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

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

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

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

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

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

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

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

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

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

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

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

Read my piece in FT Business Education here

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Austerity to preserve the status quo is like trying to save the dinosaurs – dumb. But even if you accept austerity, slashing from the top, as the government is doing with the NHS, the police and almost every other public service, is super-dumb: a sure way to raise costs, worsen service, or more likely both.

Costs are what worry politicians and most managers most, so focusing on them seems natural. But it is actually back to front. Paradoxically, managing cost drives cost up. The promise that cuts will leave the NHS front line intact is meaningless, as we are now beginning to see. The result of deciding the amount of cuts first and fitting the organisation to it is never ‘more for less’, as politicians hope. It is always ‘less for less’ at best – and ‘less for more’ at worst.

Why? Because cost, like profit, is a consequence – an effect, not a cause. Costs are low if you do something well, high if badly. Those who didn’t know already should have learned from the crisis that treating profit as an end in itself and managing it accordingly is not a trivial error. Managing by cost is as destructive as managing by profit, and for much the same reasons: it distorts priorities and destabilises the system, making it harder and more expensive to manage.

Ironically, politicians are absolutely right in their intuition that most public-sector organisations are dismally inefficient. Unfortunately, they don’t realise that the private sector is no better. The issue isn’t public or private, market or state. It’s how work is designed.

Thus, while a typical manufactured product may take weeks or months to complete, it spends only a tiny fraction of that time actually being worked on. Most of the time is spent waiting to be pushed in batches through the next process or being taken in and out of storage.

The same is true of services, which have adopted the same clapped-out model. Dealing with a standard mortgage takes an hour of actual work. Yet by the time the application has been sorted, scanned, sent to a back office, processed, returned to a front office, checked and despatched to the customer, several weeks will have elapsed.

IT, outsourcing and shared services have made only minimal difference to this dismal performance. In fact, they are no more than (very expensive) go-faster stripes; by reinforcing the notion that the way to improve the whole goes through optimising the parts, they have seriously held back development of a better way of delivering service.

To control costs, organisations always assume that big is better. So a police force decides to shut down small police stations and concentrate staff in much bigger establishments, with a centralised call centre between them and the public. But a minute’s reflection confirms that the cops have one – and one only – cardinal asset: local intelligence. Increasing the distance, and multiplying the contacts, between the citizen and the police makes the service less effective (increasing response times and the chances of error) and thus drives overall costs up.

Or consider the NHS. The family GP is a brilliant concept. For any condition, a GP who knows your history and circumstances can make better, more intelligent treatment decisions that one who doesn’t. So what do we do? We put doctors in giant health centres and demand that they spend no more than 10 minutes on individual appointments, thus ensuring that that they don’t know their patients and their priceless, long-nourished combination of personal and medical knowledge is useless. Instead of going straight to the most likely solution, he/she has to work through the checklist one by one before (with luck) arriving at the same result, only much later. Worse service, higher costs.

Once you know the reasoning, you can see it everywhere. One way newspapers try to cut costs is by pooling the sub-editors who edit and trim the copy filed by front-line reporters. Like all such functional centralisations, it is a false economy. Whereas previously a query could be settled face to face, it now has to go by phone or email. If a business article is picked up by a sports sub, the queries (and opportunities for misunderstanding and mistakes) multiply; quality goes down, work and rework go up, more than wiping out any conceivable gain from the pooling.

The inevitable response to all such centralising attempts is to recreate the local expertise in some form, thus dashing the hope of savings. In the university where my wife works, managers decided to centralise the departmental administrators. Instead of having a trusted right-hand person at their shoulder who knew students, lecturers and the business of the department inside out, department heads now have no such support. Either they do the extra work themselves or recruit a junior for the purpose. Either way, the department and the students suffer; the gains are illusory.

Cutting costs is a classic example of management obliquity. Like profit, to which it is obviously linked, reduced costs are the reward for doing something else, ie serving the customer better. It was Taiichi Ohno, the architect of the Toyota Production System, who made the brilliant counterintuitive leap: good service (doing the right thing at the first pass) costs less, not more. Therefore, to cut costs you have to manage value. By focusing exactly on what the customer, internal or external, wants and designing the system to deliver against demand, costs fall away, surely and permanently.

Proving the point, Toyota has paid a heavy price in terms of raised costs, at least temporarily, for forgetting its own truth. Most managers and politicians have never learned it in the first place. Of course, our immediate crisis was caused by the equal and opposite mistake, assuming that profit in the financial sector could be decoupled from the way it was made. But in our impersonal, inefficient and unresponsive service industries, both public and private, we also see a more chronic crisis: a grim reflection of the cumulative failure to understand cost. For the moment there is no sign of that grinding crisis ending, only getting worse.

Dear Sir Richard

I’m now on the sixth, or is it seventh, visit from a Virgin technician to fix a fault on my TV service and beginning to lose the will to live.

Ironically, the diagnosis made by a chirpy employee on the first visit was the right one – part of the cabling needs replacing. But she was too junior to make that call. So a week later a second employee pitched up to check what the first had done and do the tests again. He left saying he needed to report to the area manager.

When I phoned a week later to chase up progress, I was told that the case had been resolved. To my protest that it certainly hadn’t, the call-centre agent patronisingly replied that I didn’t understand: she had opened a new case, so the tests had to be done again, even though I could tell her what the results would be. But even then she couldn’t authorise the new cabling.

After several more visits, and weeks, and repeated tests, we’re not much further forward. Latest update is that there’s a further problem, requiring a visit by another manager. At worst the repair could take another six weeks. Oh, but she says brightly, she’ll ring back within five days.

I’m telling you all this not as a rant (well, not only), but because I think you’d prefer Virgin not to epitomise much of what’s wrong with modern management. Let me count the ways.

First, I bet you have no idea how bad your service is. This is because the performance measures used by your managers are dumb. They measure things you think (wrongly) matter to you (how long agents take on a call, technician visits per day, how long it takes to ring me back with the good or bad news, even the number of rings to pick up the phone) but that have no relation to the purpose of the exercise from my point of view (fix my TV channels!). I suspect all the people involved have met their service-level targets, tell you proudly they deliver excellent service and collect their bonus accordingly. What they don’t know, because they don’t measure it like that, is that they have so far taken more than two months not to fix my cable.

Nor do you know how much this appalling service is costing (I mean literally – ie not counting the invisible cost of my badmouthing on Facebook and twitter). Sigh. This is because you’ve bought the consultancy and IT sales pitch for economies of scale and specialisation.

It sounds plausible – as in Adam Smith’s pin factory, specialists concentrating on one task each (answering the phone, doing easy technical tasks, doing harder ones) will do them faster and more cheaply than non-specialists. They’ll be still cheaper if, as with many of your call centres, the workers are in a low-wage country offshore.

So, yes, your unit costs per transaction (phone call, technician visit) are lower. Unfortunately, if the specialisation, as in my case, results in many more transactions because of errors, misunderstandings, non-productive visits and additional phone calls, then any gain from lower unit costs is more than wiped out. The cost you should worry about isn’t the individual phone call or visit – it’s the cost of fixing my f****** TV from first phone call to final sign-off. In other words, the economies aren’t in scale at all, but the reverse – the lowest number of transactions, or flow.

Still, look on the bright side. My dismal experience teaches three simple, counterintuitive and incredibly powerful truths.

First, don’t believe managers who tell you that better service costs too much – it’s poor service that’s unbelievably, catastrophically expensive. Forget transaction costs and economies of scale – get the same Virgin employees to deliver excellent service by turning the system through 180 degrees. Put people at the front end with the skills and authority to solve all the common problems at the first interaction (and the rest in one more). I guarantee costs will come down as service quality goes up.

Second, relate the measures to purpose – as defined by me, not you. I want my TV channels fixed as quickly and smoothly as possible. If you aren’t measuring what matters to me, how can you learn and improve? You can’t. In most such systems suppliers are paid on quantity (numbers of transactions) and service levels. I bet yours are the same. So they have no incentive to improve quality in my terms, in fact the reverse – with their fixation on unit costs (keeping activity levels up and transaction times down) managers are unwittingly making the service worse.

Third, and perhaps most counterintuitive of all, focusing on cost through economies of scale is counterproductive: it pushes costs up. We’ve seen how that happens at Virgin. By multiplying transactions it generates mountains of waste.

Of course, you’re not the only one to have been taken in by the scale economies fairy tale. Such is its near-mystical lure that systems like yours are everywhere. Scale economies are behind the misleading ideas of front and back offices, shared services, and the dismal white-collar factories of HMRC and DWP. All these are temples to early 20th century Fordism, and like the latter are outdated technically as well as a scandal in human terms. If you believe what you say about employees (as I think you do) that should be the clincher.

Such customer and employee alienation factories serve the vested interests of consultancies and IT vendors, not yours. Virgin is supposed to be young and different, isn’t it? Well, so ditch these sad relics of Victorian management – and, as we say on twitter, FFS fix my TV.

Yours etc

The strength of Charles Ferguson’s Oscar-winning documentary on the financial crash, the self-explanatorily entitled Inside Job, is its stone-cold soberness.

No stunts or showboating à la Michael Moore: just straightforward questions, politely asked, and the spectacle of his interlocutors blowing themselves to bits with their blustering evasiveness and inability to answer, the very matter-of-factness of the narrative (recounted by actor Matt Damon) contrasting with the enormity of the behaviour revealed.

I thought I knew quite a lot about the Great Financial Crisis. And, having viewed business up close for many years, I am more inclined to incompetence than conspiracy theories. But now I think I underestimated both the stupidity and the fraud, and the difficulty of doing anything about either.

Yeah, I knew about the hundreds, not tens, of millions pocketed by the likes of Dick Fuld, the CEO of bust Lehman Brothers ($484m, to be precise, none of which has been returned), who had a special lift to whisk him to the top floor of his office without ever having to come into contact with mere mortals; I knew about the cynical excesses of sub-prime mortgage lenders and the insane abrogation of accountability in turning them into derivatives and selling them on; and the equally bare-faced role of the credit-rating agencies in magically conjuring away the risk involved.

But other things I was less aware of. One revealing section of Ferguson’s film features Kristin Davis, an engagingly frank Wall Street madam, who recounts how firms which run ads in financial journals boasting of their probity and customer service kept $1,000-an-hour hookers and abundant cocaine on retainer for favoured traders and their clients. (The only person brought down by sexual scandal in the period was Eliot Spitzer, governor of New York state, who as attorney general had incurred to the wrath of Wall Street by prosecuting cases against corporate price fixing, stock price inflation by investment banks, predatory mortgage lending and the 2003 mutual fund scandal. Make of that what you will.)

Nor did I know quite how breathtakingly two-faced Wall Street had been with the so-called ‘Magnetar trade’: assembling and aggressively selling ‘shitty’ (their own word) poisoned CDO packages to clients with the sole intention of hedging against them – so the more the mortgages failed, the more money they made (the epitome, this, of Umair Haque’s ‘thin value’).

Perhaps most dismaying of all is the degree to which the fraud/stupidity is systemic.

Andrew Haldane, a director of the Bank of England, revealingly admitted recently that before the crisis, no one was looking at the banks as a system, only as individual nodes. But as we now know, it’s not just the investment banks and credit agencies that were conflicted and corrupted. The film shows prominent economics professors stuttering to explain not how they got it wrong (which is excusable) but how they could have taken large payments to write bigging up reports on, for example, the Icelandic banking system or smalling down ones on the risks attached to derivatives (which is not).

We know from other sources that similar hyping reports were written about Ireland, and critical ones suppressed. We know that auditors, as in the earlier case of Enron, condoned accounting practices among failed firms that may have speeded the crash and were on the very edge of legality.

We also know that representatives and ex-representatives of some of the very bluest-blooded management consultancies are under suspicion for insider dealing – which puts in jeopardy the whole confidential consultancy model – and that Monitor, the Boston group set up by eight founders with close links to Harvard Business School, including strategy uberguru Michael Porter, took a sizeable PR contract ‘to enhance the profile of Libya and Muammar Qadhafi’ – nothing to do with the crash, admittedly, but probably not a client that many large companies would want to be associated with.

As a coda, note that some on Wall Street, as a thoughtful recent article by William Cohan points out, pin its decline and eventual fall on the influx of clever, ideologically self-interested MBAs from the late 1970s who first persuaded the partnerships of the time to go public, then used their access to much greater amounts of capital to dream up ever more complicated financial instruments to gamble on their own account.

In other words, the entire management supply chain is implicated in the banking scandal: the economics and management disciplines and the business schools that teach them, accountancy, consultancy, the ratings agencies and insurance as well as the banks themselves. Of course, a whole system of corruption is much harder to unpick than than a few individual organisations however large. It’s no longer just a matter of reforming the banks: it’s a question of fundamentally reshaping the governance that links them all, across the whole rotten spectrum.

Is this likely? It would be hard enough even without the final, crowning keystone of this arch of doom – the fact that, as Robert Gnaizda, former director of the Greenling Institute, sums it up in Inside Job, ‘it’s a Wall Street government’.

It’s not just that the people who brought us this avoidable disaster are still running the Street, now by the way concentrated into even fewer, more powerful giant finance houses than before. It’s that almost every one of President Obama’s economic appointments and advisers has close links with the financial industry, and many helped push through the deregulation policies that contributed to the present crisis and are already stoking up the next one. ‘I think Britain is the only country where you don’t have to be a Goldman partner to be finance minister’, Alistair Darling joked recently.

Except that it’s not a joke. Finance used to be a service industry to the rest of the economy. Inside Job makes plain that it has not just captured business and the economy, inverting the relationship to perverse, indeed catastrophic effect; the giant vampire squid ate everything on the menu, including government and the political parties too. Ferguson began his Oscar acceptance speech in February by bemoaning the fact that three years after the great fraud, ‘not a single financial executive has gone to jail.’ He’s right. But I somehow don’t think we shall see any financial felons behind bars any time soon.

The race to the bottom in pensions continues at Olympic pace.

The sleight of hand is none too subtle. It consists of the private sector falling over itself unilaterally to tear up its previous pension obligations and then expressing outrage that by comparison public-sector pensions (typically £7,000 in the NHS, £4,200 across the Civil Service) are now so generous. Read CBI director-general John Cridland’s weaselly piece in The Guardian last week. Not only is it unreasonable, Cridland laments, that the private sector now has to support better public-sector pensions through taxation: these preposterously gold-plated provisions make it harder – in some cases impossible! – for the private-sector to bid successfully for public-sector contracts.

Pensions are deferred pay. What is Cridland boasting about when he complacently asserts that ‘there is so much to be learned from the changes made [in pensions] in the private sector’? Put bluntly, that employers over recent years have cut their contributions in half and payouts by up to two-thirds. And now he wants the playing field further levelled down so that private companies can cherry-pick the public sector too.

Notice that objective justification for reducing the already pitiful level of UK pension provision is never offered. It is taken for granted. The argument is that because lots of companies have done it, it must self-evidently be right.

Unfortunately, slippery and self-serving though this ploy is, almost all commentators have bought it. But the real question is the opposite one. The problem is not the profligacy of public-sector pensions (if only!): it’s the utter failure of the funded private-sector ones which a decade ago were being touted as the reason why the UK’s economy would be transformed and Europe’s wouldn’t. If, as Cridland obligingly notes, there are four companies in the FTSE 100 still offering traditional defined-benefit schemes, the obvious question is not why 96 companies aren’t doing it but why those four still can. How can we level up the playing field, rather than bring everyone down in the gutter?

Baldly, the CBI and others are asking us to accept that that the richer we get, the less we can afford a measure of collective retirement security. That to keep bankers and corporate grandees in comfortable old age, the mass of citizens in one of the richest nations in the world must accept cutbacks and pensions not much above the poverty line. In short, that progress requires civilisation to go backward.

That simply defies belief.

Or if it is true, then it casts doubt on either our system’s priorities, or, even more troubling, its underlying competence – or both. If capitalism is in such a poor way that the only way of saving its institutions is to slash the benefits of, or make redundant, those in whose name the returns are being protected – shareholders in pension and insurance schemes – then we’re in a looking-glass world and it needs seriously rethinking.

In fact, both are involved: the system’s bent pension priorities, grossly skewed in favour of finance and the very rich, are symptomatic of a capitalism that is running cancerously out of control. The Gadarene stampede from proper pensions is just part of what has been termed the ‘Great Risk Shift’ in which governments and companies have used any excuse to offload risk that was previously shared on to individuals and families. Retirement is going the way of career, social security is being weakened, trade union rights progessively reined in. The underlying justification was the idea that self-interested individuals acting in efficient markets would be better able to look out for themselves than the collectivity.

But 2008 taught those who hadn’t already twigged that there are tight limits on both self-interest and efficient markets. Extreme self-interest, as Alan Greenspan famously lamented, didn’t prevent the banks blowing themselves up, and shareholder-oriented governance was spectacularly incapable of providing countervailing checks and balances. As for efficient markets, the successive and increasingly frequent bubbles of the last two decades blows the idea out of the water.

The circle is vicious, not benevolent, the bursting bubbles being intimately connected with the current pensions debacle: the declining market returns blamed by companies for the non-viability of traditional pensions have been caused by stockmarket crashes as the ‘ponziconomy’ built on towering misallocations of resources repeatedly tumbles down. But it is not the middlemen in the City and Wall Street who have suffered from the serial busts caused by the Asian crisis, the dotcom boom, merger and acquisition mania and the great financial crisis – none of which could have occurred if markets were truly efficient – but the private- and now public-sector workers who are being asked to pay with their miserable pensions.

Just as with the banks, big business now wants the rest of us to bail them out for the malfunctioning pension system which that they’ve demanded we accept. Well, no. As Polly Toynbee recently remarked in The Guardian recently, ‘the ideal of the entrepreneurial, hyper-efficient private sector is as much a myth as the ideal public servant’.

The CBI’s pension arguments and the coalition’s opening up of the NHS to competition show that life (and vested interest) still remains strong even in ideas like this that have been discredited in practice as well as theory.

But most people don’t believe them any more. Most people believe that the roll-back of social protection (and concomitant glorification of the individual) of the last 30 years has gone too far, and that, as economist John Quiggin puts it, ‘we have the capacity to share and manage risks more effectively as a society than as individuals’. It’s time to put the Great Risk Shift into reverse. When private companies can show they match and beat the retirement payouts of the public sector, we’ll applaud and listen to their advice. But not until.

Mervyn King didn’t mince his words in his Daily Telegraph interview on the banks this weekend. Not only were people right to be angry at those who had caused the mess that we were now all involved in cleaning up, said the governor of the Bank of England: the finance houses also put “too much weight… on the importance and value of takeovers”, thinking it entirely legitimate to pile up their own short-term profits by destroying good companies in manufacturing and elsewhere; much financial innovation was a zero-sum gain, ie transferring value, not creating it; and, he added, since Big Bang in the late 1980s too many in the City thought “if it’s possible to make money out of gullible or unsuspecting customers, particularly institutional customers, that is perfectly acceptable”.

The response of anyone with a bank account will be, so what else is new? We’ve known for years that they’ve been ripping us off with sneaky overdraft charges and exorbitant interest rates. But the banks’ outraged response to the governor’s remarks shows that they have learned nothing. When both the sherriff (Lord Turner, the current regulator) and the US marshall (King, the next one) are saying that the days of the great free-for-all are over, it’s time for the cattle barons to accept the inevitable. The music’s stopped, the saloon is closed and there’s no one left to dance with. The show’s moved on to another town.

This really is an inflection point. King’s interview is an epitaph for a whole way of doing business – not just for the banks but for all the firms that are guilty of the same customer-cherating tricks: inflating costs, deflating quality, building in obsolescence, ignoring the claims of the planet, all for the sake of a few extra pounds of short-term profit.

For 50 years in the middle of the 20th century – from say 1930 to 1980 – it was possible for a chief executive to say, and be taken seriously: ‘What’s good for General Motors is good for America’. Big companies provided good jobs, material living standards soared and the damage to the planet could be ignored. But since then the returns fo business as usual have become vanishingly small. None of the previous justifications apply. Good jobs have been sent abroad, living standards haven’t budged, at least for the vast majority – and the environment is twisted with pain at the poisons poured into it and the goodness sucked out. The reverse proposition has become true: what’s ‘good’ for General Motors (or the banks, or the telcos) is bad for America.

Actually, it’s not even good for General Motors. As we’ve noted before, the last people to take advice from about what’s good for capitalism is capitalists. In a thoughtful blog at HBR, Justin Fox (always worth reading), asks ‘Just What Does it Mean to be Anti-Business?’ His starting point was an FT interview in which George Buckley, CEO of 3M, slammed Barack Obama as ‘Robin-Hood-esque’ and ‘anti-business’. ‘There is a sense among companies that this is a difficult place to do business,’ he complained. ‘It is about regulation, taxation, seemingly anti-business policies in Washington, attitudes towards science.’

It’s hard to know where to start with this. Only someone insulated from the world inhabited by the rest of us could have failed to notice that Robin Hood was a hero; wasn’t it the rich and powerful, in the shape of the Sherriff of Nottingham, who were the villains? Much later, it wasn’t Henry Ford’s altruism that led him to double his workers’ wages. It was the calculation that if he did they’d actually be able to buy the products his assembly lines were churning out. As Fox gently points out, after three decades of soaring inequality, a bit of Robin Hood (or Henry Ford) might again be a good thing – it might be in the interests of business, too.

Nor, as he notes, is regulation necessarily anti-business, although the two are now lazily conflated. After all, the all-time best decade for US business was the 1960s, perhaps the height of the era of the regulatory state. ‘It was hard to label this rise of government as ‘anti-business,’’ points out Fox, ‘since corporate profits grew and grew, too’.

Some observers are now beginning to draw a direct analogy between Western big business and the cynical kleptocracies of the Middle East. Of course, in the West it has all been perfectly legal, sanctioned by the academy and encouraged by government – yet the capture of the institutions of business by an unholy oligopoly of shareholders and managers is just as complete as in the Arab world. Hence the movements now gaining ground here, similarly determined to say enough is enough. But it’s now not just UK (and US) Uncut, the campaign for the Robin Hood tax, citizen’s capitalism and others who are on the march – the governor of the Bank of England, the chairman of the FSA and Harvard Business Review, the businessman’s bible, are on the same side, at least in spirit. High and low, the realisation is dawning: we don’t care about Davos, we don’t want business deciding how to run hospitals, schools, universities or libraries – we’re not actually very keen on business running finance, come to that. Business isn’t the answer any more, it’s the problem!

We could surmise that the intellectual battle having been won, the cycle will take its course and the pendulum inevitably swing back towards the regulatory state. But for the moment the zombies refuse to die and vested interests are strong, particularly in the US, where the hard right seems determined to perpetuate the reign of the rich and ignorant – and may have the political muscle to do so.

In which case, the parallels with the Middle East may become a lot closer and more dangerous.