Why government should be careful in calling in management consultants

 I re-read this year-old interview with economist, Mariana Mazzucato, and I thought should post it  here.

Mazzucato is an economist who thinks the government is a force for good and that the good that governments do has been obscured by the rise of neo-liberal ideas.  She has co-authored a book, The Big Con, which contends that governments harm themselves by hiring big consulting firms to work for them. We have the usual problems, lack of genuine expertise in the firms and conflicts of interest. 

But the real problem, Mazzucato, contends is that it takes interesting work in government away from civil servants and is hence demotivating to them. The answer to finding expertise is to pay civil servants better and to give them challenging assignments,not oursourcing the work of government to consultants.

Here is an excerpt from the interview for those who can't access the interview:

For the past decade, she has waged a sometimes lonely battle to rehabilitate the state’s reputation as an economic motor. Her new book, The Big Con, written with Rosie Collington, argues that consultancies are hobbling governments’ ability to perform that role. In her office, holding a Diet Coke, she says: “For me, the big wake-up call was Brexit [preparations], because [the consultants] were everywhere.” In 2019-20, the British government spent nearly £1bn on strategy and other consultants — to the despair of some MPs. Mazzucato and Collington also widen their critique to include the Big Four accounting firms, such as Deloitte, and outsourcing companies, which carry out chunks of the state’s core functions.

Rajat Gupta sentence

The two year jail sentence and $5 m dollar fine imposed on Rajat Gupta will be debated for a long time. We need to be clear: the punishment is not for insider trading, although news headlines focus on the 'insider trading' case. Judge Rakoff's sentencing order makes it clear that, in the opinion of the learned judge, Gupta's offence was breach of trust. It also casts doubts on whether insider trading trading is as big an offence as it is made out to be:

The heart of Mr. Gupta’s offenses here, it bears repeating, is his egregious breach of trust. Mr. Rajaratnam’s gain, though a product of that breach, is not even part of the legal theory under which the Government here proceeded, which would have held Gupta guilty even if Rajaratnam had not made a cent. While insider trading may work a huge unfairness on innocent investors, Congress has never treated it as a fraud on investors, the Securities Exchange Commission has explicitly opposed any such legislation, and the Supreme Court has rejected any attempt to extend coverage of the securities fraud laws on such a theory........In the eye of the law, Gupta’s crime was to breach his fiduciary duty of confidentiality to Goldman Sachs; or to put it another way, Goldman Sachs, not the marketplace, was the victim of Gupta’s crimes as charged. Yet the Guidelines assess his punishment almost exclusively on the basis of how much money his accomplice gained by trading on the information.At best, this is a very rough surrogate for the harm to Goldman Sachs. 

So Goldman was the victim and it is not at all clear that it suffered any loss on account of Gupta's actions. To put it differently, Gupta's actions were not worthy of a man of his stature but they caused no harm, at any rate no great harm, to anybody. His actions pale beside various acts of skulduggery in the corporate world, such as the fiddling of accounts, payment of bribes, misuse of corporate funds for personal gain etc. And yet, in the eyes of American law, Gupta merits a two year jail term.

It does appear that the sentence is more a reflection on the harshness of the American system, which has a tendency to hand out long sentences in the name of deterrence, than on the nature of the offence that Gupta is said to be guilty of. In making this suggestion, one is not even taking into account the many contributions and accomplishments of Gupta.