Ownership, topically, is part of the story. Until the 1990s, Goldman Sachs, founded in 1869, was, if not liked, universally admired for its acumen, its connections and the intellect of its people. Like McKinsey in consultancy, it was the stamp on the CV that every budding investment bankers wanted to have.

Until 1999, when it went public, Goldman Sachs had been a partnership. Now, like any other ownership form, partnerships have advantages and disadvantages. The ‘disadvantages’ are conservatism and limited access to capital (oh, wait…). The advantage, as Evening Standard city editor Tony Hilton told a Foundation forum recently, is that in a partnership, with unlimited liability, there is strong peer pressure to maintain ethical and other standards. As Adam Smith put it more than two centuries ago in a dig at joint-stock companies, ‘The directors of such companies…, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own…. Negligence and profusion, therefore, must always prevail, more or less in the management of the affairs of such a company.’ True to form, ‘anxious vigilance’, whether about money, clients or reputation, was conspicuously less after Goldman went public. The extent of the ‘negligence and profusion’, meanwhile, came into full view in another Smith’s celebrated retirement op-ed in The New York Times.

A similar erosion of standards can be seen in other professions that have travelled the same path. Contrast the law and accountancy. Legal firms, largely still partnerships, have mostly retained their professional ethos and reputation. The big accountants, on the other hand, abandoned the partnership form in the 1970s, since when, says Hilton bluntly, they ‘have become charlatans. It’s a classic story: ‘what’s the profit and what would you like it to be’, and no one believes accountants are of any value at all any more. Those who do might ask why they all gave the banks a clean bill of health in 2007 and none of them spotted the crash – or they all did but looked the other way.’

The other thing that happened in 1999 was the repeal of the Glass-Steagall Act which had separated commercial from investment banking. In the giant new entities that were created, it was increasingly the securities and trading side that made the money and who naturally came to dominate a culture that instead of relationships and serving real-world customers with boring things like investment and raising capital was now all about transactions and deals. The extreme case was the sub-prime mortgage debacle (and its subsequent mirror image, the so-called robo-closures crisis), where there was no direct interaction with customers at all. That culture generated huge pecuniary interests for individuals to do whatever it took to make short-term returns for shareholders whose interests were served by volatility and above all towering leverage.

What’s more, and crucially, the banks’ dominant customers were now, just like them, part of the same superextractive culture. This explains two otherwise puzzling aspects of the story: why Goldman Sachs had so few qualms about the strategy of selling toxic assets to customers and then shorting them in the first place, and why those who bought them have been so muted in their criticism. Customers have conspicuously not deserted in droves, and in the fracas over Greg Smith’s New York Times article, executives of other banks have sympathised with rather than excoriated Goldman. This is not surprising, because none of them were surprised: as a wealth of material about Lehman and other failures makes clear, they were all at it, trying to milk customers and suppliers for everything they had. It wasn’t that Goldman sold them dodgy products – they were doing that too – what riled them (and even caused some sneaking admiration) was that it was smarter at it than they were. Interestingly, this is already in the hands of some commentators becoming a defence of the status quo: as a colleague points out, Goldman Sachs’ PR advisers will be rubbing their hands at articles in the FT and elsewhere saying, in effect, wise up, that’s business, what’s the fuss? Anecdotes tell of applications for jobs at the bank going up rather than down in the wake of the article.

The fuss is of course, that what happened at Goldman Sachs also happened at Lehman Brothers and all the other investment banks; and the cumulative result was the catastrophe of 2008, with whose aftermath we are still struggling today. The process and its inevitable outcome are laid out in masterly fashion by Andrew Haldane, the Bank of England’s director for financial stability, in an important article in The London Review of Books. In the 19th century, he writes, ‘managers monitored shareholders who monitored managers; in the 21st, managers egged on shareholders who egged on managers’ – and, he might have added, accountants subject to exactly the same vicious incentives did nothing to raise the alarm or do anything else to prevent the disaster happening.

Take the privatisation of large chunks of the police service uncovered last week in The Guardian. In brief, a £1.5bn contract for Surrey and West Midlands is up for grabs by the private sector, covering such upfront functions as ‘investigating crimes, detaining suspects, developing cases, responding to and investigating incidents, supporting victims and witnesses, managing high-risk individuals, patrolling neighbourhoods, managing intelligence, managing engagement with the public …’

Privatisation in this context means outsourcing to cut costs. As Sir Ian Blair, previously Met commissioner, obligingly wrote, also in The Guardian, the aim is to allow police forces to ‘modernise their budgets in the way any other institution would do, namely by reducing unit costs’. But approaching the issue through unit costs and outsourcing is as worrying as any of the political considerations. It is based, says Vanguard Consulting’s Richard Davis, on two false premises: first, that unit costs tell you anything useful about the real cost of policing; and second, that privatisation and competition saves money. On the contrary. You might just as well hand over sacks of the police budget to burglars.

To outsource services, tasks have to be simplified and standardised so that they can be carried out by cheaper, less skilled labour, often following instructions from a computer script. This may reduce unit costs (cost per phone call, arrest, court attendance, whatever). But that’s a red herring. The costs that count are end to end, from the first call-out to the disposal of the case in the courts. The act of simplifying and standardising severs the relationship between the police and the individual and turns the interaction into a commodified transaction (often literally: ‘press 1 for this, 2 for the other’). If you reduce people to a few broad categories, you can’t respond accurately to the variety of demand. There’ll be mistakes and miscategorisations as people try to fit themselves into the artificial boxes. So they’ll call again – and again – until, many interactions later, the demand is met, or frequently ‘closed’, at which point the dreary cycle starts all over again. More call centres will be built and agents hired to deal with the additional demand. In this way, more interactions leverage costs up enormously more than lower unit costs bring them down.

Privatisation via outsourcing spectacularly misses the point. What matters is not ownership but method. Not only does the private sector not have a monopoly of good method – it has a vested interest in selling the bad. And just as outsourcing/privatisation to lower costs of transactions often misses the point for firms, so it does also for the economy. Bob Bischof, chief economic adviser to German Industry UK, notes that for a number of reasons, not least the desire to retain jobs, German firms have on the whole not succumbed to the outsourcing frenzy. Instead of simplifying and standardising, German companies have learned to manage complexity – which in turn has enabled the country to maintain a highly sophisticated, integrated manufacturing sector and in consequence retain a balanced economy and avoid the damaging inequality which so disfigures the UK and US. By contrast, progressive outsourcing has left a hollowed-out UK shorn of almost any enterprise that requires complex joined-up thought: a flim-flam economy based on the City, the ‘creative’ industries, advertising and consultancy – in a word, bullshit. As Davis notes: ‘In 10 years time, what will real policemen be doing? What will there be left for them to do?’

The second heroic point-missing of the week is a report by the National Audit Office on the shared-services programme across government departments initiated by the Gershon efficiency review in 2004. The NAO findings are stark. It’s an anit-cost-saving programme. Five centres have cost £1.4bn to build and operate so far instead of £0.9bn – an overrun of more than 50 per cent. Only one centre has broken even, and planned savings of £159m have not materialised. The centres are not value for money, the NAO says – moreover, ‘the benefits of shared service centres are not clearly demonstrated’.

Well, I never. In fact, there is no evidence anywhere that shared services deliver real savings, and plenty that they don’t, and for exactly the reason outlined above: the promise of shared services is that they reduce the cost of transactions – yet any gains from lower unit costs are dwarfed by the costs of fragmenting workflows, making it more difficult for people to get the service they need, and thereby multiplying failure demand.

The coalition came to power on the promise of doing things differently. But as these examples show, in practice it’s the opposite, with much more – Universal Credit, for example – on the way. How many more trillions need to be wasted before ministers accept what the evidence and common sense is spelling out for them? There are no economies of scale in services, only economies of flow: joining the pieces up, not splitting them apart, to solve people’s problems in the minimum amount of time. Shared services, and most current variants on the outsourcing theme, don’t work not because people are doing them badly – as the NAO scolds in its recommendations – but because they’re the wrong thing to do. It’s a perfect Einstein moment, on a truly national scale.

Overcynical? It rang some bells. Mickelthwait and Wooldridge’s book on management consultants was called ‘Witchdoctors’. Then I looked up a 2002 Harvard Business Review article by Rakesh Khurana, now dean of Harvard Business School, called ‘The Curse of the Superstar CEO’. Sure enough, in it he notes a belief in the powers of ‘charismatic’ (literally, in possession of gifts of the Holy Spirit) corporate leaders that borders on the ‘quasi-religious’, based on very little in the way of real evidence linking leadership to organisational performance. A CEO’s ability to affect performance is hemmed in by all sorts of internal and external constraints – laws and regulation, convention, the state of the industry and the economy, infrastructure, the organisation’s own history are just some of the things a CEO can’t easily change (no wonder Deming ascribed 90 per cent or more of performance to the system). Most academic studies, Khurana notes, suggest that 30 to 45 per cent of firm performance is attributable to industry effects and another 10 to 20 per cent to changes in the economy. Meanwhile, according to shareholder activist Nell Minow, fully 70 per cent of stock market gains are due to movements in the market as a whole rather than company performance. The best we can say, then, is that a CEO’s ability to affect the multiple and interrelated factors in corporate performance is greatly overexaggerated. In fact, what is generally called ‘success’ might be more accurately characterised as the ability to be in the right place at the right time. As a GE executive noted drily of Jack Welch: ‘Jack did a good job, but everyone seems to forget that the company had been around for 100 years before he ever took the job, and he had 70,000 other people to help him.’

The paradox is that management may matter a lot more lower down the food chain. Hardly controversially, evidence suggests that an engaged and happy workforce tends to perform better than one that is oppressed and bored. Engagement is the by-product of management that systematically gives people a good job to do and then works to make it easier for them to do it.

And then we come to pay – which turns out to be the subject of the cloudiest, mistiest, most magical thinking of all. If management is the ritual, pay is the tribute that companies offer up to the gods in return for their favours. But no matter how tempting the offerings companies put forward as they vie with each other for attention from on high, it is often in vain. Alas, there is no reliable evidence linking CEO pay with company performance. In fact the inequalities that always accompany very high CEO pay tend to undermine engagement and thus sap performance. Some incentives, such as ‘guaranteed bonuses’, turn out to be the opposite – anti-incentives. And however generous the sacrifice, there is no guarantee that it will avert disaster. Jeff Skilling at Enron and WorldCom’s Bernie Ebbers are just the two most obvious examples. To quote the sage of Omaha, Warren Buffett, ‘With few exceptions, when a manager with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.’ To return to the thesis, let Deming have the last word. ‘Reward for performance,’ he said, ‘may be the same as reward for the weather man for pleasant weather.’ I think the ayes have it.

One strand, the three-decade-long ego joust betweenJobs and Microsoft’s Bill Gates, just asks to be made into a Tom-and-Jerry type animated story (by Pixar, naturally) in which every seven or eight years an abrupt new sideways leap by his rival leaves a baffled and apoplectic Gates trailing in Apple’s wake. Jobs ‘doesn’t know anything about engineering and 99 per cent of what he says and thinks is wrong,’ Gates yells at then Apple CEO Gil Amelio when the latter brings Jobs back into the fold by buying his start-up, NeXT, in 1997. ‘Why the hell are you buying that garbage?’ Similar incredulity and denial greets every strategic shift and product announcement: the move from IBM to Intel chips, the launch of the iMac, then the iPod and iTunes Store, which wrong-foots Microsoft yet again. Redmond carps that the iPhone is too expensive and doesn’t have a keyboard (exactly), and the iPad will be sidelined by devices with a stylus and camera. In the end, of course, Jerry outdoes Tom even for size and money. Jobs reflects: ‘The older I get, the more I see how much motivations matter. The Zune [Microsoft’s music player] was crappy because the people at Microsoft don’t love music and art the way we do… If you don’t love something, you’re not going to go the extra mile, work the extra weekend, challenge the status quo as much.’

One of the profoundest things he said, that quote channels the higher-level comedy of which the rivalry with Gates is a knockabout subset. Redmond isn’t the only thing Apple made a monkey of. In the course of its journey to most valuable firm in the world it cocked a snook at every nostrum of the conventional management playbook (one reason, of course, why its actions were so difficult for others to anticipate). From corporate governance down, Jobs made up his own rules. ‘Jobs did not cede any real power to his board’, Isaacson notes; one of the conditions of his return to Apple was replacing most of the existing directors with his own appointees. He kept them in the dark about his illness. Sometimes his disregard for the normal rules got him into trouble, as in the options backdating affair of 2006 – but even then it served to underline the fact that options are a black joke at the best of times; his sheer disregard got him off the hook. Shareholders he simply ignored.

As Isaacson shows, Jobs cared about customers, though. ‘We made the iPod for ourselves, and when you’re doing something for yourself, or your best friend or family, you don’t cheese out,’ he said. From this unsparing product focus, everything else flowed – whatever the textbook might say. Against all advice, Apple insisted on making both hardware and software, because seamless integration made for a product that was better, sexier, easier to use. Jobs wouldn’t licence the Mac OS and killed off the Mac clones, again in the face of dire warnings, for the same reason. The desire to show off the product in the best possible light led to the Apple stores. Everyone warned that it was a vanity project; in fact the Apple stores, manned by Apple freaks who are on salary, not commission, are the most profitable retail real estate per square foot on the planet. Apple is a relationship company – and retail the fourth industry, after computers, music and phones, that Apple has stood on its head.

The obsession with product even determined the company’s structure, with profound consequences. Because Jobs wanted integrated products, he ran a company that was integrated, too. Determined that techies would work with artists, production with design and marketing, he ran his teams as one company with one bottom line. Sony, on the other hand, was organised in divisions, each with their own P&L. Having all the elements, including content, under one roof, Sony was ideally placed to do the iTunes Stores – but it could never get its divisions to work together to do it. The implacable product focus was his best weapon in negotiations, too. It meant that he always knew when to fold and when to push, a talent that served him well not just in the tense arguments over the iTunes Store but also in the sale of Pixar to Disney, in effect a reverse takeover. Finally, Jobs intuitively understood that if he got the product right and established a relationship with the customer, the money would take care of itself, which it duly did – Apple’s culminating paradox is that it became the richest company in the world by caring about everything except money.

It’s hard to overstate how unlike the normal businessman Jobs was. ‘Vegetarianism and Zen Buddhism, meditation and spirituality, acid and rock – Jobs rolled together, in an amped up way, the multiple impulses that were hallmarks of the enlightenment-seeking campus subculture,’ sums up Isaacson. Whether conscious or not, not being a businessmen was one of Jobs’ greatest strengths, allowing him to entertain preposterous yet insanely profitable ideas that more sensible people would have dismissed out of hand. The trouble with Gates, Jobs once opined, was that he had never loosened up: ‘he would have been ‘a broader guy if he had dropped acid once or gone off to an ashram whn he was younger’.