Why governments love private consultants and their ‘billables’

Multinational consultancies claim to offer expertise, but often it’s a confidence trick. The victim? Taxpayers.

A quick search on YouTube or TikTok and it would not be difficult to find videos parodying consultants. The running joke is that no one really knows what consultants do. Yet they are slick, have an air of reckless confidence, use generic terms like “streamline” and “synergy” and whatever they say and do is “billable”.

What is not a joke, however, is that the consultancy brand of “expert knowledge” has found global appeal. And this appeal is not just limited to the private sector as consultancy firms now guide the workings and policies of a wide range of public sector institutions, including municipalities, ministries, hospitals and universities.The problem is that these firms have become a financial burden gutting institutional budgets as they are able to charge premium compensation for the lure of the knowledge they supposedly provide — but that is often flawed and misguided.

A global takeover

Michael Heseltine, who served as a cabinet minister in charge of the environment and defence under British Prime Minister Margaret Thatcher, famously said, “The management ethos must run right through our national life – private and public companies, civil service, nationalised industries, local government, the National Health Service.”

More than four decades later, the United Kingdom is today the world’s second-largest consultancy market and the country has outsourced a significant portion of public services to consultancy firms. In 2016, the public sector awarded consulting contracts worth 700 million pounds ($864m at the current exchange rate). The value of these contracts increased to 2.6 billion pounds ($3.2bn) by 2022. This includes 83 million pounds ($102m) in National Health Service (NHS) contracts, which is equivalent to the cost of training more than 1,600 new nurses.

Consultancy firms have staged a similar takeover of public services in France. The trend began in 2007 when Nicolas Sarkozy became president and promised to “make the French state cost-efficient”. During his presidency, the French government doled out 250 million euros ($269m) worth of contracts to management consultancy firms like McKinsey & Company, Deloitte and the Boston Consultancy Group (BCG). Since 2018, under the leadership of Emmanuel Macron, consultancy firms have received 2.4 billion euros ($2.6bn) in government contracts and have been involved in a wide variety of public services, including France’s COVID-19 vaccine rollout programme and controversial pension reforms.

In Canada, there has been a similar spike in federal contracts being awarded to management consultancies. McKinsey has received 66 million Canadian dollars ($48.5m) in federal contracts since Justin Trudeau took office in 2015, compared with 2.2 million Canadian dollars ($1.6m) worth of contracts during Stephen Harper’s preceding nine years as prime minister.

Public universities across the globe have also been taken by the lure of consultancies. In 2009, the University of California (UC) system hired Bain & Company and paid $3m to help reduce its $150m deficit. More recently, the company was also hired by the University of Texas to help, among other things, “improve procurement processes” and develop a strategic plan on “diversity, equity and inclusion”. The University of Manchester hired consultancy firms to assist with a “major investment and development strategy” on student accommodation. In 2018, it was reported that the University of Limerick spent 20.8 million euros ($22.3m) on private consultants to handle staff complaints.The University of Sydney has hired India’s Tata Consultancy Services (TCS) to help develop research and educational partnership opportunities between India and Australia. After the mass shooting at Michigan State University in February this year, the university hired Security Risk Management Consultants to review its response to the incident.At its core, this is about a belief that public institutions, organisations and services can only be efficient when they are modelled after the private sector. Efficiency, according to this ethos, is not achieved through better policy or structural change pertaining to a specific problem but through private sector management practices and standards that are presumed as universally applicable, irrespective of the specificity of the problem at hand.

But there are other factors at play here too. In their book The Big Con, economists Mariana Mazzucato and Rosie Collington rightly point out that consultancies perform a “confidence trick” where they may not have ownership of any scarce, expert knowledge. Yet, they “create an impression of value” that in turn allows them to demand compensation that “far exceeds” the actual value of the knowledge they bring to the table.

Now cracks have begun to appear in this edifice. UK officials face criticism for their dependence on management consultants for the government’s failed track and trace programme during the pandemic. A report by the Committee of Public Accounts concluded that the programme failed to achieve “its main objective to help break chains of COVID-19 transmission and enable people to return towards a more normal way of life”. The programme hired more than 73 consultancy firms.

Consultants continue to gouge the NHS’s coffers, claiming daily rates of 3,000 pounds ($3,700) — ironically, to help the health service improve how it tracks expenses on private companies. The NHS also paid top consultancy executives an annual salary higher than that of its own CEO – this, while the UK government claims it does not have money to give doctors and nurses a meaningful pay rise.

In Germany, current European Union President Ursula von der Leyen faced questions about lucrative contracts that went to private consultants when she was defence minister in Europe’s economic powerhouse.

And consulting giants have had to own up to wrongdoing. In 2021, McKinsey paid close to $600m as a settlement for its role in “helping turbocharge opioid sales” in the United States. In 2018, head of McKinsey Kevin Sneader publicly apologised for overcharging when it was hired to save South Africa’s state-owned electricity company Eskom from insolvency. The company agreed to pay $76m.

An addiction

Admittedly, despite all this, the consultancy habit is difficult to kick.

At universities like mine, the irony is not lost on faculty members when we have to sit through presentations by highly paid, suited consultants who drone on about the varied ways in which we could better manage our time and excel as teachers and researchers. All, as the higher education sector faces yet another financial crisis. University leaders, though, do not see the irony and consider this to be a reasonable use of the university’s supposedly dwindling budget.

The UK government also tried to establish an “in-house consultancy arm” – unofficially called Crown Consultancy – with the hope of reducing its dependence on private consultancy firms. However, after two years, the project was scrapped as government departments preferred to use private consultants.

Yet the solution does not lie in finding cheaper, in-house alternatives to management consultancies. What we need is a radical rethinking of how public institutions can and should function. Rather than functioning in a manner reminiscent of the private sector, the primary goal of public agencies is to provide goods and services. That is their mandate and responsibility. Cost-efficiency makes sense as a primary performance criterion only in the private sector where the primary goal is profit maximisation.

The public sector succeeds when it makes the life of citizens better. And there, consultancies have no expertise.