Need a consultant? This book argues hiring one might actually damage your institution

Beware, argue the authors of a new book. Besuited jetsetters, armed with prestigious degrees and powerpoint slides, have infiltrated governments and corporations around the world. They claim to offer valuable expertise and fresh ideas. But don't be fooled! The consulting industry, the authors argue, is selling snake oil that is poisoning governments and distorting economies.

The book is by economists Mariana Mazzucato and Rosie Collington, and it has one of those titles that really drives home the authors' argument. It's called The Big Con: How the Consulting Industry Weakens Our Businesses, Infantilizes Our Governments, and Warps Our Economies. It offers some provocative arguments against what you might call Big Consultant.

Big Consultant Gets Bigger

The consulting industry, which is dominated by firms like McKinsey & Company, Boston Consulting Group, Bain & Company, PricewaterhouseCoopers, and Deloitte, has seen some astonishing growth in recent decades. Mazzucato and Collington cite estimates that the worldwide market for consulting services is now worth as much as a trillion dollars a year.

[Editor's note: This is an excerpt of Planet Money's newsletter. You can sign up here.]

While the modern consulting industry has a history stretching back over a century, Mazzucato and Collington write that the use of consultants really exploded after the 1980s. That's when proponents of freer markets, like Ronald Reagan and Margaret Thatcher, began dismantling government bureaucracies and regulations. More left-leaning "Third Way" leaders, like Bill Clinton and Tony Blair, continued in their wake. "Public sectors were transformed under the credo of New Public Management — a policy agenda that sought to make governments function more like businesses and diminished faith in the abilities of civil servants," Mazzucato and Collington write.

As governments lost the faith and capacity to do things themselves, they increasingly turned to consultants to help them accomplish tasks. Governments began using consultants for seemingly everything, from devising new tax rules to advising armies to overseeing the privatization of state industries to administering IT departments to devising strategies on how to cut carbon emissions.

At the same time, private corporations also increasingly turned to consultants to help them become more profitable. And here, Mazzucato and Collington portray consultancies as opportunistically surfing wave after wave of destructive capitalism. McKinsey & Company, for example, was involved in the Enron scandal and profited from the opioid crisis, helping Purdue Pharma "turbocharge" sales of its OxyContin painkiller.

"The Big Con is of course not responsible for all the ills of modern capitalism, but it thrives on its dysfunctionalities — from speculative finance to the short-termist business sector and the risk-averse public sector," Mazzucato and Collington write.

Problems With Overreliance On Consultants

Beyond their periodic scandals and a questionable track record, Mazzucato and Collington argue, consultants — and the overreliance on them — create systemic problems for both businesses and the government.

One big concern is over whether consultancies actually provide real value for the big sums they charge. Many times, the authors suggest, consultants lack the knowledge and expertise that organizations turn to them for. Instead, they write, consultants often merely create an "impression of value" that is strong enough to secure fat contracts, but, in the end, their work doesn't amount to much more than that. Without much hard data to really prove it, Mazzucato and Collington claim that these "contracts enable the consulting industry to earn incomes that far exceed the actual value it provides." The authors suggest the work that consultants do can often be done more cheaply and effectively in house.

But, the authors write, many times leaders turn to consultancies not because they want specialized knowledge or exciting new ideas that they can't get in house. Instead, the authors assert, leaders often turn to consultants to merely provide a rubber stamp for controversial decisions that they wanted to make anyway. The authors argue, for example, that consultants are quick to greenlight tactics like laying off workers and slashing R&D budgets. These decisions may boost short-term profits but they can also be unpopular and detrimental to the long-run health of an organization. And these decisions may be given additional legitimacy when prestigious consultants back them.

Another big concern about the consulting industry is conflicts of interest. In some cases, the same consultancy firm is advising both the regulators and the regulated. "In climate consulting, for example, big consulting firms work simultaneously for governments whose populations would like to see lower emissions and for the fossil fuel companies that contribute most to the climate crisis," Mazzucato and Collington write. These conflicts of interests are facilitated by a lack of transparency.

Finally, and perhaps most importantly, Mazzucato and Collington argue that the practice of outsourcing responsibilities to consultants weakens the capacity of in-house employees to get better at their jobs. "The more governments and businesses outsource, the less they know how to do, causing organizations to become hollowed out, stuck in time and unable to evolve," the authors write. The authors assert it's often better for governments and businesses to do tasks themselves, and even sometimes fail. This enables their institutions to learn by doing.

Institutional capacity, the authors suggest, is a cumulative process of trial and error that helps an organization get smarter and better. However, when organizations outsource critical work to others, they short-circuit this process. Even worse, Mazzucato and Collington argue, what is learned from the consultants doing the actual work is often not adequately shared with the organization — which means the organization doesn't actually learn valuable insights that it can use down the road. Instead, it remains dependent on consultants.

"The cumulative use of big consultancies that operate with extractive business models stunts innovation and capacity development and learning, undermines democratic accountability and obfuscates the consequences of political and corporate actions," Mazzucato and Collington write. "In the end, we all pay the price through the lack of in-house investment and learning: public funds and other resources are wasted, decisions in government and business are made with impunity and little transparency, and our democratic societies are deprived of their dynamism. The Big Con imperils us all."

Mazzucato and Collington offer various ideas to ensure that "the Big Con" doesn't imperil us all. These include putting greater faith in government workers, recognizing that critical technological breakthroughs, like the internet and GPS, were the product of government work at the Defense Advanced Research Project Agency (DARPA). Government workers, they argue, can be just as capable as private consultants. The authors recommend reigning in the use of consultants and empowering in-house staff.

If You Absolutely Positively Emphatically Must Use A Consultant

In those cases where governments or businesses are forced to use consultants, Mazzucato and Collington recommend organizations create contracts with provisions that ensure that any knowledge acquired in doing the task is adequately shared with in-house staff.

Finally, Mazzucato and Collington recommend reforms to ensure greater transparency and accountability in consulting contracts, a necessary step to fighting conflicts of interest. "In democratic societies, it is important for both business and government organizations — and their employees — to know about the conflicting interests another organization has when it enters into a contract with them," the authors write.

The Big Con comes on the back of another recent book, When McKinsey Come To Town, which shines a spotlight on the numerous scandals of the consulting powerhouse McKinsey & Company. In late February, McKinsey announced it was laying off roughly 2,000 workers — one of its biggest job cuts ever. With this stream of bad publicity, it seems the consultants might need some consulting of their own these days.

Disclaimer: The copyright of this article belongs to the original author. Reposting this article is solely for the purpose of information dissemination and does not constitute any investment advice. If there is any infringement, please contact us immediately. We will make corrections or deletions as necessary. Thank you.