THE BIZARRE tale of Ipswich Hospital NHS Trust, which has been penalised for treating its patients too quickly, shows just how hard it is for managers to manage in Labour’s idiosyncratic pseudo-markets.

The situation arose – pay attention here – because of conflicting objectives for ‘purchasers’ and ‘providers’ in the healthcare system. Ipswich General Hospital (the provider) has done particularly well at clearing its backlog of patients waiting for non-emergency operations. As a result it finds itself able to deal with new patients almost immediately – something for the NHS to be proud of, and good news for patients.

Not for East Suffolk Primary Care Trusts, however, the purchaser of hospital treatments in the area, which to ‘manage demand’ (stay within its budget for the year) introduced a minimum waiting time of 122 days to space them out. When Ipswich breached the minimum, doing more operations more quickly than had been contracted for, the PCT simply refused to pay, citing the 122-day rule. As a result, the hospital’s reward for giving patients priority is a pounds 2.5m hole in its finances and a good going-over by Richmond House, the NHS headquarters.

In the looking-glass world of NHS accounting, public-sector actors get all the disadvantages of the market and none of the benefits. In a real market, Ipswich’s behaviour would be entirely rational. Most of its considerable costs being fixed or near fixed, the marginal cost of an extra operation is small doing more is one of the few ways it has of increasing income. Leaving expensive operating theatres and consultants idle is as daft as it is offensive to patients suffering from conditions that could be treated. What’s more, in a real market, Ipswich’s success in cutting waiting times would attract more patients, thereby reducing unit costs and benefiting both it and the system as a whole.

Unfortunately, simplistic NHS accounting rules give PCTs no similar incentive to treat patients quickly. They are like an insurance company boosting this year’s profits by postponing carrying out repairs on a legitimate claim until the following year. In the case of human repairs, though, delay can substantially increase overall costs as the patient’s condition deteriorates, making costlier treatment necessary, while lengthier absence from work is a loss to the economy. And we haven’t even mentioned the human costs. Managing patients for the benefit of the finances is bleakly absurd.

There is another interesting casualty of the Ipswich story. From the patient’s point of view, minimum waiting times – which are likely to crop up all over the system according to the NHS Confederation, representing trusts – make a mockery of the government’s much-vaunted notion of choice. For patient and GP, speed is a reason for choosing one hospital over another: but if the system makes them all the same – if Ipswich can’t exceed its quota, no matter how good it is – then how are patients to choose? Removing choice, which was supposed to provide an incentive for hospitals to improve as well as a benefit to patients, at a stroke takes away a central plank of the government’s reforms.

In fact, even if it were allowed, the benefits of choice are overstated. In health, every patient has to be treated somewhere, and in practice it is impossible to expand or contract capacity overnight. So ‘choice’ simply redistributes patients between existing establishments – only now the onus is on the individual to compete with other individuals to get the best deal, instead of on the system to provide it. Choice of this kind is inadequate compensation for a dysfunctional system, an abdication of management responsibility to improve it.

At the same time, even if choice doesn’t and can’t work, it still costs. As GP Margaret McCartney points out in her FT column, in the age of ‘choose and book’ for hospital appointments, trusts are beginning to compete for attention through advertising. Instead of jointly building a powerful NHS brand – free access to high-quality, evidence-based medicine, everywhere – hospitals are using precious resources rebranding themselves with marketing slogans. In this simulacrum of choice, competition is exercised through the expensive and wasteful medium of advertising to state what ought to be blindingly obvious.

Under many circumstances, choice and competitive markets are powerful mechanisms to drive innovation and reallocate resources from less productive to more productive producers. However, given the requirement for equity and the inflexibility of capacity – even with the touring specialist treatment units – there are strong grounds for thinking that healthcare is not one of them.

What is certain is that installing a phony market and then preventing the participants from acting on its incentives is perverse and pointless, the worst of all worlds. Its costs – deciphering the rules, writing contracts and now competitive marketing – are eating up the benefits. It’s not the patients in the NHS who are sick: it’s the system.

The Observer, 13 August 2006

THE WEIRD thing about Lord Browne’s spat with BP chairman Peter Sutherland over his retirement is that it may be unreal. BP wants Browne to retire in 2008, when he is 60. But from October, the Employment Equality (Age) Regulations make compulsory retirement under 65 illegal. Browne may be perfectly within his rights in three years to say he has changed his mind and won’t be going after all.

Employment lawyers say that forcing early retirement will constitute discrimination only justifiable in exceptional cases – hardly applicable to Browne, whom most shareholders would love to stay. The only other option will be a pay-off. In the past, the highest compensation for unfair dismissal – the sole legal remedy in such cases – was pounds 58,000, but under the new regulations payouts for age discrimination have no upper limit.

According to a survey by human resources specialists Adecco and Tarlo Lyons, just 13 per cent of HR managers in large UK firms are concerned with the impending rule change. But the legal profession warns the changes are likely to put a slow burn under the whole employment relationship, including pay and seniority as well as retirement.

Andrew Chamberlain, an employment solicitor at law firm Addleshaw Goddard, says: ‘Unfortunately, the legislation isn’t very well drafted, which means that in some areas we can’t give clear advice, so employers will keep their heads down until they can see what it means. It will probably take a lot of expensive litigation to establish what the intentions are.’

The Observer, 6 August 2006

Even before then, it is clear that payouts will be more frequent and higher. Take a 59- or 60-year-old middle-to-senior manager whom an employer wants to push aside in favour of a more energetic 40-year-old. Under present rules, with a small payoff such borderline terminations are hard to resist. When age becomes a legal factor, expect a rash of discrimination cases.

For a foretaste, look at recent high-profile sex-discrimination cases in the City. Sex discrimination was outlawed in the 1970s, but when upper limits on compensation claims were lifted, cases soared. Taking into account loss of earnings and bonuses, payouts can hit pounds 800,000 or more. High earners kicked out for failing to gee up corporate performance will also have another argument for compensation, potentially leading to higher ‘payments for failure’. Chamberlain predicts: ‘Companies will have to approach senior executive terminations much more rigorously – or expensively.’

Some traditional forms of pay will also be brought into the age discrimination net. Professional firms (including solicitors) will have to justify pay based on levels of qualification, since this indirectly favours older workers over younger ones. And though seniority increments are exempted from the regulations for up to five years, after that they too will have to be justified, on grounds of both ‘legitimate aim’ – business or welfare case – and being ‘proportionate’ – discriminatory effects should be outweighed by benefits, and there should be no less discriminatory way of achieving the same end. This could affect civil servants and other public-sector employees, possibly speeding up the move to individual performance contracts.

One of the oddest, unintended, consequences of the new regulations may be the emasculation or even disappearance of the CV. Employers are already advised not to ask for date of birth on job applications. However, education and employment dates could convey the same information. Acas suggests removing requests for ‘unnecessary’ date and period details from forms, but employers claim that would make them meaningless. What is and isn’t justifiable is another aspect of the regulations that may have to be tested in the courts.

All right-on nonsense? There’s far too much legislation in employment already, grumbles Chamberlain, who queries the consequences of enacting poorly drafted regulation before business, and society, is ready. For others, that’s the justification. After all, tossing perfectly good employees on the scrapheap at 60 serves neither their nor society’s interests.

With nice irony, one of the most spirited attacks on ‘the bureaucratisation of age, which ignores ability and choice and creates a linear process driven solely by the ticking of the clock’, comes from the BP website. When so many jobs depend on know-how accumulated over time, ‘How can we afford to neglect such experience?’ it demands. ‘How can we afford to say to someone – just because they have reached the age of 60 or 65 – ‘You are too old to make a contribution’? How can we afford to have to learn everything again and again, simply because of chronology?’

How indeed? The author: John Browne.

EARLIER THIS month the Treasury announced that Sir David Varney was leaving his job as chairman of HM Revenue and Customs to become Gordon Brown’s full-time adviser on ‘transformational government’ – in English, improving public services through the use of IT. Coming as the government announced the scrapping of the ill-fated Child Support Agency (IT spend £540m, backlog 300,000 cases, running costs 70p of every £1 collected), this might seem somewhat satirical.

Varney, after all, arrives from the same Revenue and Customs that spent £100m on an e-VAT system that after four years was used by 1 per cent of traders instead of the 50 per cent anticipated and whose family tax credit system produced such dysfunctional results – hardship rather than help – that the Prime Minister had to apologise to its victims last year.

Buying IT systems is notoriously difficult, which might be thought a reason for approaching them with less than the current blind faith. But they are only the most obvious symptom of a much broader failing which a number of observers believe could undermine the latest ambitions for public sector reform. Procurement – buying everything from paper clips to billion-pound computer systems – is hardly the sexiest subject. But it is critical for a government trying to drive resources to the front line.

Partly this is a matter of buying power. Local government spends £40bn a year on goods and services, and the whole public sector more than £100bn. In his 2004 efficiency review, Sir Peter Gershon reckoned that better buying could yield £7bn in cost savings – the largest chunk in the £21bn identified as possible.

However, in the mixed economy of service providers now emerging in the public sector, procurement takes on as much strategic as monetary importance. It is not just about buying, but commissioning in its broadest sense, says Craig Baker, a partner at consultancy Ernst and Young: defining strategy, shaping solutions, specifying the requirement, identifying suppliers ‘and then driving delivery through to improved outcomes’.

Yet in a co-authored report Good Britain to Great Britain: Delivering world-class services for a world-class economy , Baker notes the ‘client-side’ is an area where public sector management has noticeably weakened in recent years. ‘Outsourcing has led to a ‘hollowing out’ of these capabilities,’ says the report. ‘Procurements are initiated too soon, before requirements are fully defined. Too much is abdicated to suppliers, or ‘strategic partners’, all too often ending in tears and recriminations.’

The public sector fails to understand that world-class sourcing has to bring together managers responsible for providing service with commercial purchasing teams, adds Andrew Cox, professor of business strategy at Birmingham Business School and chairman of Newpoint Consulting. Lack of commercial understanding in senior departmental managers and the low standing of purchasing functions means procurement is reactive and based on short-term power relationships. ‘This problem has not been addressed in any way by the Gershon reforms’, which have focused exclusively on the easy pickings, Cox charges.

The results of procurement failings reach far and wide. One is that the public sector has to buy its expertise elsewhere. Last week word leaked out that a US company is poised to take over responsibility for £4bn of NHS procurement. A month ago it was disclosed that global healthcare companies were being asked to tender to take over key commissioning functions from primary care trusts, spenders of 80 per cent of the NHS budget. Both would introduce a new layer of cost and profit into the system.

In IT, where ironically in the Sixties and Seventies the UK public sector was one of the most advanced users and managers, it is now so dependent on its suppliers for the specification of requirements that it can’t sack them even when it wants to. The dependencies have also resulted in some murky relationships, with suppliers recruiting public servants indecently soon after they leave office.

Finally, and paradoxically, the need to get results from public sector procurement in general and IT in particular has provided a bonanza for management and IT consultants, now worth more than £1bn a year. (For gory details read David Craig’s Plundering the public sector: How New Labour are letting consultants run off with £70bn of our money , Constable). ‘The public sector has bought a lot of poor-quality advice,’ concedes Baker.

In time, Baker believes the new departmental capability reviews will improve procurement skills. But there remains a deeper problem. As my colleague Nick Cohen has pointed out, the real reason behind the CSA’s accumulation of £3bn of uncollectable debt wasn’t hopeless computers: it was the naive bureaucratic assumption that a computer programme could resolve the messy, agonising drama of family break-up. Computers crunch numbers. Humans solve problems – including, and especially, transformational government.

The Observer, 30 July 2006

DESPITE WHAT they say – and often even think – many, perhaps most, companies are surreptitiously at war with their customers. Through nuisance games, dirty tricks and small print they take every opportunity to extract more from your wallet for no extra service. Orange now wants to charge me for providing a paper copy of my mobile phone bill each month. Rather than employ more staff, Tesco asks me to scan and check out my shopping myself. Despite earning a whopping pounds 21bn before tax last year, HSBC no longer allows me to use direct debits and standing orders on my ‘high-interest’ current account (high interest being strictly relative here).

Trivial stuff, you might think. But the consequences of this subterranean struggle are momentous. We don’t trust our service suppliers and are increasingly willing to drop them at the drop of a hat. Despite huge amounts spent on aids like customer relations management software, customer satisfaction levels are low and falling, and so is the esteem in which business is held. On the company side, that translates into more effort (to replace lost customers) for lower growth. More insidiously, the warfare often brings with it the dead hand of the regulator, as happened in financial services, building in bureaucracy and and in some cases holding back the growth of the market as a whole.

‘You can’t grow a business if you’re at war with your customers; you can only grow by treating people in a way that they come back for more,’ says Fred Reichheld, director emeritus of consultancy Bain, who has made a career of studying the economics of loyalty. Well, yes, it shouldn’t take a business school education to figure that one out. So why do so many firms go on doing the former at the cost of the latter?

The culprit, says Reichheld, is the profit-based system most companies use to manage performance. Managers are judged and often rewarded on their profit figures. But financial measures make no distinction between how profits are earned. Are they the result of creating new value from customer relationships (‘good profits’ from increasing loyalty), or were they earned by appropriating value from them (‘bad profits’)?

The trouble is that customer value is a wasting asset. When it is exhausted and the consumer moves on, the firm has to buy more, with baits, promotions and special offers. Buying growth this way is expensive and hard work, which is one reason, believes Reichheld, why so few large companies grow by more than 5 per cent a year. As churn increases, they have to work harder and harder to stand still. Eventually, value may be eroded faster than companies can acquire it. Compare General Motors, for example, with Toyota, going in the other direction.

So how does a company focus on ‘good’ profits and break the addiction to ‘bad’? After much experiment, Reichheld and Satmetrix, a company that focuses on measuring customer experience, boiled it down to a single question: on a scale of 1 to 10, would customers recommend the product? Customers who rate the product 9 or 10 are ‘promoters’ those who rank it 0 to 6 are ‘detractors’. Subtract the percentage of detractors from the percentage of promoters and you get a ‘net promoter score’, or NPS.

NPS is controversial, because it puts any number of vested interests out of joint. ‘It’s not something over there in the marketing department,’ says Reichheld. ‘It involves changing almost every process – budgeting, strategy, rewards, the economics of the firm.’ It has implications for leadership too: any company taking it seriously really does have to put the customer in the driving seat, in effect turning the company inside out.

It’s early days, but the figures seem to stack up. According to Reichheld, across 36 industries the company with the top NPS score is growing 2.5 times faster than the average. Obvious really: a company with, in effect, an virtual marketing department of consumers advocating its products is likely to sell more stuff than a company with a virtual anti-marketing department, which is what detractors become. It will surprise no one that in a recent Satmetrix report on hi-tech industries, Apple had the highest NPS among computer firms, as did Google in online services. While the top companies have NPS scores of 70 or more – in the US Harley-Davidson scores 81 and Amazon 73 – in some industries (financial services, mobile phones and cable TV among them) the scores are negative, meaning they are creating more detractors than promoters every day.

Reichheld acknowledges ‘there is still more that we don’t know than we do’ about making NPS operational. It could become just another number to manage by. But one company taking it seriously is industrial giant GE. It has adopted it as a central element of its ambitious attempt to grow at above 8 per cent a year and is using it to identify customer concerns before swinging in process improvement teams to address them, and are already claiming substantial results. It stands to reason: as in other spheres there are no long-term winners from fighting, while everyone gains from peace.

The Observer,

BORDEAUX WINEMAKERS have never had it so good. After a ‘legendary’ 2000 and an ‘exceptional’ 2003, last year they won the equivalent of a rollover jackpot. With perfect weather and growing conditions and radically improved techniques, many top chateaux made what they claim to be their best wines ever. And they are charging prices to match – double or sometimes treble their already exalted norm. Thus, a case of top-flight 2005 Bordeaux will set you back at least pounds 4,000 and sometimes much more. Chateau Haut-Brion is asking pounds 4,500, Chateau Cheval Blanc pounds 5,250, Chateau Ausone a staggering pounds 7,500 – that is, pounds 600 or more a bottle for wine that is still in cask and which no punter would dare to taste for another 10 years.

On the other hand, Bordeaux winemakers have never had it so bad. At the bottom end, many growers are in serious trouble, according to the Bordeaux wine trade body, whose president resigned in May in despair at the chronic failure to reduce the oversupply of basic wine that is at the heart of the problem. Many growers are refusing to sell at current price levels. While they want more cash to tide them over, the EU is determined to drain the wine lake – the result of worldwide overplanting – and stop a regime of subsidies and ‘crisis distillation’ that costs European taxpayers euros 1.3bn a year.

The Bordeaux nobles seem little concerned at the plight of their inferiors. Why should they be? The famous chateaux are among the original global brands, with histories dating back to the 18th century and international connections way beyond that (Bordeaux vineyards have some claim to be the first British subsidised industry; the city took the English side in the Hundred Years War). Production is tiny, and great Bordeaux is at the top of the wish list of the new rich in every emerging market, with China and Russia currently to the fore.

Yet if the blue bloods aren’t worried, they should be. Brands are as fragile as they are powerful. And the first cracks in the myth have begun to appear. Bor deaux’s own guru, the US critic Robert Parker, whose systematic rankings have done much to reassure consumers and collectors and consolidate the Bordeaux cult, has laid into the ‘aristocrats of the Medoc’ over the pricing of their 2005s.

By setting their prices with an eye to getting one up on their neighbours rather than the interests of loyal consumers, ‘they may well be killing the golden goose’, Parker charges. US buyers are staying away in droves, criticising ‘insane’ prices. The Bordelais are also taking hits from friendly fire. The resigning president of the Bordeaux trade association complained that ‘unless the fundamentals change, the crisis will not go away. We are wasting the opportunity that a great vintage like the 2005 has given us.’

Winemakers in the Languedoc, who have already resorted to violent protest, have accused the Bordelais of ‘twirling their moustaches’ while others bear the brunt of the crisis. Perhaps most damaging has been a high-profile comparative winetasting of mature vintages of famous US and French growths. The replay of a celebrated 1976 tasting comparing younger vintages, it was widely expected to favour the French. In fact, US growers swept the board.

Such has been the hype that Bordeaux chateau owners will certainly sell their 2005s. But as they congratulate themselves on the cash rolling in, they might look at the trajectories of two other luxury industries that compete for the dollars of the new rich – flashy watches and exotic cars. Both demonstrate the folly of imagining that the top end of an industry can survive on its own.

Company after company on the run from low-cost foreign competition believes it can survive by retreating upmarket. (This is the whole story of UK manufacturing since the war.) But where are they now, Rolls-Royce, Bentley, Aston Martin or any other luxury marque? All owned by much bigger mass-market companies. The most successful top-end brand is Toyota’s home-grown Lexus, the embodiment of everything the world’s most effective manufacturer has learnt in half a century of making cars.

An even better analogy may be Swiss watches. In the 1980s, the Swiss were crumbling under the assault of Japanese digital manufacturers. What saved them was the invention of the Swatch, a pert, hi-tech, low-cost design whose success prevented the Japanese from cleaning up at the low end and devoting the profits to eating into the top, a la Toyota. It also ensured the survival of the Swiss watchmaking infrastructure and specialist skills which are the basis of Swiss cachet.

In winemaking the competition is not Japanese. But the Chinese and Indians are planting acres of the best grape varieties and – before you laugh – a respected wine expert predicted recently that in 20 years they would be doing to western winegrowers what their industrial counterparts are to electronics manufacturers and software firms. Never mind today’s prices: it’s time for Bordeaux’s top winemakers to recognise that their fate is inextricably bound up with that of their lowlier brethren. There’s no economic liberty, you might say, without equality and fraternity too.

The Observer,16 July 2006

PROFESSIONALISM IS in crisis. ‘Professionals have never been more important, nor under more pressure,’ according to John Craig in a new collection of essays from Demos. The evidence, although anecdotal, is everywhere. One in five schools has no head in any one year, 40 per cent of those in post will consult a doctor for stress. There are reportedly more qualified teachers outside the profession than in it. Doctors too are under fire. In her weekly FT column, GP Margaret McCartney worries that a new contract and changing conditions leave her feeling ‘less like I think a doctor should… Have we become less dedicated and by extension less professional?’ The Work Foundation finds that fewer than half of health service workers think senior managers know where their organisations are going. Police, university lecturers, social workers – all report low morale and insecurity, and have trouble recruiting as a result.

At first sight this seems odd. More of us aspire to, and call ourselves, professionals than ever before. One in seven employees regards him or herself as a manager. In theory, organisations in both public and private sectors should be crying out for responsible self-starting knowledge workers who are committed to the work they do – who ‘profess’ (promise) to do good work and observe high moral standards. What else, notes Craig, would persuade us to leave children with strangers or allow ourselves to be operated on by someone we’ve only seen once before?

Yet this is increasingly not the reality of professional experience. Even as technology theoretically frees them from the physical constraints of the office, professional workers find their jobs becoming less autonomous, not more. At the same time, constant change and ‘reform’ undermine the professional narrative still further. The LSE’s Professor Richard Sennett notes that in the essential stories people make of their work, ‘they want to use the active voice, to assert ‘I decided’ or ‘I did’ rather than ‘It happened to me’. Their great fear about the current system of institutions… is that they will be rendered individually passive.’

This was strikingly confirmed in the huge mailbag that followed a recent column here on the university lecturers’ pay dispute (the results of the ballot are expected to be close, by the way). In an often moving response, lecturers wrote bitterly of becoming ‘second-class citizens in our own institutions’. This is a refrain that is heard across the spectrum of the public sector, as the professional agenda is steamrollered by the managerial one, and clinical or other professional priorities are overridden by targets and official specifications.

Thus in a recent piece, McCartney recounts her discomfort with the new GP contract, even though she will be paid more. What the contract tells GPs is that the government thinks they are motivated by money. Yet the evidence is that extrinsic rewards damage intrinsic motivation – and particularly in the professions precisely because they are vocation-driven. She agonises that ‘I will forget my training, experience and critical abilities and instead aspire only to happily ticking the boxes as the contract insists and pays for.’ No wonder she is uneasy.

This is surely the crux of the professional crisis. In effect, all professions have come to be judged not in their own terms but on the criteria and rules of another: management.

The irony is that the chosen uberprofession has fewer claims to professionalism than almost any other. There is no accepted body of management knowledge, as there is in, say, medicine, and in practice its accounting calculus is deeply fallible: see Enron or any number of other corporate scandals. On a conservative estimate, any corporate profits statement could vary 10 per cent either way and still remain within the increasingly lengthy guidelines. Not only do managers not take anything resembling a Hippocratic oath, in the authorised version of management ‘professed’ in the UK and US – shareholder value – they are actually prohibited from taking ethical concerns into account.

In practice, managerialist regulation of the professions has been a disaster, demoralising professionals and disenfranchising their clients. But how could it be otherwise? Just how separate the management factory is from the front line is shown by Michael Bichard’s admission in his Demos essay that when he joined the Department for Education and Employment, there was ‘only one person in the whole department who had extensive experience of working in schools or in education authorities’. In Freedom from Command and Control , John Seddon suggests that the destructive and expensive apparatus of managerialist regulation should be swept away and replaced with a single question: What measures are you using to understand and improve your work? That means getting to grips with public needs and acting directly on them – that is, giving back professionals their vocation and allowing the public agency in the services they are offered. Crisis, what crisis?

The Observer, 2 July 2006

‘FLEXIBILITY’ HAS become an economic and social fault-line. On one side, UK governments and bosses lecture their European counterparts about the need for ‘flexible’ labour markets (lightly regulated, untrammelled by trade unions, with low and strictly conditional unemployment benefits) to boost employment, growth and corporate success. On the other side, continental Europeans read ‘flexibility’ as ‘insecurity’, an assault on hard-won gains of the social model. The spectre of domination by ‘Anglo-Saxon’ hire-and-fire attitudes was a powerful reason why the French voted down the draft European constitution. Flexibility divides Europe as much as Iraq or Turkey’s admission to the EU.

Yet views about flexibility are ‘shot through with half-truths and downright manipulation of the evidence’, according to the Work Foundation’s David Coats. In a new study, Who’s Afraid of Labour Market Flexibility? , Coats shows that the belief that regulation is the enemy of jobs is wrong (see chart below).

There is no ‘European employment problem’ caused by soft benefits and managers’ inability to sack people – contrary to conventional wisdom, collective redundancies are easier to push through in France than the UK – although not individual ones. And while there are certainly too many jobless in the two largest European countries, economies such as Denmark, Sweden, Austria and the Netherlands have done just as well if not better than the UK in employment terms while enjoying much greater security and ‘workplace justice’.

The idea that Europe has to be ‘more like America’ to cut unemployment and compete with India and China is therefore nonsense. ‘Overwhelming evidence,’ says Coats, shows that ‘countries with very different laws and institutions have performed just as well economically, and have less wage inequality and a higher quality of working life for their citizens’. We have as much to learn from them as the other way round.

Interestingly, the only elements of flexibility the ‘Anglo-Saxon’ and ‘Nordic’ models have in common are wage flexibility and competitive product markets. But getting people to adapt wage demands to circumstance can be achieved in two ways. Anglo-Saxons leave it to the free market Nordics use collective bargaining – proving that much-scorned ‘corporatist’ or tripartite governance can produce favourable outcomes.

Indeed, social dialogue underpins the Nordic model of flexibility, whose other characteristics – strong trade unions, generous but conditional benefits, stronger employment regulation and higher taxes to fund active labour market programmes – are anathema to UK opinion. The Nordic economies demonstrate no incompatibility between a generous welfare state and a dynamic jobs market.

Consider the idea of ‘flexicurity’. This horrible word describes the Danish system which combines high unemployment benefits (65 per cent of work income compared with 18 per cent in the UK) with rigorous conditions and active agreed measures to get the jobless back to work. While Danish job tenure is around the same as in the UK, Danes feel markedly more secure. ‘Danish workers may know that change is constant (and unavoidable), but they can also be confident that the effectiveness of the system provides a high level of insurance against the worst excesses of restructuring.’

Perceptions of security and ‘workplace justice’ take on particular resonance when productivity comes into the equation. UK productivity lags behind that of France, Germany and the US. But productivity is not just a matter of investment and skills. It also depends on the morale which governs discretionary effort – the willingness to ‘go the extra mile’. This is unforthcoming if workers feel insecure – and if UK workers hold the record in these unenviable areas it is partly due to what Coats calls the ‘dark side’ of flexibility: growing earnings inequality, declining social mobility and a potential failure to generate enough ‘good’ jobs to match skilled jobseekers. This is largely a matter of management, something that is left out of Anglo-Saxon prescriptions for flexibility.

Even though the UK is less hardline about the free market than ministers make out (think of the minimum wage, and employment rights for part-timers introduced since 1999), Coats concludes that there is a long way to go before before we can rightfully claim an ‘Anglo-Social’ model, as some have tried to do. On the contrary, if ‘flexibility’ is a jewel in our economic crown, it is a tarnished one, based largely on working harder, faster, and devil take the hindmost. But as the Work Foundation study shows, there is a better alternative. Only when we have added social justice and equality to our version will it be something to unite Europe rather than divide it.

The Observer, 25 Jule 2006

IT’S SOBERING to reflect that in 1960 there were no business books, at least not for general consumption, and the longest formal management education programme in the UK lasted one day. Today’s world is vastly more complicated – but it is connected with then, and who better to reveal the links and make sense of what has happened in between than Charles Handy?

As we are reminded in his new book, Myself and Other More Important Matters (William Heinemann), the UK’s best known commentator on management not only witnessed the unfolding story, he helped write the plot. After a period at Shell, Handy helped midwife the birth of two of the UK’s most influential business institutions: LBS (London Business School) and the very different Open University Business School. He drew up a ground-breaking 1989 report on The Making of Managers and, in a third and most fulfiling career as a writer and speaker, developed a range of metaphors and explanations for the way we live and work now that have entered the business language: portfolio careers, shamrock and doughnut organisations, fleas and elephants.

As the title suggests, this is not so much a business book as a memoir, reflective and conversational in tone, that uses episodes in a life (childhood in an Irish vicarage, Oxford, Shell, family life and later emergence to gurudom) to touch on themes that go deeper into the heart of business than almost any book that tackles the subject head on.

It is a compelling, touching and finally inspiring journey. Handy is deeply concerned about many aspects of present-day capitalism: the perversion of ends and means the crude drive for size and speed that threatens to overwhelm the human spirit the tightening tyranny of the numbers. But his interest in his fellow humans allows him to identify under-the-surface patterns and reasons for optimism that escape those of us who are less diligent and patient observers.

Handy’s chief reason for cheerfulness is the resilience of the individual – and the book is perhaps best read as a work of practical philosophy, a user’s manual for a version of life in which there aren’t any ready-made answers. Initially troubled by the idea that parents, teachers, top managers, governments, even the church, don’t know best – there is no such thing as an ultimate outside authority – he is finally comforted by it. It means that individual judgement and imagination matter.

Independence can be scary, but it’s less scary than ‘being used for purposes that are not yours by people you don’t always respect’. It also allows for emergence and improvisation: there is enough of the Irish in Handy to recognise that sometimes the act creates the meaning – ‘I only know what I think when I hear what I say’.

The implications of this apparently simple view are deceptively far-reaching. Thus education is not about learning facts or soaking up the teachings of the authorities ‘it is, in the end, aimed at giving someone the self-belief that enables them to take charge of their own life’. Strikingly, Handy found this about management.

He spent a year at MIT in the 1960s, which he expected would reveal to him the secrets of ‘management science’. He in fact discovered something quite different: ‘By the end of my programme I realised that I had really known most of the important things all along. But I had to have gone there to find that out.’

In the same way, what we need now is, he says, not a new theory of organisations but the wisdom to observe the hidden verities beneath the fads and techno-floss. The central message of all his books, he notes, is that ‘organisations are not machines… They are living communities of individuals.’

Critically, he believes that to describe them one must use the language of communities and individuals, instead of that of machines, which has distorted and complicated the whole enterprise of management.

The book is studded with observations that reflect Handy’s idea of management as ‘acquired common sense’, such as the corrosion of being underdemanded, the pointlessness of experience without learning and vice versa, and the need to pin down the essential.

‘Management is not something mysterious or conceptually difficult. Its difficulty lies in applying the ideas, not in the ideas themselves.’ Less generous authors would make whole chapters out of such throwaway remarks.

In their recent book, Jeffrey Pfeffer and Robert Sutton reviewed academic research to distinguish between the ‘hard facts, dangerous half-truths and total nonsense’ of management. Handy’s longitudinal self-study is a kind of personal version, strikingly triangulating their research findings with his individual and historical account.

Reading his illuminations of the organisational through the personal is to experience a shock of recognition. To paraphrase TS Eliot, his remarkable achievement is to bring us back to our starting point – but allow us to recognise the place for the first time.

The Observer, 18 June 2006

THE WORLD’S gone upside down. First, there’s David Cameron championing the public sector ethos and suggesting there’s more to politics than economic growth then last week 14 of the UK’s corporate great and good, including establishment firms such as Shell, Tesco, B&Q and Standard Chartered Bank, trooped along to Downing Street to lobby the government for tougher targets on greenhouse gases. Something wrong, surely. Shouldn’t it be the government that’s The Guardian of the greater good, while business resists any limitation on its ability to make profits?

The CBI, which always predicts disaster if business is obliged to take responsibility for its externalities, certainly says so. But that, just like the government’s chronic reluctance to take a lead on the environment, is based on a misunderstanding of business’s real functions, which has become so ingrained that last week’s initiative came as a shock, albeit a welcome one.

A correspondent attributes New Labour’s target obsession to a cultural cringe towards business coupled with some extremely unrealistic mental models of what it actually consists of – a fatal combination. These models have proved unshiftable in the face of incontrovertible evidence that they are wrong. This is behind the disastrous misapplication of ‘efficiency’ and ‘performance management’ concepts to schools and universities for example (see last week). But it is also to be seen in oversimplified attitudes to business itself, and especially, as in the environmental paralysis, the inability to understand the relationship between organisations and markets.

Companies and markets form a system: companies innovate and markets provide feedback. Markets can’t innovate because they are blind: they don’t have conscious purpose. Their function is to identify winners and losers. Organisations on the other hand are intentional entities – purpose is their point. They can choose, for example, to forego a part of present profits to develop new products. Consider the semiconductor industry. For the past 30 years, it has been powered by fierce competitive innovation in which companies (usually Intel) race to introduce new generations of microchips for which they charge premium prices. Eventually other companies catch up and competition between them – ‘the market’ – erodes the premium. There’s no problem with take-up of new technology, even though it is initially expensive, because everyone has wanted faster computers (at least salespeople have convinced us that we do).

Environmental products are a different market. Customers won’t buy them if it’s cheaper to offload their environmental costs onto society as pollution. There are no rewards for good behaviour. The 14 companies that went to No 10 last week were asking for government to correct this market failure with sticks and carrots: strengthening the EU’s existing emissions trading scheme, making building regulations stricter and cutting business rates for energy-efficient buildings.

James Smith, the chairman of Shell UK, said: ‘We need EU governments to set clear targets to 2025 so that our businesses can have the confidence to make long-term investments in reducing emissions.’ They want the government to create a larger, more vibrant market.

Breaking with other lobby groups, they argue that such regulation will not damage the economy – in fact the reverse. This is because they understand how powerfully the market ecology works. They have confidence in the power of competitive innovation to lower costs (which curiously the lobby groups always deny), and they know that creative regulation can generate very large individual markets. The environment is now a pounds 25bn business. But not least because the UK has dithered so long over regulation, we are not among the world leaders in this growing and possibly planet-saving industry. Danish and German companies lead in wind turbines the US and Japan are ahead in solar.

When in the name of ‘the free market’ lobby groups campaign against society-friendly regulation and governments back off from taking tough decisions, both are denying their proper roles and acting against their own (as well as our) interests. As my correspondent helpfully noted, there is actually no such thing as ‘the’ market. There are markets , each with its own frameworks which can be shaped by society. Thus there are tighter rules for selling financial services than semiconductors. We don’t allow an official market in slaves or violent pornography – although we do in footballers. By contrast ‘the’ market is an ideological fiction, used very successfully for the past 25 years to paralyse politicians and prevent them creating or reshaping the framework of markets , such as those for environmental products.

In this case, big business has got it right, as Friends of the Earth, for one, has recognised. ‘This is exactly what is needed if we are to tackle climate change and ensure the British economy reaps the rewards of going green,’ it said last week. It is business’s responsibility to help save the planet – it’s time that government decided to let it.

The Observer, 11 June 2006

THERE ARE no neat strike actions. But the increasingly bitter university pay dispute, which saw lecturers refusing to call off their exam-marking boycott last week and some universities retaliating by docking pay, is a classic case of long-term public-sector mismanagement. After years of fudge, bullying and refusal to will the means to match the ends that have been decreed, Britain’s universities are in a profound malaise of which the strike is only the outward symptom.

On the surface, today’s argument is about money. Since the 1980s, academics have lagged other professions in the pay league – the average lecturer gets about £35,000, in real terms much the same as 20 years ago. At the same time productivity has greatly increased. Over the last 10 years full-time staff totals have fallen from 111,000 to 107,000 while annual numbers of graduates climbed from 286,000 to 444,000 – an increase of more than 50 per cent. As a result, staff-student ratios soared from 1:9 to 1:20 or 1:25 – in some new universities higher than in secondary schools.

One catalyst for action has been top-up fees, for which university vice-chancellors lobbied (and some Labour MPs voted) partly to allow them to bump up pay. In April 2004, Alan Johnson, the then minister, told Parliament that ‘at least a third’ of the money would be spent on salaries, helping to tackle ‘a very serious and deep-seated problem’.

The unions are furious that the employers’ offer of 13.1 per cent over three years fails to honour this promise – and their resolve to hold out for 23 per cent is stiffened by the knowledge that their bosses’ pay has leapt by 30, 40 or in some cases even 60 per cent over the last three years – vice-chancellors’ pay is particularly sensitive because of the ostentatious way it rubs academic noses in the ascendancy of the managerialist agenda in university affairs.

Margaret Thatcher, who hated the universities (and vice versa) started this – but New Labour has driven it forward with such fervour that many academics believe it has turned them into bureaucrats fulfilling five-year output plans rather than teachers and seekers of knowledge. Some pressures stem from the clash of conflicting targets. How, for instance, are institutions supposed to admit 50 per cent of the school-leaver cohort but not drop standards, or increase undergraduate diversity while still treating every case on its merits – all without spending more on staff? More insidious and toxic, however, have been the effects of the dreaded teaching and research audits, which are an even more compelling demonstration than the NHS of the way quantifying management methods can destroy the object of their focus.

Because funding and student applications depend on research and teaching ratings, universities go to great lengths to improve their scores. Even though the next Research Assessment Exercise (RAE) is two years off, institutions are already drafting submissions, conducting mock inspections, hiring consultants to coach (or hide) weaker departments and individuals, and setting up PR and marketing campaigns to spin results. Before the cut-off date in 2007 a buzzing transfer market in star researchers is ratcheting up overall costs for no additional gain in quantity or quality.

According to official estimates, the 2008 RAE will cost £45m. This seems peanuts compared with the £15bn spent on higher education as a whole – but it takes no account of the colossal indirect costs noted above, nor of the uncountable damage to morale and enthusiasm. The fact that universities are full of sharp people who learn quickly how to play the game (while detesting themselves for participating in what they know to be a farce) only increases its perversity: for every new edition the auditors have to refine and extend the rules, while more academic brainpower is diverted into finding ways around them. Although the even more bureaucratic teaching audit has been abandoned in favour of supposedly ‘lighter touch’ inspection, the damage has been done. Audits have become instruments of central control, dividing scholars and university managers, distorting research and teaching priorities and turning off bright young researchers from taking up an academic career.

The daft thing is that universities already had measurable ‘outputs’ – degrees, and books and articles in peer-reviewed journals – so well-connected schools knew exactly which departments were good ones. Ironically, target pressure means that neither measure is now reliable: grade inflation is rife, and journals whose only purpose is to publish articles for RAE purposes have proliferated. Some lecturers feel uneasily that their unions have missed a trick by not making RAE – the real enemy – the focus of today’s strike, rather than exams, which pits them against students. Whatever the result of the dispute, the festering underlying grievance will simmer on.

* Many thanks to the numerous readers who responded to last week’s article. Some pointed out that the iPod is only incompatible with Windows music files, others noted that LaVern Baker’s ‘Saved’ is now on iTunes, and a few helpfully sent downloads. Much appreciated.

The Observer, 4 June 2006