Why Bain and its ilk are the bane of governments

Big consulting firms such as McKinsey and Bain & Co — well known to South Africans thanks to state capture scandals — are “infantilising” governments and undermining state capacity, to ensure a never-ending stream of lucrative consulting contracts.

That’s the view of economist Mariana Mazzucato, a member of President Cyril Ramaphosa’s economic advisory council, who says governments have stopped investing in their internal capacity and consultants have taken full advantage of this.

 “The big consulting companies have taken advantage of weak government. In other words, if government is weak, it needs help,” Mazzucato, a professor at University College London who is in South Africa to promote her book, The Big Con, told the Sunday Times.

“If there is a conflict of interest, because the consulting companies have no incentive to make government stronger because they won’t have the next round of contracts, we have a problem. It’s like when a therapist has a client in therapy their whole life, almost on purpose making the client not independent.”

Mazzucato, founding director of the UCL’s Institute for Innovation and Public Purpose, gave a talk at the Wits School of Governance and presented a masterclass on deepening state capacity at the National School of Government.

The book, co-written with Rosie Collington and subtitled How the Consulting Industry Weakens Our Businesses, Infantilises Our Governments and Warps Our Economies, cites estimates that the global consulting services market was worth between $700bn and $900bn (R12-trillion and R16-trillion) in 2021. Firms such as McKinsey, Bain & Co, Boston Consulting Group and the big four accounting firms — PwC, Deloitte, KMPG and EY — are hired by governments and the private sector to help with project management, IT, financial planning, corporate strategy and similar work. 

 Mazzucato argues that weak state capacity has led to an overreliance, or even an addiction, to consultants at the detriment of the public good.

“We say these companies are benefiting from this dysfunctionality. They benefit from a weak state, and they contribute to weakening it even more. They benefit from companies who have these stupid ideas around shareholder-value maximisation, because then they come in and consult on it.”

Governments need to start renegotiating their contracts with consulting companies so they do not run indefinitely;  consultants must be forced to embed some form of skills transfer.

“We need to make sure the contracts actually embed a provision that capacity is increased on the ground; otherwise what’s the point of having consultants if it just becomes an addiction?”

Mazzucato said consultants were often not qualified to do the work they signed on for, citing the example of how the UK government hired Deloitte to advise on its “test and trace” system during Covid — something she said the company was unfamiliar with.

They paid their $600m, bang, that’s it! There’s no real accountability. One could argue they should be shut down given the number of different types of allegations that are coming out

—  Mariana Mazzucato

“They know nothing about it, in fact they failed miserably. We need much more scrutiny on what value is provided.”

Governments also needed to be careful of conflicts of interest when outsourcing work. In Australia, the government paid consultants $6m to advise on its climate change strategy when those same companies were consulting with 46 of the biggest polluters in the world.

She also advocates harsher penalties when consulting companies are involved in illegal scams that fleece the taxpayer,  or their work results in public harm; Bain & Co’s role in hollowing out the South African Revenue Service is a case in point.

McKinsey, also deeply implicated in state capture shenanigans, ran into a separate scandal in the US where it was forced to pay $600m because of its work with pharmaceutical companies in promoting painkillers and fuelling the opioid crisis.

Mazzucato believes such financial penalties amount to no more than a slap on the wrist for the big consultancies.

“They paid their $600m, bang, that’s it! There’s no real accountability. One could argue they should be shut down given the number of different types of allegations that are coming out… Obviously the rot is at the core of the business model; it’s not an exception.”

Mazzucato works with governments around the world on increasing state capacity. In South Africa, she does this work with the National School of Government. She does similar work with the British public service, and her message is clear throughout: “By bringing in consultants you are just making the problem worse, you are weakening government more. We can’t treat the sickness with the same medicine that caused the sickness.”

But in a country like South Africa, where state entities have been responsible for such crises as load-shedding and rail logistics, should the government assume more responsibility?

“My point has never been to romanticise the public service, nor the state,” she replied. “I’m very angry that the state is not investing in its brains and becomes incapable. Or the state gets captured or corrupted.

“The reason we have the problems we have is we have a weak state, and we have a financialised corporate governance and a parasitic relationship between the two. We not only need to rethink the state, but to cause it to be held accountable to the public interest and the common good.” 

Covid and the global vaccine rollout, she said, showed how the public and private sectors can work together for the public good. But self-interest ended up compromising the vaccine rollout.

“With the vaccine, the problem was the inter-relationship ; we ended up with vaccine apartheid. We had very strong intellectual property rights where companies such as Pfizer were not willing to share the knowledge, whereas AstraZeneca was willing because the Oxford University researchers forced them to, because they were publicly funded. We need more examples like that.”

As a member — pro bono — of Ramaphosa’s advisory council she focuses on state capability and the green economic transition. She said she had described for the president how Sweden is using public procurement to create a fossil-fuel-free welfare state.

“That has meant everything, including school lunch, has to be green. School lunch has to be healthy, tasty and sustainable. Which means the procurement and the supply chain of food has to transform itself in order to deliver to the public school system.”

 The state needs to invest more in creating a dynamic public sector if it is to move from being part of the problem to being part of the solution. Governments cannot permanently outsource their functions to consultancies or philanthropists, Mazzucato said.

 “It’s impossible to solve the challenges you have just by asking the consultants or the philanthropists. The Gates Foundation is not going to solve your health-care problems; you need a strong health-care system and that requires having outcomes orientation.”