Upon election in 2010, the coalition cut public sector spending on consultancy by 40 per cent—from £2.5bn to £1.5bn. Yet this has been offset by a 35 per cent rise in consultancy revenues from local government and other state bodies. Despite the coalition’s attempts, then, the public sector is still big business for consultancy. But what is management consultancy? And what can its history tell us about why governments have and continue to use its services?
Contrary to popular belief, the origins of the state’s use of management consultants have nothing to do with the swing towards economic liberalism that Britain has undergone since the 1980s. Nor is it linked to the private-sector style reforms of the Thatcherite and New Labour governments. Instead, the emergence and development of the public sector as a ripe field for management consultants lies in the economic collectivism of the 1960s. Though a management consultancy industry first emerged in Britain in the 1920s, it was only in the 1960s that consultants were used on a consistent basis by the state, as a direct response to fears about Britain’s declining status in the world. Amidst the dirigiste planning boom of the early 1960s, British firms such as AIC, P-E Consultants, and Urwicks worked on issues such as improving planning capabilities and productivity in the nationalised industries, or undertaking personnel studies for the Fulton Committee on the civil service.
Then came the Americans. As state officials sought to emulate the ‘American miracle,’ McKinsey & Company were hired in the late 1960s and early 1970s to transform the organisational structure of a number of state bodies—including the NHS, Bank of England and BBC—from a loose holding company model to the multidivisional model which was ubiquitous across the Atlantic. Such was the extent of this American influence that there was talk of the term “to be McKinseyed” entering the Oxford English Dictionary.
The economic downturn of the 1970s enhanced the appeal of consultants. In 1975, for instance, in response to the high-profile failure of the Treasury’s systems for planning and controlling public expenditure, Arthur Andersen (the forerunner of Accenture) devised and installed a system for monitoring cash-flow in the department. The project represented the first significant government use of consultants to install information technology systems in…