Researchers have identified a cluster of anomalies that corrupt this process and lead to suboptimal allocation decisions. Among the most pernicious …

• DEFEND WHAT’S YOURS. Leaders tend to be territorial about the resources they control and are typically reluctant to share money and talent with other units, even when the returns might be higher.

• THE RICH GET RICHER. The biggest units in a multibusiness company tend to get more than their fair share of capital, not because they offer better returns, but because the leaders of these businesses have more political clout.

• GOOD MONEY AFTER BAD. Executives tend to overinvest in struggling businesses in hopes of turning them around. Research shows that in most cases, returns would have been higher if the money had been invested in less troubled units.

• SHARE THE PAIN. When cash is short, executives tend to cut spending across the board rather than protect high-priority areas.

• IT’S WHO YOU KNOW. Senior leaders with strong internal networks typically win more resources than leaders who are less well connected, irrespective of the merits of the particular business case.

• HOME IS WHERE THE HEART IS. Senior executives are less likely to defund or divest a business in which they worked earlier in their career.

• PRETTY IT UP. In competing for funds, business unit leaders have an incentive to inflate the merits of their investment proposals. These distortions are often difficult for corporate-level executives to ferret out.

• MORE OF THE SAME. Funding decisions are often made relative to last year’s budget. Every business or product line gets pretty much what it got the year before, plus or minus a few percentage points.

All of this—the slowdown of growth, the industry overcapacity, and the spillover of price competition from plastic back to metal cans—is basic industry analysis and could have been easily predicted by the use of the popular Five Forces framework developed by Michael Porter.

Between 1998 and 2001, Crown’s stock price dropped catastrophically, falling from $55 to $5.

Disruptive technologies, Christensen had observed, often grew out of hobbyist communities. They were developed using “bootlegged resources” in which “off-the-shelf components” were redeployed for something other than their intended purpose. They started out wonky but rapidly improved along attributes of performance that established players ignored.

But even once you had absorbed this lesson, it wasn’t easy to implement. Pursuing niche markets cost profits, making investors question your sanity. This, too, Christensen had foretold: “One of the reasons managers at established firms find it difficult to serve emerging markets is that their investors and customers tell them not to.”

That was the real secret of The Innovator’s Dilemma, which readers often missed. It was not a book about how to succeed; it was a book about how not to fail. Christensen’s book wasn’t a how-to for start-ups but a counterinsurgency manual for senior managers at stagnating firms. Thirteen years in, Huang felt that Nvidia was at risk of becoming such a firm, and it was as much paranoia as optimism that led him to pursue the mad-science market.

This is an important and underappreciated point: there is no shortage of ‘patient capital’ – institutions such as pension funds and university endowments are naturally looking for investments that may only pay off in the long term – but there is a shortage of patient individuals working in the finance sector, an industry remunerated almost entirely by transactions. The result is a constant flurry of financial activity engaging senior executives, investment professionals and advisers which rarely adds to, and often detracts from, the effectiveness and success of the underlying business. The financial pressures that motivated strategy at Merck and Valeant not only damaged the standing of the businesses and their products but also diminished the returns to their shareholders in the long run. In later chapters I will show that these are far from exceptional cases. The history of pharmaceuticals illustrates much that is right and wrong in the relationship between business and society. I have described four problem areas: the motivation and standards of behaviour of leaders of the industry; the interface between business and finance; the difficulty of constructing a regulatory regime that is relevant and effective; and the sometimes too tenuous relationships between prices, costs and values. None of these issues is unique to the pharmaceutical sector: similar questions arise in every kind of business, and the answers are necessarily specific to industry, time and place. But in this book – and another that will follow – I will illustrate principles and directions of travel.

From a cybernetic point of view, it’s interesting as an example of how the systems and structures mattered so much more than the individuals involved. The development of the Friedman doctrine into the intellectual backing for the leveraged buyout boom and the private equity industry are best seen as a conflict between two comprehensive systems of interest, both of which might have regarded the other as a threat. The great unremarked class struggle that happened in the 1970s and 1980s was that between capitalism and managerialism.

The managers lost this struggle, pretty comprehensively. And as we’ve seen, the combination of the blind spots in management and the blind spots in economics came together to produce an ideology which was bound to remove management capacity. And that created further blind spots, and further reduced the system’s ability to cope with shocks. The story of how we got to where we are is a story of the attempts of the system to cope with this, and to search for short-term equilibrium.