Bryce Edwards: Time for a big debate about Govt use of business consultants

February 10, 2023

This week’s bonfire of policy was also a bonfire of cash. The Hipkins-led Government finally ditched the RNZ-TVNZ media merger, but only after wasting about $23m on consultants to design the failed project. Other ditched policies also incurred millions of dollars in business consultancy fees.

Much of this was spent on the “Big Four” management consultants: Deloitte, KPMG, Ernst and Young (EY) and PricewaterhouseCoopers (PwC). External contractors have become an increasingly large part of Labour’s public policy-making process. Critics say they are superseding the role of the public service in designing state programmes.

A Billion dollars a year on business consultants

In everything from health to water infrastructure, the Government has become reliant on these private sector consultants to come up with new ways to do things and tell the politicians how to sell it. And they’ve been charging huge amounts. We now know that the public broadcast merger consultants were being paid up to $9000 per week, per consultant.

The most recent figures released by the Public Service Commission show that the Government now spends $1.244 billion a year on such contractors. And it’s rising fast – last year the consultancy spend was up by a third ($300m). Much of this was spent on health reforms, the polytech centralisation, and Three Waters.

The latter is likely to be the next policy on the bonfire. The Three Waters reform programme has been particularly lucrative for the management consultants – three of the Big Four have been employed – PwC, EY and Deloitte together charged a big chunk of the $21m of consultancy work up until February last year, as revealed by the Herald’s Kate MacNamara. She found that EY was the biggest contractor, billing for $5.2m. In addition, consultancy firm Martin Jenkins – closely linked to Doug Martin, who chaired the water working group – charged $2.5m.

PR was also a big part of the Three Waters bill. The firm Senate Communications seem to be the main biller, receiving $616,281 for advice to the Beehive on selling the reforms to the public. Unfortunately, the PR campaign ended up being perceived as “propaganda” and garnered a telling-off from the Public Service Commission.

The advertising campaign using cartoons of slime-covered children and sick ducks failed to win public support, and had been concocted following the advice of another PR specialist that the Government should employ the use of “emotive marketing” instead of “information first” public service-style advertising.

More money for “consulto-crats” than delivery of public services

There are other big Government reforms costing huge amounts of consultancy money that might also be headed for the bonfire. The Auckland Light Rail business case has now had over $50m spent on consultants so far. In fact, just before Christmas the Herald’s Thomas Coughlan revealed that the Government had so far contracted 200 different consulting firms in the five years since 2017 – such as: “law firms Chapman Tripp, Meredith Connell, Buddle Findlay, and MinterEllisonRuddWatts. They also include competing consultancies like PwC, EY, and KPMG.”

Transport Minister Michael Wood also spent about $51m on consultants to develop his Auckland Harbour cycling and walking bridge project, only to abandon it once it was obviously not going to work out.

Similarly, Wood’s Waka Kotahi and Let’s Get Wellington Moving have, according to journalist Andrea Vance, spent “$47m on consultants – and delivered only a pedestrian crossing. In eight years. And the walkway cost an eye-watering $2.4m.” More generally, it’s been reported that Waka Kotahi has spent almost as much on consultants as it has on actually building roads.

So, although many of Labour’s reform proposals have failed, they have been a real winner for the business consultants employed on them.

The “consulto-crats” have also become a big part of the health reforms. DHBs were already spending a lot on management consultants prior to Labour’s centralisation. But this has ballooned under the new model. According to health commentator and former executive director of the Association of Salaried Medical Specialists, Ian Powell, “In the over 30 years I’ve been involved in the health system I’ve not seen a government more dependent on and influenced by business consultants”.

Interestingly, the new head of the health bureaucracy – former Skycity chairman and veteran company director Rob Campbell, is somewhat more critical of business consultants. Back in 2021, before becoming the health boss, he told the media that consulting firms “tend to define and analyse problems in a manner which can only miraculously be resolved by themselves”. He predicted back then that various government department restructuring meant the big consulting firms would “be preparing to feast”.

Conflicts of interest abound. There are just so many links between the different consultants used in government. Just one example – Labour contracted former New Zealand director-general of health Stephen McKernan to head its health reforms Transition Unit. Kate MacNamara reports that EY, where McKernan is a partner, then became the “single largest beneficiary of the contractor spending”. Apparently, 80 per cent of the Unit’s consultancy spending of $2.27m went to EY.

Management consultants are the new powerful vested interests

Political writer Danyl Mclauchlan recently summed up the 2022 year in politics, pronouncing management consultants as the notable winners: “KPMG and EY are literally constructing buildings in the parliamentary precinct. The metaphor for the partial privatisation of the core public service over the last five years couldn’t be stronger, and this has been their best year yet. Hundreds of millions to restructure the health, education, media and water infrastructure and sell these projects to the public.”

Mclauchlan points to the fact that business consultants are typically part of the Wellington political class, having developed their networks and skills being employed by the taxpayer: “Almost exclusively former public servants and parliamentary staffers, who facilitated these historic transfers of wealth to the private sector and got to clip the ticket.”

He’s also questioned whether society is well served by the new layer of private sector bureaucracy having such influence and taking so much taxpayer funding: “It’s almost as if the primary role of the administrative state is shifting from serving the people to the redistribution of wealth to the staffers, lawyers, PR companies, managers and consultancy firms that work in them, or for them. A billion dollars a year in public sector consultancy is an awful lot of money when you’re running out of teachers and nurses because you don’t pay them enough, and the fire trucks are breaking down.”

The “Big Con” of consultancy

So, is the new consultant-bureaucratic industrial complex good for democracy? Is it in the public interest? And what does it mean for our political system to be so strongly dominated by private sector management consultants?

In New Zealand, journalist Dileepa Fonseka wrote last year that “Consultants have become an entrenched part of the machinery of Government.” He says that there’s a Wellington joke about the modern structure of government: “There are three branches of government: the legislature, the judiciary and MartinJenkins.”

Although this trend seems to be particularly well-advanced in this country, it’s part of a global problem. Next week, a new book is set to be released that will shed more light on the role of consultants in governing. Economist Mariana Mazzucato has co-written with Rosie Collington, “The Big Con: How the Consulting Industry Weakens our Businesses, Infantilizes our Governments and Warps our Economies”.

They argue there are major conflicts of interest in the way that the consulting industry and business is entrenched in contemporary governments. Here’s the blurb for the new book:

“The ‘Big Con’ describes the confidence trick the consulting industry performs in contracts with hollowed-out and risk-averse governments and shareholder value-maximizing firms. It grew from the 1980s and 1990s in the wake of reforms by both the neoliberal right and Third Way progressives, and it thrives on the ills of modern capitalism, from financialization and privatization to the climate crisis. It is possible because of the unique power that big consultancies wield through extensive contracts and networks – as advisors, legitimators and outsourcers – and the illusion that they are objective sources of expertise and capacity. To make matters worse, our best and brightest graduates are often redirected away from public service into consulting. In all these ways, the Big Con weakens our businesses, infantilizes our governments and warps our economies.”

Hopefully, this book will spark a lot more debate and scrutiny about how countries like New Zealand have come to install consultants at the centre of policy-making, and what the problems are with this approach.

Of course, the current government won’t welcome debate. Prime minister, Chris Hipkins, once railed against the use of consultants by the last National Government – criticising what he saw as the ballooning use of business contractors. But since he became Minister of Public Services in 2017, their use has only skyrocketed.

Part of the increased use of contractors has been due to the arrival of the Covid pandemic, which stretched the public service in certain areas. But this lucrative new opportunity shouldn’t be simply allowed to turn into a permanent state of affairs.

The “bonfire of policy” occurring at the moment is a good time to examine the dominance of business consultants in government. Some say the public service has become bloated, and others that it has been hollowed-out by the entry of management consultants. Either way, this culture of consulto-crats poses huge questions about vested interests, and brings the integrity of policymaking into question.

Dr Bryce Edwards is Political Analyst in Residence at Victoria University of Wellington. He is the director of the Democracy Project.

This article can be republished under a Creative Commons CC BY-ND 4.0 license. Attributions should include a link to the Democracy Project.

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