The consulting fraud

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By MARIANA MAZZUCATO & ROSIE COLLINGTON*

The more governments rely on consultancies, the more they lose their ability to do things themselves.

As real wages continue to fall in Britain and cuts to vital services such as housing and the justice system continue, there seems to be only one item in the government budget that is immune to the cost of living crisis: industry consultants. private.

O The Guardian recently revealed that UK ministers had quietly lifted controls on consultant spending, removing restrictions that required central authorization in cases where contracts with groups such as Deloitte, McKinsey and the Boston Consulting Group lasted more than nine months or cost more than £600.000.

These rules have not been able to prevent a build-up of spending in recent years: one estimate suggests that the UK public sector awarded £2,8 billion worth of consultancy contracts in 2022 – a 75% increase on 2019. , this movement indicates that the a Whitehall's relationship with the industry is far from over – despite mounting evidence that this way of running a country is a recipe for failure.

Indeed, the ubiquity of consultants across the global economy is astounding. In the last decade, the biggest companies have been hired to plan smart cities, develop carbon neutral strategies, propose educational reforms, advise armies, manage the construction of hospitals, draft medical ethical codes, write tax legislation, oversee the privatization of state-owned enterprises, managing the merger of pharmaceutical companies and governing the digital infrastructure of countless organizations. Consultancy engagements span supply chains and sectors, across countries and continents, affecting all levels of society, yet most of their revenue comes from just a few countries, including the UK.

The recently reported case is not the first time that the British government has reneged on previous commitments to abandon this habit. Indeed, David Cameron, who introduced the now-defunct controls on consulting spending, is also guilty of the same practice. In 2008, he pledged to reverse what he described as the "government by management consultancy" of the New Labor; but once he took office, public sector consultancy contracts proliferated.

While spending by Whitehall departments fell initially, consulting firms were allowed to bid for tenders for much less than they would normally charge, sometimes working for free, in an attempt to maintain government connections. As KPMG's head of public sector frankly put it in 2011: “We can't do this indefinitely, but we can do it in the short term. We hope to be well positioned when the government decides it is willing to pay.”

Ultimately, austerity has been good business for the sector: as the administrative capacity of the public sector shrinks, the demand for outsiders. Take, for example, the NHS (National Health Service). In the years following the Conservative-Liberal Democrat reforms of the English NHS, in 2012, information emerged that the health service had spent millions of pounds on consultancy services. The reforms had defined that local general practitioners were in charge of commissioning health services – deciding on the needs of their communities.

But according to groups like the Royal College of General Practitioners anticipated, many simply did not have the time or resources to do all that was required of them. So who did they turn to? For the McKinsey, EY, Deloitte, and ProcewaterhouseCoopers crowd. By the end of the decade, the scale and scope of consultancy engagements across the British public sector were beyond comparison with earlier periods. Between 2016 and 2019 alone, NHS management consultancy spending more than tripled.

The theory that this way of doing things increases "efficiency" and "innovation" is just that: a theory. It is based on the assumption that experience and capability can be bought off-the-shelf rather than developed over time within an organization. In fact, consultancies often don't deliver what they initially promise. A parliamentary inquiry into Britain's Covid-19 testing and screening programme, for example, found that "consultants made up about half of its core staff", and concluded that it "has not achieved its main objective of helping to break Covid-19 transmission chains and allow people to return to a more normal way of life.”

One person we interviewed detailed how the huge number of consultants hired to work with testing and screening became an operational hurdle. Their lack of knowledge of government processes meant that teams spent too much time answering basic questions via email, “taking attention away from the real work.”

Meanwhile, the evidence is piling up. A recent academic study of the use of management consultancies across 120 NHS funds found that despite 'some £600m spent on consultancy in four years, there is no sign of an overall increase in efficiency'. In Australia, the government once spent around A$XNUMX million on a contract with McKinsey to help develop its climate-neutral strategy, but analysts later found the model to be full of loopholes.

However, the illusion of the panacea capabilities of consultancies has taken root in the public sector, in part due to another myth rooted in our economies: the myth that the public sector is inefficient, ineffective and not innovative. Where possible, it should step aside and let the private sector do the work, reaping the financial rewards while the risks of failure remain in the hands of government and citizens.

If their results are so bad, why do governments continue to trust consultants? It is a partially self-fulfilling cycle. Reliance on outside consultants can, over time, weaken internal capacity – making departments childish, as one Conservative minister asserted during the first year of the pandemic.

The more governments rely on consultancies, the more they lose their ability to do things on their own, creating a dependency situation. Meanwhile, consultancies rarely take the risk of their boards failing. The nature of consulting contracts can make it difficult for clients to convincingly point blame when something goes wrong, and limited liability clauses also protect companies legally.

This risky risk-reward tradeoff is at the heart of the consulting industry's business model. Instead of spending billions on external consultancies that benefit from the Whitehall depletion, governments should invest internally in creating organizations capable of promoting learning and that are able to take risks. Of course, departments must also work with other people and organizations that can help them fulfill their democratic mandates – but this advice must come from behind the scenes, provided by people with real expertise and experience.

The time has come to invest in the collective intelligence of the public sector and end consulting fraud once and for all.

*Mariana Mazzucato is professor of economics at the University of Sussex (USA). She is the author, among other books, of the entrepreneurial state (Company of Letters).

*Rosie Collington he is an economist. Author, with Mariana Mazzucato, of the book The Big Com: How the Consulting Industry Weakens our Businesses, Infantilizes our Governments and Warps our Economies (Penguin Press).

Translation: Daniel Pavan.

Originally published on the newspaper's website The Guardian.

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