Breaking the billion-dollar addiction to consultants in government - 360
Denis Saint-Martin, Chris Hurl
Published on August 14, 2023
Private consultancy companies have governments addicted to their services and the bill continues to balloon year on year as the ties that bind get tighter.
The revelation that the Canadian government spent CA$15 billion (USD$11.2 billion) on consultant contracts in the 2021-2022 fiscal year has dogged Prime Minister Justin Trudeau’s administration all through 2023.
It cast new light on the 2019 appointment of former McKinsey & Company Global Managing Director Dominic Barton as Canada’s Ambassador to China (McKinsey received around CA$100 million (USD$74.9 million) worth of contracts in the 2021-2022 fiscal year).
The appointment, queried at the time, was scrutinised in a 2023 investigation into the large sums flowing from government coffers into private consultancy firms.
During Barton’s tenure at the helm of McKinsey, the company pitched a pharmaceutical company on aggressively marketing Oxycontin and other highly addictive opioids to Canadians.
In a leaked memo published in The Globe and Mail, McKinsey told Purdue Pharma it could help determine whether there were opportunities to “better target and reach high-potential prescribers” and help motivate the company’s sales representatives to “better align the sales force goals to company objectives.”
The following year, Barton was a pro-bono economic adviser to the newly-elected Trudeau. Under Trudeau, costs for consultancy services have “ballooned“, with some estimates reporting a USD$5.25 billion increase in spending between 2015 and 2022.
In June 2023, a government review of federal contracts with McKinsey found “no evidence of political interference”, but acknowledged that there were “always opportunities to further improve and strengthen” the government’s contract procurement process.
Companies like McKinsey are for the most part privately owned by the partners who run them. They are accountable only to themselves.
The products they sell are theories, concepts and methods. The services they provide are intangible, whose effects are unknown and difficult to measure.
This makes it difficult for governments and large corporations to assess whether they are getting their money’s worth when using consultants.
Governments calling on consultants for advice on strategy and organisation is not a new phenomenon in Canada.
As far back as 1918, the Unionist coalition in power in Ottawa was criticised for its use of “pseudo experts” from the Chicago firm Arthur Young (which later became Ernst & Young) in its reform of the public service.
Today, consultancy firms have become the keeper of secrets for the world’s biggest companies and most powerful governments. As advisors and confidants, firms have become the private repositories of top decision-making knowledge across a wide range of areas and organisations in business, society and the public sector.
It has served them well. Sources vary, as firms are not required to report on their revenues, but the global management consulting market in 2022 was estimated at nearly USD$700 billion.
Pre-COVID, the policy influence of firms like McKinsey, KPMG, Deloitte and Accenture tended to be exercised behind closed doors, and only when the issues were seen as technical concerns (i.e. not politically salient).
The pandemic changed everything.
“Privatised policy-making” suddenly became more visible to the public. In many countries, the high costs of using consultants became politically noisy with governments and consulting firms feeling the backlash.
McKinsey was not only subject to an enquiry in Canada, but was embroiled in a 2022 investigation in France into suspected tax fraud. Ernst & Young received a two-year ban on some audits in Germany in April 2023 over a scandal involving insolvent payment processor Wirecard. Scandals have also followed Deloitte in South Africa (shortly following Bain & Company) and PricewaterhouseCooper in Australia.
In the UK, a top minister argued Whitehall had been “infantilised” by consultants. In 2021, a plan to limit the government’s reliance on external consultants through an in-house “Crown Consultancy” was announced, then dropped in 2023 before it ever materialised.
In 2022, the UK government reportedly awarded £2.6 billion (USD$3.3 billion) worth of consulting contracts (a 75 percent increase since 2019).
French president Emmanuel Macron’s government was found by a Senate committee investigation to have signed contracts worth at least USD$2.4 billion with consultancies since 2018. It also found many examples of “revolving doors” between McKinsey consultants and the president’s inner circle.
There remains debate over exactly how much influence consultants hold over governments, and it varies from country-to-country, but consultants are involved in all stages of policy-making.
Some believe consultants are brought in to provide specialist technical skills or to rubber stamp decisions already made by political elites. Others argue that consultants have effectively colonised the public sector, raising concerns about policy-making at large being privatised — potentially, granting private interests more dominion over government than the public.
But there’s little credible evidence to suggest consultants have become shadow governments, pulling the strings. Instead, attention has shifted to the “ties that bind” consultancy firms to governments and companies.
Consultancy services are in a state of change. The management consulting industry is expected to bring in USD$860.3 billion in revenue in 2023.
Most consulting revenue comes from manufacturing and consumer products, financial services, and media, tech and telecommunications, but a growing share is also coming from government (10.5 percent in 2022) and government-adjacent services, such as energy and utilities (10 percent in 2022) and health services (10 percent in 2022).
The market for consultants runs wide: from huge transnational professional service firms (Deloitte, KPMG, PwC, Ernst & Young), and strategy consultancies (McKinsey, Boston Consulting Group, Bain) to small niche enterprises run by sole operators.
The remarkable growth of management consultancy in the public sector has generated extensive debate in academia about why demand has increased.
Ask a different discipline and you’ll hear a different theory.
Functionalist and economic theories may say policy-makers often use management consultants because of their efficiency in addressing the complex tasks and technological problems faced by modern governments. Consultants provide a wide variety of highly specialised technical skills that would be more expensive to produce inside the civil service.
Sociologists may view consultants not as efficiency experts, but knowledge brokers between business and government.
They are agents of legitimation who help transfer practices and principles into organisations that make them seem more rational and efficient.
Consultants define the norms and disseminate models of appropriate action in the management of large organisations. In these explanations, growing demand for their services in government comes from pressures to make public organisations more business-like.
Or, as political theorists may say, it’s about power relations.
In one version of political theory, public sector demand for consultants grew sharply with the election of neoliberal leaders who sought to bypass the blockages and inertia of public administration and break the monopoly of the civil service over policy.
In another, it started with the expanding consulting profession and industry and its ability to shape clients’ demand for its services. In this perspective, consultants are the sources of “demand inflation”.
They themselves influence the decision to hire outside experts by creating uncertainty while also offering a readily available solution. They make clients addicted to, or over-reliant on, their expertise.
This, in part, speaks to the changing source of power of these firms. Beyond relying on consultants themselves, consulting firms are also increasingly providing the platforms that governments rely on in order to operate, giving them infrastructural power.
As the COVID-19 pandemic revealed, governments all over the world depend on the global database and analytics provided by the world’s biggest firms to coordinate their responses to crises.
The growing infrastructural power of these firms is reflected historically in their shifting organisational form. British public services expert Antonio E. Weiss has observed at least five different ‘waves’ of consulting.
The first began in the late 19th century with the ascendancy of cost accountants and efficiency engineers, such as F.W. Taylor, who set out to rationalise the labour process under the guise of scientific management.
It was followed in the 1950s and 1960s by the rise of accounting firms, promising organisational restructuring for large companies, and strategy firms, who offered to show the public and private sectors how they measured up to one another. By the 1970s, these services had been eclipsed with the rise of IT consultants, who set out to computerise administrative services.
Finally, from the 1990s onwards, outsourcing firms entered the fray, promising to go beyond consulting on infrastructural IT rollouts and actively participate in the day-to-day administration of public services, blurring the line between advising on public services and directly delivering them.
As management experts Matthias Kipping and Ian Kirkpatrick noted in 2013, these different kinds of consultancies did not replace one another — they’ve been integrated into overlapping forms of service delivery, with many firms offering a multitude of services.
While the field is quite diverse, there are indications that the industry has become increasingly concentrated over the past four decades. From the 1980s onwards, “Transnational Professional Service Firms” have grown their market share, often cross-subsidising consulting services and gaining entry through other services, such as accounting.
Firms have been able to heavily invest in new technologies, taking advantage of their scale and scope in order to generate network effects. The industry is expected to continue consolidating, “leading to the creation of larger, globally linked companies” as well as complex partnerships bringing multiple consultancies together under single contracts.
Consultants can be convenient lightening rods and scapegoats. But the more governments delegate to consultants, the more consultants acquire intimate knowledge of a government’s internal operations.
This insider knowledge is an asset for private consulting firms, and can result in information advantages, causing various dependencies and rent-seeking behaviour by consultants. It makes the optics of, for instance, Trudeau’s appointment of Barton as the Canadian Ambassador to China seem problematic, even though no wrongdoing has come to light.
Critics of this new normal use the term “consultocracy” to describe the “increased power of consultants over politics, public governance, and public sector practices”. Their work suggests that short-term, outsourced expert knowledge production is increasingly replacing the long-term work of civil servants and diminishing public agencies’ policy capacity.
The time has come to better regulate the “consultocracy”, exercising better control over the revolving doors between government and consultancy firms. Consulting firms should be subject to stricter disclosure requirements and codes of conduct.
And, while the firms are reined in, the analytical and research capacities of the civil service should be boosted — it serves the public interest to have a civil service that can attract the best talent and compete with the big consulting firms.
Denis Saint-Martin is Full Professor in the Department of Political Science at Université de Montréal.
Originally published under Creative Commons by 360info™.