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

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

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

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

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

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

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

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

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

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

Read my Foundation article here

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Is there an Olympic legacy beyond the buildings? Read my piece for The Foundation here

Just how far the British economy has been pulled out of shape by the last 30 years of rampant financialisation is only now becoming clear. But while rebalancing the economy is vital, let no one think that achieving it will be easy.

The extent of the challenge was one of the themes emerging from the TUC’s important ‘After Austerity’ conference on 26 June. Rebalancing is not just (or maybe even at all) a question of putting in place an industrial policy. So baleful and far-reaching have been the effects of the City on the rest of the economy that there are now massive regional, age, human capital and public-private imbalances as well as those we are familiar with in wealth and finance.

The starting point is that the overdevelopment of finance and the underdevelopment, or rather de-development, of industry are two sides of the same coin. Manufacturing is weak because finance is powerful. At the conference, Cambridge economist Ha-Joon Chang pointed out that the UK, the sixth largest economy in the world, ranked 20th in manufacturing output per head, behind Luxemburg and Iceland. Meanwhile, finance is five times larger than three decades ago. ‘Is it even three times better?’ asks US economist Dean Baker. ‘I don’t think so.’

Can manufacturing be revived? Recent history suggests we shouldn’t bank on it. Sterling has lost 30 per cent of its value in the last three years, points out Chang. But that has not triggered the expected export boom, leaving the UK with a whopping £100bn trade deficit – and also acutely vulnerable to international market sentiment in the medium term.

One reason is that during the years of City triumphalism, many complete supply chains have disappeared, so that while for instance Nissan’s Sunderland plant is touted as a manufacturing success, 80 per cent of the components used in its cars are imported. The UK’s largest manufacturing industry is now food processing.

‘Has manufacturing lost critical mass?’ muses Chang. ‘It will take a very big push to get it back’. For sure, it won’t happen when finance attracts the most ambitious with higher salaries and even with the current devaluation keeps sterling higher than it would otherwise be; creams off resources that it previously channelled to industry through bonuses and profits when there were any and subsidies when there weren’t; when it destabilises the real economy through excessive leverage and the derivatives that escape the regulators’ (and its own) power to control.

But there’s still more to it than that. As Mariana Mazzucato told the conference, finance has consistently rewarded activities focused on value extraction rather than value creation, destroying value and misdirecting investment in the process. For instance, instead of favouring ‘good’ risk embodied in high R&D spending (most innovations fail) it instead rewards share buybacks and dividend distribution, which are inversely related to R&D and human capital formation, and speculation. Perversely, it is the most innovative UK companies that have been penalised by punitive lending rates since the financial crisis. Reforming finance so that it rewards Schumpeterian ‘creative destruction’ rather than ‘destructive creation’ is an essential part of the rebalancing process.

This leads on to another important skew that needs to be righted: gross undervaluing, and rewarding, of the innovation role played by the public sector. It’s true that the state isn’t particularly good at ‘picking winners’ – but as Mazzucato points out, it’s no worse than the private sector, where the part played by venture capital is vastly exaggerated. Up till recently the US government contributed 60 per cent of the country’s R&D effort, especially the fundamental research that private finance won’t touch. The internet, most of the technologies that Apple has combined so artfully in the iPhone, Google’s algorithms and revolutionary new drug classes all come out of publicly funded research. Cutting back on this effort is a fundamental error. What does need rectifying, however, is the balance between companies, many of which compound the injury by paying minimal rates of tax, and the public sector. Once again, profits are privatised while the costs accrue to the state.

One pernicious effect of the financialisation process has been to detach senior corporate managers from their own firms and align them with the City institutions: in effect they are now part of finance rather than the real world. This has set their pay free to soar (as in finance) and encouraged them to bear down down on suppliers and their own workers, whose pay has barely moved in real terms (and whose pensions are now being sacrificed too). This has caused what Lord Skidelsky terms a ‘crisis of inequality’ and consequently – quite apart from moral considerations – ‘severe underconsumption in relation to the size of the economy’. In turn, since investment is far more sensitive to demand than to interest rates, companies have gone on an investment strike, instead piling up cash reserves of £700bn. So a higher minimum wage and a strengthening of workers’ bargaining rights are economically indispensable for any meaningful rebalancing too.

Almost everyone outside the City agrees that these kinds of reform, while difficult, are urgently necessary. But at this point we run up against the most glaring imbalance of all: power. Right on cue, a recent study by Democratic Audit warns that democracy in the UK is in ‘long-term terminal decline’ as the power of corporations keeps growing, politicians become less representative of their constituencies, and disillusioned citizens stop voting or even discussing current affairs. Put another way, as the BBC’s Robert Peston did on air last October, what are the chances of rebalancing taking place if it means weakening a sector that supplies not just 10 per cent of tax revenues and 3 per cent of GDP, but also – as was revealed the same day – 51 per cent of Tory party funds? Not much, you might think. And yet… In the space of a year, the phone-hacking scandal has destroyed the thrall in which Rupert Murdoch held politicians of all parties, and the Libor affair may just mark a similar moment for the banks. With the press and the banks both involtarily busy cutting themselves down to size, there may never be a better opportunity to kick-start the process.

Let’s be clear. It’s not just Barclays, it’s not just the UK, and it’s not just banks. The limited liability public company, the central institution of capitalism, is rotten at its very core (or corp). We don’t need an inquiry into Libor rate-fixing, we just have to break the banks up – even the FT now thinks so – and some criminal prosecutions. What we do need is a root-and-branch enquiry into the putrefying corporate governance that is at the heart of this and every other recent scandal, including the mother of meltdowns in 2008.

It’s not just Barclays (what would its Quaker founders be thinking now?). You can’t fix rates by yourself: it takes two to tango, or up to 20 dancers in this case. In the UK RBS, which we own, and HSBC are also in the line of fire. What’s more, the Libor affair has been known about for ages. As Tony Hilton pointed out in characteristically blunt fashion in the Evening Standard the FT’s Gillian Tett was writing about it five years ago, which makes the boss’s expressions of shock-horror ring more than a little hollow.

It’s not just the UK. As the ripples spread wider, the US too is waking up to the possibility of ‘a rip-off of almost cosmic proportions – trillions of dollars that average people would otherwise have received or saved that have been going to the bankers instead’, according to Robert Reich, a previous US Labor Secretary. Citigroup, JPMorgan Chase and Bank of America, along with UBS, and Deutsche Bank are under suspicion. But even as they struggle to avoid this whammy, they are already reeling under another. Only a few days ago Rolling Stone’s redoubtable Matt Taibbi chronicled a decade-long US municipal bond-rigging scam that was uncannily similar to Libor, down to the verbal high fives and semi-sexual flirting of the perpetrators, employees of ‘virtually every major bank and finance company on Wall Street’, according to the author.

It’s not just the banks. While the banks have hogged the headlines, consider this. Also last week the London-listed pharmaceuticals giant GlaxoSmithKline agreed to cough up $3bn and has pleaded guilty to criminal conduct to settle charges of misselling drugs, including to adolescents. As the FT observes, ‘people caught doing that in nightclubs go to jail. People caught doing it to generate extra sales get a telling-off from the US Attorney’s office’. This is billed as the biggest healthcare fraud ever in the US. In the four years since 2012, GSK has set aside no less than £5bn to settle legal claims for sales and marketing malpractice and product liability.

Nothing could surprise us any more about the banks. But the astonishing things about the GSK affair, apart from its size, are first that no one has batted an eyelid, and second – and this should really set the alarm bells ringing – pharmaceuticals are heavily regulated. Indeed, light-touch banking regulation is often unfavourably compared with with the much heavier drugs variety. If dangerous substances like drugs are strictly controlled and regulated, shouldn’t dangerous financial ones be, too?

To which the answer is yes, of course they should. But, as the Glaxo case demonstrates, don’t expect regulation to prevent bad behaviour if the entire culture is toxic; if bad behaviour is the norm.

I don’t know how many different ways there are to say this. Barclays, the other banks and GSK aren’t the exception, a few rotten apples in a barrel of healthy ones. It’s the healthy ones that are the exceptions. Business is an ethics-free, amoral wilderness because that’s what it’s been designed to be. Self-interest, not responsibility or duty of any kind, is the organising principle around which Anglo-US governance codes revolve. The only social responsibility of business, Milton Friedman helpfully reminded us, was to maximise profits within the law, to give back to shareholders. In these circumstances, legislators and commentators throwing up their hands in horror at the Libor scandal are latter-day versions of Casblanca’s Captain Renault, declaring himself ‘shocked, shocked to find gambling going on’ in Rick’s cafe as he calmly trousers his winnings.

The banks are an extreme case because the leverage they have built up in the headlong pursuit of individual profit threatened, and still threatens, the entire edifice of world finance. But it’s only quantitively different from Glaxo, Murdoch and any number of ‘ordinary’ companies which have learned from business schools, governance codes, consultants and their peers that governance is all about the alignment of self-interest for the benefit of shareholders and has nothing, zero, zilch to do with morality or wider duties in any shape or form. As the much-missed Sumantra Ghoshal, himself a business-school professor, noted in 2004, ‘By propagating ideologically-inspired amoral theories, business schools [and all those underpinned by their theories] have actively freed their students from any sense of moral responsibility’. As is becoming clearer every day, the practical consequences of this ethics-free experiment have been momentous, altering the shape not only of companies and the economy, but of society itself.

Tinkering with the banks and fiddling with votes on pay is like treating cancer patients with herbal tea. As Gary Hamel has pointed out, limited liability status is an extraordinary privilege that has been granted to companies and investors not as of right but because it fostered vigorous enterprise and thriving markets that in turn led to economic growth and all the societal benefits that stemmed from the latter. If it no longer delivers those benefits, and if companies systematically abuse it to socialise losses and privatise profits, the privilege should be removed. We should go much further than breaking up the banks.

I’m with Ngaire Woods, Oxford Professor of Global Economic Governance, who recently suggested that the investment or casino banks should be re-incorporated with unlimited liability – which, as partnerships, they effectively were until the 1990s. Similar sanctions should be imposed on other gross or habitual defenders like GSK. The high and mighty who run them should be forcibly reminded that they have no god-given rights; their privileges are granted under licence. Free enterprise, as Peter Drucker put it in 1954’s The Practice of Management, one of management’s foundation texts, ‘cannot be justified as being good for business. It can be justified only as being good for society’.

Vince Cable’s proposal to give shareholders a binding vote on CEO pay will do nothing to alter the short-termism of which it is both symptom and cause.

It’s true that short-termism is now ‘system-wide, with contributions from and interdependency among corporate managers, boards, investment advisers, providers of capital, and government,’ as an Aspen Institute report put it in 2009 (one of the signatories being Warren Buffett, who should know). But investors should remember who triggered the inexorable rise of CEO pay in the 1980s by complaining that bosses weren’t being short-termist enough: they did.

Their solution was to make managers act like shareholders by loading them up with stock-options and equity-based incentive plans.

Unfortunately, since then shareholder attitudes have become more, not less, short-termist. Long-term UK investors such as pension funds hold perhaps 40 per cent of shares on the London Stock Exchange. The average holding period for a share is now seven months, down from seven years in the 1970s and 10 in the 1940s. High-speed traders buy and sell within the space of fractions of seconds. Expecting fund managers, themselves subject to the same pay incentives as corporate executives, acting for short-termist shareholders, possibly in a minority, to promote long-term stewardship on chief executives is fanciful in the extreme.

And so it has proved. Fast forward two decades. From 1998 to 2011, reports John Chapman in the FT, ‘rewards of FTSE 100 chief executives grew at 12 per cent a year… as they sought to deliver on short-term performance targets’. But there was a casualty of this single-minded focus on shareholders: everyone else. The labour share of output has tumbled, and although profit levels on both sides of the Atlantic are touching record highs, investment in the US and UK, the champions of shareholder primacy, has fallen further and faster than other developed countries.

Now we have reached the point where, as the Bank of England’s Andy Haldane put it: ‘A publicly listed UK company may well view dividends as the target and investment as the residual’ instead of the other way round, as in the past. The difficulty with that is that calibrating performance in terms of equity is deeply problematic. Either the measures are as likely to reflect general movements of the stock market as firm performance or they are easy to game in ways that unfailingly undermine the company in the long term – whether by share buybacks (which by shrinking the number of shares in circulation improve return on equity without the inconvenience of having to devise better products or services), increasing leverage and bumping up dividends on one hand, or slashing R&D, investment, advertising and now pensions on the other. Hence the well-known paradox that a company is never as profitable as when it is about to go bust. Look no further than the banks for a good example.

In the real world, of course, companies aren’t financial abstractions. They are complex human organisations which succeed not through short-term financial engineering but the hard work of organisation-building that fosters contribution from all the resources necessary to make and improve products and services that customers wish to buy. Shareholder value is the by-product of the efforts of employees and customers – as überguru Gary Hamel puts it, shareholders ought to want CEOs to be aligned with them, not outsiders who may have the same relationship with hundreds of other companies and no real knowledge about how the company actually works.

The fact is that governance based on shareholder primacy when shareholders can’t or won’t exercise stewardship responsibilities and don’t in any real sense own companies anyway, is an exercise in the manifestly absurd. As Sir David Walker remarked in his review of bank governance, ‘as a matter of public interest, a situation in which the influence of major shareholders in their companies is principally executed through market transactions in the stock market [ie selling their shares rather engaging with companies they invest in] cannot be regarded as a satisfactory ownership model…’ In the absence of engaged shareholders to police the contracts, the agency model is a runaway train, guaranteed to produce increasing short-term returns to chief executives and short-changing everyone else.

One of the most pernicious creations of the fundamentalist ideologues on whose theoretical musings the shareholder value creed is based is the Efficient Market Hypothesis. Taken literally it implies that to maximise shareholder value executives don’t need to worry about the long term, since all available information about future prospects is incorporated in today’s share price. That investors with hindsight are regretting the effects of such arrant nonsense is perhaps not surprising. Alas, they should have been more careful what they wished for.

You’ve seen it a hundred times – that mildly frustrating moment when a confused tourist, with poor English, gets on a London bus, tries to buy a ticket from the driver and after several minutes of miscomprehension and mounting irritation from other passengers, is ejected from the bus and has to start all over again.

Only this time the ending was different, because a Londoner in a front seat intervened. ‘Come on, love’, he said, producing his Oyster card and signing the tourist in. Then, blow me, the same thing happened again a few stops later. This time the would-be passenger was a harassed young father with a small child in a bulky pushchair, who had clearly mislaid his travelcard. Again, another passenger, this time a middle-aged woman, good-humouredly volunteered to pay the fare.

This set me thinking. The self-propelled steamroller of self-interest, the subject of last week’s piece, is indeed large, heavy and relentless, moving forward with all the accumulated momentum of 30 years. But effective as it is, as those gratuitous trivial acts of neighbourliness demonstrate, it hasn’t succeeded in crushing altruistic, other-regarding behaviour out of our lives altogether.

As it happens, on the same day, without looking for them, I came across two other examples of what we might call self-interest denial. One, picked up from a tweet, was the case of a young woman athlete at a local meeting in the US who made headlines when, instead of overtaking a staggering rival in a distance event, she stopped to help her over the line. Neither was going to win, but still.

Even more striking was an incident in a women’s baseball match, with a place in the next round of the competition at stake. In her last inning in her final competitive match, one player hit a first-ever home run, but in her exultation twisted her ankle so badly that she was unable even to get to first base. Consulted, the umpire confirmed that if her teammates helped her round the circuit, they would forfeit the match. Whereupon, to general astonishment, an opponent suggested that they should carry her. Which they did, touching the injured player’s foot on each base as they went. The benefactors ended by losing the match. But no one will remember that. What remained was the glow of the spontaneous act of generosity. Game, set and match to humanity.

I quote these small acts of kindness because in the market society we have become, they take on a symbolic value that is out of all proportion to their monetary, media or any other kind of importance. And they suggest an antidote to the pervasive pessimism of the self-interested view.

The power of the self-fulfilling prophecy invests every one of these actions with the quality of resistance. It’s all too easy to convince yourself that individual beliefs don’t matter. But they do – in fact, in the world we inhabit today what we choose to believe about human nature may be the most important choice we ever make. Writ larger, the values that a company acts out in its relations with employees and customers may be ultimately more significant for the rest of us than what it chooses to make (although its products and services can of course reinforce the values by embodying them).

In a world in which ideas triumph not by explaining the world but by changing it in their own image via their influence on others, every company that subscribes to a positive ‘Theory Y’ view of the workplace is striking a blow that may help it come true. Just as every manager who looks at the world through the lens of control and compliance will find reasons to confirm his belief, and by applying them bring that world nearer, the one who takes the employees’-eye view is not only taking the first step on the long road to the high-engagement, high-trust workplace that is not approachable along any other route, they are also making it more likely that others will take the same step too. ‘One good apple can infect all the rest,’ one cynical businessman warns another in Joseph Heller’s satire Catch-22.

There are many influential converts out there, ranging from Happy Computers, Henry Stewart’s IT training company, all the way up to John Lewis, and in one important sense the resounding failure of the current reductive business model should increase their attractiveness. The danger, of course, is that harassed, under-pressure managers will simply revert to the default behaviour that they know best and that is sanctioned by management’s authorised version.

To prevent this happening we need a concerted attempt to recentre our practices in a more realistic, less exclusively negative model of human nature. Only a minority of us are in a position to change the policies of a whole organisation in that direction. But all of us are aware of the power of expectation in our own upbringing, and now is the time to bring it to bear in our turn. Expecting the best of people and acting on it is not a soft and fluffy option, but the reverse. It’s becoming a matter of life and death – even if it’s just helping a tourist on a bus.