The Big Con – How the Consulting Industry Weakens Our Businesses, Infantilizes Our Governments and Warps Our Economies, by MarianaMazzucato and RosieCollington (Penguin Random House, London, 2024), pp. 344.

In recent decades a few industries have grown as rapidly as strategy and management consulting, in both earnings and influence. The inevitable consequence has been a loss of in-house capability in business and public service agencies. When work is put out to consultants, clients have fewer opportunities to gain experience in how to do that work – especially in civil services – so become ever more dependent on consultants. The current Australian government is trying to redress the balance by reducing spending on consulting (by $4 billion according to a May 2024 media release from the Minister for the Public Service Katy Gallagher) and investing in rebuilding public service capability. Mazzucato and Collington, authors of The Big Con, would applaud this approach. They recommend a new remit for the civil service, recognising its role as a value creator in the economy, building capacity and embedding learning in consulting contracts with the aim of clients – mostly civil servants – gaining independence. The authors provide a thorough history of consulting from engineers advising corporations in the early 1900s on the latest developments in their field, through Frederick Taylor's ‘scientific management’ in 1911 (division of labour and systematisation of tasks), and cost accounting from McKinsey and Co. from 1926. The industry then expanded dramatically as an unintended consequence of the Glass–Steagall Banking Act of 1933 that forced banks to separate commercial and investment activities, leaving consultants the only advisers allowed to provide management advice to companies in the USA. They continued to win business, and the industry grew steadily over subsequent decades – largely oriented to advising the private sector, with public sector work concentrated in IT. Then with the 1980s came neoliberalism, a step change that put billions of dollars into the hands of the large consulting firms. In the form adopted by the Reagan and Thatcher governments in the USA and UK, respectively, and subsequently in many Western countries, including Australia, neoliberalism was characterised by privatisation and outsourcing of public sector activity. That was a goldmine for consulting firms. They advised government on how to privatise and then frequently obtained work in the newly privatised firms. With outsourcing, consultants advised either governments, bidders (often, ignoring conflicts of interest, both at the same time) or themselves bid to do the work. Australia saw many cases where multiple different consulting firms would be engaged on every side of the transaction for a large outsourcing contract. Boundaries between consulting and outsourcing are unclear. As the authors explain, firms like Serco could be seen as service providers or as consultants, even more so, financial services advisers. Regardless how you classify them, they made huge gains at the public expense in the neoliberal era. Whether that represented a net welfare loss is a harder question. A neoliberal, convinced of the inefficiency of government, might argue that loss of capacity in the public sector is not inherently harmful if consultants can do a better job. The authors would disagree. They provide numerous examples of poor results (IT failures in Denmark and the UK), conflicts of interest (McKinsey working on climate strategies for government while representing fossil fuel companies) and policy missteps (restructuring in Puerto Rico) among others to support the case – summed up in their subtitle – that the consulting industry weakens businesses, infantilises governments and warps economies. Although consulting cannot be blamed for Brexit, the authors document how all the major firms gained huge fees from it. The same goes for the pandemic. Whenever governments face problems, consultants see opportunities to extract rent. The authors describe the impacts of consulting on business and government comprehensively and present evidence of the damage this has caused. However, they provide relatively little economic analysis of underlying causes. Yes, consultants engage in rent seeking, but that is ubiquitous, not confined to this industry. Yes, consultants benefited from neoliberalism, but what enabled this to happen? There are possible answers in terms of the economic literature on institutions and the principal–agent problem. Consultancy has itself become an institution, with norms and values at odds with those that apply to business and highly divergent to the public sector. The orthogonal institutions allow consultants to recommend or do things that would simply be outside the normal ‘rules of the game’ in other contexts. The Australian Parliament has conducted two inquiries into the industry. In her foreword to the report of the most recent of these (Ethics and Professional Accountability: Structural Challenges in the Audit, Assurance and Consultancy Industry, November 2024) inquiry chair Senator Deborah O'Neill noted in relation to one major firm ‘a broad and relentless pursuit of profit at any price, with the revelation of practices that jettisoned even the most basic principles of ethics and professional accountability. This culture thrives on conflicts of interest which are all too frequently ignored, ill managed, or even exploited’. The authors take a rather dismissive view of agency theory (pp.142–144). Their argument that ‘those employed by outsourcing consultancies bear the greatest risk internally of the company failing’ ignores the multiple instances of consulting that is purely advisory and where consultants bear little if any risk: even more puzzling because they cite many examples of consultants evading risk. Agency theory focuses on the different incentives between business owners and managers (or government ministers and public service managers). Consultants are even further removed from owners, with larger incentives to profit from advice without regard to whether it delivers value. It also explains why the problems with consultants are much greater in the public than in the private sector. In the public sector, accountability is diffuse and performance measures more contested, meaning greater opportunities for evading accountability for results. The authors' prescriptions on what needs to be done (including investing in public sector capability creation, embed learning in contracts, mandate transparency and conflict of interest disclosures) are to differing degrees being implemented by governments worldwide, including in Australia. What is missing is a plan to address the multiple ways consulting firms gain and retain contracts, short of illegal conduct like bribery or fraud. These include high-paid job offers to former public servants and ministers, the prospect of which must influence their decision-making while in office; lavish hospitality for clients, such as private boxes at sporting events and fully paid holidays; and exploitation of clients' willingness to agree to contract variations, often many times multiples of the original contract value (known in consulting as the ‘land and expand’ strategy). It is within the power of governments to curtail all these, by changing their rules on engagement of consultants and on acceptance of benefits by officials. Rebuilding public service capability can only go so far – the incentives for ministers and senior officials to engage consultants also need to change.