Consultancy Capitalism Is Allowing Private Firms to Control Public Funds
The EU’s promised €750 billion in recovery spending has been a boost for consultancy firms like Deloitte and PwC, hired to plan where funds are directed. These businesses’ growing control over public spending isn’t just undemocratic — it’s a recipe for corruption.
The Big Four professional services firms, which includes PricewaterhouseCoopers (PwC), Deloitte, Ernst & Young, and KPMG, are making big money on consultancy contracts with state entities in Spain, the UK, and elsewhere. (Jack Taylor / Getty Images)
The pandemic has brought big spending promises — with some even talking of a post-COVID Keynesianism. Yet, the rather bleak reality is that the crisis has turbocharged private consultancy firms’ sway over the public sector.
These businesses had already in previous years exerted a grip on economic policy design, thanks to the longtime outsourcing of public duties to the private sector. But in today’s Europe, the €750 billion in Next Generation EU funds are making such firms into the one-stop shop for large corporations seeking to secure long-term profits. In this situation, there is growing evidence that the European recovery funds — peddled to the public as an opportunity to realize a digital and green transition — will only lead to more corruption, spawning a new type of cartels.
After more than a decade of Eurozone austerity — with civil service staffing numbers frozen — governments have increasingly relied on outside help to perform functions which used to be done in-house. The myriad contracts appearing in Spain’s official gazettes provide just some examples of a now old story of covert privatization which has already cost state coffers at least €378 million, mainly in the last couple of years. The equivalent of the Ministry of Equality’s entire budget has been spent on a wide array of outsourced consultancy services, from strategic plans to the design of resilient policies, technical procedures, and PR campaigns.
What these contracts each have in common is that they have been granted to the Big Four professional services firms: Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers (PwC). Since the start of the pandemic, these companies have been charged with administering the reforms needed to alleviate the effects of the crisis — filling in for the civil service in directing how public money is spent.
In Spain, the Big Four firms are drawing up plans for the use of Next Generation funding by departments run by the social-democratic Spanish Socialist Workers’ Party (PSOE), which will then be submitted to Brussels for approval. For example, the entity attached to the Ministry for the Ecological Transition relied on Deloitte to design green policies, while the Ministry of Economy’s secretary of state for digitization outsourced the audit and grant management service regarding technological transformation initiatives to KPMG and PwC.
Ernst & Young has also advised the Minister of Inclusion, Social Security and Migration in drawing up a reform which would require Spaniards to make thirty-five years of social security contributions in order to collect a full pension. What’s more, Prime Minister Pedro Sánchez’s PSOE-led government has requested the consulting firms’ collaboration in drafting the new decree apportioning the funds, while some ministries even opted for a “pro bono” system — with consultancies giving free advice in exchange for inside information about the government’s needs.
Such consultancy for ministries is already big business. The UK spent a total of £2.6 billion on just eight consultancies between 2016 and 2020. In Spain, the public sector represents 17.5 percent of total management consultancy revenues, according to the Spanish association of consultants, whose president is herself a former PSOE minister. We can almost hear the doors revolving: in recent years, this industry has become the private sector employment of choice for more than twenty retiring Spanish politicians. Moreover, as a proportion of the combined revenues of the ten largest companies in each country, KermaPartners calculated in 2015 that the Big Four’s market penetration ranged from 6 percent in the UK to 30 percent in Spain.
The Spanish public sector’s turn to consultancy capitalists is part of a wider trend in the political economy of global capitalism, in which faced with economic crisis, big companies depend on the state to continue the accumulation process. Even in France, the once well-regarded elite civil servant has been sidelined by Emmanuel Macron’s government, which has increasingly relied on consultants like McKinsey, retained to manage the rollout of the COVID-19 vaccination campaign. In the UK, the Guardian recently reported a Cabinet Office and Treasury letter to senior civil servants demanding that they rein in spiraling costs paid to private firms — stating that “we are too reliant on consultants.”
Neoliberal economists, and Hayek’s “Spanish Bastards,” should be proud of this new milestone in the hollowing out of the state — a process which has itself been fostered by European integration. The hallmark of Next Generation EU, as Daniela Gabor emphasizes, is the public-private partnership. In this model, understaffed and rules-bound governments hand responsibility for spending to private initiative, with little strategic thinking or detailed planning. This places blind faith in these firms’ ability to solve all our problems, from making the economy more digital to decreasing our carbon footprint and even reducing inequality.
Cronyism
The European Commission recently authorized Spain to spend €69.5 billion on the coronavirus recovery plan — with €37 billion already earmarked for Iberdrola, Telefónica, and SEAT, to be disbursed over the next year and a half.
In this sense, the Big Four consultants, like Deloitte, are proving that they can have their cake and eat it, too. For even as they advise some of the corporations who are benefiting from the economic aid packages (like oil giant Cepsa, department store chain El Corte Inglés, and electricity firm Endesa), they are also retained by the very same ministries who are awarding the grants. The Spanish government has committed almost €25 billion in public guarantees to back these companies’ bank loans.
Never mind that in 2013 the former general director of the Official Credit Institute (ICO) was disqualified for seven years over a conflict of interest with PricewaterhouseCoopers, after she awarded the firm several ICO contracts of up to almost €1 million in four months. She was herself a former senior consultant at PwC.
There is a long list of corruption cases tied in with such cronyism. A recent report from the Spanish antitrust agency confirmed the existence of “cartels that manipulated public tenders for at least ten years.” The National Commission on Markets and Competition (CNMC) ruled against several consulting service providers and some of their executives in the Basque Country, for instance Sabin Azua, the brother of a deputy vice president in the region. After investigating two hundred contracts tendered and awarded to those firms by public administrations between 2009 and 2018, it was shown that their modus operandi had relied on requesting spurious competing offers from other cartel members.
The firms were slapped with €6.3 million in fines for “very serious offenses” against national antitrust legislation and EU competition rules. The largest fine fell on Deloitte, the consulting arm of one of the Big Four global accounting firms. KPMG and PwC were also given smaller fines, as well as British firm PA Consulting.
In this sense, “one of the most serious cases” described is that of the Bilbao Port Authority, whose directors exchanged emails related to the investigated tenders with Deloitte. A separate section of the proceedings regarding the Basque Country proved that nepotism was rife in the region. Asier Atutxa joined PwC from the Bilbao Port Authority in summer 2018, a year after the former won a contract for technical assistance for the preparation of the authority’s strategic plan for 2018–22. PwC has since been rewarded with more than €20 million from thirty-eight contracts with other Basque entities governed by the Basque Nationalist Party. Now, these capitalists hope that much more money from Brussels will reach the territory.
Consultancy Capitalism
If it was bad enough when lobbyists for well-financed pressure groups jockeyed for market leadership in shaping legislation, today this has been replaced by consultancy capitalism. We have moved from policy capture to an overt privatization of policymaking. While this has appeared in the guise of a return to “Keynesianism,” in reality this ideological turn looks like the foretaste of a new austerity era, arriving in the Orwellian name of digital modernization and green development.
The coronavirus crisis has shown that we need to rebuild public institutional capacities with a strong civil service and “radical bureaucracies.” Only the state has the capacity to mobilize the resources required to fund the projects that are needed to address the key contemporary challenges, such as the climate crisis and improved access to universal health care and education. Both are public goods that we should build and manage within the public space, not the private sector.
But today, we face something quite different: a new phase of technocratic politics, with unaccountable consultancy firms shaping public policy to suit their private clients.