Consultancy Capitalism Is Allowing Private Firms to Control Public Funds

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.