The big con

Mariana Mazzucato and Rosie Collington are authors of The Big Con: How the Consulting Industry Weakens our Businesses, Infantilises our Governments and Warps our Economies.  They launched their book with big fanfare in London, charging £30 a person to attend the live event.

Mazzucato has built up a big reputation, scanning from the left in the labour movement through to mainstream governments in Europe and Latin America for espousing the benefits of public investment and the public sector over the private.  As a result, she has been called “the world’s scariest economist”.  Her last book, Mission Impossible, called for public sector-led projects in partnership with the private sector.  This could lead to a better management of the capitalist economy (not its replacement).

Now in this new book, Mazzucato and Rosie Collington expose the scam that the management consultancy business is.  The premise of Mazzucato and Collington is that consulting is really a confidence trick. “A consultant’s job is to convince anxious customers that they have the answers, whether or not that’s true”. With multiple evidence they show that consultancies have weakened businesses and hollowed out state capacity. “The more governments and businesses outsource,” they write, “the less they know how to do.”  As the authors point out, why should “fresh-faced consultants airlifted in from one of the big firms know better than workers on the office floor or staff in the NHS, when they often seem to know very little.” Indeed as management consultant Bruce Henderson once sniggered: “Can you think of anything more improbable than taking the world’s most successful firms and hiring people just fresh out of school and telling them how to run their businesses – and [getting them] to pay millions of pounds for this advice?”

The authors cite, for example, Covid contracts.  In the UK, ministers and civil servants relied on consultancies, more than £1m a day with some senior advisers billing more than £6,000 for a single day’s work.  And was it successful?  We now know that billions were wasted by these consultants, some of whom had no experience at all in healthcare and were just companies that sprang up to take advantage of public money, often owned and run by friends and even relatives of ministers.  A parliamentary inquiry into England’s test-and-trace programme, for example, found that “consultants accounted for nearly half of [its] central staff”, and concluded that it had “not achieved its main objective to help break chains of Covid-19 transmission and enable people to return to a more normal way of life”.

One estimate suggests that the UK public sector awarded £2.8bn in consulting contracts in 2022 – up 75% on spending in 2019. Between 2016 and 2019 alone, spending on management consultancies in the NHS more than trebled.  One recent academic study on the use of management consultancies in 120 NHS Trusts found that despite “spending around £600m on consultancy over four years, there is no sign of improved efficiency overall”.

The authors concentrate on the UK.  But their story is not new – many others have analysed this parasitic industry and found the same story globally.  In 2020, the global consulting market was estimated to be worth approximately 132 billion U.S. dollars.

According to those working within the industry, the leading consulting firm in the United States in 2021 was McKinsey & Company. Other consulting firms in the ranking included the so-called Big Four accountancy and auditing firms – Deloitte, PricewaterhouseCoopers (PwC), Ernst & Young (EY), and KPMG, with Deloitte ranking the highest out of the four. Headquartered in New York, Deloitte is a professional services company with several service lines specializing in auditing, tax, consulting, enterprise risk, and financial advisory. In 2022, the firm’s revenue reached approximately $59 billion– over a third of which came from consulting.

The majority of the larger consulting and auditing firms operate on a global scale and have workforces the size of small cities, with offices located in dozens of countries worldwide. In 2022, for example, PwC had almost 120,000 employees in the Asia Pacific region alone.

Across the world, it’s the same scam.  As former consultant David Craig explained in his memoir Rip Off!: “We were proud of the way we used to make things up as we went along… It’s like robbing a bank but legal. We could take somebody straight off the street, teach them a few simple tricks in a couple of hours and easily charge them out to our clients for more than £7,000 per week.” It consisted, he says, of “lies, lies and even more lies.”

There are now half a million management consultants in the world and they all claim to be able to enter any organisation, watch its workers for a short period, and then – using graphs, algorithms, and a jargon that makes quantum physics look like Sesame Street – render it dramatically more efficient, for a fee.

And yet studies show this is nonsense.  The Cranfield School of Management studied 170 companies who had used management consultants, and it discovered just 36 per cent of them were happy with the outcome – while two thirds judged them to be useless or harmful. 

The OECD has studied developed economies over a 20-year period, and it found labour productivity growth was much higher in the countries where it is hardest to fire people. The better you treat a workforce, the better they work. Professor Peter Cappelli studied 122 companies and found that lay-offs most often shrank their future profitability, instead of swelling it.

In Australia, the government spent A$6m (£3.33m) on a contract with McKinsey to help develop its net zero climate strategy, but analysts subsequently found the modelling was full of holes.

There are even criminal outcomes.  Management consultancy Bain has been banned from government contracts for three years over its involvement in a South African corruption scandal.  The move follows a probe into allegations of widespread corruption during South Africa’s former President Jacob Zuma nine years in power.

The management consultancy con is really a product of neo-liberal ideology that the private sector knows best and will be more efficient than public sector workers doing the job.  And it is also a reaction to the falling profitability of the capitalist sector in the 1970s that led to policies of privatization and outsourcing in order to boost profitability.  The management consultancy con added little to new value but instead gouged out profits from the public sector and productive capitalist firms.  As Michael Heseltine put it one year after Margaret Thatcher took power: “The management ethos must run right through our national life – private and public companies, civil service, nationalised industries, local government, the National Health Service.”

Despite the evidence, the management consultancy business continues to grow.  In the UK, ministers have even dropped controls on spending on consultants, removing restrictions that required central authorisation if contracts with groups such as Deloitte, McKinsey and Boston Consulting Group lasted more than nine months or exceeded £600,000.

They are everywhere: in the US, AT&T (to pluck a random company) spent $500m on them in just five years, while the British state will soon be spending more on management consultants than on upgrading its nuclear weapons.

What’s the answer?  Mazzucato and Collington reckon “Instead of wasting billions on external consultancies that stand to benefit from the hollowing out of Whitehall, governments should invest internally in creating capable organisations that foster learning and are empowered to take risks.”  Whatever that means.  The authors do not rule out consultants it seems.  “Of course, departments should also work with other organisations and people that can help them achieve their democratic mandates – but this advice should come from the sidelines, provided by people with genuine expertise and experience.  Again, I am not sure what that means. 

Surely, the solution comes in ending outsourcing and consultants and instead rely on the workers in firms and governments to improve outcomes.  But that would mean giving workers democratic control of production and services and ending the autocracy of grotesquely overpaid chief executives and shareholder power.  With workers control of the workplace, integrated into a plan for investment, training and employment, real improvements could be made – with hundreds of billions saved and used more effectively.

10 thoughts on “The big con

  1. No tenured academic should be charging ticket money for public appearances – one reason I am becoming dubious about MM. I would love to know in what respect this latest book differs from Huczyinski’s 1993 “Management Gurus” or Micklewait and Wooldridge’s 1997 “Witchdoctors”

  2. Looks like leftist intellectual such as Mazzucato etc. have a very naive, erroneous view about how capitalist States (“governments”) really work: they talk about them, ironically, as if they were more akin the the Soviet State or even the Chinese State (i.e. a Marxist-Leninist State).

    The view that the State is all-powerful and can simply get the resources it needs and plan ahead with laser precision for a whole year or even more is only true in a Soviet-style State: since the State already controls and centralizes the whole economy (or most of it), the budget coincides with what is actually there. It is a planning device, in accountancy form.

    But that’s not how the capitalist State works: in reality, it is just another player (albeit a very big, very important one) that needs to engage in the free market just like any other player. Its budget is merely a rough estimate, a pure accountancy device. In fact, the capitalist State doesn’t know — and can’t know, by definition — how much it will exactly collect in money-form, let alone how much of its planned investment will actually come to fruition.

    So, let’s assume a given capitalist State plans a budget that “foresees” the construction of a power plant for USD X, in one fiscal year time. Common sense would tell you it will just spend the money and build the thing, and everything beyond that is simply due to corruption and conflict of interests. But that’s false: first, this capitalist State will have to actually collect the money through taxation from the private sector — which it may or may not do, it will depend solely on the capacity of those players to pay the State. Then, it will have to engage the free market again in order to buy everything it needs — intellectual and material — to build the power plant, because the ideal capitalist State cannot own any means of production. This is the crucial step, because in this phase is hostage to both the prices of the free market and the willingness of the free market to give the State what it needs. Those are not guaranteed at all, even if you don’t consider the electoral and lobbying factors.

    The illusion the State has unlimited resources and absolute power arises from the phenomenon where, during the postwar miracle, some capitalist States of the First World became so awash with cash and goodwill from the private sector for so long that, from the point of view of the commoner, it had them.

    1. States “collect the money through taxation from the private sector”…? Really? So dollars grow on billionaires? And “the ideal capitalist State cannot own any means of production.” Really? So public ownership is not “ideal”?

      And where do those taxpayers get the dollars to pay taxes if the government (the monopoly provider of legal dollars) doesn’t spend them out into the economy first? It’s not “tax & spend,” it can’t be. It’s “spend first, then retrieve some dollars in taxes.” Taxes do not (and cannot) provision federal programs, but they make the dollar something sought after and valuable.

      What do we call the dollars spent, but not retrieved in taxes? Answer #1: The dollar financial assets of the private sector. Answer #2: National ‘debt’… Just as your bank account is your asset, but the bank’s liability.

      Incidentally, here’s something no one said, ever: “The Japanese just attacked Pearl Harbor, but we’re low on cash, so we won’t respond.” The government ended up with roughly 50% of the economy during WWII, hauling the U.S. out of the Great Depression. JFYI, the Green New Deal would only cost 5% of our economy.

      And can public ownership be better? In Sacramento, the publicly-owned utility (SMUD) sells its electrons 35% cheaper than privately-owned PG&E that serves neighboring areas. And its executives are not consulting with criminal attorneys because they shorted maintenance that caused explosions (gas pipeline) and catastrophic forest fires (electric lines) that burned up the ironically-named town “Paradise.” On the other hand PG&E execs worry about facing charges of negligent homicide for just those things and are certainly lawyering up. Democratic socialism: it’s cheaper and it works better.

      If that’s you’re idea of less-than-ideal, what about government-run healthcare? The U.S. remains mostly privatized (except the VA and Medicare) and pays roughly double the per-capita cost of healthcare of other countries where government is heavily involved in health care.

      But the U.S. gets better outcomes, right? Nope. The WHO study of healthcare outcomes (life expectancy, infant mortality, vaccination rates, patient satisfaction, etc.) ranks the U.S. 37th in the world. The U.S. is between Costa Rica and Slovenia in those outcomes. McClatchy editorialized that it was as though the U.S. got the health care of Costa Rica, but paid six times more for the privilege. Costa Rica has recently gone “single-payer” … but hey, public ownership is always bad! Meanwhile, all the best outcomes in that WHO study are government-run.

      I’d recommend two reference works to you: “The Visible Hand” – Chandler, describes how there has *never* been a totally free “ideal” market in the history of markets. Mariana Mazzucato’s Ted Talk about government innovation is also worth a look.

      You may worship at the altar of “free markets” but there has never been a free market without a state to regulate and promote it. Ever. (see David Graeber’s “Debt: The First 5,000 Years” for the history here)

      I’d recommend getting back in touch with reality here rather than some libertarian fantasy. Heck, Chinese life expectancy just surpassed U.S. life expectancy, once again contradicting the pleasant fairy tale that unregulated markets work best.

      1. The working class is part of the private sector, because they work for the capitalist class.

        China is a socialist country, not a capitalist country. China’s State can lower taxation and, at the same time, get richer and invest more because it owns a critical mass of means of production (i.e. it has other sources of resources that is not taxation). The scheme I presented in my comment therefore doesn’t apply to it.

    2. What is Nato? It is characteristically……

      N eonazi
      A ggressive
      T errorist
      O mnivorous
      But it’s not a state.

      ..It’s a war machine that is virtually independent of the goverrnmen, paying for itself and giving ideological justification for the United States (democrats and republicans) via the proceeds of its wars against “authoritarianism”. This war machine has, in effect, been the government of the United States since 1944.

      It’s good to see the growing anti-Nato demonstrations throughout Europe and even in the United States. They are anti-imperialist, but only subliminally anti-capitalist.

  3. The essence is in the first three letters, con as in consultant. Where I disagree with you is that consultancy firms are growing. Capitalists may be stupid but they are not fools. From the data I have seen there are mass layoffs in all these firms, so no they are not growing. I wonder if they hire consultants to help them fire. I endorse your last paragraph. Well said.

  4. As for the rise of the “consultant”, the matter is not so simple.

    In order to win the Cold War, capitalism had to make huge and very generous concessions to the working classes of at least its center (First World countries), specially the USA (capitalism’s HQ). The synthesis of that is the rise of the Middle Class, which, in concrete terms, means the rise of the white collar worker.

    The problem is this white collar worker is majorly unproductive labor: they are mere middlemen who take a slice of the cake. But the cake is produced and baked by the proletariat, specially the industrial proletariat, who is mainly located in China, but could be scattered elsewhere in the Third World. The rise of the Middle Class during the Cold War is thus essentially a social pact.

    Thing is, the USA and the rest of the First World cannot break this social pact peacefully. They built their legitimization against the USSR in particular and socialism in general over the ground that capitalism tends to build Middle Class societies in theory, and in the First World countries in practice. The middle classes of the First World see themselves as the main actors of the defeat of the USSR and the final triumph of capitalism, that is, they are charging their part on this social pact.

    However, capitalism will come to an end, as Marx scientifically demonstrated. It is immaterial to the cycle of capital which social pacts were made or not made: its profit rate will fall over time and crises will collapse the system. The creation of the middle class actually accelerated this process: in order to maintain the illusion of a “middle class nation”, the USA had to create a plethora of white collar jobs, not all of them really useful; as a result, modern-day USA is awash with an endless army of parasitic middlemen, most visible in its corrupt, kafkiesque and byzantine healthcare system, where a string of insurers take a piece before the patient actually gets the treatment, ballooning the costs of treatment.

    To undo this pact of easy, “bullshit jobs”, with which the USA defeated the USSR will not be easy. It would essentially mean the USA would have to abandon the American Dream doctrine, which establishes that the military and economic superpower (which will always be the USA, the saying goes) should automatically enjoy the best life standards (i.e. no people of the rest of the world should ever enjoy better life standards and material wealth than the American people). Good luck firing so many people at the same time.

  5. See Matthew Stewart’s “The Management Myth” for an earlier take on consulting as a “con”… “Scientific” Management is widely promoted through MBA programs, but the originators of that “Scientific” MBA baloney like Frederick Winslow Taylor cooked the books on their “experiments” correcting them, by their own admission, by as much as 200%. “Scientific” management is founded on con men’s lies.

    Stewart’s conclusion: Management is a liberal art.

  6. I have two historical examples of the “inefficiency” of the public sector, around the 50s my father, as secretary of public works, built hundreds of schools in the interior of the state, managing these constructions with civil servants, until today there are a dozen of these functional schools. My father-in-law, who was an engineer at the secretary of health, built some water treatment plants by direct administration in the 1960s, which only needed expansion in the 1990s due to population growth.
    Nowadays there is a mixed economy company to deal with sanitation, which in turn hires private companies for projects that are built by other private companies.
    Summary of the opera, the price has gone up, the state has no money, and nothing is invested in the state.
    P.S. The two engineers mentioned neither became rich at the time.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: