Christopher Luxon has pledged to cut the use of contractors by 25 per cent off the $1.7bn that was spent last year by government departments and agencies. Photo / Jed Bradley
Christopher Luxon has pledged to cut the use of contractors by 25 per cent off the $1.7bn that was spent last year by government departments and agencies. Photo / Jed Bradley
Opinion by Bryce Edwards
Bryce Edwards is a lecturer in Politics at Victoria University
A parasitic blight on our democracy? Or a useful and necessary aid to our government departments? Those are two perspectives on the usefulness of the Wellington consultant class that contract to government agencies.
The role of business management consultants took centre stage last week when National’s Christopher Luxon called time on the over-use of “consultocrats” in his state of the nation speech. Luxon pledged to cut the use of contractors by 25 per cent off the $1.7bn that was spent last year by government departments and agencies such as Te Whatu Ora and Waka Kotahi.
The debate has proved to be a winner for National, as it has been able to dominate the past week in politics on an issue that very much has Labour on the back foot. At the end of the week, the Herald’s Audrey Young pronounced that National “has finally hit the jackpot” on the issue.
She explained how bad it was for Labour and the Prime Minister: “it was the first time it had had Prime Minister Chris Hipkins squirming. No matter how much he said he wasn’t going to defend the rising costs of consultants, he had to explain why much of the expenditure was justified which, of course, was pretty much defending the rising costs of consultants. He was squarely in the frame as well because the ministry with the largest expenditure was Education when he was the minister.”
Hipkins appears to be snookered on the issue. Writing in the weekend, Janet Wilson says Hipkins “had two odious choices; either defend the use of consultants or accept National’s criticism. In the end, he did both”. One problem for Hipkins is that there are plenty of examples that National can bring up from the past in which he was very much in line with National’s campaign against the overuse of business consultants.
For example, RNZ’s Craig McCulloch published this 2012 statement from Hipkins about governments hiring consultants, suggesting it could just as easily have come from Luxon this week: “It’s a really bad look for them. I think they should be asking some very serious questions about why this increase in consultant fees has been necessary at a time when all New Zealanders are being asked to tighten their belts.”
McCulloch points out that Hipkins and Labour are highly vulnerable on the business consultant issue. This is especially because Hipkins looks rather hypocritical having campaigned against “consultocrats” and then becoming the Minister in charge of both the State Services in general, and the very ministry that has been the leading spender on contractors.
In opposition, Hipkins claimed that National’s use of contractors had increased eight-fold in the Ministry of Education, saying in 2016 that they were spending “a whopping $100,000 a day on consultants and contractors” in this area.
This raises the issue of whether all parties in Opposition just use the consulting debate to score political points, but then get into power and become just as reliant on the consultants and contractors. Newsroom’s Sam Sachdeva pointed out on Friday that “spending on consultants and contractors almost doubled during the National government’s nine years in power, rising from $278 million in 2009 to $550m in 2017 according to figures compiled by Labour after it took office”.
Therefore, Sachdeva says that “Promises by opposition MPs to clamp down on such spending – and a subsequent failure to make that a reality in government – are far from unusual”.
When the political right favour consultants and the left oppose
Not all politicians are campaigning against the state’s use of the private sector. The Act Party is sticking up for business consultants, with leader David Seymour coming to their defence last week, telling the National Business Review, “I think we need to be a bit cautious of opposing the very idea of contracting the private sector to help develop public services”. He also was against the consultants themselves being targeted in the debate: “It is very unfair to blame them for taking work the Government is offering. They would be negligent if they did not.”
Many on the political left have given National’s campaign against the consulting class some sort of approval. Writing in the weekend, leftwing columnist Max Rashbrooke said that the Luxon-initiated debate has “has revealed how hopelessly, cravenly reliant modern government is on the Deloittes and Chapman Tripps of this world. The state has been hollowed out in recent decades, losing expertise, wisdom and savvy.”
Similarly, leftwing pundit Martyn Bradbury has come out colourfully against the use of the private sector in government agencies: “Labour’s reliance on consultants is part of their cultural Professional Managerial Class capture. The Wellington Bureaucracy isn’t left wing! It’s a self interested Professional Managerial Class who use identity politics to mask their neoliberal hands-off-do-nothing-but-build-glass-palaces fiefdoms.”
Chris Trotter also wrote on Friday for the Otago Daily Times on how business consultants have played a key role in keeping governments wedded to neoliberalism orthodoxy. Certainly, there is a strong argument that the use of business consultants has hollowed out the power of the state, and led to government departments that are incapable of playing a full role in governing society properly.
Relating to this, Massey University public management researcher Andrew Cardow has argued this week that government and business interests are getting too close under the contracting arrangement. Newsroom reported his view: “Cardow said claims that private firms brought a more objective eye to policy issues did not stand up to scrutiny, given much of their revenue came from securing state contracts, while an overreliance on the private sector resulted in a weak government.”
Some on the political left are therefore arguing that the response to the dominance of the “consultocrats” in government should focus on building up public service capacity instead of eroding it by the use of consultants.
BusinessDesk has discovered that during the pandemic, 40 per cent of the Ministry of Health’s Covid spend on consultants went to the Big Four. Photo / 123RF
Revelations about the extent of business consultants and contractors in government
Previously it’s been reported that in the past year the Labour Government has spent $1.2bn on consultants and contractors. This figure only includes the money spent by core public service departments. Once other government agencies such as Waka Kotahi and Te Whatu Ora are included in this spending, National has calculated that this figure is about $1.7bn.
Audrey Young has looked at the Public Service Commission figures, and created a “league table” of the biggest spenders for the last year: “Education spent $237 million on consultants and contracting in the 2021 – 22 year, Health spent $154 million and the Minister of Social Development spent $116 million.”
National has now drawn attention to the central role of the “Big Four” business consultancies of Deloitte, KPMG, Ernst and Young (EY) and PricewaterhouseCoopers (PwC) in the spend-up. The calculations are that in the year that Labour took office, the Big Four were receiving contracts amounting to $57m, but that this figure had surged to $97m for 2022.
Deloitte was the biggest beneficiary according to National, earning $115.8m since Labour came into power. The next biggest beneficiaries since 2017 have been PwC ($93.6m), EY ($69.9m) and KPMG ($37.6m). In total, the Big Four have been paid $316.8m since Labour came to power.
The role of the consultocrats in the health system
The Big Four have been particularly busy in the health sector. BusinessDesk has discovered that during the pandemic, 40 per cent of the Ministry of Health’s Covid spend on consultants went to the Big Four. According to BusinessDesk’s Cécile Meier, “The Ministry of Health has spent nearly $200 million on consultants in the two years to July 2022, almost twice as much as it did in the four years prior.”
The use of consultants in health has become extremely unpopular amongst many health specialists and commentators. For example, BusinessDesk has reported the view of healthcare investor Michael Haskell that the use of consultants has become a “major problem”.
Here’s Haskell’s assessment of the situation: “Bureaucrats and external consultants tend to protect one another in a taxpayer-funded rort that goes a bit like this: the bureaucrat hires a high-priced team of consultants from PwC/Deloitte/KPMG/EY and pays them hundreds of thousands of taxpayer dollars and then the external consultant produces a report stating that the healthcare sector needs more funding for more bureaucrats, and then the cycle repeats itself.”
Haskell concludes: “Until this cycle stops, it will be very difficult to improve our healthcare sector to any material degree.”
He’s not the only one complaining. Health commentator Ian Powell has also been quoted saying “Relying on business consultants for health decisions is rather like asking Wayne Brown for advice on etiquette.”
But it’s outgoing Te Whatu Ora chair Rob Campbell’s analysis that needs the most attention. Prior to being fired last week, he announced that he was about to carry out a crackdown on the consultocrats in health, explaining “There has been a hollowing out of expertise in a number of areas in the health system in favour of consultancy companies”.
Campbell gave his own troubling assessment of the health consultocracy: “The more you hire consultants, the more the workforce gets weakened. Indeed, we have got people who are very good at their job being poached by consultancy companies so they can sell their services back to us… If we can’t cut the overall spend on external consultants, we won’t succeed in our aims. It’s as simple as that.”
Dr Bryce Edwards is Political Analyst in Residence at Victoria University of Wellington. He is the director of the Democracy Project.
