If capitalism is North America’s secular religion, shareholder value is its creed, as fervently believed and proclaimed as any evangelical sermon. So it takes courage as well as independence of spirit for any North American, even a Canadian, not only to tackle shareholder value head on, but to finger it as the bane of capitalism rather than its unchallengeable foundation stone. All the more so as Roger Martin, whose important new book Fixing the Game does all this, is also dean of a business school (Toronto’s Rotman School of Management), an institution which collectively has played a primordial role in legitimising the concept and now has a huge research and theorising investment sunk in it.

It’s precisely the strength of the book, the most authoritative statement of what’s wrong with our current model that I’ve seen, that it engages directly with underlying theory as the heart of the current problem. All the official reactions to the current crisis start from the assumption that we’re playing the right game: we just need to tighten up the rules and play it better. By contrast, Martin correctly identifies that it was the fundamental assumptions that got us into trouble in the first place, so that basing their remedies on them politicians and regulators are simply doing the wrong thing righter, which ratchets up the wrongness. So while such fixes by definition won’t prevent further crises, they will focus energy and resource in the worng place just when we need them most.

Using the example of the highly regulated and shiningly successful US National Football League as a counterpoint, Martin demonstrates how unintended consequences have turned shareholder value into a grotesque self-parody. The catalyst was a famous 1976 article by academics Michael Jensen and William Meckling which crystallised growing concerns that fat and complacent managers were paying more attention to their own interests than those of shareholders. The authors termed it an ‘agency problem’: a missing alignment between shareholder-owners (principals) and managers (agents). To make managers think like owners, what better solution than to load them with stock options that would reward them when the company did well and punish them when performance fell off?

Jensen and Meckling’s much-cited article invented agency theory, anointed shareholder-value maximisation as the sole purpose of the corporation, and set a framework for corporate governance that has been used ever since. (It is faithfully reflected in the City codes, for instance.) Yet the strength of its influence is matched only by its malignity.

As Martin demonstrates, stock options were chips that turned executives into gamblers whose compensation was conditional on performance not in the real world but in the ‘expectations market’ of the stock exchange. Like any gambler with large stakes, managers did everything to change the odds in their favour – manipulating earnings to match expectations, massaging expectations to match earnings, until ‘many companies focus more on their stock analysts than their customers.’

There’s more. In a striking chapter on managerial ‘inauthenticity’, Martin shows how acting more and more in the abstract world of expectations, executives all too often lose contact with both the real world and their moral bearings. The result: on the one hand, customers, employees and relationships become instrumental and disposable means to the sole end of winning a zero-sum game; on the other an unprecedented wave of corporate fraud as managers cross the line into immoral and illegal behaviour, culminating in the scandals of 2008. (In the week I’m writing this, JP Morgan has agreed to pay $154m to settle a civil fraud case and along with RBS is now being sued for $800m by the US credit union regulator for mis-selling of mortgage-backed securities.)

As the final straw, volatility created by the artificially stimulated expectations market has attracted a new kind of market player, the hedge funds, that exist solely to exploit and even create that volatility. Hedge funds, as Martin sharply points out, generate no net value for society; indeed with their egregious ‘2&20’ fee structure, they lumber it with a heavy parasitic cost burden.

Have shareholders actually benefited from this slavish attention to their interests? Well, no. Crunching the numbers, Martin shows that in the period of shareholder ascendancy since the Jensen and Meckling article, shareholders have actually experienced poorer returns than in the four decades previously when managers were supposedly ripping them off – 6.5 per cent a year compared to 7.5 per cent.

Laid bare, the unclothed emperor is not a pretty sight. Shareholder-value maximisation and stock-based compensation have had the reverse effect to the ones intended, destroying shareholder value and aligning executives not with shareholders but with their own pocket-books. Executive pay per dollar of profit made has rocketed. The theories have driven damaging short-termism, fostered a- and immoral executive behaviour, and benignly favoured the mushrooming growth of parasitic players in the expectations market to whose tune real-market actors are increasingly made to jump. The expectations tail is wagging the real dog. In short, warns Martin, these theories ‘have the ability to destroy our economy and rot out the core of American capitalism… The expectation game is beginning to destroy the real game, slowly from within’.

To reiterate, these bankrupt theories are the ones that form the starting point for the fixes proposed for the post-crunch banks. No wonder they are so feeble – they are business as usual in the most literal sense.

Martin argues that much more radical moves are necessary: destroying the expectations market by recasting theory to put customers rather than shareholders first, eliminating stock-based compensation to bring executives back into the real world, rethinking board governance, reining in the hedge funds (for which Martin reserves particularly sharp criticism), and aligning corporations with rather than against the public interest by placing positive purpose at their centre.

While all these are obviously right and necessary, Martin’s diagnosis of the ills is understandably stronger than his prescriptions for treatment. Even he doesn’t tackle a number of other outstanding and difficult issues. The most glaring is ownership, one of the most fervently-upheld components of the shareholder-value creed. Yet when high-speed traders own shares for nanoseconds and hedge funds borrow shares only to vote them for their own short-term ends, what does and should ‘ownership’ mean? Besides, notwithstanding the myth, legal researchers agree that shareholders simply don’t own companies, which are legal persons in their own right.

His analysis also has important unvoiced implications for conventional models of strategy (prop. Michael Porter). By implicitly pitching the interests of companies and their managers against those of society, these models have contributed powerfully to the managerial inauthenticity and alienation that Martin rightly identifies as a part of capitalism’s problem.

All these hint at the enormous inertia of vested interest that will need to be overcome if capitalism is to be saved from itself. Martin describes himself as ‘a long-term optimist but short-term pessimist’ (more sacrilege to capitalist fundamentalists). Without changes along the lines he specifies, the short-term prospects for the Western economies that are still in thrall to shareholder value are indeed grim. For the longer term we can only repeat (and believe) after him the famous quote from Margaret Mead which heads the final chapter of this angry and urgent book: ‘Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed it is the only thing that ever has.’ She’d better be right.

It’s a weird paradox. Having triumphed over socialism, capitalism’s worst – perhaps only – enemy is capitalists. Conversely, because capitalists are so hopeless at analysing capitalism, it is always down to those it conceives as its enemies – critics and governments – to rescue it from its own excesses.

The genius of capitalism (if that is what it is) is its Protean capacity for self-renewal. But almost wilfully ignoring this, capitalists of the current dominant tendency have frozen it into a number of unchallengeable assumptions, more akin to religious dogma than the result of empirical investigation, that permit no deviance or evolution.

Consider some of their mainstream articles of faith.

• Companies are independent of the societies in which they are embedded. (This is the ‘business of business is business’ argument, smoothly paraphrased by the CBI’s new president Sir Robert Carr, that I wrote about last week.)
• Markets are the best way of organising resources; companies are a second-best option, and should be made to resemble markets as closely as possible. By the same token, the private sector is inherently better than the public sector.
• Companies are the property of shareholders, and the maximisation of shareholder value is the sole and sufficient purpose of the corporation.
• Individuals are exclusively self-interested, and people need to be motivated by incentives and bonuses to do a proper job (although curiously this appears only to apply to the top corporate echelons), and disciplined by hierarchies.

All these are just wrong.

Companies are unquestionably important to economic advance, but it defies common sense to think they can flourish independently of their context. Companies can only thrive as part of, and not at the expense of, the wider society. As Amory Lovins and Paul Hawken put it, in the final analysis ‘the economy is a wholly-owned subsidiary of the environment’.

Organisations, whether in the public or private sector, are different from markets – that’s why they exist! They obey different logics and do different things. Companies innovate, markets compete to distribute the value created by that innovation through the economy at large.

Companies are legal persons in their own right and are not owned by shareholders (see HBR), who have done worse during the shareholder-value-maximising era than they did before (see HBR again). Shareholder value is a by-product, not a prime cause.

To anyone but the hardest-line economist, it is evident that human beings are motivated by a variety of things, including both self-interest and altruism. Many studies show that intrinsic rewards (doing a good job) are far better motivators than extrinsic ones (money), not to mention much cheaper.

If singly these beliefs are nonsense, together they form a toxic system which that is bringing us nearer and nearer to financial and physical meltdown. The increasing incidence and severity of financial crashes, the apparently unstoppable rise of corporate wrongdoing, the unsustainable dislocation between the economy’s winners and losers, the plunging moral authority of business, and the growing urgency of climate change are all well enough documented to need no more elaboration here. ‘American capitalism’, sums up Roger Martin in his recent book Fixing the Game, ‘is in danger’, slowly but surely destroying itself from within.

In the past, critics and practical reformers – anti-slavery campaigners, Quaker industrialists, New Dealers, trade unionists, corporate raiders – have always managed to shake up the fixed assumptions of the existing fundamentalists, changing the balance of forces and generating fresh forms and solutions to the problems of the day. Limited liability, pension funds, business education, tapping into workforce skills and knowledge, shareholder activism, and many others have all inflected the course of capitalist development, adding diversity and fresh thinking from many different sources to the mix.

Technically, the same ought to be true now. There is no shortage of new ideas wanting to be heard. I don’t mean social media and Web 2.0. I mean, taking a leaf from radical capitalist thinkers like Umair Haque, institutional innovation such as thick, thin or shared value, social enterprise and a social enterprise stock exchange, green measures of economic growth, human capital, stewardship… the human brain is as inventive as ever it was.

What may be different this time, though, is that capitalism’s self-correcting feedback loops have stopped working. Why, even after the financial earthquakes of 2008, has nothing changed? Perhaps because the underlying assumptions have become self-reinforcing. In a 2005 Academy of Management Review paper, academics Jeff Pfeffer, Bob Sutton and Fabrizio Ferraro cited research finding that business students were consistently less empathetic, less concerned with others and more prone to cheating and wrongdoing than those of other disciplines. They concluded: ‘A growing body of evidence suggests that self-interested behaviour is learned behaviour, and it is learned by studying economics and business’. In other words, even if (again as common sense dictates) self-interest is neither universal nor inevitable, self-fulfilling prophecy is gradually making it so.

The nightmare, then, is that business in its largest sense has already made itself too big, dominant and centralising to fail. It has eaten the regulators, and now it seems to be consuming the political process itself – witness the extraordinary difficulty of bringing ‘proud finance’ to heel, and the profoundly illiberal, anti-labour legislation being introduced in several states in the US and threatened in the UK. And it is not just about size that escapes control. Increasingly, the accountancy of business, unscientific, fault-ridden and prone to spontaneous self-combustion as it is, is the measuring rod used to validate all other areas of life. Education, health, the arts all have to justify themselves in business terms. Instead of capitalism being made safe for the world, the world is being made safe for shareholder capitalism.

My main point here is not just or even primarily about ‘rightness’ – it is about maintaining sufficient diversity for capitalism to do what capitalists boast it does best: evolve, innovate, self-correct, self-renew. Because of the dominance of one hard-line theoretical view, supported by giant institutions that perceive their self-interest as keeping it so, capitalism is becoming a monoculture that ensures it can no longer evolve in this way. Capitalism is indeed too important to be left to capitalists – but this time round, are there any enemies left to save it from its friends?

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.

Behind the desire to enlist private firms in public service delivery lies the assumption that thereby efficiency will be improved. The sense of frustration – perhaps panic is a better word – is palpable. No one would disagree that innovation is needed. Although measurement is hard, particularly where quality is involved, the best guess of the Office of National Statistics is that public-sector productivity has fallen in the last decade. As a recent report from the Work Foundation points out, services facing a triple whammy of shrinking public spending, expanding service demands and a broad reform agenda are now expected to produce nothing short of a ‘productivity miracle’.

But hang on. Is the private sector really the place to find it? After all, over the decade of lost productivity the public sector has been subjected to a relentless barrage of incentives, targets, outsourcing and performance management imported directly from the private sector. If 10 years of this haven’t made things any better, do we really need more of it?

The truth is that this kind of ‘efficiency’ is a false economy that exacts a very high price. What the private sector is good at (although that’s hardly the right word) is service industrialisation: mass-producing centrally designed service ‘packages’ (as they are tellingly termed) at apparently low cost. Unfortunately the low cost is a delusion. Because they are not-very-good-to-awful, the real cost is actually very high – it’s just that it’s ‘saved’ from citizens who don’t get what they need and have to come back or go somewhere else to get the problems solved that weren’t met first time round.

Albeit fashionably souped up by IT, this is industrial-age service, as producer-centred as anything in the traditional public sector. It is deliberately impersonal, designed to turn customers of banks, retailers and telcos into standardised transactions that can be monetized and turned into corporate profits. Customers are a means to an end, and that end, as taught by today’s governance norms, is to capture as much value as possible from the other stakeholders, including customers, and transfer it it to shareholders’ pockets with minimum fuss and maximum speed.

That is worth spelling out, because it helps explain the appalling scandal of the UK’s care-homes. Care homes used largely to be run by local authorities until a wave of private-equity buy-outs took them private in the noughties. Seventy per cent of homes are now privately run. In a sub-bubble of its own, banks fell over themselves to lend to investors who knew nothing about care but were attracted by property, the prospect of long-term government contracts and increasing demand as the population aged.

Before the bubble burst in 2008 care homes were changing hands at stratospheric valuations. Companies that had taken on mountains of debt now found themselves facing falling property prices and contracts that were less valuable as local authorities explored ways of keeping healthier elderly in their own homes longer. Austerity added to the pressures, with councils refusing to raise, and in many cases cutting, the fees they were willing to pay.

The sector is now in ruins, with banks and other lenders controlling companies caring for thousands of people in residential care. Southern Cross, the UK’s largest UK care-home operator with 30,000 elderly residents, is struggling not to join them. As privately-owned homes thresh around to stay afloat, they have cut standards and costs; a survey by the FT found that in the private sector care is often worse, wages lower and turnover higher than in the public.The cost in human terms can hardly be exaggerated. One manager told the newspaper: ‘It’s all purely to do with making money and not looking after people.’ And this before the cuts really begin to bite.

Industrialised service designed to satisfy shareholders rather than customers – a classic example of Umair Haque’s thin or fake value – is obsolete and unfit for purpose anywhere, kept alive by an unholy alliance of management consultants and IT vendors; in personal service it is a disastrous oxymoron.

As even The Economist recognises (although supporting more private-sector involvement in public services), ‘the industrialisation of patient care often depersonalises the process of treatment’, causing people to lose faith in it and thus – since healing is the ultimate participatory venture between physician and patient – reducing its effectiveness.

Let me spell it out: this kind of ‘efficiency’ makes matters worse. Sure enough, patients who now get an average of just eight minutes with their GP are beginning to complain: just 45 per cent would recommend their local GP surgery compared with 60 per cent a couple of years ago.

Of course, it doesn’t have to be like this. At heart service is a matter of design, not ideology, although as we have seen the shareholder-first dogma militates against it. Some enlightened private-sector companies offer excellent service – Aviva is learning fast, for example – just as a number of public-sector organisations do, using exactly the same principles of finding out exactly what demand is, then designing a system that delivers it.

We need a thousand flowers to bloom in the public services, for sure. But the real obstacles to that are fundamentalist free-market ideology and ignorant central planners, not public-sector intransigence. The straightjacket is central specification of method – shared services, customer-service call centres, massive computer databases – rather than exclusion of the private sector. If the private sector finds itself unwelcome, it is because it has disqualified itself.

Never mind what happens in the superinjunctions saga – you can’t buy that kind of publicity – It’s been a great few weeks for Twitter. Not only does it break news – you heard the death of Osama Bin Laden and the arrest of ex-IMF head DSK there first – it increasingly makes and indeed shapes it. Witness its role in first the Arab uprisings and the Uncut movements, and now the evolving superinfunctions story, in which it may turn out to be a lever to change the law. (Having like everyone else found the names of the ‘celebs’ after a 30-second search, I was disappointed to find I’d never heard of half of them. But there you go.)

Every new medium becomes fuel for existing media, and here again Twitter is no exception. Take the entertaining twitterspats between, for example, Lily Allen and Piers Morgan or – more seriously, as recounted recently in The Guardian– Ian Birrell and Paul Kagame. The journalist tweeted a disparaging comment on a press interview with the Rwandan president and was amazed to receive an immediate indignant response from Kagame himself, with Rwandan foreign minister pitching in for good measure. Writes Birrell: ‘In this new world, I was able to draw attention to Kagame’s original statement, he was able to respond and we could debate in real time watched by thousands of people worldwide, scores joining in with links, opinions and comments.’

One-hundred and forty characters is short, it’s true. But the terseness and immediacy that the medium demands is powerful compensation. Twitter can do profound (moving tributes on Remembrance Day) and serious (philosophical and political debate) just as well as trivial and pointless. Pomp and circumstance, whether the Royal Wedding, international economic gatherings or the Eurovision Song Contest, now positively demand an accompanying twitterfeed to deflate, praise and add instant commentary, and it rarely disappoints. Birrell is not alone in seeing Twitter ‘fast becoming the most important journalistic tool around’.

Actually, it may be more than that. Even to a (by instinct and training) print journalist and junkie like me, it’s frighteningly obvious how easily Twitter could supplant the daily fix of newsprint.

News already breaks first on the 24/7 Twitter stream – see above, or if you prefer it in more structured form you can follow BBC News or plenty of other breaking news feeds. As for comment, even if your favoured columnists don’t tweet, other tweeps are unerringly good at pointing to feature and op-ed pieces all around the world, online as well as in print, giving a much wider agenda and more international sweep than the national newspaper you’re used to. And who needs editorials when you have thousands of diverse voices offering praise, critique and comment from all angles in real time? Combining all those, Twitter is the nearest thing so far to a Daily Me.

Then, too, for the increasing number of people who work from home, Twitter functions as a kind of surrogate office. While nothing can replace the adrenalin of a newsroom as the deadline approaches, Twitter does a pretty good job of replacing the myriad conversations going on at any one time in a buzzy open office – whether scurrilous, inconsequential, irrelevant-but-interesting, or bull’s-eyeing slap bang in the centre of your area of interest. As in an office, the streams feed and breed off each other, so that an item that’s meaningless or trivial on its own takes on a diffferent slant when set in the context of another conversation. (Also as in an office, you have to have the strength of mind to shut the conversations out when you really need to work…)

The real ‘secret’ and significance of Twitter, though, is none of these things, although it informs them all. Never mentioned in discussions of its value (but instantly identified by Vanguard’s John Seddon), it is that Twitter is part of the emerging economy that substitutes engaging ‘pull’ for hectoring industrial-age ‘push’. That is to say, as with iTunes only more so, you choose how and in what combination you want to take and use the Twitter conversation. It doesn’t matter that 99 per cent of tweets are crap – of course they are. Ninety-nine per cent of everything is crap, but in this case it’s you who get to decide what is and isn’t. You choose whom you trust. Rather than submitting to the producers’ take-it-or-leave-it CD- (or newspaper-) shaped packages, it’s up to you to mix and match.

Does this matter? Yes: for both users and the entrepreneurs who created the company, ‘pull’ has enormous implications. Because ‘push’ doesn’t work on Twitter (Twitter is opt-in, and let’s face it, who’s going to opt in for ads and the hard sell?), it is a pretty useless medium for corporate sales and marketing (alas, I can’t find the stats that showed this – on Twitter, naturally).

That may seem to be a headache for Twitter’s founders, who have yet to figure out how to monetise its 200 million users. (See this piece in Fortune for a less than flattering portrait.) But perhaps they are looking in the wrong place. For the rest of us its absolute transparency is of course Twitter’s critical asset. Authentic shines through; so does fake, which is why the latter doesn’t work, and that’s exactly how and why we like it. Unlike, say, Linked-In, whose stock soared on flotation to unimaginable heights, Twitter is what we make it. If that includes making life richer, funnier, more convivial and exciting than it would be otherwise, I’d be happy to pay for it – and I don’t think I’m the only one.

We might have seen it coming. The next round of cuts (expect many more) is where it gets nasty. It involves ‘raising the bar’ of eligibility for benefits, health, social care and anything else the state provides for us.

This is at once logically plausible and utterly wrong-headed – a classic example of assuming that there is no alternative to the current woeful methods and trying to doing them righter, thus making them wronger and worse. It’s ‘leading-edge conventional wisdom’, which makes it the worst of all possible worlds.

Not to beat about the bush, the new white hope for the economy is rationing. A 2009 McKinsey report proposed that a substantial portion of the £20bn savings the NHS has to find over the next four years should come from denying ‘low added value healthcare’, including preventing hospital admissions, with more coming from persuading patients to treat themselves. A recent Guardian survey of an admittedly small sample of GPs found that they were experiencing delays not only in non-urgent treatments such as cosmetic surgery, but also in opthalmology (cataracts), hip and knee replacements and hernia repairs.

Meanwhile, tens of thousands of people are facing cuts in disability benefits. And a couple of weeks ago the BBC reported that in response to austerity English local councils were steadily raising the eligibility bar for adult social care. Of 148 councils that responded to the survey, only 22 would now fund people with ‘moderate’ or ‘low’ need, which includes people needing help to bathe or cook a meal. Six councils limit help to those in ‘critical’ or life-threatening need.

Many people hearing these and other stories shrug wearily and ask, ‘What’s the choice?’ Surely it makes sense to clamp down on the cheats and in times of austerity limit payouts to those most in need?

Well, yes and no. The trouble is that it won’t cut costs; it will raise them. And while it will make it harder for some of the most vulnerable in society to get their needs seen to, it won’t stop the real fraudsters from continuing to freeload on the rest of us.

There are at least two reasons for this. The first is that this kind of rationing falls into the very large department of false economies. While there may a case for restricting access to some minor NHS treatments (mole removal, some weight loss), the general rule in services is that the earlier the intervention the cheaper and better. Putting off something that is going to happen anyway just makes it more expensive. If there are knock-on effects (delaying a hip replacement may affect the knee) the expense doubles. If there are then knock-on effects for other agencies (for example, lack of mobility may generate demands on social care) the expense trebles, and so on exponentially.

Rationing is perhaps most perversely damaging in social care and disability, affecting many of those least able not only to fend for themselves but also to kick up a fuss. Restricting care to those in most urgent urgent need of care is not so much beggar-my-neighbour as bugger-my-neighbour. It will not only guarantee an epidemic of critical cases as those with untended conditions deterioriate, it will also export massive amounts of costly ‘failure demand’ for others – hospital wards, advice bureaux, housing offices and police stations – to pick up the pieces.

In the (few) places where social care has been studied as a system, one thing is blindingly clear. Keeping people in their own homes as long as possible is a) what they want; b) a thousandfold cheaper than putting them into care homes, which they don’t want; and c) often quite simple. The biggest single factor is being able to bathe or shower. So a cheap, simple and effective way of heading off later demand for ‘moderate’ or even ‘critical’ care would be for councils to employ a team of full-time plumbers and carpenters to modify bathrooms at the first intimation of difficulty.

We desperately need to free up local managers to experiment with new methods of meeting growing care needs. But this requires saying ‘no’ to the current Soviet-style method of doling out centrally approved care packages to those who are deemed to fit official categories and instead analysing local demand and figuring out ways of responding quickly to what people actually need, as opposed to what the centre has decreed they should get.

This needs political courage as well as management insight, which is why it won’t happen nearly enough. What will happen – and this is the second reason why costs will rise, not fall – is not just rationing, but computer-aided rationing. Read Charlotte Pell’s eloquent article for the inhuman consequences of dealing with claims by computer; as eligibility tightens it will get worse. Computers simply can’t handle the complex variety of human need – and neither can centrally-designed classification systems. That is something only skilled humans can do. This is also, incidentally, why computers are hopeless at unmasking determined frauds and benefits cheats, although that doesn’t prevent people from vainly trying to make them do so – with the side-effect of making it ever harder for legitimate claimants to get what they need.

Thus, finally, do cuts and rationing set up the sinister Orwellian process by which bodies established for one purpose imperceptibly morph into their opposites. So employees at jobcentres and benefits offices are incentivised to make it harder rather than easier for people to get payments; HR departments to get people to leave rather than stay; ‘bloodthirsty and incompetent’ HMRC to terrorise small firms to meet its targets rather than undertake the much harder forensic work of pursuing large and sophisticated tax evaders. Welfare becomes illfare. Big Society, anyone?

Read my piece in FT Business Education here

Here are three things we learned last week about work in the 21st century:

• The UK’s annual sick-leave bill hit £32bn

• McDonald’s turned away 1m people seeking part-time, minimum-wage jobs

• Having a menial job is worse for you than having no job at all.

Together these items tell a dismal story that makes a mockery of the May Day celebrations on Monday. To understand it, let’s take them in reverse order.

‘Researchers at Australian National University have found that positions with low security, high demands, and imbalanced effort-reward ratios cause more mental distress than unemployment. Over seven years, the researchers followed 7,000 respondents in an Australian labor survey. People who moved from no employment to jobs of “high psychosocial quality” showed gains in mental health. But those who went from jobless to employed in thankless, unstable positions were found to be more depressed and anxious than those who never got hired at all.’

We’ve long known about the long-term psychological and social damage caused by unemployment. So it’s truly shocking to find that the the richest, most advanced countries in the world are now creating jobs that are so insecure, poorly paid, and of such low-status that they are worse than not having a job at all.

Perhaps it’s just temporary, a result of employers tightening their belts to last out the worst depression since the 1930s? Doubtful, to say the least. A 2010 headline in the FT said it all – ‘Recession work practices are ‘here to stay‘”.

‘“The private sector has got used to getting a greater return from their workers and they will be reluctant to return to pre-recession conditions when the downturn is over,” the managing director of Manpower UK told the newspaper. “Flexible engagement has worked fantastically well, so has rewarding output rather than attendance.”

Well, it does for some. Thus zero-hours contracts, where employees are on call but not guaranteed work (or pay) are on the increase, particularly in retail and for women. Employers such as Xerox don’t pay staff when they aren’t actually fixing photocopiers, while call centres have taken to paying only when agents are logged on to their computers. ‘Trial periods’ are required for even menial jobs – and, like internships for the posher, aren’t paid.

The Night Cleaner, a real-life account by French journalist Florence Aubenas of six months working as a part-time cleaner in and around a French provincial town, tells the story taken to the extreme – a story of work stripped down to the barest of essentials, where the workers are simply units of labour, without feelings or agency, to be bought and sold.

‘The harder he makes us work, the shittier we feel. The shittier we feel, the more we let ourselves get ground down,‘ says one cleaner, encapsulating the Australian research in pithier terms.

No, let’s be clear: this is neither temporary nor an aberration. We’re paying back, with interest, the Faustian assumption that real prosperity can be bought by sacrificing everything else to it, including meaning at and dignity of work.

As companies have automated and outsourced everything that could be (including a great deal, such as service, that shouldn’t), work has been so hollowed out that the only jobs left are literally McJobs. When McDonald’s held a ‘national hiring day’ last week to recruit 50,000 new hires, mostly part time and paying the minimum wage, 1 million turned up. In the end the company hired 62,000, – but that was just a tiny fraction of those it turned away, desperate for employment of any kind. This, and night cleaning, is the authentic face of work in the 21st century.

Not surprisingly, to many people it just doesn’t appeal all that much. Not only does it not make them want to get out of bed in the morning: sometimes it makes them want to stay in bed.

Which is just what they do. According to a report by consultancy PWC, UK workers take an average of 10 unscheduled days of leave a year, the vast majority of them down to sickness, or ‘sickness’. This is twice the rate in the US and Asia, although on a par with the rest of Europe. The estimated direct cost of £32bn a year may understate the total, says PWC, since it doesn’t take into account the costs of replacing the absentee, nor those caused by lost productivity.

Differences between sectors are interesting, suggesting that stress-related sickies aren’t just a question of high-pressure work. Thus, sickness rates in highly competitive industries such as high-tech are lower than in retail, leisure and, glaringly, the public sector, where just the kind of psychosocial pressures identified by the Australian research, not to mention Aubenas – insecurity, low status and pay, lack of work autonomy – are most at play.

Linking them together, last week’s news items form a new chapter in the ignoble story of companies’ progressive offloading of responsibility for their employees’ wellbeing. First career, then pensions, now basic wellbeing at work have been systematically stripped out of the employment contract. It’s as if 200 years of campaigning, starting with the Quakers and trade unions, had never existed.

As PWC notes, there’s no secret about getting people to go the full mile, let alone the extra one, at work. Keeping people engaged and committed is the biggest part of the battle. But to do that, you have to give them engaging and meaningful work to do. Many companies obviously reckon that that’s too expensive. But here’s something else they should have discovered last week. As with many other commodities, cheap labour actually ain’t so cheap after all.

April 2011. It’s not the silly season, but there’s more than a whiff of end of empire in the air.

On one hand, unemployment, no growth, foreclosures, and the richest states in the world queuing up to appease the financial institutions’ demands for savage cuts to pay back debt incurred to save… the same institutions from bankruptcy caused by their own reckless stupidity. On the other, as one twitterer succinctly put it, ‘The Royals, Trump, birthers, Sheen.’

And while, to continue the litany, the Middle East erupts with people seeking a future and the planet groans under the ever-heavier burdens we lay on it, what, pray, is business up to?

‘The best minds of my generation are thinking about how to make people click ads,’ sighed an ex-Facebooker recently. He added: ‘That sucks.’

In this climate of unreality, it suddenly clicks into focus that incremental change doesn’t cut it any more. Think about it a bit. The world is running out of water, we can’t seem to manage even basic welfare such as health and pensions for citizens in their old age, and the best Silicon Valley can do is to use its breath to puff mightlily into a social media bubble? Even by its own high standards, this is vacuous.

After a long delay, while it surreptitiously tried to stuff the events of the crisis into the ‘business as usual’ file, even management is slowly waking up to the fact that the levers it has learned and loved to pull – options, incentives, takeovers, financial manipulations of all kinds – are actually endangering its own comfortable life.

Interestingly, much of the debate is coming out of Harvard – perhaps those attached to it have so much at stake. Thus the first alarm bells were set off by articles in Harvard Business Review about ‘fixing capitalism’ and ‘capitalism for the long term’ by establishment figures such as strategy guru Michael Porter and Dominic Barton, global head of McKinsey. Both are thoughtful pieces whose tenor, not surprisingly, is steady-as-she-goes: primarily they aim to make the world safe for the big companies they advise.

More radical is Rotman School’s Roger Martin, who writes in his latest book, Fixing the Game, excerpted on the excellent (apart from the pop-ups) Harvard Business School site, ‘The true cause of the mayhem in capital markets is slavish devotion to the theory of shareholder value maximization.’ Yesss! And about time too.

But is even this far enough? No, choruses a vocal, but growing, minority who believe we need to go further – a lot further. Umair Haque, in his coruscating The New Capitalist Manifesto (published, again, by Harvard Business Review Press), argues vehemently that the ‘growth’ produced by the last 30 years has been illusory and meaningless.

‘The real roots of this crisis are that 20th century institutions, whether banks, governments, or corporations, are becoming more and more useless to people, communities, and society,’ he charges. ‘They’re extracting wealth from them, instead of creating enduring, authentic value for them. And that game of musical chairs is this Great Stagnation writ large.’

In the Great Stagnation, everything has become its mirror-image.

Wealth flows from poor to rich. Corporations and their management have become a travesty of themselves. Thus HR, often itself outsourced, is anti-HR: at best about outsourcing jobs and keeping wage costs down, at worst about making jobs so awful that people leave or even take their own lives – see the spate of recent employment suicides in France. Customer service is about exploiting customers and keeping them at arms’ length – just as public services, including health and benefits, are not about making it easier, but harder, for citizens to get the support for which they pay their taxes.

But industrial-age organisations created along these lines – outsourced, IT-driven, fragmented – are not only impersonal but hollowed out.

It has taken the crisis to reveal the full extent, but once their debts are called in the only livelihoods they can provide, as in society as a whole, are for the 10 per cent at the top. The accumulation of wealth at one pole is simultaneously the accumulation of debt and misery at the other (exactly as Karl Marx described it a century and a half ago).

So what we heard in 2008 wasn’t the sound of the popping of a financial bubble, Haque says, but the end of the industrial-age model of prosperity itself – BANG! – for which we are totally unprepared.

In turn, that means that talk about ‘recovery’ is so wide of the mark that it’s laughable. If it’s not a recession but the end of an era, the last thing we need is a return to the exploitative status quo ante. As for austerity, ‘That’s what you get when you bail out a toxic, brain-dead, ponzi zombieconomy: it turns around and starts munching on your brain,’ Haque tweeted bitterly.

The issue, then, is not so much ‘fixing’ capitalism – tweaking existing practices or smoothing off their rough edges – as reinventing it.

For companies, this means creating ‘goods’ rather than ‘bads’ – Toyota’s ‘dream car’ that expels cleaner air than it draws in, food that nourishes as it slims, and more generally generating new dynamic value that is not hoarded but handed on to society as a whole. For economies it means redefining fundamental institutions such as markets, corporations, economic measures and the relationships between them.

For individuals, finally, it means taking hard decisions about the way we live, consume – and work.

‘Do you want to spend the rest of your life selling sugared water, or do you want a chance to change the world?’ Steve Jobs demanded of John Sculley in 1983. Thirty years on, do we want to spend our lives figuring out how to make people click on ads?

‘Creating the future’s not about ‘recovery’’, says Haque. ‘It’s about reimagination, reinvention, and probably a little bit of revolution.’

I know which side of the barricades I’ll be on.

Big Consultancy is in the news at the moment, and not for the right reasons*. McKinsey’s former managing partner, Raj Gupta, is facing civil charges brought by the SEC in an insider trading case, while a colleague has already admitted culpability. Boston-based Monitor was embarrassingly found to have been burnishing the reputation of Gadaffi’s Libya.

As observers have noted, consultancy was already in recession after the crisis – 10 per cent off from 2009, according to one estimate – and the new controversies can hardly help. Breaches of confidence go to the heart of the consultancy model: if a company doesn’t believe what it gets out is worth the risk of putting its secrets in, then a good part of the sales rationale collapses. For isolated CEOs who use their McKinsey partners as shrinks as much as business advisers the betrayal must seem particularly wounding.

Andrew Hill recently got some characteristically well-turned mileage (and subsequent comment) in the FT out of the idea of consultancy as a virus.

But it seems to me that the real issue is not the way it spreads but what the virus carries.‘We don’t have to look far fro clues. Your agenda is our agenda,’ PWC says helpfully on its website. ‘Let’s work together to make sure your company is ready to take advantage of new opportunities to grow’.

Yes, and this of course is exactly the problem. Let’s see: you want growth via a bet-the-farm merger? Yep, no problem. Cost-cutting? Naurally, all part of the service. Envelope-stretching financial engineering? Just ask. Strategy to maximise shareholder value? A new pay structure to incentivise top performers? Of course – and would you like fries with that?

As London Business School’s Julian Birkinshaw notes in an article on the MIX entitled ‘The Future of Management: Is it Déjà-Vu all over again?’, the reason the traditional model of management is so pervasive and hard to shift is that it is trussed in place by a spider’s web of sticky threads, including power structures and inertia at systems level (everyone agrees that bankers’ bonuses are out of hand, but it’s hard for one company to change it alone).

The consultancies are a powerful structural support for the web of status quo. No one got fired for hiring IBM – and no one got fired for hiring McKinsey or PWC either. Meanwhile PWC and McKinsey never got fired for playing back to their clients what they want. This is what Said Business School’s Chris McKenna was referring to when he gave his excellent book on the history of consultancy the title ‘The World’s Newest Profession’.

Because of this Big Consultancy will never sell you anything really new or different. It’ll sell you safe – stuff partners can point to and say, ‘See? IBM/GE does it. (By the way, fries come free.) ’ In sum, the large consultants are adept purveyors of what one blogging ex-consultant perspicaciously identifies as ‘leading-edge conventional wisdom’ – techniques that promise you’ll be able to do what you’re already doing faster and bigger, but without changing anything fundamental underneath.

This is why big consultancies adore technology – and vastly overestimate its importance. Much technologt is devoted to doing the wrong thing righter. As Russ Ackoff unimprovably put it, ‘The righter we do the wrong thing, the wronger we become. When we make a mistake doing the wrong thing and correct it, we become wronger. When we make a mistake doing the right thing and correct it, we become righter. Therefore, it is better to do the right thing wrong than the wrong thing right.’

Today’s iconic example of the wrong thing consultancies are doing is the mass production of services. The ubiquitous front- and back-office service design, with its inevitable accompaniments of outsourcing/offshoring, shared services and central call centres for dealing with customers, is pure Fordism, with the assembly line replaced by computers. Despite the IT, such white-collar factories are just as obsolescent as Henry Ford’s auto plants, offering no incentives for system improvement and increasingly alienating customers. The Web 2.0 ‘solutions’ where the ‘leading-edge conventional wisdom’ now resides and to which (no coincidence) the big consultants are now transferring their sales hopes, suffer from exactly the same drawbacks and are no more the ‘answer’ to performance issues than was Web 1.0.

In the same way, the major (mainly US-based) consultancies have played an important supporting role in the propagation of the shareholder-value management ideology of the last 30 years, together with the backing governance structures that were been found so wanting during the crisis. When in trouble, rather than question the model, they have diligently searched for ways to make it look as if it is working righter. Corporate social responsibility is one good example. In recent months consultant-architects of the old order have been coming up with articles in Harvard Business Review promising ‘How to Fix Capitalism’ (Michael Porter, Monitor) or ‘Capitalism for the Long Term’ (Dominic Barton, McKinsey). Note the terminology: these are fixes, attempts to salvage shareholder capitalism, not change it.

But it would be mad to expect anything different. Consultancies are big businesses, so why would they not reflect the attitudes and opinions of other big businesses, including greed and envy – particularly when it is in their self-interest as well as nature to do so? The major consultancies are chameleons at best, viruses at worst, and they have no reason to care much which, either. Before they hire in big name advisers, organisations in need of advice would do well to be careful what they wish for. They may not get fired for hiring them – but on the other hand, they will almost certainly get what they deserve.

*I‘m talking about the major international organisations, not the smaller single-issue outfits one or two of which (in the interests of disclosure) I do some editing work for.