Read my piece for FT Business Education, 15 October 2012, on the promise and perils of ‘big data’, here

Read my piece for The Guardian, Comment is Free, 9 October 2012, here goo.gl/d2z3H

The cult of bigness is so ingrained that we barely think about it. It’s become axiomatic that big is efficient because of the ability to standardise, specialise, and spread the management overhead. It underpins regulation, management thinking and political solution-seeking alike.

The bigger/better conflation contains a grain of truth. In the early 20th century the discovery that things became cheaper to make as quantities increased was ably exploited by Henry Ford and other mass-production pioneers to invent the consumer market and make their fortunes. Scale economies live on in some areas of manufacturing. But except in limited cases, the Fordist idea of scale economies has been superceded by Toyota’s discovery of the superior economies of flow. In services it is an irrelevance. ‘There is no longer any reason to rule out localisation of economic activity on the grounds of scale economies. Scale economy, beyond very small volumes, is a concept that should be discarded’, declares accounting professor Tom Johnson.

Why then is the hold of scale economies so powerful? One reason is that it harks back to a simpler mechanical world where a large problem could be addressed by taking it apart and ‘solving’ the individual parts. So even when the big retailers control the vast bulk of the UK grocery market, have screwed the local supply chain into the ground and reduced the High Street to a dreary sameness whereno one wants to shop, competition authorities repeatedly find in their favour on the narrow economic grounds that competition between them benefits consumers in terms of price. They take no account of the effects on the system as a whole.

We should know better. As the Bank of England’s director for financial stability Andy Haldane has pointed out, a large contributory factor to the financial meltdown in 2007-2008 was the astonishing failure of anyone in the system to think in terms of the resilience of the structure as a whole. The banks were too big, too interconnected and too similar not only for their own good but also for the resilience of the entire financial system – and we are still paying for the consequences today.

As the banks might suggest, and Vanguard’s John Seddon has formally proposed, in services economies of scale are an optical illusion. The reliable rule of thumb is that the bigger the organisation, the worse the customer service. It should be no surprise that while outsourcing, shared services and specialised call centres have achieved the promise of lower unit costs from size and specialisation, the price has been the wrecking of flow, worse service and soaring overall costs. W. Edwards Deming instructed 50 years ago that optimising the parts necessarily underoptimises the whole and vice versa. And so it has proved. Companies, like regulators, have lost sight of the wood for the trees; which is why everything touted as an ‘improvement’ from their point of view is always the reverse from ours.

But at last people are beginning to query the cult of size. John Kay notes that in the case of big projects, returns to scale do not increase but diminish. In 1908 the London Olympics cost £20,000 and in 1948 £750,000. The estimated 2012 total of £11bn is out of all proportion to previous amounts, even with inflation. This seems to be a phenomenon of the last 50 years, and it holds for tube lines, IT projects and military spending, to name but three. ‘Perhaps technological advance has reduced rather than increased productivity, by offering enhancements that do not represent value for money,’ suggests Kay. ‘The result is that major projects cannot be afforded or, if they are afforded, squeeze out smaller advances that would add more to human welfare’. More is less.

In the case of the banks, even the market is having second thoughts. Haldane recently observed that many banks are currently valued at less, sometimes much less, than the sum of their parts. In other words, he writes, ‘there are market-implied diseconomies of scale and scope. The problem for investors appears to be not so much too-big-to-fail as too-complex-to-price’. The banks would be more valuable broken up. Unbundling would not only create financial value. It would also make the system more resilient and simpler to regulate, both of which would reduce risk.

Yet don’t count on this impeccable logic prevailing in the short term. For it runs up against the most potent reason for the persistence of defunct scale ideas, which is self-interest. There is one area where returns to scale are enormous and increasing: power. CEOs now find they get a better return on their time and effort lobbying legislators than working to please customers. This is one reason why acquisitions continue to be such an important part of corporate strategy despite their dodgy record.

Consider the much-discussed merger of European high-tech manufacturers EADS and BAE Systems. EADS makes civil airliners (Airbus) and BAE weapons; no manufacturing economies of scale there, then. As the crash and events since should have made clear, claims for economies of scale in management or HR also need to be taken with a sack of salt. The truth – and the only possible justification for BAE and EADS getting together – is that both companies are hoping that the added clout the combined company can bring to bear in Washington and Brussels will make up for strategic and operational failings in the past. In short, it can make itself too big and politically troublesome to fail. Other merger bonuses (for them, not us) are pricing power (eg Glencore-Xstrata) and, literally, more bunce for top managers (Glencore-Xstrata again).

Adam Smith famously wrote that ‘People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices’. Now they’ve got politicians to do their conspiring for them. ‘Conservatives in both the US and the UK now represent vested over public interest, big business over small, international over national capital. They typify and defend an economic system that serves the minority rather than the majority…. narrowing opportunity, concentrating wealth and protecting monopoly interests’, writes Phillip Blond sorrowfully. As Blond suggests, size isn’t a technocratic issue, it’s political. It’s time to nail down the zombie’s coffin and put a stake through its heart.

How do we get more responsible, ethical business? In order to answer that, we have to ask ourselves why we have so much unethical, or to be more accurate, a-ethical business (as by and large we do), in the first place.

The answer is very simple: that’s the way it has been designed. People seem constantly surprised by the fact that business can and does behave badly, but they shouldn’t be. I’ll spell it out: business is an amoral, ethics-free zone because that’s what it’s been set up to be.

Generations of managers have learned at business school, from consultants, their peers and the business press that:

• Shareholders own companies
• The exclusive job of managers is to to make as much money as possible for shareholders
• The business of business is business; its purpose is to make profits, and provided it does it legally, that’s the only obligation it owes to society
• The way to get managers to do this is to heap them with equity-based incentives, so they act in the interests of shareholders.

Actually, all these propositions are false. Shareholders don’t own companies – they own shares which give them certain rights, a very different thing. In law, diirectors have to have regard for shareholders, as they do for employees and customers, but their direct fiduciary duty is to the company itself, for the benefit of all its members over time. As for purpose, Dave Packard, one of the founders of HP (who must be writhing in his grave at the moment), put it like this: the purpose of management is not profit, it’s profit that makes the proper ends and aims of management possible. And all the evidence is that incentives simply teach people to take their eye off the job and pay attention to incentives: except for the very simplest and most direct tasks (which emphatically does not include running a company) incentives are more likely to do harm than good, by wrecking teamwork and cooperation, for example.

Nonetheless, this is what managers have absorbed with their mother’s milk, and it’s no surprise that many of them behave accordingly.

So in survey after survey, managers say that despite the talk of ethics and corporate social responsibility, they would engage in dodgy practices if it benefited shareholders, because that’s what their pay structures encourage them to do. So even when behaviour isn’t illegal or criminally reckless, as much of the behaviour of the banks clearly was, it’s often irresponsible to the point of endangering sustainability.

To take a small example from retail (for which thanks to that wise observer, John Carlisle): in 1990s the farm gate price of potatoes was 9p a kilo and the retail price 30p; a mark-up of already more than 200 per cent. Ten years later the shop price per kilo had gone up to 47p, which the farm gate price at 9p hadn’t budged. The mark-up was no 425 per cent: not a penny of the extra profit had gone to the farmers. That’s not fair profit: that’s predatory rent-seeking.

Or Apple, a company which gets so much right for customers. How could Apple be caught out imposing indefensible conditions on subcontractors building $600 iPhones on which it makes a 70 per cent marging? Because its managers believe, or at least act on, the myths that I listed a few moments ago, in particular the imperative to maximise returns to shareholders. Prominent among whom, of course are Apple’s own managers. When he became CEO last year, Tim Cook was awarded nearly$400m-worth of stock options to vest over the next 10 years, and last time I looked they were worth more than double that. That’s a pretty strong incentive to go on screwing your suppliers, whatever the ethics might look like.

The Apple example of course illustrates exactly how and why executive pay keeps on going up and up as it does. It’s an integral part of the same nonchalantly ethics-free dynamic, which has a massive weight of vested interest in theory and practice behind it, not least among the top-level managers who stand to gain from it above all.

Given all this, the surprise is not that much business should display so little concern with ethics, but that there is any that is ethical at all. We should be even more grateful for such stand-outs than we are.

So how do we level the playing field?

The first thing is that we need some politicians brave enough not just to talk vaguely about responsible capitalism but to recognise that this is a crisis, more particularly a crisis of what has been the engine of capitalism up to now, the public limited company; and that since the mess we’re in is squarely man made, the result of faulty design, it shouldn’t be beyond the wit of man to put it right by designing a better system.

This isn’t chiefly a matter of regulation or law change: you can’t regulate to make people better. If you could, Sarbanes-Oxley would have prevented the financial crash. Instead, as John Kay says, we need simple structures that foster resilience. It’s not just the banks – in obsession with economic ‘efficiency’ we have allowed far too many companies of all kinds to grow too big – too big to manage, too big to fail and too powerful for the good of the rest of us. So competition policy should be reframed in the light of sustainability concerns, and that probably means breaking up some of the larger concentrations of corporate power, again, not just the banks. Will Hutton’s Ownership Commission has argued that instead of the current overreliance on the public limited company, we should encourage a plethora of other corporate forms – mutuals, cooperatives and social enterprise, for example, and that’s an important part of the equation. We could make a start on diversification, as suggested by Oxford’s professor of global economic governance, Ngaire Woods, by reincorporating the investment banks with unlimited liability – which is not as far-fetched as it sounds, since as partnerships that’s how most of them effectively operating until as late as the 1990s. Seriously, why not?

But the biggest change has to be internal. This goes far beyond the figleaf of corporate social responsibility. Business needs to acknowledge, explicitly and directly, what is abundantly clear to everyone else: that it can only prosper in the long term if it simultaneously pays attention to the interests of customers employees, shareholders and the communities it is embedded in. That needs to be written into the corporate governance codes, which ironically, and with the most earnest of intentions, have congealed into the bastions of the current corporate social irresponsibility.

But I sense the grain of an opportunity here. Interestingly, there is no empirical evidence that current governance ‘best practice’ – independent boards, splitting chairman and chief executive roles, aligning management with shareholder interests – has any beneficial effect on performance. In fact, the whole enterprise of making business morals-free doesn’t even benefit shareholders in whose name the privilege is claimed. Over the last 30 years, companies have done less welly by shareholders than they did in the previous period when shareholders weren’t put first in the same way. Ethics-lite shareholder capitalism fails even in its own terms.

That means that for once we’re in that rare situation where we have nothing to lose and everything to gain by doing the right thing. So who’s up for it?

Read my column in FT Business Education, 16 September 2012, on goats and power here

Read my essay, ‘The only way is ethics?’ in the High Pay Centre’s publication, Better Business: Morals Matter, here

The English Premier League is the highest-profile in the world. It is a magnet for footballers, spectators and advertisers alike. Some of the top clubs are global brands. Yet under the glitter, the competition is a sham. Only four or five clubs can realistically win it, and they are playthings of potentates who compete to buy victory with mountains of cash. Football clubs aren’t ‘clubs’ in any meaningful sense; they are crude businesses living far above their means, kept afloat only through life-saving injections of cash from the sale of TV rights. Even so half of the Football League have been in administration since 1992 and many wobble perennially on the edge. Top footballers are grossly overpaid, the eyewatering wealth of top stars contrasting cruelly with the pitiful salaries of club retainers. Oh yes, and English players and English managers never win anything. The chief beneficiaries of Premier League largesse are foreign players and managers who are consistently more skilful, thoughtful and adaptable than their British rivals. Under the surface, the beautiful game is in a parlous state.

Does this remind you of anything? It should. In their troubling Going South: Why Britain Will Have A Third World Economy by 2014, Larry Elliott and Dan Atkinson suggest that the parallels between the national game and the national economy are close. On display in both are the same unrealistic ambitions and rose-tinted spectacles, the same boom and bust, the same U-turns, the same workforce and management deficiencies thrown into sharp relief by superior imported talent. The surface bling covering bankruptcy beneath is reminiscent of another tawdry show in which the UK believed it led the world, banking. Ominously, note the authors, ‘the Walter Mitty tendency is even more apparent in those charged with running the national economy [than those running football].’

Elliott and Atkinson, economics editors at The Guardian and The Mail on Sunday respectively, have been dismissed in the FT as ‘professional pessimists’. It is true that Going South is not immune to occasional exaggeration for effect. It is also overlong. But their analysis is not easily put out of mind. Their argument is that Britain is not just in the middle of a painful recession from which it will one day recover and resume business as usual. Rather, they see it as the end of a century of relative decline in which it has not just (like many other western economies) de-industrialised, but de-developed. As in the book’s subtitle, Britain is going backwards, a submerging rather than emerging economy. It’s not a recession, but a reckoning.

In a compelling roster of evidence, the duo point out that despite an effective 25 per cent devaluation of sterling Britain continues to run a chronic balance-of-payments deficit on visible goods at a time when exports should be growing strongly. Their conclusion (strongly supported by the findings of researchers Karel Williams et al): critical mass in manufacturing has been definitively lost – meaning that ‘recovery’ (not to mention rebalancing) won’t and can’t happen automatically. Manufacturing capacity, including supply chains and clusters, will have to be recreated from scratch.

Second, educational performance. Despite Tony Blair’s policy priority of ‘education, education, education’, the UK has celebrated the first decade of the new millennium by skidding helter-skepter down the OECD league tables: eighth to 28th in maths, seventh to 25th in literacy and fourth to 16th in science. Sixty per cent of UK workers are classified as low skilled, compared with 20 per cent in Germany and 30 per cent in France. Then consider the state of UK infrastructure, energy in particular. Coal is a legacy industry, oil production has fallen by two-thirds and gas by half. To cope with likely demand and the need to cut greenhouse gases, the country will need ‘a vast expansion of wind and solar, coupled with dozens of nuclear or “clean coal” plants’; the authors give it five years before the lights start to go out.

They give plenty more reasons for gloom. By 2015, median incomes will have been falling for an unprecedented 13 years, the pensions timebomb is ticking, youth unemployment high and rising, the debt mountain growing, the banks frozen and Europe paralysed. Rather than a one-off criminal spree, the riots of August 2011 may in hindsight turn out to be the start of retribution ‘not just for the financial follies of the last 30 years, but for a century of relative economic decline.

The strength of Going South is its historical sweep. In the historical context, much of the UK’s current plight is not due to chance or bad luck, as often presented, but the predictable result of expediency and indecision. Britain’s education was already causing concern in the last years of the 19th century, the loss of world market share in manufactures likewise. The failure to invest in infrastructure (unlike, say, the equally impoverished France) dates back to the war, and the policy flip-flops and U-turns are legion. When the windfall of North Sea oil landed, the UK copied football rather than Norway: instead of investing the proceeds for the future it blew them on maintaining its profligate lifestyle. When the finance sector boomed it did the same, never taking into account that financial might and manufacturing weakness were two sides of the same coin. Is Britain a free-market or a European social-market economy? It has never decided, vacillating painfully between the two and often getting the worst of both.

Now the jig is up, the die is cast, the goose is cooked and the cat is out of the bag, in the immortal words of James Thurber. Hard choices, put off for so long, can no longer be avoided. I share much of the Elliott-Atkinson analysis – indeed it’s only by putting on very short term blinkers that you can avoid it. For far too long we have let ourselves to be persuaded we can get to where we want to be via short cuts: we don’t need to learn languages because everyone speaks English, we can (to borrow Jim Slater’s odious distinction) make money rather than things, and that we can be creative rather than industrious and productive. Hence the emphasis on show, presentation (we do royal weddings rather well), and the ‘creative’ and advisory industries (in telling other people to do as we say, not as we do, we certainly lead the world).

Yet I think the authors might just have missed something. At first sight, the success of the 2012 Olympics might seem the apotheosis of the UK’s bullshit economy – just another show, if a glorious one. But when you look at it more closely, that’s not true. In fact, tthe Olympics were the pay-off for just the sort of difficult, meticulous execution that the British supposedly don’t do. In fact they so don’t do it, as Michael Skapinker recently pointed out in the FT, that several totemic companies – BAe, BT, BP – have over the last decade quietly purged themselves of the ‘British’ in their name to escape the brand-damaging associations. Yes, they cost a lot, but the games came in on time and under budget. Two million tons of concrete were poured without a single casualty; at one stage a truck was arriving at the front gates every sixty seconds. As for the athletes, the most striking thing about the performances was that they were the result not so much of natural talent but of unBritish amounts of hard work and minute attention to detail. They were hard wins, not easy ones. Not to mention the volunteers. And all that accounts for the, surely rightful, sense of national pride the games provoked. ‘The desire of millions to feel decently and proudly British is a story the elites – business, media and political – have been missing for years,’ notes Skapinker (none more grotesquely so than the right-wing Tories now caricaturing the workforce as workshy layabouts). If we’re to defy the weight of the past and start going north again that’s the joyous, challenging spirit we’ll all need to tap into.

Read my Foundation article here

If the Baby P affair taught anything, it was surely that putting computers in charge of human affairs is wrong in principle and disastrous in practice.

Anyone doubting this should watch the half-hour BBC Panorama programme on the computer-led fitness-for-work assessments administered by Atos Healthcare under the government’s programme to cut the number of people claiming disability benefit and get more of them back to work. And it is now confirmed by the National Audit Office (NAO), which says that the contract has been poorly managed by the Department for Work and Pensions (DWP) and is not delivering value for money.

Principle first. Making people subject to decision by computer is demeaning, reductive and by definition inhuman. Would it be acceptable for a computer to decide the death penalty? I thought not. There’s a good reason why in every democratic state justice is dispensed by magistrates or in serious cases a jury of 12 human beings. Justice is a matter of judgment, of weighing different considerations against each other. It can’t be done by an algorithm. The independent reviewer of the fitness-for-work programme, Professor Malcolm Harrington, says that for many people the experience of undergoing the disability test is ‘traumatic’. His subsequent comment – ‘I think people are being treated more like human beings now, but it is still difficult to go through it’ – is not a vote of confidence.

The principle links closely with the practice argument. To make a problem treatable by computer, it has to be reduced to numbers. But Deming’s dictum that the most important things in management are unknown and unknowable holds for the human condition too. A computer able to register and and put a weighting on all the variables would have to be as powerful and sensitive as the human brain – and we have those already.

You’d want computers to play a big part in running nuclear power plants or flying today’s passenger aeroplanes. NASA’s software for putting a man on the moon was flawless – an undeniably impressive achievement. But human beings are not reducible to equations in the manner of the physical sciences. Computers are good at the routine and predictable and bad at variety. Humans are the reverse. It is baffling, illogical and the worst of both worlds to use each to do what it is least good at.

Computers are flummoxed by variety; humans take it in their stride. The Panorama programme showed what happens when you do the reverse. While the Department for Work and Pension itself estimates that fewer than 0.5 per cent of claims for disability benefit are fraudulent, Atos Healthcare’s software (it’s a red herring that Atos is French, by the way – any other consultancy system would be just as bad) currently ranks 30 per cent of those called up for reassessment as fit for work.

These include Christopher Davies, an emphysema sufferer who can’t climb stairs or walk 50 metres without having to stop for breath; wheelchair-bound Shannon Thompson, who has bone disease and is permanently on morphine; and Steven Hills, who died of heart failure 39 days after being told he was fit for work for the second time. His first assessment, against which he had appealed, had also found him fit even though the assessor was so concerned about his heart that she had told him to see a doctor as soon as possible. You couldn’t, in other words, make it up.

Any human with a grain of sense could see that sending such people to work is absurd (although many of them in fact would love to) – what would they do? Overall 40 per cent of assessments (in some areas apparently nearly all) are revised on appeal – so why do they happen? Although the minister, Chris Grayling, denied that targets were to blame, an assessor told of pressure to conform to the ‘averages’; to classify too many as disabled was to invite attention from her manager. It is difficult to judge why so many of the decisions are wrong, according to NAOs head Amayas Morse, ‘as the department does not routinely request feedback on the rationale for tribunal decisions’. He criticised DWP for failing to seek financial redress for Atos’ mistakes and not demanding higher quality standards in the tests.

No one who has spent a minute thinking about systems will be surprised at the costs of this mayhem. First, there is the uncountable human cost. Did the stress of two Kafkaesque assessments contribute to Hills’ death? We can’t know. What we do know, because doctors told Panorama, was that, as in other areas, when a social service sets out to cut costs, it simply passes them on to the NHS which as last resort is forced to pick up the bill as distraught people besiege surgeries and hospitals for help with their unsolved problems. Then there is the cost of the Atos consultancy assignment – currently £112m a year for 78,000 assessments. Finally, factor in the cost of rework – appeals and reassessments – which is currently running at £60m. In effect, says the NAO, the tests are being paid for twice. When all these are taken into account, it seems likely that savings from this grotesquely applied measure, if any, will be minimal.

The obvious fact is that, unless the DWP’s fraud figure is a vast underestimate, removing disability benefit solves no problems and simply moves the cost somewhere else. As pioneering work with benefits of various kinds in Devon, Stoke and Somerset (to name but a few) show, the only durable way of cutting the cost of benefits provision is to solve people’s problems, whether employment, lodging, or need for any other benefit, as quickly as possible. This appears to be more expensive than dealing out impersonal, mass-commissioned aid packages in the short term, but in the longer term it’s cheaper because, in a mirror-image of Atos’ brainless and terrifying assessment system, it makes the problems that cause the cost disappear, so the sufferers don’t have a reason to turn up for help again.

What is the role of public services in the 21st century? Providing individual help that enables people to lead their lives as independently as possible. People can do that, humanely and surprisingly cost effectively. Computers can’t, and never will.

In almost every respect, the Kay Review of UK Equity Markets and Long-Term Decision Making is an exemplary piece of work. Professorial in the best sense, John Kay’s analysis of where and how the City of London went wrong is elegant (not a usual epithet to apply to a business report), eloquent and subtle. A journalist as well as professor who writes an essential weekly column in the FT, Kay has a telling eye for the concrete example, illustrating his history of the City’s failure to nurture UK corporate success with salutary vignettes from ICI, GEC and BP as well as the banks. Anyone seeking a master-class on what equity markets are for – ‘to operate and sustain high-performing companies and to earn good returns for savers without undue risk’ – and how they should work can do no better than start here.

What’s more, Kay’s recommendations – all designed to wrest primacy (and profits) back from advisers and intermediaries to benefit savers and corporations – have been greeted with deafening lack of push-back. The most anyone can find to say against them is that they are doing what he recommends already. No one has dared to say that Kay is wrong.

Why then do I say ‘in almost every respect’? One troubling aspect is precisely this unnatural lack of criticism. It is too quiet, Carruthers. It is striking that the people who are now apparently unanimously in favour of the long-termist, trust- and relationship-based arrangements that Kay advances have in practice delivered the exact opposite. All these things applied before Big Bang in 1986. Since then, ‘my word is my bond’ has been replaced with ‘caveat emptor’, relationships with transactions, and finance has become the end rather than the means.

As Tony Hilton pointed out in the Standard, these relationships were held in place by the market structure – chains of independent ‘single capacity’ stockbrokers, corporate financiers, market-makers, stock lenders, fund managers, underwriters and custodians each focusing on one activity and acting either for clients or themselves, but not both. The competition for custom that took place at every stage of the chain kept them honest by exerting a strong incentive to provide good service.

All that was swept away by Big Bang, which ushered in the financial conglomerate one-stop-shop and began the shift to finance as an end in itself, ‘with deals done not because they had economic rationale but because they made money for bankers and costs, both direct and indirect, that impose a colossal and unnecessary burden on that real economy’. Kay, in my view rightly, makes much of structure and incentives being a better path to desired outcomes than regulation of behaviour; but will – can – his new-old world of trust and fiduciary come about without corresponding back-to-the-future structural change?

There’s a somewhat similar issue at the level of management. In Kay’s vision, the benefit that committed investors can bring to a company is improved governance through active engagement and encouragement of long-term decision-making. But it wasn’t just Big Bang that changed in the 1980s. So did the underlying theory of corporate governance, and with it the very definition of company success. Henceforth success was to be measured narrowly in terms of shareholder value, and governance became a matter of aligning the (self) interests of agents (managers) and principals (shareholders).

We know where this disastrous doctrine would lead – the enrichment of managers and intermediaries and the impoverishment of all the other stakeholders, including and especially the company itself, as witnessed by the implosion of the banks in 2008. The stock market has failed both its primary purposes, and for the same reason – as Kay earlier pointed out in his sharp book on Obliquity, shareholder value isn’t something that can be addressed directly, or at least not for long. It is rather the by-product of building an organisation with distinctive skills and resources that can consistently offer customers attractive goods and services that they want to buy. As Kay succinctly remarks, directors owe a fiduciary duty to the company, not its share price.

The trouble is, though, that the whole weight of official theory, as well as market structure, is now on the other side. It is enshrined in governance codes, in 30 years of business school teaching and consultancy practice, in the assumptions of most managers, and not least in the entrenched views of the Treasury. Without attacking shareholder value head on, Kay does put heavy emphasis on stewardship for both managers and fund managers. But financialisation now runs very deep; and it is global, with particularly deep roots on Wall Street, with which the City is intimately bound. So two more questions: even if the City wants to foster long-term corporate success, has it any idea how to? And can London institute radical change when Wall Street shows not the slightest inclination of doing so?

In the end, of course, it all boils down to a crude issue that Kay doesn’t address: power. For proof of the enormous strength of vested interests, look no further than the failure of governments to cut the banks down to size despite near unanimous support from electors and commentariat alike. Kay is right that ‘the task of recreating an equity investment chain that meets the needs of users and that is based on trust, respect, confidence and cooperation, will be long and difficult’. He is also right that it is as important for the future health of the economy as a functioning NHS is to the health of the people. But however sensible his recommendations, they are unlikely to come to pass without a substantial thump of government welly.