Malte Ossowski/SVEN SIMON/picture-alliance/dpa/AP Images
The consulting industry relies in part on sustained government contracts and regularly expects the public sector to shoulder the financial and reputational risks of the projects that the firms take on.
By Mariana Mazzucato and Rosie Collington
Penguin
In May 2020, as the United Kingdom neared the end of its first COVID-19 lockdown, the management consulting firm McKinsey & Co. won a £563,000 contract from the U.K. government to shape the “vision, purpose and narrative” of a new organization leading England’s contact-tracing efforts.
Four days before the firm was awarded the project—for which it did not have to compete with other bidders—McKinsey had published an article urging the U.K. government “to prioritize helping the vulnerable,” including by “channel[ing] support to the most vulnerable segments of the population.” (One might think such advice could be had for less than half a million pounds.)
By August, The Guardian reported, the government had indeed channeled support—to some of the world’s biggest consulting firms. The first six months of the pandemic saw U.K. taxpayers fund £56 million worth of COVID-related contracts. More than £5 million went to McKinsey, which by that point had already secured more than $100 million in pandemic contracts from the United States government, ProPublica found.
McKinsey’s ability to get paid more than half a million pounds to describe the purpose of a public-health body during a public-health crisis reflects a lucrative phenomenon sweeping the consulting industry. Whether helping government and corporate clients build trust with customers and citizens, promising to instill a sense of meaning among employees, or purporting to solve climate change with voluntary “metrics,” Big Consulting is playing an influential and largely under-the-radar role in institutionalizing the idea that market forces and profit motives will solve society’s social and environmental challenges.
As University College London’s Mariana Mazzucato and Rosie Collington argue in their new book, The Big Con: How the Consulting Industry Weakens Our Businesses, Infantilizes Our Governments, and Warps Our Economies, Big Consulting’s efforts to profit from the climate crisis and other pieces of the stakeholder capitalism movement represent the latest version of a capture-and-extract playbook that the industry has been developing for decades. The rhetoric of “environmental, social, and governance,” or ESG, may sound novel, and the intentions behind it may sometimes be genuine, but the consequences are predictable—and dangerous. Governments and businesses become increasingly dependent on the services and consent of consultants, while public-policy “solutions” become narrowly limited to those that are also profitable for the consulting industry and its corporate clients.
The Big Con focuses on a handful of the world’s most powerful consulting firms, including the “Big Three” (McKinsey, Bain & Co., and Boston Consulting Group, or BCG), as well as the “Big Four” accounting firms (PwC, Deloitte, EY, and KPMG—which now rely on consulting, not auditing, for a growing share of their business). These sprawling organizations are some of the largest private companies in the United States. With offices around the world, annual revenues in the tens of billions of dollars, and clients in seemingly every big corporation and national government, Big Consulting’s practices are influential, lucrative, and—for the vast majority of the public not employed in government or consulting—often invisible. (Disclosure: I previously worked for EY, where I researched and wrote about the notion of “purpose-driven” business and experienced many of the trends that Mazzucato and Collington describe.)
The conflicts of interest, as well as the industry’s power more broadly, stem from structural incentives.
There are clearly profits to be found in what the Financial Times has called “a booming market for environmental, social and governance advice.” Mazzucato and Collington point to a forecast predicting that the global market for “climate change consulting” could exceed $8.5 billion by the end of 2028. That figure includes everything from serving as the official “Consultancy Partner” of the United Nations climate convention (BCG), to selling measurements and frameworks for companies to track their carbon emissions and climate risks (KPMG, Deloitte, EY, and PwC), to publishing articles about why “the biodiversity crisis is a business crisis” (BCG) and how companies can “make the metaverse an enabler of sustainability” (EY), to developing a scientifically implausible “net zero” plan for the Australian government that relies in part on unnamed “further technology breakthroughs” (McKinsey).
But as McKinsey’s contract to reveal the “vision, purpose and narrative” of the U.K. contact-tracing agency suggests, the firm and its competitors are after more than just profits. McKinsey’s fee for that project was barely a rounding error for a company that brings in billions of dollars in revenue each year. Just as significant were the intangible benefits, such as the public relations boost of being seen as supporting the fight against COVID, and access to the government at a time when contracting rules and processes had been set aside and public bodies were funneling vast amounts of money to the private sector for pandemic response. (A former McKinsey consultant was later chosen to head the new agency responsible for contact tracing.)
FOR DECADES, A COMMON JUSTIFICATION for handing public services to private operators has been that market actors driven by profit motives and competition have stronger incentives to deliver those services efficiently and effectively. This argument is hard to square with a consulting industry that relies in part on sustained government contracts and that regularly expects the public sector to shoulder the financial and reputational risks of the projects that the firms take on. (Sometimes companies won’t even bid for public contracts unless governments have committed to bearing the risks of failure.)
Mazzucato and Collington summarize the industry’s business model as “evading the risks, reaping the rewards.” In the early 2010s, the Obama administration hired more than 55 different companies to develop and roll out HealthCare.gov, the federal health insurance marketplace. Some individual contracts were worth more than $200 million. Yet as Mazzucato and Collington show, HealthCare.gov’s initial dysfunction and cost overruns were largely seen as another case of “government incompetence.” While the White House and federal agencies undoubtedly made mistakes (among them hiring too many consultants to design the website), there was little sense that the “external consultancies [that] were at the core of HealthCare.gov,” as the authors put it, bore any responsibility at all. Elsewhere, a recent New York University report found excessive use of consultants helps explain America’s sky-high infrastructure costs.
Today, as Big Consulting seeks to deploy a similar playbook to social and environmental challenges, the firms’ incentives are warped by what Mazzucato and Collington describe as an additional “systemic conflict of interest.” Consulting firms want to burnish their reputations and generate revenues by selling corporate responsibility “solutions” to both governments and companies. Crucially, however, governments and companies—not to mention their other “stakeholders,” such as employees and citizens—have different interests. Sometimes those interests align; other times, they are not just different but fundamentally in conflict.
The New York Times and ProPublica have reported that McKinsey simultaneously advised pharmaceutical manufacturers—including Purdue Pharma, the maker of OxyContin—and the sections of the U.S. Food and Drug Administration that were responsible for regulating those same pharma companies. McKinsey is not alone, either—every major consulting firm has corporate and government clients. And while firms are not required to disclose their clients, making it impossible to provide a full accounting of conflicts of interest, some are obvious. Even as the Big Four accounting firms advise governments on how to shape tax laws and regulations, for instance, they also help private clients minimize their tax bills and shelter their income overseas through complex tax arrangements. (Depriving governments of tax revenue also undermines the ability of governments to function, creating more demand for outside contractors.)
Similarly, even as consulting firms market their proprietary climate change advice and other offerings to both businesses and governments, they continue to do work for oil and gas interests whose business models—and thus their ability to continue hiring consultants—depend on extracting fossil fuels and obstructing efforts to regulate their industry. “Because most consultancies … want to secure future contracts from clients in the private sector—which remains a far bigger market than government contracting—there is a disincentive to provide advice that may harm key clients and industries,” Mazzucato and Collington write. This is true “even if this is the appropriate course of action to achieve the government’s goals or for society as a whole.”
The perseverance of this conflict is rarely a reflection of individual intentions. Many people go into consulting because the firms promise that their employees will “make a meaningful difference in the world” (PwC) and help “leaders in business and society to tackle their most important challenges” (BCG). The conflicts of interest, as well as the industry’s power more broadly, stem from structural incentives. Absent any legal or regulatory requirements, Big Consulting has every economic incentive not to offer proposals that would actually address the drivers of climate change but rather to push “solutions” that fit a narrow set of criteria: private sector–led, profit-oriented, and devoid of legally binding commitments or government mandates. It is a business model that depends on creating a perception of problems being solved while in reality perpetuating the need for the problem-solvers’ services.
THE CONSULTING INDUSTRY is not solely responsible for governments’ inability to take on societal challenges like climate change. Yet even as consultants’ corporate responsibility profit-seeking has received less scrutiny than that of investment banks, asset managers, or technology companies, the firms have emerged as a significant obstacle to real progress.
As The Big Con reveals, by helping governments set social and environmental policy in a way that minimizes the harm to their private-sector clients while simultaneously helping private-sector clients appear to be tackling social and environmental challenges, Big Consulting weakens public pressure for government action and impedes the ability of governments to solve these challenges at all. And when governments can’t solve problems or deliver effective services to their citizens, people become more disillusioned and disenchanted. Public cynicism, in turn, leaves governments with diminished resources and weaker public mandates to take on entrenched interests, more reliant on private actors with their own interests and agendas, and more susceptible to cronyism and corruption.
It is both a tragic irony and a testament to the insidiousness of the consulting industry that as consulting firms have wormed their way into every aspect of how societies attempt to solve collective challenges—capturing public contracts and cleansing their reputations along the way—the result is governments around the world that are “losing not only capabilities, but also their sense of public purpose and direction,” as Mazzucato and Collington write.
Fortunately, any government looking to rediscover its “vision, purpose and narrative” already knows who to call.
