There are currently a lot of things wrong in the world. One of the most urgent is management. Compared with war, pestilence and poverty rising as unstoppably as climate-change floods, that may seem a stretch. I hope to convince you otherwise.

Management is the supply-side constraint that incomprehensibly is never addressed. As Gary Hamel noted at the September launch of the Drucker Forum’s ambitious new Vienna Center for Management Innovation (disclosure: I work as editor for the Forum), even in an age of crisis and violent upheaval, it is the one thing that never changes. It’s stuck, and its stuckness, he said, leaves us hostage to a 19th century technology that has sedimented into a liability – a real and present block on our ability to solve problems as a species.

Ossified management is an important factor in the innovation slowdown that has held down productivity and average wages across the OECD over the last two decades. Hamel and Michele Zanini estimate that bureaucratic drag now amounts to a global $18tr in lost productivity, with all the implications for living standards, social mobility and inequality. Peter Drucker’s prediction that 21st century organisations would need half the number of management levels and one-third the number of managers has turned out to be wrong by 100 per cent. Management has grown faster than all other occupations in the US for the last 40 years.

This would be more than enough to mandate the comprehensive overhaul of management practice that the VCMI rightly has in its sights. But we shouldn’t neglect theory either. There may be nothing so practical as a good theory, as Kurt Lewin put it, but the reverse is also true: there is nothing as destructive as a bad one.

That this is the case for management was bluntly put in the title of a celebrated 2005 article by the late Sumantra Ghoshal (this year justly elevated to the Thinkers 50 Hall of Fame): Bad Management Theories Are Destroying Good Management Practices. When, sooner rather than later, every new technology ends up being used either to short-change customers or oppress workers or both (a phenomenon I’m tempted to claim as Caulkin’s Law), rather than for the positive ends initially touted, it is not because of inevitable forces of nature. It is because managers are unconsciously channelling a set of negative ideas and assumptions that were formed under the pressures of history, ideology and very human ambition in the middle of the last century.

---

To keep it as brief as possible. In the aftermath of 1945, management had its sole, and all too brief, moment of political salience. Recognized as having played an important part in the allied war effort, it became an arena of competition in the ideological stand-off between the victors. To demonstrate the superiority of capitalism over Soviet central planning, the US authorities were keen to systematise the significant management advances made during the war, and in 1959 two major reports from the Ford and Carnegie Foundations appeared recommending that the teaching of the discipline be put on a more rigorous and scientific footing. The reports were backed with sizeable grants to help it happen.

Taking their cue from economics, academics in the US and at the new business schools being set up in the UK and Europe enthusiastically took up the challenge of turning management, then a loose hodgepodge of practices and processes, into a ‘respectable’ social-science – and set it on the numbers-based, finance-dominated course it has followed ever since.

This path was narrowed, then fixed, by theoretical developments in the 1970s, many emanating from the influential free-markets-oriented Chicago school of economics. Following the earlier Ronald Coase, companies were held to exist because in some cases it would be cheaper and easier to bring activities inside a firm or organisation where they could be better policed, than contracted for in the open market. In other words, companies are the result of market failure, implicitly second best to the ‘marvel of the market’ as a means of organising. Following Milton Friedman, the first and only duty of the manager is to increase returns to the shareholder-owners of the company. And following the agency theory of Michael Jensen and William Meckling, incentives were needed to prevent managers using their position to pursue their own interests instead of those of their shareholding principals. (Look no further for the origin of the stock-options boom of the 1980s and beyond, the excesses of which even Jensen has come to deplore.)

---

Buried deep in all three strands of theory are strongly negative assumptions about human nature. As in classical economics – ‘the first principle of Economics is that every agent is actuated only by self interest,’ wrote Amartya Sen – humans in dominant management theory are assumed to be ‘homo economicus’, perfectly rational calculators in pursuit of their own self interest. Self interest means opportunistic behaviour such as shirking, skiving and gaming the system, up to and including cheating and lying. Not everyone lies and cheats, but since there is no way of knowing at the outset who does or doesn’t, the worst has to be legislated for. As Friedman helpfully put it, ‘the liberal…regards the problem of social organisation to be as much a negative problem of preventing ‘bad’ people from doing harm as of enabling ‘good’ people to do good.’ Economic man, reductive and instrumental, is explicitly at the heart of agency theory, and the threat of opportunism is one of the key factors to be guarded against in the transaction costs theory of the firm derived from Coase’s insight.

The upshot of all this is a management model based on a profoundly pessimistic view of human nature and the role of companies in society, and, as scholars have pointed out, one decisively skewed towards solving the negative problem of control and monitoring rather than the positive one of doing good things better. This is one important reason why management is blocked: it is up a dead end with no way out.

But, circling round to the beginning, it is this ‘ideology-based gloomy vision’, as Ghoshal termed it, that is replayed in the Kwarteng/Truss spectre of the the UK’s supposedly idle, skiving workers and their threat of repressive response, just as it is in the ruthless, take-no-prisoners behaviour of CEOs like ‘Chainsaw Al’ Dunlap or the early ‘Neutron Jack’ Welch; in the latest manifestation of Caulkin’s Law, the deployment by employers of distance working technology for ever more intrusive surveillance of their remote workers; in the growth of the precarious gig economy that platforms have in effect used to wage war not only on jobs (remember the short-lived ‘sharing economy’?) but on the whole idea of the corporation; in the use of adtech and targeted advertising to harvest and resell consumers’ personal information and the exploitation by social media of the worst side of humanity for their own gain; and so on and so on.

The other reason the current counterproductive version of management is so hard to shift is the densely interlinked supporting ecosystem that has grown up around it. Composed of business schools, big consultancies, governance codes and above all the fund management industry, it is all held together by, lo and behold, the same strong incentives and self interest predicted by the gloomy vision. It’s almost beautiful in its hermetic circularity.

---

For all that, even this isn’t the baddest aspect of today’s management theories. That, with deep irony, is something uniquely human: if enough people believe them, their tendency to become self-fulfilling.

If you insist the earth is flat, people may give you a wide berth, but your beliefs will have no effect on the planet’s contours. But cause and effect works differently in human affairs than in physics. Self-fulfilling prophecy, as defined by sociologist Robert Merton in the 1940s, is ‘in the beginning, a false definition of the situation evoking a new behaviour which makes the originally false conception come true. The specious validity of the self-fulfilling prophecy perpetuates a reign of error. For the prophet will cite the actual course of events as proof that he was right from the very beginning.’

This is exactly what is has happened with management.

Both common sense and research confirm that very few humans are exclusively self-interested. But evidence also shows that the more workers are treated, à la Truss and Kwarteng, as idle, opportunistic slackers, the more likely it is that over time this is what they will tend to become – and – here’s the killer – in so doing confirm the politicians in their erroneous belief that the behaviour is hard wired in all workers.

In other words, through the self-fulfilling prophecy, management was already hacking humanity decades before the deliberate manipulations of social media, refashioning it in its own reductive and desiccated image. As one scholarly article baldly puts it: ’There is a growing body of evidence that self-interested behaviour is learned behaviour, and it is learned by studying business and economics’ – and if the assumptions and language are widely shared, ‘the theory will come to determine what people do and how they think about and design the social and organisational world.’

---

That, finally, is why management theory matters so much, why the current model needs a root-and-branch overhaul, and why working out how to achieve that should be at the very top of the agenda of the new-born VCMI. Although the badness of management 1.0 is by now plain to see, It won’t be dislodged until a new and better update is available. Although, regretfully, I am utterly unqualified to contribute to such a great academic undertaking, it’s possible to imagine a list of positive demands to make of it. More of that another time. In the meantime, my case rests.