powder kegs that instead of returning offenders to society as functioning citizens, send them back as professional villains and drug addicts. A shredded probation service offers little support for those discharged, with the predictable result that most of them are expensively back inside within months – and the pressure grows for yet more prisons. In other words, prison makes the presenting problem worse. Research in Manchester shows that 80 per cent of crime is committed by a relatively small number of individuals and families who are known to the police – and to many other public agencies. Straightening them out would reduce demand not just on the criminal justice service but across the entire public sector.

As is being proved in right-wing US states such as Texas and and Utah. Appalled by the soaring cost of dealing with reoffenders and homeless (often the same individals), they find it far cheaper to house each client and give them a tough minder until their life is stabilised than to leave them to clog up police cells and homeless shelters or return to prison. Believe it or not, Texas is closing prisons; in 2014 Utah claimed it had reduced homelessness by three-quarters and was on the way to eliminating it altogether.

You wouldn’t call this ‘austere management’ – it submits no one to hardship and it should not be something exceptional. To the contrary: it gives people what they need, neither more nor less, with no spare effort or waste. Unlike the economic version, it has equal appeal to right or left. Let’s call it instead ‘frugal’ – as all management should be, whether in the best or worst of times.

When the Chartered Management Institute (CMI) launched a manifesto for improving UK management earlier in June, it couldn’t have guessed how good its timing would be. In launching the manifesto, CMI CEO Ann Francke reasonably noted that the obsession with the art of the Brexit deal was obscuring a bigger and more fundamental prize: doing a better job of making the stuff that our trading partners, whatever their nationality, might want to buy. Closing the productivity gap with our European neighbours through better management and leadership, she pointed, would offset the yearly penalty of leaving the EU with some change left over.

Francke wasn’t to know how vividly the post-, and indeed pre-election shambles would underline the inadvisability of relying on British political management and deal-making skills to secure economic advancement. At the same time, she seriously underestimated the extent of the potential gains to be made by better conduct of the UK’s corporate – and governmental – business.

The estimates below are necessarily imprecise and non-exhaustive, but they provide some pointers.

• In 2015 Investors in People, quoted by CMI, estimated that poor people management was costing UK firms £84bn a year in forgone productivity.

• According to McKinsey Global Institute (MGI), also quoted by CMI, bridging the UK gender gap at work could generate an extra £150 billion on top of business-as-usual GDP forecasts in 2025 and translate into 840,000 more jobs for women.

For comparison, the OFS puts the penalty to the economy of leaving Europe at £75bn annually. But why stop there? There’s lots more where that came from that CMI doesn’t mention. For example:

• Gary Hamel and Michel Zanini calculate that the UK has proportionally more surplus bureaucrats – managers and administrators doing non-value-adding tasks such as checking the work of others – than the US, where they think GDP could be boosted by $3tr if the drones were redeployed to more productive work. On that basis the equivalent figure for the UK would be around £400bn.

• In a recent discussion document, MGI estimated that short-termism (largely a consequence of faulty governance arrangements) could be costing the US 0.8% of lost GDP a year. It concluded: ‘Our findings–that short termism is rising, that it harms corporate performance, and that it has cost millions of jobs and trillions in GDP growth–are sobering. Companies and governments should begin to take proactive steps to overcome short-term pressure and focus on long-term value. The economic success of their companies and their countries depends on it’. All of the above of course applies in equal measure to the UK. 0.8 per cent of UK GDP is roughly £20bn.

• Regulation was meant to promote a more efficient welfare state. But the outsourcing and marketisation of public-sector service provision to a rent-seeking private sector (governance failure again) has led to a proliferating thicket of regulation which cost more than £1bn to administer at the turn of the millennium, according to the LSE, while imposing huge costs on auditees: an OFSTED inspection can cost a school directly and indirectly up to £20,000. As John Seddon point outs, these totals pale into insignificance against the huge unknowable opportunity costs of prescribing wrong methods (eg back offices, call centres), and, even worse, halting systemic improvement dead in its tracks.

• Finally, as a knock-on consequence of all of the above (as I noted in my last), terrible public services. As with regulation, an unholy multiplier compounds the problem: managing by cost, or rationing, doesn’t reduce demand – it fragments it and, a bit like Japanese knotweed, each splinter takes root and grows into a vigorous new demand of its own somewhere else in the system.

There’s plenty of overlap in these categories, of course – but that signifies that there are also de-multiplier effects in the opposite direction: better social services remove failure demand from the NHS and other agencies, better regulation reduces red tape and releases innovation, and above all better governance by knocking short-termism on the head and enabling a move from command and control potentially cuts the need for regulation and bureaucracy both internal and external, promotes better work design, does away with the need for separate ‘people management’ and provides a sharper focus on the customer.

In fact, the systemic ramifications spread even wider. If, as Edward Luce argues in a fine recent article in the FT, Brexit itself, like Trump, is the messy rebuke meted out to those who have overseen the glaring cumulative failure of Anglo-American capitalism, the only answer is to devise a better, more inclusive model: ie, one with better governance and more productive management.

Blinded by its own sense of entitlement, the UK has always had a shaky grasp of its own management needs and priorities. We console ourselves by saying we’re good at pomp and circumstance, and these days at the execution of big projects (the Olympics, HS1 and Crossrail), when we get round to them, and excluding, of course, anything to do with computers. But these are one-offs. We’re hopeless at most routine management, which is why many of ‘our’ top performing sectors, like the motor industry, are foreign-owned and/or managed, with, as the CMI notes, a long tail of underperformers trailing behind. Even our supposed jewel, the City, is largely foreign-owned. As I have noted elsewhere, this makes us highly dependent on foreign management, not to mention alarmingly vulnerable to the effects of Brexit.

Management failings, as the OECD has pointed out, are a brake on competitiveness, quite independent of our trading arrangements, and Brexit only makes them more significant, not less. An urgent programme to address these weaknesses isn’t glamorous – needless to say, the CMI manifesto has passed unnoticed by the press or politicians. But it’s practical, doable and, unlike Brexit, fully in our own control. There is nothing to lose. It perfectly accords with historian Linda Colley’s sober observation that in light of reality ‘[Britain’s] politicians need to talk and think and plan not in terms of a transformative, glowing Brexit or a new modern socialist millennium, but to put their minds together to establish what the least worst options are that they can feasibly and usefully pursue.’

What are they waiting for?

Read my article in EFMD Global Focus, June 2017, here

Brexit Britain is an unreal place, and even more unreal in an election. It has its share of problems none of which Brexit can fix, because they are not what it thinks they are. What it treats as problems, aren’t, while the real problems, which it assumes to be strengths, grow bigger as they are ignored. Having comprehensively misdiagnosed itself, it treats its non-problems with remedies that are actually the cause of its real ones, turning them into proper problems too. It may be in the process of making itself democratically ungovernable.

For years Britain has lived not so much beyond its means as beyond the looking glass. What it sees in the mirror is a buccaneering freebooter whose entrepreneurs have only to be freed of pettifogging EU rules to plunder the world like Francis Drake and Walter Raleigh of old. It could hardly be more telling that the big British films of summer 2017 are Churchill and Dunkirk. The reality is a second-ranking financier-trader that provides neither the social protection of Northern Europe nor the low taxes of the US that its inhabitants aspire to. Britain’s emblematic institution is the NHS, a once bold experiment now neither bold nor innovative but still venerated, that struggles to provide a half-decent service despite the constraints and reforms that are constantly visited on it.

How did we get to this pass? The answer, thrown into sharp relief by the shock of Brexit, is that we willed it. The British sickness is iatrogenic, caused by the market reforms of the 1980s that had the opposite effects to those intended, and the ignoring of reforms in quite different areas might have put it on the right track.

Speaking a at a recent seminar at LSE, academic Dr Abby Innes noted an underlying parallel between Brexit and the 1979 election that brought Margaret Thatcher to power. Then as now, the major problem faced by the economy was seen not as deindustrialisation, the collapse of Bretton Woods, oil price rises or radical technological changes (1979), any more than globalisation, radical technological change or the backwash of the 2008 was most urgent in 2016. Rather, the overriding problem was a self-seeking bureaucratic state (or superstate in the case of Europe today) that supposedly paralyses growth and crods out Britain’s native entrepreneurial spirits.

Having accepted this diagnosis, all succeeding British governments, whether tacitly or overtly, have made it their central project over the last four decades to transform the nature of the state. This they have done by letting the market in, through privatisation, outsourcing, managerialism (New Public Management), agencification, quasi-markets in health and welfare, and abandoning any attempt at industrial and employment policy. At the same time, permissive legislation allowed companies to opt out of their previous obligations (career, full-time jobs, employability, proper pensions, living wage) in the name of competitiveness. Similar dispensations have allowed firms to pursue a race to the bottom in taxes, standards and regulation, displacing the fiscal burden on to consumption and those at the bottom of the social heap.

This extreme focus on the supply side has certainly transformed the character of the state – but the consequences have been far from those intended. As sole buyer of complex, hard-to-value services, often under inherently flawed payment-by-results regimes, governments have been taken to the cleaners by a private sector that has little incentive to innovate or improve because, as it is well aware, the buyer is comprehensively locked in (a monster case of moral hazard). A barrage of complaints and failures has triggered the spread of a ‘Kafkaesque’ (Innes’ term) regulatory state that is both intrusive and ineffective.

One glaring result is that private-sector service provision is neither low cost nor high quality. Academic research confirms anecdotal and subjective evidence: according to one study, over the last 30 years UK administrative costs have increased by 40 per cent in real terms with 30 per cent fewer civil servants, while public spending has doubled. Running costs have gone up fastest in the outsourced areas. At the same time, the volume of complaints, challenges and failures has soared.

This of course is the opposite of the ‘more for less’ that was promised. Unfortunately, the same is true in the private sector. In one of the hugest market failures in capitalist history, the wave of innovation, investment and job creation that was supposed to be triggered by government ‘getting out of the way’ simply didn’t happen. Instead, the focus of the economic system has switched 180 degrees from wealth creation to wealth extraction through pervasive financialisation at every level – first, by (ironically) crowding out, and increasingly coopting the proceeds of, the productive sectors, creating an economy which is unbalanced even by British standards; second, by financialising non-financial firms through a regime of shareholder value maximisation in which profits, often gained through cost and job cutting, are extracted in pay-offs for executives and short-term shareholders; and third, by using debt of all kinds, now at record levels, to draw individuals into the same corrupted system, leading to massive increases of systemic vulnerability in periods of both boom and bust.

But even this may not be the full extent of the self-inflicted damage. Pessimists argue that to ineffective public services and a predatory, rent-seeking private sector should now be added the failings of an incompetent state, progressively stripped over the years by state-hating governments of the capability to exercise its overarching governance role. The more authority is devolved to the private sector, the harder it becomes for governments to change unpopular or even failing policies, let alone start to rebuild the capability of central institutions to oversee themselves in the name of all citizens. The Brexit referendum, apparently launched without thought for the constitutional consequences, is just the most striking example of this learned witlessness, unthinkable elsewhere.

As Innes notes, Brexit is likely to expose what we should have been talking about all along: the crisis of a disintegrating British political economy whose woes have absolutely nothing to do with Europe. Brexit has no answer for soaring inequality, stagnating productivity, threadbare public services, nor the deep structural divide between those educated, mobile and confident enough to survive, if not prosper, with minimal or even failing state protection, and those with little hope of profiting from the emerging freelance contracting economy. Theresa May, like Donald Trump, is right to sense the social fracture, but shows no sign of understanding its nature or the extent of the changes needed to bridge it. Beside these, Brexit is a distracting sideshow.