The truth within managerialism

The Public Accounts Committee reports that "government is still not achieving good value for money from the £1.8 billion spent on consultants" - corroborating the message of this book. There are several legitimate reactions to this.
One is that profligacy and incompetence is just what you'd expect.  As Milton Friedman said: "If I spend somebody else's money on somebody else, I'm not concerned about how much it is, and I'm not concerned about what I get. And that's government."
Another - of course - is that it's a sign of New Labour's faith in the magical powers of management.
There is, however, another reaction. It's that New Labour's instincts are right here - the civil service is a failing organization; not all the multiple failure of government are due to consultants.
There are (at least) three factors behind this:
1.  Motivation is low; this is a natural consequence of its enormous size.
2. The "gentleman amateur" culture of the civil service - the belief that if you've read Thucydides you can do anything - leads to turnover of senior civil servants between departments, with the result that insufficient expertise is accumulated.
3. Selection effects. When I left university in the mid-80s, few of my contemporaries entered the civil service; pay was poor relative to the private sector, and it was thought to be politicized. The upshot is that there's now a missing cohort - very few able civil servants in the late 30s-mid 40s. (though there are of course exceptions).
New Labour's instinct to look for outside help therefore has a kernel of justification. But only a kernel.
For one thing, this means they should have used consultants earlier. And it means the failure to transfer consultants' skills to permanent staff is especially deplorable.
More importantly, though, New Labour has failed to see a key truth. The main reason why the private sector is more efficient than the public sector is because the market acts as a cleansing mechanism, destroying (albeit slowly and imperfectly) bad management.
The solution to bad management is not to choose experts to solve the problem - the PAC, like the National Audit Office earlier, shows that this experiment has failed. Instead, incompetence is the inevitable result of lack of competition.   

Comments

[Matt Munro]

As a civil servant in my late 30s to early 40s (ahem) who is directly involved in the engagment of managment consultants I feel I should say something here.

1) There are 2 discernable difference between the management consultants used on this project and the in house staff. The first is that the management consultants are better dressed and the second is that they are better paid.
They serve a complex psycological function in the organisation (part Hawthorne effect, part sacrificial lambs, part totems) but in economic terms their value added is close to zero.

2) Measuring civil service efficiency in private sector terms is like comparing day with night. The public sector does not exist to make a profit, the private sector does. In any case the idea that the private sector is more "efficient" is an urban myth. What is generally meant by "efficient" is that the private sector will leave no corner uncut in the search for a quick buck. Would you like a (long) list of private sector projects which have gone belly up..........
3) Markets fail and some things are consequently just too important to be left to the market. Kid goes to school, the PFI cleaning contractor has gone bust so little Johnny must go without lessons for 6 months while it's sorted out ?

4) There are 2 reasons why managment consultancy "skills" don't transfer to the public sector. The first is that it's not in the consultants interest to teach us to do anything for ourselves, if we did we wouldn't need to keep calling them back. The second is that postings in the civil service are generally 2-3 years, meaning that the corporate memory bank is very short.

5) There are a plethora of jokes about consultants the best of which is probably

Q. What is the definition of a management consultant ?

A. Someone who asks to look at your watch and then tells you the time.....

[Marcin Tustin]

I like the idea of the Public Accounts Committee destroying incompetent managers.

[Dipper]

bang on again.

It should be mentioned as often as possible (and you do) that the private sector is "efficient" due to the effect of competition. Most organisations are heirarchies, and the purpose of any heirarchy is to perpetuate the heirarchy. The effect of competition is to remind the players in the heirarchy that unless they actually deliver something then their heirarchy will be taken away from them. Without that, its internal politics all the way up/down.

[reason]

So the corollory is of course that one of the most important activities of the public sector should be anti-trust policy. It is a shame so few conservatives understand that like you do.-)

[Rick]

Unfortunately, as Matt says, markets often fail, or take a hell of a long time to correct the problem.

Many of the report's charges could equally be applied to large private sector organisations. Private sector managers hide behind consultants too.

[dearieme]

"Markets fail and some things are consequently just too important to be left to the market": as non a sequitur as ever I've seen.

[Rick]

Dearieme, you'll have to explain that.

I thought Matt's comment made sense.

[dearieme]

Rick, how about "Governments fail and some things are consequently just too important to be left to the Government". Or indeed "Strawberry crops fail and some things are consequently just too important to be left to the strawberry". The problem is that anything you can think of fails sometimes. The importance of Some Things is quite independent of whatever failure you're examining at the time, and that importance does not, of itself, tell you anything about what to do. Anyway, if I make explicit the argument that I guess to have been intended, its flaws are transparent. Thus "Markets fail but governments don't so some things must consequently be left to the Government".

[Matt Munro]

"Markets fail and some things are consequently just too important to be left to the market": as non a sequitur as ever I've seen.

Posted by: dearieme | June 19, 2007 at 04:45 PM

Er as in some things (the example I gave was education but you could include health, law and order, defence, transport) are so important that they CANNOT be allowed the possbility of failure, and as markets CAN fail they cannot therefore be exposed to the market ?

[dsquared]

[The "gentleman amateur" culture of the civil service - the belief that if you've read Thucydides you can do anything]

There really is no such culture, and I doubt there ever has been.

[Steve]

Matt, that joke has been around for at least the past twelve years. If it is a true reflection of what management consultants do, wouldn't someone have twigged by now?

If management consultants are so bad, how come the consultancies go from strength to strength? Someone must keep hiring them.

Are you saying that the entire business world is completely mad?

And why do you use consultants if you hate them so much?

[dearieme]

"some things .. are so important that they CANNOT be allowed the possbility of failure". But Matt, that makes sense only if governments don't fail. But they do.

[Sam]

[Markets fail and some things are consequently just too important to be left to the market. Kid goes to school, the PFI cleaning contractor has gone bust so little Johnny must go without lessons for 6 months while it's sorted out ?]

Because, of course, there are scores of private businesses that have filth piling up to waist level because it takes them 6 months to locate a replacement cleaner.

[The public sector does not exist to make a profit, the private sector does.]

True, but not in the way that you seem to mean it. You seem to be trying to claim that the public sector doesn't need to make a profit, therefore it doesn't need to pay the same attention to costs. That's certainly the way that a lot of the public sector behaves, but it's still wrong.

The single biggest difference between the public sector and a business is that it is usually a good move for a business to expand its operation, grow its customer base and so make more money. Expansion should not be a goal of government.

[chris strange]

[in some things (the example I gave was education but you could include health, law and order, defence, transport) are so important that they CANNOT be allowed the possbility of failure]

Law and order: Well today in the news there was the fact that there are not enough cells for all the prisoners so some are going to be let out early. Looks like a failure to meet suppy and demand there on the part of the state.
http://news.bbc.co.uk/1/hi/uk/6766119.stm

Government fails too, but there is no correction mechanism. Worse the political leaders will often keep pushing forward with an obvious disaster (like the NHS super computer) in order not to loose face. Had it been a private system it would have been scrapped long ago because no private organisation can loose that much money without heads rolling.

Private schemes fail but because they exist in a market there is multiple redundancy built in. Should one scheme go down there will plenty of other, normally better, ones competing to take its place. It is normally the existance of these other better options that leads to a business going under in the first place.

[Meh]

When those who are so fond of private solutions produce detailed and plausible proposals for the privatisation of the armed forces and the police, I'll consider it worth listening to their analyses of how to improve education and health.

[Meh]

The key truth is that we don't measure private sector failure, so we have no idea if it is more efficient or not...

[Steve]

'Meh', I'm inclined to agree. The market may be great at providing hamurgers or cheap clothes but it's never been much good at sewage, drains and flood defences.

Sure governments fail but they usually step in pretty quickly to sort out something like a failing school. The trouble with leaving essential services to the market is that the market can choose not to deliver, or just take a while to do it.

You can go for six months without hamurgers and cheap clothes but you can't go for six days without a sewage system.

In short, some things are better left to the state, others to the market. Governments should not sell hamburgers. Corporations should not run water and sewage systems.

[Sam]

In the case of water and sewage systems, it is obvious that there needs to be a local monopoly supplier (at least for all the pipework and so on), just as there's no market in competing roads to serve my house.

A monopoly supplier, by definition, doesn't exist in a market, so must be regulated by government. Whether it should be run as an in-house government operation, by a private contractor under contract to the government, or as a business with government regulation is open for debate.

It is not quite so obvious that the same argument applies to reservoirs and sewage treatment plants. The transport costs may make it generally impractical to ship sewage long distances for treatment, of course.

[keith]

The private sector is *inefficient* because of the effects of competition and the need to please share-holders. Private firms do not have their mind on the job, in fact they don't care about the job, they are only allowed to care about screwing as much money as possible out of everyone around them, whilst their rivals are doing the same. That is not a recipe for efficiency, it is one for mutual distraction at best, mutual destruction at worst. The job of private management consultants in public engagement is to rip off the public purse. I think they do it rather well.

[Kevin Carson]

I agree that the private sector can be easily as inefficient as the public sector. But its inefficiencies stem not from competitive pressure, but from large organizational size and the substitution for bureaucratic/administrative incentives for market incentives.

There is no administrative incentive in the world that creates a motive for performance and efficiency comparable to that of the simple ability to take one's business elsewhere.

The problem is that the "private" sector operates by state capitalist rules that protect them from just this sort of pressure.

The state socializes on the taxpayer an ever growing portion of the operating costs of big business (neo-Marxist James O'Connor showed in Fiscal Crisis of the State), and the subsidies go disproportionately to the inefficiency costs of the largest firms.

At the same time, "intellectual property" and cartelizing regulations enable a handful of oligopoly firms in each industry to restrain most price and quality competition among themselves, and to share the same pathological organizational culture (middle management featherbedding, bureaucratic empire-building, mission statements, self-dealing) without facing any real competitive penalties for being so ass-brained stupid.

The giant corporate bureaucracy, protected from most cost competition and relying on a cost-plus markup as the basis for internal transfer pricing, has the same internal atmosphere of calculational chaos as Gosplan and the Soviet industrial ministries. As a result, massive capital expenditures are made with virtually no understanding of their real cost, and no way to evaluate whether it was worth it. Whatever "cost-cutting" measures are made are commonly pennywise/poundfoolish, and cut productive assets while sparing the bureaucratic empires.

[Keith]

Wow! I agree with that, Kevin. It seems there is a limit to 'efficiencies of scale' and of course one of the main effects of big and powerful companies is their corruption of the 'free market' - taking away the motives you refered to. All that is left is a power relationship between supplyer and customer and the public sector customer is usually weak. Interestingly in all other fields of study, competition's main effect is 'interference' - a direct cause of inefficiency (for example predators that fight over a carcass are not eating it and so loosing out). It would be more efficient to ensure that our civil servants have what it takes to solve their own problems, rather than having to pay a whole host of outsiders their inflated salaries and parasitic share-holders their slice of the action.

[Roger Thornhill]

[The "gentleman amateur" culture of the civil service - the belief that if you've read Thucydides you can do anything]

Whether there is a culture of this or not, the fact that someone has read classical history or any history come to that might raise the hope that they were less likely to repeat its mistakes.

In fact, I think anyone wanting to rise up in the Civil Service SHOULD have an understanding of how liberty was born and maintained/defended through the actions of the people in the face of brute authoritarianism.

[dearieme]

The "private sector" made a decent fist of schools before the government barged in. Provision was by a mix of churches, charities and plain old businesses. You can tell it was reasonmably successful because those who support government-owned schools have taken the trouble to lie about the history to generations of teachers in training. A "corporation" has supplied water where I live since the mid 19th century, perfectly successfully.

[Chris Williams]

Chris D, real Jon Agar's _The Government Machine_. It's a useful corrective to the idea of the 'amateur' civil service. You'd like it.

[Chris Williams]

Dearime: "The "private sector" made a decent fist of schools before the government barged in. Provision was by a mix of churches, charities and plain old businesses. "

You're having a laugh, aren't you? Do you know about the difference between illiteracy rates in 1850 and 1950? Govt monopoly education certainly isn't performing as well as it should, but it's pissing on the alternative.

[Eric H]

Chris - are you seriously attributing the entire change in literacy rate between 1850 and 1950 to compulsory government schooling? I would suggest you incorporate at least two technological changes: kerosene and electric lamps. In the US, I would also want to account for the elimination of slavery (an institution that cannot operate on a large scale without government). And then there are the advances in printing that led to mass marketing of books, papers, and magazines. As I recall, literacy in many regions of the US were well above 90% before compulsory education (well before the dawn of the 20th century).

You might also want to look at what is going on in India.

Matt - It is very easy to compare private and public efficiency. The private sector will look to turn a buck -- usually by offering value-added services (although, as Kevin Carson points out, sometimes not). The public sector will look to gather and spend as much as they can in a mad effort to preserve and grow their own budgets. Every agency experiences the frenzied dash to spend heretofore undiscovered funds at the end of every single fiscal year, followed by justifying a larger budget throughout the rest of the year.

Government services also experience disruptions. When they do, there are no alternatives because they have all been banned or crowded out. They seem to be in "too important to fail" sectors, too, like transport, education, and garbage collection.

[Kevin Carson]

"Public" (in the sense of being administered by a government bureaucracy) and "private" (in the sense of being operated for-profit by GlobalMegaCorp) aren't the only alternatives.

Local utilities, schools, etc., may be good candidates for mutualization (the old idea of the common as an alternative form of private property may also be relevant). In the case of utilities, for example, turn them into consumer co-ops with ratepayers directly electing the management.

[dearieme]

"Do you know about the difference between illiteracy rates in 1850 and 1950?" That question must surely be intended dishonestly. The government barged aside private education well after 1850; 1950 is a bit irrelevant when figures are presumably available for ca 2005. Shame on you.

[Chris Williams]

OK DM, I'll try again: 1860 to 1930. Go on. Give me the numbers.

Patchwork provision had a lot going for it, but it didn't half lead to a _massive_ number of kids falling through the gaps.

[reason]

Chris Strange...
Government fails too, but there is no correction mechanism.

ummm... I thought we had elections every now and again. Now what is the correction mechanism for market failure?

[chi flat iron]

CHI flat iron by Farouk system. Direct from the manufacturer, this genuine Chi ceramic iron comes with valid, one year warranty!