Management takes such legitimacy as it has from economics, just as economics, equally misguidedly, has modelled itself on the ‘hard’ sciences such as physics.

It should matter to managers, then, that conventional economics, the kind that has shaped the thinking of policymakers and corporate leaders in both public and private sectors for the last 30 years, is in deep, deep disarray.

To put it bluntly, the events of the last three years have dealt it a blow from which it can’t recover. Luminaries as different as as Alan Greenspan, Nobel laureates Paul Krugman, Joe Stiglitz and Paul Samuelson, Larry Summers and Willem Buiter have all lined up to say publicly the same thing: market fundamentalism is dead, and whole swathes of economics needs to be rethought along the lines of what is, not what economists think it ought to be.

Three recent books do a good job of stating the revisionist case. Ha-Joon Chang is a Cambridge economist working within the traditional frameworks, and the finding of his excellent 23 Things They Don’t Tell You about Capitalism (Allen Lane, 2010) is admirably clear: ‘The last three decades have shown that, contrary to the claims of its proponents, [free-market capitalism] slows down the economy, increases inequality and insecurity, and leads to more frequent (and sometimes massive) financial crashes’.

Among the myths he takes on are rationality (the foundation of coventional economics) – since we can’t predict distant or sometimes even immediate outcomes, we need safety standards for financial instruments just as we do for cars, planes and drugs; self-interest – companies run for the benefit of shareholders do worse than those that aren’t; pay as an objective measure of performance – the poor tend to be more entrepreneurial than the rich, and a juster society would level the playing field to allow them to prove it; the obsolescence of manufacturing, which has misdirected investment towards problematic ‘thin air’ targets such as formal education and the spread of the internet; and finance as a source of growth and innovation.

Chang concludes that governments need to get better at crafting a more dynamic, stable and equitable economic system – which means ‘building a better welfare state, a better regulatory system (especially for finance) and better industrial policy’.

Chang’s subject isn’t the crash itself, but it certainly reinforces his findings. In his entertaining and provocative Zombie Economics: How Dead Ideas Still Walk Among Us (Princeton, 2010), on the other hand, the Australian economist John Quiggin deals with the GFC (global financial crisis) head on, showing how the implosion of the financial system fatally undermines both economists’ most cherished axioms – efficient markets, general equilibrium, trickle-down, privatisation – and the policies based on them.

He shows that the ‘great moderation’ was a sham, providing soothing camouflage for the reversal of the long-term trend towards social protection and a ‘great risk shift’ from corporations and governments to individuals and households. This is the imbalance that now needs to be corrected, by policies and by economics that ‘focus more on realism, less on rigor; more on equity, less on efficiency; more on humility, less on hubris.’

Exactly the same, of course, applies to management – as proved, if proof were needed, by the third of the book trio, Dan Ariely’s Predictably Irrational (Harper, 2009). Ariely is among the most prominent of the new breed of behavioural economists shaking up the profession by taking the injunction to realism seriously, not least by taking the unheard-of step (for an economist) of testing his hypotheses with empirical experimentation.

From these experiments come some remarkable reappraisals, which conspicuously support the revisionist conclusions of Chang and Quiggin. Thus, Ariely’s experiments suggest that human preferences are so manipulable that our choices and trades in the marketplace are unreliable guides to our real utility; so unreliable, in fact, that ‘market prices’ themselves become arbitrary and suspect. Demand and supply aren’t separate things.

Momentous consequences flow from that. If, reasons Ariely. we can’t rely on market forces to set optimal market prices, and nor can we expect choice to be an accurate reflection of individual preference, the market’s claim to be an infallible allocator of resources falls away. For society’s essentials such as healthcare, medicine, education and the utilities, judicious governments must have at least a regulating role, ‘even if it limits free enterprise’.

The conclusion is underlined by other significant experiments with social and market norms. If the efficiency claim falls, and if, as it seems, money turns out to be the most expensive (and not very effective) motivator, then we need to protect the areas (healthcare, medicine, the professions) where cash is not king; where, to paraphrase Herzberg, people do a good job because they are given a good job to do.

As for management, the things that some of us have been banging on about for years turn out to be completely compatible with, indeed vindicated by, the new economics.

Reality demands that since human beings are malleable and neither all good nor all bad, we need to build organisations that bring the best out of them, not the worst. Equity demands that we build organisations that share risk and reward collectively, instead of heaping it on some constituencies to the benefit of one alone. And humility requires people think about the job rather than the reward, the whole rather than the part, the social as well as the commercial, and the planet alongside shareholder value.

If traditional economics is a zombie that needs garlic, a cross and a stake through its heart, then that goes for traditional management too.

The unspeakable treatment of the elderly documented last week by the NHS ombudsman Ann Abraham – worthy of a prison camp rather than a hospital – makes the blood run cold and then boil with rage. It was complemented by a deeply unflattering account in the Financial Times by writer Eva Figes of her stay in a ward for the elderly and bracketed a few days later by a report implicating an ‘overstretched and understaffed’ midwifery service in the preventable deaths of 34 babies in the West Midlands in 2008-2009. How did one of the richest, supposedly advanced economies get to the stage where its health service can only deal humanely with citizens in the prime of life, not at the beginning and end when they need it most?

The horrifying thing is that these weren’t pardonable cases of medical error. Clinically they were banal: having babies and getting old are hardly new or unexpected conditions. The failings are management ones, and they throw in sharp relief a stark truth. We know much more about the human body than human management.

These aren’t random accidents. They occurred because we devised systems that brought them about and were powerless to stop them. Economist John Kay once remarked that in terms of scientific knowledge, management is about where medicine was in the mid-19th century. The history of the NHS is a graphic demonstration. As medical science steadily advances, management marks time: in important ways, as the ghastly events above (and many others in both public and private sector: at random: BP, Lehman and the whole financial crisis) demonstrate, it is marching backwards.

In a prescient 2002 pamphlet (1), Duncan Smith coins a telling image. In the absence of an internal thermometer to provide feedback, the NHS has never been allowed to become a self-regulating (learning) organism. Instead, ‘it became an anatomy on which outsiders [politicians and management consultants] were allowed to operate with very little opportunity for the patient to express its opinion’ – not to mention zero qualifications. It has been a costly experiment. The patient has been bled, purged, starved, fattened, cut up, reassembled and given so many potions that it now resembles a shambling Frankenstein, which Andrew Lansley’s expensive and pointless reform will make even more grotesque.

In the rogue’s gallery of fake healings that have been administered over the years, two faulty prescriptions stand out. Both of them are traceable back to the neo-liberal economics that has held sway since the 1980s. The first is the driving out of social norms by market norms. Recent work by behavioural economists suggests that we simultaneously inhabit two worlds: the social world and the market. We know perfectly well how each works – we don’t expect altruism from the butcher or baker, nor do we expect our partner to charge for supper – and have no difficulty switching from one to the other in our everyday lives.

The trouble comes when one infects the other. For many decades nursing and medicine generally were governed by strong social norms. Medicine was a vocation, so motivation was intrinsic (the job) rather than extrinsic (money) and the public-service ethos was strong. As with many other profession with similar norms, ‘efficiency’ was a secondary consideration.

From the 1980s, impatient governments started importing market notions to challenge the public-service ethos (ie ‘inefficiency’) of the NHS. Taking a leaf from the private sector, they subordinated medical professionalism to an increasingly stark performance-management regime of targets backed up by fierce incentives and sanctions (‘deliverology’ was the unlovely name coined for it by Michael Barber at Tony Blair’s Delivery Unit; in the NHS, it became known as ‘targets and terror’, a much better handle for a management method that comes straight out of the Soviet central planning handbook).

Targets ‘work’, in the sense that if enough resource is devoted to a priority it will be met. But there is always a cost elsewhere in the system, as people stop paying attention to often essential aspects of the job for which they don’t get brownie points.

For the caring professions, the combination of market norms and targets, particularly when linked to pay, has been catastrophic. As Figes’ account graphically exposes, instead of centring on patient needs, whatever they are, today’s nurses and doctors have learned to do only what they are paid for and the targets tell them. Nurses wash their hands (target), but not elderly patients (no target). Thus do we arrive at the heart of darkness, the oxymoron of a health service which does compassion only if there’s a target for it.

This tendency is made infinitely worse by the second prescription of the management flat-earthers, economies of scale. True to form, this is a century-old concoction that comes to us in direct descent from the mass-production car manufacturers of the early 20th century. In the belief that is that is cheaper to do things in bulk, products, whether cars or patients, are batched and processed in turn, before moving on to the next process. Work is specialised and repetitive, and each worker takes responsibility only for his/her part of the process. Workers have no line of sight to the whole.

Even in manufacturing, these arguments have been rendered obsolete by Toyota, which by concentrating on economies of flow – shortening end-to-end times to build a car – rather than scale, despite recent problems has become by far the most effective volume car maker on earth. In services, literally applied economies of scale lead to travesties of efficiency like the grim sweatshop call centres of HM Revenue and Customs, the Department of Work and Pensions and many mobile phone companies, full of bullied, target-driven workers whose only concern is to get people off the phone, whether by passing the buck to someone else or requiring them to phone back. This is the high road that in the NHS leads to fragmented care and health services where everyone is ticking boxes and protecting their backs, while the patient becomes a condition to be treated and expedited to the next station. The result: a Stalinist (I use the word unapolagetically top-down, arse-about-face system that is built to achieve abstract meta-targets (no longer than four-hour wait for emergency treatment, a 50 per cent reduction in MRSA infection) but not individual patient care.

The desperate irony is that starting from the other end – the individual patient – and employing economies of flow delivers results that are not only incomparably better but far cheaper. For every condition, demand into hospitals and doctors’ surgeries is amazingly stable and predictable. Wouldn’t it be more sensible to design an organisation to meet this demand, and nothing else, rather than unleash another whirling dervish of change with the fruitless aim of making central planning work better? As befits a junior, less mature profession that wields far more power than it knows how to handle, before launching yet another reform management should take its cue from medicine and vow ‘Primum non nocere’ – first do no harm.

(1) Physician, Heal Thyself: The NHS needs a voice of its own, Duncan Smith, Socialist Renewal, series 3 no 2, May 2002

The Big Society is like sex: people either talk about it or do it. By and large, those who are at it too busy to pontificate, and of course vice versa.

It’s like sex in another way too: to put it crudely, those who are treated sensitively and as equals enjoy it more, participate more and take the initiative more than those who feel they are being shafted.

Let’s say it one more time. Citizen engagement, like engagement at work, is reciprocal. And at least initially, it’s an effect, not a cause – the result of being treated as a consenting adult. To participate in the Big Society you have to be included in society in the first place.

It couldn’t be simpler. Engagement and participation are created by public services that work.

Here are three examples of what I mean.

At Portsmouth City Council, residents get their housing repairs done at the precise time and day they chose. If that means a week on Monday at 8.05 am or this Friday afternoon at 4.50, fine. (Wouldn’t it be nice if Virgin Media or BT could manage something similar?)

Portsmouth’s housing repairs take a fraction of the time and effort expended by other councils. One counterintuitive corollary of this virtuosity is that the service costs much less to deliver – 50 per cent less, to be precise, using fewer people.

But another consequence is residents who care. With repairs carried out faster and better, the estate looks smarter. Then, as savings are re-invested, the housing stock is not just maintained but upgraded. People notice and respond. They put pressure on residents inclined to spoil the party to toe the line. They form committees, and, to everyone’s surprise, some stand for election to the council. And they suggest new improvements to the repairs team. What were previously dead-end estates now have queues lining up for the few vacancies. The circle is complete.

Or consider the case of the ‘beat policeman of the year’ who was interviewed a year or so back on the Today programme.

He had turned his patch from a nightly no-go area into an oasis of calm. The drug-dealers had moved out and the old ladies back in. How had he managed this triumph of law and order?

Well, said the copper apologetically, disregarding official injunctions to use the centralised call centre, he had given out his mobile phone number – and kept the phone switched on. Result: when people phoned to complain of a rowdy party, a suspicious loiterer or even people dropping litter – he answered (remember the Woody Allen dictum: ‘Ninety per cent of success is turning up’?). Then he nipped over on his bike and sorted things out on the spot.

By doing his job and using his discretion (ticking off but not criminalising badly behaved youngsters, for instance), he quickly won local trust and respect. The sequence is not hard to track. Effectiveness > trust > better intelligence > less petty crime and disturbance > calmer neighbourhood > people looking out for each other… and not a surveillance camera, vigilante committee or council-run Big-Society consultation in sight.

The third example: housing benefits. In most councils, it takes seven or eight weeks and up to 10 visits and phone calls to get through the social-security padlocks and perimeter fences that (in effect) ration benefits allocations. By then, claimants will have often run into other problems, such as rent and council-tax arrears, which feed back into each other in a never-ending cycle of insecurity and marginalisation.

But the cycle can be broken. By radically cutting time to calculate benefits (10 days or less), councils such as Stroud and East Devon made a startling discovery. Council tax and rent arrears problems fade away! They fade away even faster if benefits staff actively seek out such issues (‘Are you experiencing any other related problems?’) at the start.

One unexpected response: grateful claimants hand flowers and cake to staff instead of abuses and brickbats. But another is that they report change of circumstances more quickly, homelessness falls, and there are fewer desperate attempts to cheat. In short, they rejoin small society, a giant step towards being able to conceive of big one.

The Big Society can’t be directly wished or planned into existence, and the Big Society bank is largely a gimmick. It’s a good example of obliquity, the by-product of a working, functioning small society embodied in the local benefits office, police station or doctor’s surgery. And unfortunately at this level much of what the government is actually doing runs counter to its vision.

For example, a huge amount of the remedial work undertaken in hard-pressed local benefits offices, not to mention charities like AdviceUK, is the result of the unexaggeratable upstream incompetence of the Department for Work and Pensions and HM Revenues and Customs in performing (not) their primary job of calculating tax and other entitlements correctly.

These ‘flagships’ of public-sector reform are monuments to early 20th-century Fordism, animated by a crude faith in size, specialisation and automation that are the antithesis of joined-up Big Society concerns.

Ironically, the same damaging obsession with size and scale is now threatening to disfigure the voluntary sector itself.

To qualify to bid for giant public-sector contracts, charity and third-sector bodies are being forced to amalgamate into larger, even national bodies, thus destroying the local volunteering spirit that attracted people in the first place. The stultifying bureaucracy surrounding children’s services and social care, to name but two, perform a similar function of deterring spontaneous generosity and neighbourliness.

The problem not that the idea of a Big Society is unattractive – it’s that it’s so lacking in operational definition as to be practically meaningless. The reality is that current public services have brought about the opposite of the ‘have a go’ society – one that is done to, regimented and disengaged. No amount of excited fanatasizing can change that. Malcolm Muggeridge once remarked that sex on the brain was the least satisfactory place to have it. Similarly with the Big Society. Like virtual sex, it may be enticing in concept, but a concept is no substitute for the real thing.

Terra Firma’s takeover of EMI may be one of the worst deals in corporate history; its backers found out this week that it had cost them nearly £4bn in total. But even if it had ‘worked’, like all private equity deals the transaction was about appropriating value rather than creating it. The private-equity partners, particularly, would have benefited, but essentially the game is zero sum, their gain being made at least in the short term at the expense of the company itself.

That kind of paper gain is what Umair Haque, in his just-published The New Capitalist Manifesto: Building a Disruptively Better Business, calls ‘thin’ or inauthentic value. He opposes this to ‘thick’ value, a kind of social alpha, which adds to wellbeing after all costs have been taken into account. As well as the private-equity deal, Haque gives as an example of thin value the $1 profit made on a $3 burger. In fact, says Haque, the full cost of a burger is probably closer to $30. So the dollar made on the deal isn’t really value at all. The burger maker has borne just $2 of the burger’s full cost, leaving $27 to be picked up by people, society, and future generations. ‘No authentic value has been created; the profit booked an illusion of imbalanced accounting.’

Haque, director of Havas Media Lab, is the new kid on the block, posting a series of fiery blogs and tweets (@umairh) dissing almost all conventional business institutions from traditional economics (‘the ponziconomy’) to Davos (‘Egypt: the young desperately fighting for a better future. Davos: old rich dudes fighting savagely against it’). Michael Porter (also, interestingly, with a Harvard base) is infinitely less of a firebrand and more academically respectable. Yet the establishment strategy guru has come to a similar conclusion. In a big piece in the current issue of HBR entitled ‘How to Fix Capitalism’ (no less), Porter writes that ‘business and society have been pitted against each other for too long.’ Instead, he says, ‘The purpose of the corporation must be redefined as creating shared value, not just profit per se’.

Shared value means creating economic value ‘in a way that also creates value for society by addressing its needs and challenges’ and clearly has much in common with Haque’s ‘thick’ variety. They both aim to get away from the cynical and insulting idea of Corporate Social Responsibility and put the wider social need at the heart instead of the margin of business. They are both thus in the spirit of Peter Drucker who as long ago as 1984 wrote that ‘The proper social responsibility of business is to tame the dragon, that is, to turn a social problem into economic opportunity and economic benefit, into productive capacity, into human competence, into well-paid jobs, and into wealth’.

At the heart of all three approaches is the idea, self-evident to all except neo-classical economists, that that companies can only flourish sustainably in a healthy society. So if they are manufacturing ‘bads’ that society then has to spend time and money rectifying, they are in effect imposing a tax on everyone, including ultimately themselves. Just as bad, by manufacturing ‘bads’ that they decline to take responsibility for (pollution, obesity, the credit crunch), business steadily undermines its own legitimacy. As Porter points out, ‘diminished trust in business leads political leaders to set policies that undermine competitiveness and sap economic growth. Business is caught in a vicious circle’ – not only of of its own making, but also that of business academics, including, ironically, Porter himself.

Now, as Charles H. Green notes in a sympathetic but sceptical review of the two pieces, these are heady and exciting themes, and directionally they are surely right. But this doesn’t mean they will automatically come to pass. As he suggests, the ‘must’ (create shared value) in both authors’ texts has no causal force; it is ‘exhortation dressed up in the words of logical necessity’. He concludes: ‘The last thing capitalism needs right now is a new [closed-system] ideology. Business needs simply to take its seat among other social and political institutions, and to play nicely in the sandbox alongside them’.

Yes: but that raises rather large questions of its own. Business is hardly likely to get humbly down in the sandbox when the zombie shells of the misleading old ideology are still lumbering tiresomely around the landscape. It is they after all that prevented business from doing just that (or rather, exempted it from the need to do so) in the first place. And that raises problems in another and much less familiar arena: the political.

Although neither of them mention it, the corollary of the idea that companies have an obligation to wider society (unavoidable after a crash caused by the Friedmanite insistence that business should be left alone to concentrate on business) is the end of shareholder primacy. Actually, it was always a myth that shareholders owned corporations (see HBR if you don’t believe me), which is simply incompatible with limited liability; and shareholders in general didn’t do very well out of the shareholder value era anyway (HBR again).

But when the myth of the shareholder as organising principle is disposed of, it isn’t just the unlovely and dysfunctional edifice of today’s management conventions that come crashing down with it. Powerful vested interests are endangered too. One notable casualty is the business schools and consultancies, which over 30 years have have invested hugely in theorizing the shareholder model. Take for instance the popular version of strategy (chief guru: a certain Michael Porter) that casts the function of managers as value capture – basically raising barriers to prevent anyone else, including employees and society itself, from eating the shareholders’ lunch. By changing the manager’s job to creating new value through innovation, Porter’s shared value thesis laudably puts managers and society – at last – on the same side. But it may not do much for their pay packets.

This is because also swept away with shareholder value is the present stockholder-oriented governance arrangements. These have indeed done a terrible job of looking after the bulk of shareholders’ interests. But they have also underpinned and justified the grotesque compensation structures that now marry the interests of Wall Street and City of London with those of corporate boardrooms. Unfortunately this unholy alliance – which has hoovered up almost all the wealth increase of the last two decades at the expense of everyone else – now exercises an almost unimaginable sway over politicians, particularly in the US. As Green puts it, ‘Elections and legislation are heavily controlled by corporate interests in the United States today,’ and as he doesn’t put it, these are largely free-market fundamentalists who insist on their god-given right to make money even if they have to bring the world financial system crashing down on top of them to do so. Successive governments have been in similar thrall to finance in the UK, and to a lesser degree in many other western countries.

So now do you get the picture? After 30 years hiding behind the supposedly impartial axioms of economics, perhaps for the first time management is political; and no amount of talk about MBA oaths, ethics classes and even shared or thick value is going to change that. To rephrase Marx: the point is not to understand the world (we’ve done that). The point is to change it.

Read my article of 31 January 2011 in FT Business Education here

Time was when Davos was the throne-room of the new world order.

Once a year, the very rich and very powerful gravely gathered in the small Swiss town to celebrate the status quo. Everything was in its allotted place. If capitalism had triumphed, it was because, reversing the Marxist trope, it was inevitable.

If they, the very rich and very powerful, had climbed to the mountaintop, it was because they had understood and exploited the ineluctable laws of the market faster and more intuitively than anyone else. They were there because they had earned that privilege, and being there qualified them to pontificate not just about business but also about health, education, the social services and – why not? – government itself. Davos embodied business’s claim to govern the world.

What a difference a couple of years makes. It’s now startlingly clear that the global financial crisis wasn’t just a caesura in the steady upward path of progress. It was a juddering full stop marking the end of an era where for those who bothered to look, returns had been diminishing for decades.

In that light it is hard to overestimate the degree to which the Davos worldview now seems irrelevant – as passé as Dallas. The Washington consensus has gone in a puff of bad debt. The economies which most enthusiastically did as it said and opened themselves up to the borderless flows of capital are the ones in the deepest financial doodoo: Iceland and Ireland, separated only by a letter, most of all, with the storm clouds now squatting menacingly over the the static economies of the US and UK, while Greece and Portugal have been caught up in the squall. Meanwhile, powering ahead are the brics, particularly China, and other emerging economies, despite ramshackle institutions, enthusiastic corruption and political regimes ranging from the lacklustre to the thoroughly authoritarian. According to Davos, none of this could happen.

Everywhere what was solid is turning to air. The stunned silence of Western leaders as the Arab dictators they shored up for decades topple like dominoes says it all. Even politicians in (so far) peaceful western democracies look fearfully over their shoulders as, facilitated by social networks such as Twitter, protest ripples through not only the countries immediately affected by the crisis but also the previously somnolent UK and US (although perversely in the latter case the most vocal protests are those in favour of big business’s god-given right to bring down the world financial system free of government regulation). In France, the publishing sensation of the year has been a 22-page pamphlet written by a 93-year-old Resistance veteran called, untranslatably, ‘Indignez-vous!’, or ‘Get angry’, which calls for a return to the social values first articulated at the liberation in 1945. Many in France, and indeed the rest of old Europe, are prepared to take him at his word.

The intellectual foundations of Davos are crumbling – or more accurately have imploded – too. Economics, the standard bearer of the social sciences which has come to dominate all the others, is in disarray, and leading economists have lined up to twist the knife in the corpse. For Paul Samuelson, godfather of the profession and the first American Nobel economics laureate, the crunch shows ‘how utterly mistaken was the Milton Friedman notion that a market system can regulate itself.’

Alan Greenspan, himself perhaps the most influential Friedmanite of all, likewise accepts that the fundamental failure of enlightened self-interest in 2008 brings ‘the whole intellectual edifice’ of financial economics down with it. ‘Large swathes of economics are going to have to be rethought on the basis of what’s happened,’ concedes Larry Summers, Barack Obama’s top economic adviser, a sentiment echoed by LSE’s Willem Buiter, for whom the last 30 years of economic work represent a ‘costly waste of time and other resources’. Among a barrage of other criticisms, New York Times columnist and Nobel laureate Paul Krugman calls modern macroeconomics ‘spectacularly useless at best, and positively harmful at worst.’ In his entertaining and provocative Zombie Economics: How Dead Ideas Still Walk Among Us, the Australian economist John Quiggin forensically demonstrates how the crunch explodes the most cherished economic axioms – efficient markets, general equilibrium, trickle-down economics and the superiority of privatisation – and the policies based on them.

In short, sums up the Cambridge economist Ha-Joon Chang, ‘What we were told by the free-marketeers… was at best only partially true and at worst plain wrong’; even before the financial meltdown, he adds, ‘unbeknown to most people, free-market policies had resulted in slower growth, rising inequality and heightened instability’.

Davos, in short, is running on empty, although not everyone realises it. Most unreconstructed of all, since it has most to lose, is the complacent old guard of business, which with profits high and interest rates low has done pretty well out of the last two years. This is not the case on the academic side, where Umair Haque, with his coruscating blogs from Harvard Business School and freshly published The New Capitalist Manifesto, and veteran Michael Porter, author of a piece entitled ‘How to fix capitalism’ in Harvard Business Revew, have joined Gary Hamel and his allies in contesting the old order and attempting to articulate, at least partially, a new one. But in this context, the bankers’ pleas to be left to carry on business as usual, complete with bonuses, while they nod their heads sagely over the austerity visited on the rest of us, sound as much part of another time as Sky’s football presenters.

The new time, on the other hand, is being formulated not at Davos but on the new media like Twitter. ‘Egypt: the young desperately fighting for a better future. Davos: old rich dudes fighting savagely against it’, summed up Haque, the sharpest of the new business revolutionaries. Another aphorised: ‘It’s my fiduciary responsibility to max shareholder value’ is our ‘I was just following orders’. Davos’ epitaph in a tweet.

Tom Peters tweeted this week: ‘Predict Apple post-Jobs ‘ordinary’ within 15 years. The way of [corporate] nature.’

That’s the conventional view, and one I used to share.

Apple is a remarkable, indeed unique company. Not content with triggering the personal computer revolution with the Apple II and then the Mac back in 1984 (I had one of the first of those quaint beige sit-up-and-beg boxes in the country) it has also, since Jobs’ second coming in 1998, annexed the music industry and redefined mobile phones. Now, if you please, it is back to computers, where the iPad is biting deep into the PC market and has bodily wrenched the industry that it helped to created on to a new path.

No other company has successfully disrupted not just one but three major industries. Apple has defied convention in another respect. It has become the world’s most valuable technology company, and will probably this year become the most valuable company of any kind, not by pursuing volume à la Microsoft but by ‘doing a BMW’ – creating what are initially niche products that redefine and thus eventually become mainstream – in three different sectors. That takes some doing.

And how has it done it, exactly? If you believe the markets, which marked Apple down sharply the day after CEO Jobs announced another medical leave of absence (before marking it back up again on the back of record quarterly results), it’s all down to the company’s mercurial co-founder.

It’s certainly true that Jobs, perfectionist and ferocious taskmaster as he is, has been crucial in bringing Apple back from the brink and turning it into today’s supremely confident $316bn bundle of value.

But while he hasn’t left it an obvious sucessor (although chief operating officer Tim Cook is a more than competent deputy), in two important respects the company is no longer in thrall to Steve Jobs.

First, unlike many other firms, Apple knows what Apple can do. You know the joke about Jobs’ ‘reality distortion field’: his ability to dazzle, charm, and bully co-workers into believing that the impossible is not only possible but achievable tomorrow. Well, the joke is actually on the jokers: the Jobs RDF works. In his estimable Weird Ideas That Work, Stanford’s Bob Sutton notes that the best way to carry off really difficult stuff like innovation is to ‘decide to do something that will probably fail, then convince yourself and everyone else that success is certain’. In other words, use self-fulfilling prophecy as a management weapon. This is Jobs – and now Apple – to a T.

The secret of Apple’s systematic mastery of the RDF lies in turn in its greatest innovation. No, not the Mac, iPod, iPhone or iPad: but iTunes and its spiritual heirs, the App Stores.

What iTunes did was give the music business back to its customers. While the music majors were busy threatening their most ardent and knowledgeable consumers with legal action – rarely a winning long-term strategy – for file-sharing, Apple was making it ridiculously easy for the law-abiding majority to pull what they wanted from the great jukebox in the sky. Consuming music was no longer about paying large amounds of money for the cynical offerings that the labels pushed at them. It was about choice. It was also fun. You could browse, combine and play music in ways that you, not the producer, wanted. It was music for the rest of us.

The App Store pulls off a somewhat similar trick for hardware. More than a chunk of metal, glass and silicon your mobile phone has become much a part of you as a hand or arm. All human life is here. You can have an iStethoscope or a detailed map of Israeli settlements in Palestine, according to taste and profession. The iPhone has become iYou.

The iPhone App Store was about differentiation in a highly competitive market. In the case of the iPad, the App Store’s role is even more intriguing.

When Apple introduced its first mobile device, the Newton, in 1993, it had no idea what a tablet was for, and consumers had no way of telling it. Newton was a flop, a rotten Apple.

When it launched the iPad, Apple still had no idea what the function of a tablet was – but this time it didn’t need to, because there was an App Store pullulating with other people’s guesses and urgings for consumers to browse among. Let the consumer decide. The result: the iPad is a roaring success even without a killer app. It is a blank slate, as it were, on which anyone can write their desires. This chameleon character seems to be particularly reassuring to corporates; having consistently distrusted the Mac’s individualist, even maverick image, they are reportedly taking up the iPad in droves.

It is no surprise that Apple has just launched an App Store for the Mac. At one level what’s going on here – a powerful idea in its own right – is reducing friction: Apple differentiating itself by making it ever easier for buyers to identify with their purchases by making them an extension of themselves. More profoundly, though, as shown particularly by the iPad, Apple is capitalising on its customer relationships – and in the iTunes/AppStore model it has the mechanisms to do it over and over again.

Unlike almost all conventional companies, Apple is thus not a standard corporate dictatorship. Although certainly casting apprehensive glances over their shoulder towards their demanding boss, Apple employees are mostly, and rightly, facing towards their customers. Apple, in short, is an ‘outside-in’ organisation rather than just a top-down one – and Jobs’ sometimes unattractive control-freakery serves to enforce this orientation. That, not its CEO’s obsessive genius, is Apple’s greatest strength. In time it may be seen as Jobs’ most important and lasting legacy.

Read my article on zombie management in the Daily Mail, 17 January 2011

It’s hard to know which is more unappealing: ministers ineffectually begging bankers to show ‘sensitivity’ in this year’s bonus round, or the bankers themselves, who like the aristocrats of the Ancien Régime show absolutely no sign of altering their behaviour one jot until they are forced to do so.

Now, I have no problem with workers being handsomely rewarded for corporate success. The conventional view that financial capital is the scarcest and most important corporate resource, and that financial investors are the only stakeholders that matter, is ideologically-inspired nonsense. It’s human capital and the accumulated know-how embodied in products and processes that are today’s source of competitive advantage, not raw financial clout. In this perspective, Nicholas Sarkozy’s rule of thumb that in a solidly profitable company, returns should go equally to employees, shareholders and future investment (due taxes having been paid, of course) sounds about right.

So what’s the issue with bankers? Actually there are two. The first, much neglected, is internal fairness, which appears to be much better correlated with firm performance than individual rewards. Income inequality within firms, just as in society as a whole, undermines solidarity and engagement; any effect of increased competition is nullified by decreased cooperation. As the past 30 years conclusively prove, trickle-down economics is a myth.

On the other hand, bonus systems such as John Lewis’s, that reward everyone after the event and equally (in proportion), have the opposite effect. By recognising the reality that corporate success (or failure) is a collective effort, not the work of one or two stars, they foster commitment and cooperation. Individual bonuses, especially large ones, have the perverse effect of making people think about the money, not the job. The best reward system, by contrast, is fair and generous enough that no one has to think about it at all, freeing people to concentrate on the object of the exercise, ie doing a good job.

The second issue is even more basic. Lesson 1 in Economics 101 is that in a competitive economy very high profits can’t exist for long, because they will attract new entrants to the industry who will compete the excess profits away. As the sainted Adam Smith put it: ‘On the contrary, it [the rate of profit] is naturally low in rich and high in poor countries; and it is always highest in the countries which are going fastest to ruin.’

The obvious inference is the right one. Banking is not efficient, in economic terms. In fact it is profoundly inefficient. To put it more colourfully, as Tony Hilton did in the Evening Standard, the City of London and Wall Street are the biggest market failures of all time. There is no incentive to keep costs down (Merrill Lynch’s John Thain reportedly spent $1.2 million on office decorations and paid his driver $230,000 a year) – and perversely, more onerous regulation just protects the current oligopoly (and its profits) by making it harder for upstarts to break in and shake things up. Meanwhile, the size of the rewards on offer for just one large deal means that individuals are no longer subject to the reputational discipline of the past. When deal participants need never work again, the old City boast that ‘my word is my bond’ becomes irrelevant.

The situation is made still worse by the ‘too big to fail’ syndrome. As Justin Fox pointed out in a perceptive HBR blog recently, the increasing returns to work in finance were for a long time justified as rewards for creating alpha. In light of the global financial crisis, that claim provokes hollow laughter. Instead, writes Fox, ‘it seems more likely that the combination of massive risk-taking in the financial sector and government backstops and bailouts when those bets go bad has created a situation where financial sector pay is kept artificially high’.

How high? About 40 per cent, according to academic work quoted by Fox that compares financial-sector pay packets with those of other professions where people had similar skills. Note that that’s for the financial sector as a whole; in the more rarefied reaches of Wall Street and the City those percentages would be astronomically higher. Hardly surprising, then, if you can hear ‘a giant sucking sound’ (Fox’s term) as these purlieus ‘hoover up the smart and self-interested’ – among whom figure plenty of out-of-office politicians, whose presence among the snouts in the trough perhaps helps explain the strange reluctance to enact reforms that would reduce finance’s unhealthy dominance, cut bonuses down to size and respond to voters’ concern all at the same time.

In one sense, the bankers’ heel-digging is logical. In their eyes they really are Masters of the Universe, so why wouldn’t they expect to be paid as such? To the rest of us, they look more like the callow Sorcerer’s Apprentice, whose pretensions to power far outstripped his ability to use it, resulting eventually in a bail-out by his master. To prevent the servant getting ideas above his station again, the banks have to be broken up, with no connections allowed between narrow utility banks, protected and guaranteed, and their casino offspring. The investment banks, too, as a useful article (you may need a subscription) by Seth Mallaby in the Financial Times points out, are riven with conflict and should ideally also be split up.

Crucially, making them small enough to fail would remove the implicit incentive for overexuberant risk-taking. Together with a Tobin tax on transactions and a requirement to subject financial innovations to pharma-style safety testing, these measures would drastically reduce the subsidised profitability of the financial sector and slash the size of the bonus pot available. Yes, short-term tax receipts would suffer; but that loss would be vastly outweighed by the benefits of a better-balanced economy, greatly reduced systemic risk and an end to that horrible sucking sound.

Although it’s not man-made, unlike the financial hurricane that ripped through the world two years ago, the extreme weather conditions of the last six weeks, and the subsequent orgy of blame and recrimination, provide some timely management food for thought for both individuals and institutions.

Thus, terrorists and plotters everywhere, eat your heart out. It doesn’t take bombs or sophisticated conspiracy to unhinge our our ultra-managed, protected, securitised, organised and information-swamped environment and throw it into panic. It takes rain and snow. Our antediluvian grandparents would have been astonished. They were profoundly undismayed by the idea that each year they might suffer temporary inconvenience from cold, wind, and precipitation. They got in extra provisions, stocked candles, and wore warm clothes. They even had a name for it: winter. They would have understood the sentiment, if not the language, of the twitterer who wrote at the height of the crisis: ‘Caught short by the snow? Confined to barracks? Buy a f****** shovel.’

As ever, the reaction for such natural ‘disasters’ is to look for culprits and resolve that it will never happen again. Why weren’t we told? Whose fault is it? Who’s going to pay/resign/say sorry? Hence the tidal wave of retrospective regulation slamming the door after the horse has bolted. Not only that: by reinforcing the belief that natural causes can be managed away it perversely and tragically undermines the individual resilience that our grandparents knew to be the only sensible and proportionate response.

At institutional level too the weather raises some important questions about long-term issues of economic management – issues that have been long brushed under the carpet of conventional wisdom. Could it be that the winter of 2010-2011 will come to mark the full stop at the end of the era of privatisation?

In his excellent Zombie Economics: How Dead Ideas Still Walk Among Us (of which more on another occasion), John Quiggin nails privatisation as of one of the undead: an idea whose substance has been sucked away by the global financial crash but whose empty husk lingers spectrally on.

Who’d have thought even a few years ago that such capitalist icons as Bank of America, General Motors, Royal Bank of Scotland and Citigroup would find now themselves in public ownership? Of course, these will almost certainly be temporary public enterprises. But in truth privatisation has been in retreat for years. It’s not just that that there has been a steady stream of individual renationalisations: Railtrack and London Underground in the UK, rail and the national airline in New Zealand, broadband in Australia, health (controversially) in the US, not counting the crash casualties for which the public sector has turned out to be a literal lifeline. It’s that its underlying pretensions to efficiency and public benefit are increasingly revealed as threadbare.

Quiggin, an economist, notes that despite the strident free-market rhetoric, empirical evidence on the effects of privatisation is both rare and ‘decidedly mixed’. Some privatisations, as in Russia, were organised banditry. When Quiggin looked at selloffs in Australia, he concluded that the only ones yielding the government a net fiscal gain were those that took place in a bubble, with the result that they were later resold at a loss. In most cases, he says, ‘there was a net fiscal loss from privatisation’, with no offsetting benefits to workers or consumers, implying that there was also a net social loss.

You don’t have to be a revolutionary to note that what the theory suggests, this winter’s snow and ice made bleeding obvious. As FT columnist and deputy editor Philip Stephens wrote recently, the shambolic events at Heathrow before Christmas exposed, not for the first time, an increasingly evident truth – ‘a culture of private ownership, financial engineering and short-term financial reporting that militates against long-term investment in major infrastructure’. In the same newspaper, John Kay, another economist, agreed: ‘Highly geared businesses are not suited to the long horizons needed for airport planning’ – or indeed other infrastructure projects, which is why the UK’s railway system too is such a mess.

Stephens called for Heathrow to be nationalised, or at least turned over to London mayor Boris Johnson. Meanwhile, writing in Libération, an observer of similar events in Paris noted that his abiding memory of the episode was of EDF (Electricité de France) engineers behaving like real public servants: working all night without a break in freezing rain to get the lines back up again.

The lessons of the coldest winter and the iciest financial climate for the best part of 100 years thus converge at the same perhaps unexpected point. The unmanaged market is a recipe for disaster. What is needed is a system that is actively mediated by the government, in which individuals, private companies and the state all have a complementary part to play. The boundaries between them are permeable and shift over time, but none can thrive exclusively of the others. As Quiggin notes, this is not a compromise between free markets and socialism: unlike the vapid offerings of Tony Blair and Bill Clinton in the 1990s or David Cameron, it is a real Third Way that free-market ideologies made it previously impossible to envision.

Happy New Year. And let’s hope the weather improves.