Ottawa needs to kick its consultants habit

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Finance Minister Chrystia Freeland is promising to reduce Ottawa’s dependence on management consultants, after weeks of damaging revelations surrounding the Liberals’ growing reliance on McKinsey & Co. and other outside contractors for advice on how to run the government.

Tuesday’s budget targets $7-billion in savings over five years in federal spending on travel and outsourcing, with a focus on trimming costs related to management consultants that have spiked under the Liberals. But with overall spending on ­­“professional and special services” up by almost a third since 2017-18, to $21.4-billion in the fiscal year that ends on Friday, Ottawa is far from breaking its outsourcing habit that critics argue undermines the public service and provides questionable value for money.

If it is any consolation to Ms. Freeland and the Liberals, they have hardly been alone in falling into the consultants’ trap. In what had until recently been a golden era for McKinsey and its counterparts, Western governments had been turning to them in droves to help make and implement policy. But a growing backlash against the government-by-consultants trend has prompted many to reconsider this strategy.

Mariana Mazzucato and Rosie Collington explore the causes and consequences of the surge in government outsourcing in their new book, The Big Con, arguing that consultants peddling turnkey solutions to complex policy issues often end up exacerbating the very problems they are hired to address – in part because of an exaggerated focus on short-term objectives. Ms. Mazzucato, an economics professor at University College London, and Ms. Collington, a PhD candidate at UCL, call for a move away from outsourcing and the embrace of a risk-taking culture in the public sector.

“The more governments and business outsource, the less they know how to do, causing organizations to become hollowed out, stuck in time and unable to evolve,” the authors write. “In the public sector, the costs incurred are often much higher than if the government had invested in the capacity to do the job and learned how to improve processes along the way.”

The Big Con traces the boom in government outsourcing to the election of “neoliberal” politicians in the United States, Britain and Canada in the 1980s that sought to make governments run more like businesses, while privatizing more and more public services. They were followed in the 1990s by progressive “Third Way” leaders who claimed they could “reinvent” government by applying “evidence-based” solutions to long-standing conundrums, leading to a boon in contracts for consultants bearing graphs and data sets that were supposed to inform policy making.

The Liberals came to power in 2015 promising results-oriented management inspired by “deliverology” guru Michael Barber, who had pioneered the concept for former British prime minister Tony Blair’s Labour government. Mr. Barber later went to work for McKinsey. The Liberals’ deliverology pretensions proved to be a joke. The Trudeau government not only failed to provide public services more efficiently, but some federal departments have become more dysfunctional on its watch. The immigration department, which last year awarded $24.8-million in contracts to McKinsey to advise it on “transformation strategies,” remains plagued by administrative failures.

Investigations, inquiries and parliamentary hearings conducted in many countries have almost universally concluded that governments have not been getting value for the money they spend on consultants. Yet, many of these same governments have been unable to kick the habit.

One reason is that the bureaucracy itself remains process-driven. Bureaucrats are handcuffed by adherence to administrative practices that leave little room for entrepreneurialism, innovation or creative destruction. Turning to consultants also allows senior bureaucrats to avoid responsibility for failure when things go wrong or simply to check a box in the bureaucratic process, even though they know implicitly that the advice they get from consultants is of dubious value, or outright wrong.

Ms. Mazzucato, who has written previously on the “entrepreneurial state,” and her co-author argue that public-sector organizations need to be empowered to take risks and develop internal expertise. But what works for a few state agencies with limited mandates – such as the U.S. Defence Advanced Research Projects Agency, the example she cites and which played a leading role in the creation of the internet and GPS – is unlikely to work on a scale as massive as that of an entire government bureaucracy.

Reforming the public sector is nevertheless needed to wean governments off consultants. This should not mean hiring more bureaucrats – the size of the federal public service has already increased by 28 per cent since 2017 despite Ottawa’s increasing reliance on outsourcing. By trying to do too much, governments often end up doing nothing very well. They need to prioritize their core functions and competencies.

Incentivizing bureaucrats to take risks and innovate, and improving education and training of public servants, would also help make the consultants redundant. Ms. Freeland’s budget is a step in the right direction, if only a baby one.