Finally he pointed out that the economics of a services business were very different from those of a product-based business. A major services contract might last six to twelve years. An outsourcing contract for, say, seven years might lose money in the first year. All of this was foreign to the traditional world of product sales and would create problems for our sales compensation system and the financial management system.

The world is radically uncertain. Information is imperfect. No contract can anticipate all possible contingencies. Not only do we not know what will happen – we often have only limited insight into the range of things that might happen. Unforeseen events will require adaptation. But by the time such adaptation is required, both parties to the contract will have committed to the relationship.

There are two obvious ways to fail here. The translation and error-correction mechanism might be inadequate, or the managers might intentionally distort the signals in order to follow priorities of their own. The tragedy of senior management is that it can drift into either of these failure modes without realising; if either problem arises, it arises in their information and communication environment, so they won’t notice it. It’s the problem identified by Niccolò Machiavelli — a prince who is not wise cannot be well advised, and a manager who doesn’t have access to excess analytical capacity won’t be able to tell when something has gone wrong with their subordinates. But maintaining that spare management capacity is expensive.

This had a frightful effect on public sector management. The coordination function was impaired; the difficulty of ‘joined-up government’ and making policy for problems that crossed the boundaries of different agencies was repeatedly remarked on. And the operational delivery functions started to suffer severe cognitive loss, too. A company that sells goods and services for profit can never completely sever the connection which takes information from its customers; the people who buy the thing have the ability to refuse to do so. In many cases, people who interact with the state don’t even have the ability to transmit that single bit of information because they can’t shop elsewhere; they can complain if they like, but they interact with the sermon representative, the paradigmatic accountability sink.

Things got worse over a long period of time, but this was initially hard to notice. Recall that in Jerome Levy’s high-level view of the economy, the investing class has two purposes — providing insurance against the business cycle to the working class, and providing them with consumer goods. While the first of these services had been abandoned, this was not immediately obvious — the business cycle itself had been temporarily calmed down. And although many of the purchases were funded by debt, the second still seemed to be functioning. Over the course of a few decades, the risk transfer was completed.

One of its signals has been so amplified that it drowns out the others. The ‘profit motive’ isn’t something that can be ascribed to corporations — they don’t have motives. What they have is an imbalance between the two key higher-functions — here-and-now versus there-and-then. They aren’t capable of responding to signals from the long-term planning and intelligence function, because the short-term planning function has to operate under the constraints of the financial market disciplinary system. Either a corporation has a survival condition based on needing to make a monthly interest bill, or there’s an implicit threat from the financial environment that if it fails to behave in a particular way, it will be taken over by an outside entity.

If you take away that pressure, it’s quite likely that the natural equilibrium of corporate decision-making systems will be less hostile to human life. Viable systems fundamentally seek stability, not maximisation.