The Big Con

[This is a summary of the great book “The Big Con” by Mariana Mazzucato and Rosie Collington]

As if hearing and internalising Reagan’s mantra that “government does nothing as well as or economically as the private sector”, politicians and leaders in government since the 1980s have overseen waves of privatising and outsourcing of public service delivery to consultancies.

The logic goes that consultancies bring with them knowledge from other organisations, deep management expertise, and additional skilled capacity, and they use that to create value in the public sector more efficiently (and so at a lower cost) than civil servants could. But leaders bought into that narrative of consultants as better and more efficient “experts, extras and facilitators” too wholly – and have ended up compromising the public sector’s ability to learn because they’ve hollowed out public sector capability.

As a process, learning is incremental and built up over time, it can’t be bought as an off-the-shelf commodity in a transaction. And the most powerful learning is learning through doing – which is the basis of institutional memory, itself critical not just for efficiency and effectiveness but also for resilience and responsiveness. By taking away the opportunity for learning through doing, the widespread use of consultancy in government is tantamount to organisational self-sabotage.

With in-house capability so diminished, and no clear route or political desire to change that situation, civil servants largely see not option but to continue this way. Incentives in the corporate environment push them towards consultancy – admin budget cuts drive a shift to capital spend, headcount reductions lead departments to find ways to increase capacity using services rather than employees, risk-averse cultures drive a focus on outsourcing (albeit only superficially) risk. And the consultants – the confident tricksters (hence the name of the book “The Big Con”) – project confidence, promise to lessen cognitive and management load, and whisper the right things to the right people, to make relying on them the easy option.

And it gets worse. Because it isn’t just the delivery that the public sector has outsourced. It’s also the outsourcing itself – the procurement, supervision, monitoring of the delivery of a contract. Whether it’s contracting management consultancies to advise on commercial strategies, or putting out a large tender for complex supply chain management for an outsourcing giant to snap up, the public sector’s ability to be an intelligent buyer has similarly been eroded.

Ernest Brackett (NASA) said “if the agency stopped investing in in-house capability, it would no longer understand its own environment, not know who to collaborate, and not be able to write the terms of reference for doing so. It would be captured by brochuremanship”.

The UK public sector has been captured by brochuremanship.

Massive prime contracts given to consultancies see them managing layer upon layer upon layer of subcontractors – each of which add their margins to the cost to the taxpayer.

And they are used in a way that slowly erodes democracy and democratic accountability. Consultants are brought in for ass-covering and rubber-stamping, or are appointed as scapegoats to implement unpopular decisions. And they can head up such complex supply chains where so many people are responsible that no-one effectively is – so that they can’t possibly be held accountable for outcomes or for problems.

That the public sector has allowed itself to be captured – or chosen to be – is only one side of the story. This narrative blaming poor management, missing procurement and commercial skills, risk-aversion and low confidence for the hollowing out of public sector capability and growing dependency on consultants – to a degree it’s true but it’s also a misdirection.

Because the biggest, most influential management consultancies have engaged in behaviour that brought this about.

They’ve used their unparalleled access to decision-makers to generate outcomes that are sub-optimal for the country, but highly lucrative for their shareholders. They have their staff and alumni at the tables writing the strategies that shape the market, positioning themselves and their clients to win work further downstream. They’re advising on civil service reform, on cross-Whitehall technology business cases, procurement strategy, and specialist functional strategies, pushing for further outsourcing and deepening the constraints on building in-house capability. They second their staff to private offices, they parachute their alumni into plum leadership positions, they use their audit work with boards for cross-selling of their services – it all stacks in their favour.

Margaret Hodge, herself ex-PwC, criticised the poacher-turned-gatekeeper-turned-poacher model creates huge conflicts of interest where leaders move back-and-forth between consultancy and government. And, of course, some management consultancies give jobs, and promises of jobs, to sitting MPs and government decision-makers, so more directly buying access and favour.

They’re not just in the corridors of power – they’ve been rebuilding them to suit their shareholders.

These largest of management consultancy firms tend to carry significant conflicts of interest as a result of their extensive and diverse client lists.

For example, they often represent both sides of contested political issues (because uncertainty is a profit opportunity) – with clients in government and among the very organisations lobbying them on matters of climate change, healthcare data, and tax policy.

They can also find themselves conflicted on major procurement decisions – after all, what is the likelihood that a consultancy is going to recommend in-sourcing when so many of their clients are on government supplier frameworks?

These are not objective “experts, extras and facilitators” – they are highly partial and often conflicted.

The big management consultancies have means, motive and opportunity to create public sector dependency on their services, discouraging long-term investment in productive capability and undermining value creation for society – all whilst extracting shockingly high rewards totally out of proportion to the contribution the sector makes and the risks it carries.

To get out of this mire, we need:

• A new vision, narrative and remit for the civil service – one that can adapt and learn to meet changing citizen needs, has the capacity and capability for resilience during periods of crisis and uncertainty, can take calculated and small-scale risks. And one that gets rid of large-scale prime contracting altogether so that government can learn to be a good buyer once more, for the things it does still make sense to buy.
• Investment in internal capacity and capability creation. Knowledge management, training and development, meaningful careers for civil servants who feel valued and empowered. Civil servants who’re innovating, not just managing contracts, and who are the locus of institutional memory – they are the engine for organisational learning.
• To embed learning and end-points in contract evaluations. Knowledge sharing and capability building need to be built into delivery contracts – or else inhibition of sharing and learning will continue by default. And we should re-examine the business case for outsourcing – taking a less narrow view of benefits, and accounting for wider spillover effects from work done in-house, from learning retained for application elsewhere, and for the resilience that capability brings.
• To mandate transparency and conflicting interest disclosure. Politicians and public sector leaders need to accept there’s no such thing as a free lunch – and stop taking the pro-bono and loss-leader contracts. And both leaders and consultants need to be transparent and declare not just where they believe they might be conflicted, but where they could be perceived as such.