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The Big Con

The Big Con

How the Consulting Industry Weakens our Businesses, Infantilizes our Governments and Warps our Economies
by Mariana Mazzucato 2023 352 pages
3.62
1k+ ratings
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Key Takeaways

1. The Big Con: How consultancies exploit organizational weaknesses

The Big Con is of course not responsible for all the ills of modern capitalism, but it thrives on its dysfunctionalities—from speculative finance to the short-termist business sector and the risk-averse public sector.

Consultancies as opportunists. The consulting industry has positioned itself as a solution to organizational challenges, but often exploits and exacerbates existing weaknesses. By promoting themselves as experts, consultancies have gained unprecedented access to decision-making processes in both government and business.

Rents without risks. Consultancies extract significant economic rents - income far exceeding their actual value contribution - while bearing minimal risks. This skewed risk-reward relationship is at the heart of the consulting industry's business model. When projects fail, it is usually the client organizations and ultimately the public that bear the costs.

Systemic impact. The influence of consultancies goes beyond individual contracts, shaping broader trends in governance and business practices:

  • Promoting short-term thinking and quick fixes over long-term capability building
  • Encouraging outsourcing of core functions, leading to loss of institutional knowledge
  • Legitimizing controversial decisions through the veneer of external expertise

2. The rise of consulting: From scientific management to global influence

Throughout the twentieth century, consultancies would go on to develop and commercialize many ideas and tools, often in collaboration with business schools.

Historical roots. The modern consulting industry traces its origins to the early 20th century, with the emergence of scientific management principles and cost accounting methods. Firms like McKinsey & Company grew by promoting these new approaches to business organization.

Expanding influence. Consultancies rode successive waves of change in the global economy:

  • Post-WWII reconstruction and expansion of multinational corporations
  • Privatization and deregulation trends of the 1980s and 1990s
  • Digital transformation and e-government initiatives
  • Structural adjustment programs in developing countries

Global reach. By the end of the 20th century, major consulting firms had established a presence in nearly every country, shaping business practices and government policies worldwide. This expansion was facilitated by:

  • Growing demand for standardized management practices
  • The spread of Anglo-American business models
  • Consultancies' ability to position themselves as neutral experts in new markets

3. Outsourcing governance: The perils of relying on external advisors

Prime contracting is paradoxical because where the costs of failure would be great, risk is transferred to the contracting public sector body in order to incentivize third parties to bid on the tender in the first place.

Shift in governance models. The "Third Way" policies of the 1990s and 2000s promoted a vision of government that "steers more, rows less," leading to increased outsourcing of public services and decision-making processes.

Unintended consequences. This approach has often resulted in:

  • Loss of internal expertise and institutional memory
  • Reduced accountability and transparency
  • Higher costs in the long run, as consultancies extract rents and public bodies lose negotiating power

Case studies of failure. High-profile cases like the HealthCare.gov launch in the US demonstrate the risks of over-reliance on external consultants for critical government functions. Despite spending billions on consultants, many projects have failed to deliver promised improvements in efficiency or service quality.

4. Conflicts of interest: Serving both sides of the street

McKinsey is alone in operating an investment fund on behalf of its current Partners and alumni; none of the other Big Four or Big Three have one. In any case, though they are more shocking and headline grabbing, such potential direct conflicts of interest—where a consultancy stands to profit directly through investments from the choices its clients make—are only the tip of the partiality iceberg.

Dual roles. Many consultancies advise both governments and the industries they regulate, creating potential conflicts of interest. This "both sides of the street" approach allows firms to profit regardless of outcomes.

Hidden influences. Consultancies often shape policies and regulations in ways that benefit their other clients or their own business interests. Examples include:

  • Advising on privatization while also working for potential buyers
  • Developing tax policies while advising clients on tax avoidance strategies
  • Promoting climate action plans while working for fossil fuel companies

Lack of transparency. Unlike many other professional services, consulting contracts are often shrouded in secrecy, making it difficult to identify and address potential conflicts of interest.

5. Hollowing out capabilities: The dangers of over-reliance on consultants

To respond to changes in political, social and—increasingly—environmental demands, both government and business sector organizations must be able to adapt in order to govern complicated systems and provide goods and services that people want and need.

Loss of institutional knowledge. Excessive outsourcing leads to a erosion of internal capabilities, as organizations become dependent on external advisors for core functions.

Stunted learning and innovation. The constant influx of consultants and turnover of projects can prevent organizations from developing:

  • Deep, context-specific expertise
  • Long-term institutional memory
  • The ability to learn from failures and successes

Reduced adaptability. Organizations that rely heavily on consultants may struggle to:

  • Respond quickly to changing circumstances
  • Develop innovative solutions tailored to their specific needs
  • Retain talented staff who seek meaningful, challenging work

6. Climate consulting: A new frontier for profit extraction

Climate consulting is a burgeoning source of economic rents. Although it is a relatively new growth area for consultancies, and so research on its impacts and variety is thin, there are many indications that in the era of climate crisis, the consulting industry is playing the same roles it has throughout the history of industrial capitalism.

Opportunistic expansion. As climate change becomes a pressing global issue, consultancies are positioning themselves as essential advisors on sustainability and climate adaptation strategies.

Potential for greenwashing. There is a risk that climate consulting may serve more to create an illusion of action than to drive meaningful change:

  • Developing metrics and frameworks that lack real impact
  • Advising on sustainability while also working for high-polluting industries
  • Promoting market-based solutions that may not address the scale of the problem

Shaping the response. Consultancies' involvement in climate policy and corporate sustainability efforts could have far-reaching consequences for how societies address the climate crisis.

7. Reclaiming organizational capacity: Building internal expertise

Meeting today's great challenges of course requires that governments also work in partnership with businesses, but doing so effectively requires that public sector organizations are able to understand their landscape, decide who best to collaborate with, and manage the necessary contracts.

Investing in people. Organizations need to prioritize developing and retaining internal talent, creating meaningful career paths that allow for continuous learning and growth.

Redefining partnerships. Rather than outsourcing core functions, organizations should seek partnerships that genuinely enhance their capabilities:

  • Collaborating with research institutions and universities
  • Engaging with local communities and stakeholders
  • Fostering knowledge-sharing across sectors

Transparency and accountability. To reduce the risks associated with consulting contracts:

  • Mandate disclosure of potential conflicts of interest
  • Develop clear metrics for evaluating the impact and value of consulting engagements
  • Ensure that knowledge transfer is a key component of any consulting project

By reclaiming their capacity to innovate and adapt, organizations can reduce their dependence on external consultants and better serve their stakeholders and the public interest.

Last updated:

FAQ

What's The Big Con about?

  • Critique of Consulting Industry: The Big Con by Mariana Mazzucato critiques the consulting industry, arguing that it weakens businesses, infantilizes governments, and distorts economies.
  • Central Role of Consultancies: The book explores how firms like McKinsey and Deloitte have become central to decision-making in both public and private sectors.
  • Economic Rents Concept: Mazzucato introduces "economic rents," income earned by consultancies that exceeds the actual value they provide, likening it to a "confidence trick."
  • Impact on Governance: It discusses how reliance on consultants leads to a loss of internal capabilities, affecting governance and innovation.

Why should I read The Big Con?

  • Understanding Modern Capitalism: The book provides insights into structural issues of modern capitalism, particularly the exploitation by the consulting industry.
  • Awareness of Economic Dynamics: It highlights the dynamics of economic rents and the implications of outsourcing critical functions to consultants.
  • Call for Change: Mazzucato advocates for rethinking organizational operations, emphasizing internal capacity building and public purpose in governance.
  • Relevance to Current Events: The book is timely, especially with the increasing reliance on consultants during crises like the COVID-19 pandemic.

What are the key takeaways of The Big Con?

  • Consulting as a Confidence Trick: The consulting industry operates as a "Big Con," extracting economic rents by creating an illusion of value.
  • Infantilization of Organizations: Outsourcing to consultants prevents organizations from learning and evolving, leading to a loss of institutional memory.
  • Consequences for Democracy: The influence of consultancies can erode democratic accountability, prioritizing short-term profits over public value.
  • Systemic Conflicts of Interest: Consultancies often serve conflicting interests, advising both governments and private firms, leading to biased outcomes.

What are the best quotes from The Big Con and what do they mean?

  • "The consulting industry today...": This quote emphasizes that consulting firms often have vested interests, impacting decision-making integrity.
  • "The more governments and businesses outsource...": Highlights the danger of relying on consultants, leading to a decline in internal capabilities.
  • "Democracy dies in the shadow government.": Underscores the risks posed by consulting industry influence on public policy, undermining democratic processes.
  • “Consultancies are often enablers...": Reflects the argument that consulting practices can lead to negative outcomes for labor, emphasizing ethical considerations.

How does The Big Con define "economic rents"?

  • Definition of Economic Rents: Economic rents are income earned in excess of the reward corresponding to the contribution of a factor of production to value creation.
  • Source of Income: These rents are not derived from unique knowledge but from creating an impression of value.
  • Implications for Organizations: The extraction of economic rents can lead to a misallocation of resources, weakening organizations' ability to innovate.
  • Consulting Industry Impact: This concept is crucial for understanding the consulting industry's impact on the economy.

How does The Big Con illustrate the infantilization of organizations?

  • Loss of Internal Knowledge: Outsourcing to consultants leads to a decline in organizations' internal knowledge and capabilities.
  • Dependency on External Advice: Organizations become dependent on consultants for decision-making, undermining their ability to develop expertise.
  • Consequences for Governance: This dynamic weakens democratic institutions and public trust, leading to a lack of accountability and transparency.
  • Cycle of Reliance: The dependency creates a cycle that is difficult to break, preventing organizations from adapting to new challenges.

What historical context does The Big Con provide about the consulting industry?

  • Origins in the 19th Century: The book traces the origins back to the late 19th century, highlighting the emergence of engineering consultants.
  • Neoliberalism's Role: The rise of neoliberalism in the 1980s created opportunities for management consultancies, embedding them in public and private sectors.
  • Impact of Major Events: Major events like the financial crisis and COVID-19 pandemic have entrenched the consulting industry's influence.
  • Evolution Over Time: This historical perspective helps understand how consulting has evolved and its current role in governance.

How does The Big Con address the role of consultancies in crises?

  • COVID-19 Response: Mazzucato critiques consultancies' influence on public health decisions and resource allocation during the pandemic.
  • Pro Bono Work: Consultancies often take on pro bono work during crises, leading to future lucrative contracts and raising ethical concerns.
  • Access to Power: Consultancies gain unprecedented access to government decision-making during crises, skewing policy outcomes.
  • Influence on Public Policy: The book highlights how crises often lead to increased reliance on consultants, exacerbating systemic issues.

What reforms does The Big Con suggest for the consulting industry?

  • Rebuilding Public Sector Capacity: Mazzucato advocates for investing in internal capabilities within public organizations.
  • Mandating Transparency: Calls for regulations requiring consultancies to disclose client relationships and potential conflicts of interest.
  • Embedding Learning in Contracts: Suggests contracts should include provisions for knowledge transfer, ensuring public organizations build expertise.
  • Ethical Standards: Advocates for establishing ethical standards to align consulting practices with public interests.

How does The Big Con relate to economic policies?

  • Influence on Economic Decisions: Consulting firms shape economic policies, often prioritizing private clients' interests over public welfare.
  • Market-Driven Governance: Critiques the market-driven approach to governance, leading to inadequate responses to societal challenges.
  • Long-Term Economic Health: Emphasizes the need for policies focusing on long-term economic health rather than short-term profit maximization.
  • Consulting Industry's Role: The book illustrates the significant role consultancies play in shaping economic policies and governance.

What examples does The Big Con provide to illustrate its arguments?

  • McKinsey in Italy: Discusses McKinsey's role in advising the Italian government on economic recovery, highlighting potential conflicts of interest.
  • Puerto Rico's Economic Restructuring: Examines McKinsey's involvement, raising concerns about consultancy advice's impact on local governance.
  • Global Health Policy: Provides examples of consultancies' influence on global health policy, particularly during health crises.
  • Case Studies and Examples: These examples illustrate the book's arguments about the consulting industry's systemic issues.

How does The Big Con view the future of consulting?

  • Critical of Current Practices: Mazzucato warns that without reform, the consulting industry will continue to undermine democratic governance.
  • Call for Ethical Standards: Advocates for establishing ethical standards to ensure consulting practices align with public interests.
  • Potential for Positive Change: Believes that with the right reforms, the consulting industry can support public sector innovation.
  • Constructive Role: Despite critiques, the book suggests the industry can play a constructive role in capacity building with appropriate changes.

Review Summary

3.62 out of 5
Average of 1k+ ratings from Goodreads and Amazon.

The Big Con receives mixed reviews, with some praising its thorough examination of the consulting industry's negative impacts on businesses and governments. Critics appreciate the well-researched examples and insights into how consultants weaken institutions and perpetuate a flawed system. However, some find the book repetitive and lacking in analytical depth. Many readers agree it raises important questions about the industry's influence, though some argue it could have been more concise. Overall, it's considered an eye-opening read for those interested in politics, economics, and business.

Your rating:

About the Author

Mariana Mazzucato is a distinguished economist and professor at University College London, where she directs the Institute for Innovation and Public Purpose. Her research focuses on innovation economics and public value creation. Mazzucato has authored several best-selling books, including "The Entrepreneurial State" and "The Value of Everything." Her work has earned her numerous accolades, such as the 2020 John von Neumann Award and the 2018 Leontief Prize. She serves as Chair of the WHO's Council on the Economics of Health for All and is a member of the UN High Level Advisory Board for Economic and Social Affairs.

Other books by Mariana Mazzucato

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