What is the right way to raise children?

I heard Teesh before I saw her. Her shout rattled up the stairs. "Oi! Fucking journo!" A Kids Company staff member shot an apologetic glance and guided me along the corridor - "Let's keep going" - but Teesh was on her way, scrambling up the stairs and bouncing off the walls, a rocket of nerves in sportswear with dark, flashing eyes. She stood before us, challenging. "Oi! Journo! What you doing here?"

I heard shouting when I first arrived at Eastside Young Leaders' Academy as well, but not from any of the children. A teenage boy met me, opening doors, calling me "Miss", and led me into a hall where about 40 boys were lined up in rows doing drill. At the front stood a tall, imposing man in a crisp, dark suit, bawling at them. "Head up! Chest out! Stand tall, strong and proud! Stop rubbing your eyes, you should be wide awake! Focus! Head up! Brig-aaaaade, salute!" He scanned the lines in disgust. "Pathetic!"

Both institutions, at first glance, lived up to their reputations. Kids Company is a youth centre in south London founded by Camila Batmanghelidjh, a psychotherapist whose philosophy is distilled in the words on her business card: "Love is all it takes." Eastside is a centre for black boys in east London run by a former prison governor, Ray Lewis, who favours old-fashioned discipline. Kids Company's buildings are a riot of murals - a multicoloured fantasy of how the world might look if it were painted by children. Lewis's office is an austere hut, utilitarian and businesslike. Batmanghelidjh emphasises her clients' childlikeness; even those in their early 20s are referred to as children. "Really," she will often laugh, "they are like toddlers." Lewis regards all his boys as young men - future leaders - and expects them to conduct themselves accordingly. She despairs of a statutory system that disrespects young people, while he rails against an orthodoxy of overindulgence. Kids Company preaches infinite tolerance; Eastside practises zero tolerance.

They find themselves pitched on either side of a political debate. Do teenagers who carry knives need more love - or tougher love? At times, it has looked as if Batmanghelidjh's view is winning. Named Social Entrepreneur of the Year in 2005 and Woman of the Year in 2006, she was credited as the influence behind David Cameron's hug a hoodie speech, and last March was awarded a £12.7m government grant. On the other hand, government rhetoric on youth crime seldom reflects Kids Company philosophy, and Cameron has since proposed sending to jail every teenager caught with a knife.

Eastside was chosen for Cameron's first photo opportunity on becoming Conservative leader in 2005; a former Tory minister, Steven Norris, chairs the board, and last May Boris Johnson made Ray Lewis deputy mayor of London. The tide seemed to be moving Eastside's way. But Lewis's resignation from the mayor's office just two months later, under a cloud of allegations relating to his time as a vicar, was interpreted by his supporters as evidence of powerful enemies.

The political mood appears poised between the two models - progressive and psychodynamic, or traditional and disciplinarian. But what politicians and the public want to know is: which one works?

Batmanghelidjh is extraordinarily charismatic - a blend of regal serenity and Ab Fab flamboyance, trilling, "Hello, darlings!" as she glides around her south London HQ. The quality of intimacy she conveys is not uncommon in therapists, but if she has a rare gift, she says, it is "an absolute memory of how it feels to be a child". Born in Iran in 1963, and brought up in England, she founded Kids Company in 1996 as a small charity in a disused railway arch. Since then, the scale of the operation has grown almost beyond recognition.

The heart of Kids Company is a drop-in centre in Peckham where there's a lively bustle of teenagers, young mums and toddlers - for many, it is their closest approximation of a family home. Nearly 1,000 youngsters use the centre, ranging in age from infancy to early 20s, but most arrive in their teens, having heard about it on the street. More than 80% have a history of drug use, criminal involvement, homelessness, school exclusion, mental disturbance or emotional difficulties. Some, like Teesh, are clinically psychotic. In the language of Kids Company, they are traumatised victims. In the language of the tabloids, they are feral terrors.

"The police have said to me, 'We've got a new kind of kid - they shoot and they don't even bother to run away,' " Batmanghelidjh says. "That's what I see when they first arrive. I've seen that lethally deadly capacity. That's not something you can control through sanctions, because all your sanctions are about preserving life. That idea comes from middle-class people who think life is worth living. They can't get into the minds of kids and understand their hopelessness. These kids don't think even being free is worth it. They will just say, 'Come on, then, I don't give a shit.' And they really mean it. They are so dangerous because they have nothing to lose."

Every newcomer is assigned a key worker whose first priority is to meet their practical needs, which may mean anything from accommodation or rehab to a winter coat. Kids Company cooks them daily meals, pays the most vulnerable a weekly allowance and advocates on their behalf for the statutory support that has passed them by.

The pre-eminent role of the key worker is not practical, though, but psychodynamic. Batmanghelidjh interprets her clients' violence as a manifestation not of flawed morals, but of abnormal brain development. She cites extensive neurological studies of children exposed to high levels of trauma and neglect in infancy, which have found they are, as she puts it, "thermostatically impaired", lacking the normal neurochemistry necessary for self-regulation. Until they have experienced a loving attachment, Batmanghelidjh believes nothing else can help them. "Getting them to feel love is the most painful thing you can do, and the hardest thing for them to bear."

Batmanghelidjh employs more than 300 staff, and every one I met had absorbed her calculus of redemption through unconditional love. "This is the first place where they've not been afraid," one key worker tells me. "This is about returning children to their childhood." The centre has a gym, a recording studio, books and toys, therapists, a beauty salon, art rooms and a medical centre. It also has an education unit, where permanently excluded teenagers have one-to-one lessons. "I'd call us educators of the last resort," one teacher says, smiling sadly. Staff work with a further 11,000 troubled children in 33 local primary schools.

"I know some people want to say, that's it, enough resources are taken up with these disgusting kids, we should lock them up and get rid of them," Batmanghelidjh says. "But they don't realise - the scale of the problem is huge. And it's viral. One of these very disturbed kids will force another 10 to become more aggressive, to survive it. So the damage they can do is profound - and we have a responsibility to think intelligently and flexibly about how we could prevent that."

Some of the solutions may strike others as not so much flexible as perverse. For example, when Kids Company clients kept being arrested for assaulting London Transport staff, Batmanghelidjh's solution was to issue them with free travel passes. But the arrests ended almost overnight. "The question," she says, "is whether the politicians are going to have the guts to change the public narrative. Is it always going to be the surveillance camera and the prison? That will always fail because it underestimates the suicidality of these kids. And they will be infinitely more powerful than a society that cares about life."

I'm not surprised politicians are so impressed when they visit Kids Company: the compassion and selflessness of the staff are overwhelming. "Boot camp methods don't work," a key worker says, "because you just make them stronger. You need to teach them how to be softer and weaker. These kids can be soldiers. They can do the physical stuff. It's the emotional stuff they can't do."

Kids Company tries, above all, to restore dignity to the children and never humiliate them. In Batmanghelidjh's words, when a youngster's entire experience of power has been a victim/ perpetrator relationship, they will do literally "anything" not to be the underdog again. "If Ray Lewis came here and told my kids to march," she says, not unsympathetically, "they would probably shoot him."

I had heard about the marching regime at Eastside, but was still unprepared for what I found. "We! Are! The! Young! Leaders'! Academy!" the boys chant at the end of a morning's drill, as Lewis enters the hall. "What are you looking at his bottom for?" he barks at a young adolescent. "You a batty boy?" His gaze sweeps up and down the lines. "I don't see any rhythm in this room. You move like poonani!" One boy is ordered to face the wall with his hands on his head, another to drop to the floor for 10 press-ups. "Are you looking at me?" Lewis glares at another. "I'm not your friend. Why are you looking at me?

"Someone," Lewis announces, "has been going to the Paki shop across the road. And stealing from that shop. Does anybody know who the guilty party is? Say so now!" His eye falls on a tiny 10-year-old. "Carl! Was it you, Carl? Did you steal from the aforementioned shop? Forget the lie. Did you steal the sweets? Boys, quiet, this is a court of law!"

Afterwards, I meet Lewis in his office. A sign on the door tells you to look into the camera when you press the buzzer; "If we don't see you, we will not open," it warns. "Even if we do, there are no guarantees." Two boys are waiting to see Lewis, but he brushes them away. "They're young," he shoos dismissively. "They can wait."

Boys are referred to Lewis by local schools, or sometimes the police, and every year he accepts about 25. The criteria are straightforward: they must be black, eight or nine years old, and severely disruptive or violent, typically assaulting teachers or bringing knives into school. They must be supported by a parent prepared to pay £3 a day and enter into a contract with Eastside, guaranteeing their attendance twice a week after school for extra lessons, and every Saturday morning for drill or activities such as community service at a local hospice. The boys also attend courses run by corporate sponsors such as Morgan Stanley, receive talks from businessmen and other professionals, take part in cultural programmes, foreign trips and more or less anything else Lewis can think of to divert their aspirations away from street culture.

Eastside started in 2002 and now has about 90 boys, aged eight to 18. More than 9% of their parents are single mothers, and Lewis makes unannounced home visits, checking that the boys are in bed by the agreed time. "A lot of our parents, they know what," he says, "but they don't know how. We teach the how." Parents must agree to punish bad behaviour by banning football, or confiscating a PlayStation - taking away, as Lewis likes to say, "whatever it is the boy loves, whatever will hurt him.

"There is this view that children are inherently good when they're born, and therefore when things go wrong what you need to employ are the tools of psychology to bring about the change you want," he told me at our first meeting. "But my feeling is that children are not necessarily all born good. They therefore need guidance, and measures to correct behaviour are not first and foremost psychological; no, they involve punishment."

Lewis was born in Guyana in 1963 and raised in London by a single mother. Groomed, compact and bullet-shaped, he can come across at first as rather stern, but without warning he can switch from faint pomposity to profanity, with an irreverent sense of humour that is often very funny. "Ray," his staff groan affectionately, "can be a bit outrageous." He was a Church of England vicar in the early 90s, before serving briefly as a prison governor, but Lewis reminds me most of a charismatic Caribbean pastor.

He invokes bleak statistics to explain why he founded Eastside for black boys only. They are six times more likely than their white counterparts to be excluded from school, and for every one black British male in university there are two in prison; in the FTSE top 100 companies, there is a single black chief executive. "Our biggest problem is that we do not understand boys are different from girls," he says. "And because of that, there's a fundamental failure to connect with our young men. They recognise our manhood, and our connecting with them as men, and that causes them to respect us. I believe we have transferred power away from adults on to children - and that is a huge mistake."

It wasn't a mistake anyone looked in danger of making when I returned the following week. On Mondays and Tuesdays, the primary school boys attend after-school tuition, and before classes begin they are fed a snack; while they ate, the two principal members of staff, Brenda and Ade, patrolled the room wearing watchful scowls of suspicion. Then the boys lined up, divided into two classes, and were instructed to compose a biographical essay about Lewis Hamilton.

Brenda took the older group. She wanted to see at least five sentences per paragraph, and at least seven paragraphs - "Correctly indented, mind" - with capital letters, speech marks and joined-up writing. The boys worked in orderly, old-fashioned silence, but quite soon the discrepancy between what Brenda expected and what was appearing on their worksheets began to seem slightly mad. As far as I could see, she'd do well to get a single paragraph out of most of them. A boy on my table began to cry. Brenda gave an impatient snort and sent him to the bathroom to blow his nose. Soon another tiny boy gave up, crumpled into his arms on the table and said he had a tummy ache.

Ade appeared and stood over him, glowering. A classroom assistant sat beside the boy, his arm around him, whispering words of encouragement. "You are a fighter? Are you a fighter? I want to hear out of your mouth: I am a fighter." He repeated it over and over again, coaxing the boy to lift his head. "Are you a fighter?"

I thought the boys looked small and fragile and tired. "But, you see," another staff member said, "we have high expectations of them. The schools are too worried about denting their self-esteem to make them work hard. We think they've got too much self-esteem. If they do a piece of work and it's rubbish, we tell them it's rubbish and rip it up."

At the end of the class, each boy had to stand up and say something he'd learned about Hamilton. The crumpled boy was urged to his feet by the assistant. "I learned today," he announced tremulously, "that Lewis Hamilton is a fighter."

It is not hard to see why some people find Eastside troubling. Militarism seems an odd approach to take with children whose problem is violence - and if Lewis is trying to combat a street culture of insult and disrespect, so, too, does the practice of ridiculing them. The staff all explained that public humiliation trains the boys to resist provocation, an injunction they hammer home constantly. "Do you think that Mr Obama hasn't had people say something bad about him?" the drill instructor bellowed. "People are going to get right inside your head and play games with you! You are a leader, not a follower! Have self-control!" But calling an 11-year-old with an unhealthy interest in pornography "Porno", as Lewis does, struck me as an ambitious kind of cure.

A significant number of Eastside's staff, including Lewis, were raised in an extremely strict Afro-Caribbean tradition - and, like Lewis, many rebelled. "I was awful!" Brenda said, laughing. "I'd walk out of classes, wouldn't attend, fought constantly. I was awful. I don't know why. I just hated school."

Was her school strict? She rolled her eyes in horror. "I got sent home once just because I had navy socks on and they should have been white. That's how bad it was." According to Lewis, a wayward youth is a valuable qualification for Eastside staff - and you can see his point. But I began to wonder why, having survived a disciplinarian childhood that had made them so angry, they thought the solution lay in recreating it.

If you stayed for just a few hours, you might come away with misgivings. But the longer I spent at Eastside, the more I got the feeling that Lewis and others may like to ham up their harshness in front of visitors - it is only one part of the story.

None of the boys likes Eastside when they first arrive. "No way," the younger ones confirmed. Their mums make them come, and they can't wait to leave. Yet by the time boys reach an age when they can leave, almost none of them does; only two teenagers, according to Lewis, have dropped out. Some of the older boys told me they stayed for the opportunities Eastside offers, but it became increasingly clear that the meaningful bond was emotional.

"When you're 12 or 13, yeah, you've got the power to stop coming," agreed Devon, a likable, self-possessed 15-year-old who was part of Eastside's first intake six years ago. "When I got to that age, I thought there were other things I could do with my time, but by then the academy was helping me with so many things, and so many people had helped me. I didn't want to let them down." He did stop coming for a while. "But I realised a lot of my friends I grew up with are going deep far where I don't want to go. My friend started selling drugs, it was all, 'Your area v My area' and boys were after him. Some people may say I'm a pussy, but I was smart enough to see I had a choice and take it, so I came back."

Devon lives in Stratford in a fairly chaotic household. I wondered how he managed to transfer the Eastside version of himself on to the streets where he lives. "Don't get me wrong, it's not easy. But after a while, being in academy, being drilled over the same things - stand for who you are, know where you come from - eventually you become it. A lot of people think the chain you wear round your neck is who you are, but who you are is your morals and your values. It took me a while to grasp that. I realised I can't be coming to the academy and saying one thing, then going back on the street and be doing another thing just because someone said, 'Your mum' or something. It took a while to learn to apply what I've learned here outside." How long? Devon laughed. "Until last year. It's not an easy process."

Towards the end of the week, I was in Lewis's office when a hedge fund manager phoned. Devon is applying for a scholarship to the sixth form at a prestigious private school; the hedge fund manager had been approached to sponsor his fees and wanted to check with Lewis before agreeing. "Oh yes, Devon," Lewis beamed. "Bright boy, excellent boy, one of my best. Lovely boy, fantastic, excellent boy. Absolutely brilliant, brilliant boy. I love him very much."

After hanging up, he summoned Devon to his office. "Your school fees sponsor, he just phoned me for a reference. I told him you're a sack of shit." Devon blinked and swallowed hard.

"You - you didn't, sir?" Lewis studied him coolly - "We'll see" - and dismissed him.

I think I would have taken his coldness for cruelty on day one. But Eastside's harshness with the older boys owes much more to ritual than reality, and outside Devon's whoops rang across the car park. "Mr Lewis," he told me later, "he's like a father to me." The intimacy at Eastside can be fierce, but it is formidably tender. Most of Eastside's eight-year-olds have never experienced real masculine authority before, and Lewis likes to say, "My boys respect power" but the powerful shock for them, it seems, is to see it exercised with masculine love. "I absolutely love these boys to bits," Ade told me. "They're my friends, they grow up with me, they love me and I love them" - and it was palpably true.

Every month Eastside holds a family meeting - something between a school speech day, a church service and a motivational speaking event, attended by all the boys and their parents. I met mothers whose sons had been excluded from several primary schools and were now planning to go to university. Brenda helped three of the younger boys read out pieces they had written about "What Barack Obama's election means to me"; two older boys received awards for outstanding progress. And I found myself in tears.

Eastside has had its failures - teenagers who march every Saturday and say, "Yes, sir" do not necessarily behave the same way once they're out of Lewis's sight. One boy is currently on a murder charge, another in jail for armed robbery. "It takes time," Lewis admitted. "We don't expect them to be microwaved." But an external evaluation found that more than half the boys made significant improvements in behaviour and school work, and those who had been most disruptive when they joined showed the greatest advances. "The academy's impact on performance is good," the report concluded, "and in some instances remarkable."

"The question a lot of people ask about Camila's work," Lewis reflected, "and I guess somewhere deep inside, I ask it, too, is does it produce anything? Does it produce results?"

Kids Company's results have been evaluated exhaustively over the years, most recently by London University, and in fact they are extremely impressive. The research found that 91% of its clients were reintegrated into education, 90% of those with a criminal history had reduced their activity and 94% had lowered their level of substance misuse. Fewer than 20 of its 925 youngsters are excluded or arrested every year; several alumni are now at university or college.

In truth, though, most of the study's measures of success are more modest and sometimes nebulous - "Engagement with therapy", for instance, or "Improved nutrition". One staff member told me, "If someone arrives refusing to talk or look anyone in the eye, a positive outcome for that person would be if they can develop a close relationship with a worker and talk about their feelings and smile and laugh. That's a positive outcome for that young person." But in expecting so little, could Kids Company risk leaving its youngsters out of their depth in any world less forgiving than its own?

I sat in on a GCSE maths lesson at Kids Company's Urban Academy - the first of the term, for a class of just two. Only one, Sabeela, turned up; she said the other was at the hairdresser. The teacher waited patiently while Sabeela organised herself, carefully underlining the pages in her file and rearranging her pencil case. They began with square numbers, and after half an hour had almost reached 10. Sabeela seemed quick-witted and committed, but she began to lose her way and looked doubtful. "Did my last teacher tell you I was at a good level?" she asked. "Cos this is harder than what I've done before." The teacher smiled encouragingly. "She said you were keen, and a good turner-upper." At the end of the lesson, Sabeela said she'd see her teacher next time, but wouldn't be able to stay for the whole session because she'd be going shopping.

Shouldn't teenagers such as Sabeela deserve the same high expectations as everyone else? "Yes," Batmanghelidjh agrees. "And if someone can deliver more, we ask it of them. But when they are giving their best, even if in the eyes of the outside world it is not a big deal, we recognise the progress made. You have to tell the truth. The child who manages to get to Eton and be miraculously successful, having come from a poor or challenging neighbourhood, is a child who has the neurochemistry of calm. These kids are so chemically emotionally disturbed, they can't sit down to study. That's why they are with us. Wherever they have been, they've got behind and thrown out. Our expectation is that they move towards mainstream society. That's our measure of success."

Ultimately, whichever way we measure success, any comparison between Kids Company and Eastside will be flawed, for as Batmanghelidjh stresses, "Ray is dealing with boys whose parents sign contracts. We're dealing with children who have no one." But in insisting on the question, and trying to quantify their results, there is a danger that we end up distorting what they do, demanding a rhetoric about differences that do not always exist.

"Which one works?" says Lewis. "Frankly, it's a stupid question. Camila's trying to heal people, I'm trying to stop them getting sick. The truth is, I've not decided how to measure success yet. But I'm mindful that maybe what I've done is conform to patterns set for me by people who give us money." Had I asked Lewis how he measured results the first time we met, I suspect he would have listed university places, school exclusions and so on, for his public persona is more inclined towards certainties than subtlety. But his private reflections were disarmingly honest.

"When I've got to write a report for these white people who give us money, what am I supposed to tell them? The people who support us want to know that this has led to this, and that has led to the other. Fuck that. But that suits them - oh really, here's a cheque. I can't describe the nuances that happen, can I? Eastside's not so much a programme as a process. It's relational. These boys have programmes all around them, schools run a programme, and the programmes are failing. What we provide is a system of relationships, a family. The truth is, Camila and I probably just differ in terminology. I don't call it what she calls it, but it probably is the same thing."

In the end, Eastside works for the same reason that Kids Company works. One may be a surrogate father and the other a mother, but both are parental substitutes for youngsters who have not had enough love. The state, they both agree, is a bad parent, because it gives up on children. Rather than replicate the techniques of either model, it should probably pay attention to the tenacity and motivation behind both.

"We get people come along and visit us, and they say, Oh right, he does this and it will lead to that. So that's what I tell them," Lewis says. "I'm not being dishonest, because I do do those things. But there's a difference between the facts and the truth."

The facts, he says, are simple: the boys do drill, and after-school classes, and community service. But the truth is that they have a relationship with someone who feels like their dad. "That's it. Just be their dad."