The real problem with the consultancy business

National Party leader Christopher Luxon has promised to deliver higher quality and cheaper early childcare by stopping the consultant ‘gravy train’ at the station. His policy statement has been met by a mix of derision and surprise. Where does he plan to get his own policy advice if in government? What does spending on consultants have to do with funding childcare, specifically? More tongue-in-cheek: won’t National’s fundraising and networking events be rather awkward?

But there is another question that is at least as important – what does Luxon’s statement tell us about the place of consultancy in government?

Consultants have been taking it in the neck from all sides of late. Investigative journalists have written critical exposés of the large global management consultancies (GMCs). They have highlighted formal networks and cosy relationships tying together corporations, consultants, NGOs, and politicians, and uncovered the staggering depth of influence consultants exercise over individual lives as well as government, corporate organisation, and global economic trajectories.

The economist Mariana Mazzucato has recently co-authored a more highbrow critique of consultants, the thrust of which is captured in her book The Big Con. The book focuses attention directly on the influence the consulting industry exercises over policy. Others have estimated the global annual pre-Covid spend on management consultants to be $85 billion and have asked what governments get for their money.

Closer to day-to-day life, journalists in New Zealand, Australia and the UK have also highlighted the costs of consultants and asked why governments rely so heavily on external advice. In Australia and the UK, governments on the left and right sought to develop policy to curb state spending on consultancy. In New Zealand, Labour and National have questioned spending on consultants, but have used consultants widely when in power.

There is a globalising and intensifying concern about the extent and influence of consultants in government, but the bigger question is perhaps whether their work is part of deeper changes in the very nature of government.

One simple answer is that they have replaced public servants as governments have shrunk the state. Doing so has hidden away much of the work that state agencies perform, reduced the visible size of the state, and taken away much of the cost of maintaining capacity within the state.

In this sense the work of consultants is important to government. In a country where the contribution of government spending to GDP runs at over 40 percent, but government only employs roughly 20 percent of the workforce, consultants are integral to policy development and delivery.

Despite politicians, business leaders and others touting free functioning markets as the engine of national and individual prosperity, the reality is that state support remains essential to New Zealand’s economy. Consultancies play crucial roles in organising and delivering that support. The Big Four consultancies (KPMG, PWC, Deloitte and EY) employ about 6,000 workers – enough to support a small New Zealand city.

They also provide fast policy advice, quick comparative analysis with other countries, access to global expertise, and valuable technical services. They are an integral part of how nations are now governed around the world.

The nature and extent of the technical work the consultancies do, the dependence of the state on it, and the networks of corporate and state executives that emerge from it, all result in influence on our economic and social futures.

The GMCs, which also deliver audit and financial services, exert further influence over government. They produce and sell pathways to decentralisation, procurement policies, models for remunerating managers and executives, templates for using digital technology, and frameworks to encourage coordination between departments, for corporate organisations in private and public sectors. These models in turn shape how corporate actors perform, the work they do and how they do it, and their relationships with workers and other businesses.

GMCs also produce and sell interpretations of the changing world, policy advice, and visions of the future. They operate at the heart of government and corporate capitalism, and come together with corporate leaders and state agency executives in think tank settings. The GMCs play prominent and highly visible roles in discussions at the annual World Economic Forum. The question of who is actually governing is a very real one.

In a globalising world, the consultants offer governments and private organisations important insights. They pick up the slack from a pared back state, maintain extensive databases, and can rapidly organise and deploy technical expertise.

They make significant profits from public spending and their expertise might be provided more cheaply within the state, but they do perform important work. Any wholesale assault on them will have to be matched by commitment to rebuilding capability in the public service.

The greater concern is their influence. To address this requires reinvestment in long-term and rapid policy advisory capability within the state. In the absence of that, it is important not to make knee-jerk reactions to the costs of consultancy, but to find ways to temper its influence, to democratise the delivery of policy advice and sketching out possibilities for the future.