Consultants of Swing II
Owen wrote an excellent rebuttal to my piece about how much the Department for International Development is spending on consultancy. It’s a example of trackbacks in action.
I wrote a rather lame comment at the end of his piece which fortunately hasn’t appeared on his site (Owen, is your blog system a bit twitchy or am I being dim?) Also, the Haloscan trackback ping form seems to be busted - it managed to ping Tim Worstall twice for me the other day and yesterday, Owen not at all. I’ll try again so we can only hope of Owen finds this via the trackback system.
Anyway. Owen clearly knows much more about international development than I do but there were a couple of points of his I wanted to pick up on.
One of the things he picked up on was my assertion that “we have know way of knowing if £270m of our money has been spent in any way efficiently“. In response, Owen said:
DFID has an extensive system for tracking how money has been spent, and for appraising the individual impact of each aid project and programme. It has an independent evaluation unit, which analyses the effectiveness of DFID’s approach and makes recommendations for improvements in the future. And it has both internal audit and external audit and value for money analysis by the NAO and the Public Accounts Committee. But it makes sense to analyse the cost effectiveness of each project and programme, including all the resources used, not to try to measure the impact of the use of computers, or secretaries, or consultants across the whole of the organisation.
I’d based my point on Hilary Benn’s answer to Austin Mitchell:
DFID do not maintain central records of expenditure saved as a result of implementing recommendations from management consultants. DFID’s headquarters and overseas offices use consultants for a wide range of management tasks, mainly to increase the quality of our assistance to development partners. The financial value of these as savings could not be calculated without incurring a disproportionate cost.
I’m not sure if it’s just me but I find it difficult to reconcile the two statements. I’m sure Owen is right but I don’t see anywhere in his reasoning a mechanism for ensuring the tax payer is getting value for money. There is no comparison with the public sector, so how do we know? What yardsticks are used? Consultancy as a whole (maybe unfairly in some quarters) has a reputation as a gravy train. The public sector is seen by many as a bloated sponge soaking up money and resources.
Is one better or are they as bad as each other? I doubt Benn sees it in his interest to rock the boat and find out definitively how best to spend his department’s money but isn’t that the National Audit Office’s and Public Accounts Committee’s jobs? It’s a long time since I did my accountancy module at Uni but isn’t it a relatively simple cost/benefit exercise?
The second point Owen made that I wanted to come back on with this:
But while there is clearly room for improvement in the provision of technical assistance, that is quite different from the suggestion that all the money spent by DFID on consultants is wasted, or used to peddle privatisation. Knowledge transfer is an important component of the support we can provide to developing countries, and it is entirely rational for DFID to make extensive use of consultants to deliver that goal.
I liked very much the “teach a man to fish…” concept of knowledge transfer that Owen used. It’s a role of DfID that gets overlooked in the day to day carnage of earthquakes and tsunamis.
I didn’t suggest that “all the money spent by DFID on consultants is wasted, or used to peddle privatisation”. I’ve tried to address the first half of that and the second half does concern many like me.
I do question the benefit of DfID giving the Adam Smith Institute millions (to name one example) from the public purse. Anyone with a halfway decent education and an eye on politics could probably make a decent stab at what the Institute would have to say and for considerably less money.
Does DfID push for privatisation programme in Africa because the Adam Smith Institute says its a good idea or does the Government simply agree and the findings of the think tank simply marry neatly with the “private sector is best” dogma of New Labour? If the latter, why spend the money on right-wing think tanks?
I suppose it depends where you stand on privatisation. I’m against it on more moral grounds rather than for reasons of (an explicit, chosen) ideology. I’m on the Left by default not choice. To me, making a profit from the provision of healthcare, or school meals or clean water in an African country is repugnant. So clearly I’m going to have a problem with paying out taxpayers’ money to help people extract profits from such ventures. I’m sure if you sat me down with a list we might be able to find a privatisation venture that didn’t repel me but I wonder if it would be in a developing country.
Not to damn DfID entirely, but like many, many other aspects of this government, its aid and development policies have some very murky corners.
(I’ll probably get hammered for this. Every time I try to put my serious hat on somebody shoots it off. I should stick to that at which I’m halfway competent. Saying rude things about politicians will recommence shortly.)
Posted on October 12th, 2005 at 9:58 am
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In an attempt to cure you of your bizarre moral objections to people making money out of selling water in poor countries etc. can I pursuade you to look at the of question of privatisation purely in terms of what is likely to produce the best outcomes? By which I mean judging privatisation on whether it is the best realistically* available way to get water to poor people, food to school kids etc.
Surely the only worthwhile justification for privatisation is a pragmatic one - and the only way to get an answer to the question of whether privatisation is good is to look for real world evidence, not to consult your principles?
As far as I can see the evidence is mixed - on another post you wrote about boatloads of evidence against privatisation but from what I’ve seen (for example here and here and here the picture is mixed.
Which might be because private companies are money grubbing buggers entirely focussed on maximising their profits and when used for ’social’ projects the must be kept on a tight leash and occasionally hit with big sticks. If you don’t do that, the private sector will do everything it can to ensure it does not deliver value for money but profits wildly instead. It gets trickier when you have to rely on regulation rather than competition to keep the buggers in check.
However, that doesn’t mean that the private sector (regulated as needs be) doesn’t deliver better results than state provision. The point, surely, is that it is precisely the private sector’s money grubbing habits that enables it to do things better than the public sector, thanks to competition, incentives, efficient allocation of resources and all that good stuff.
And Justin, don’t results take precedence over wobbly notions of morality, in this context?
*OK realistically is a weasel word -but it matters. If money was no object and we could imagine a public sector capable of ensuring its own efficiency and innovation then we’d be in a different world.
oh - and I think the thing about not being able to reconcile what Owen said with Hilary Benn’s answer is that the two are talking about two different things.
On your original post the first question and answer is about private sector technical experts employed by DFID and sent to developing countries, which is what Owen is talking about. The second question, to which Hilary Benn had no answer, is about management consultants that have presumably been employed to help restructure DFID itself.
Justin - I’ve replied here.
“I do question the benefit of DfID giving the Adam Smith Institute millions (to name one example) from the public purse.”
I was just as outraged when I first read this some time ago, but recently I read (can’t now remember where, naturally) that the organisation DFID hired as consultants is Adam Smith International, which is not the same as the Adam Smith Institute, the swivel-eyed ideologues we all know and love. I may be wrong on this, and right now the internet is not yielding a definitive answer, but it’s worth bearing in mind.
“Does DfID push for privatisation programme in Africa because the Adam Smith Institute says its a good idea or does the Government simply agree and the findings of the think tank simply marry neatly with the “private sector is best” dogma of New Labour? If the latter, why spend the money on right-wing think tanks?”
I tend to think it’s more of the latter. And if the consultants involved are generally not right-wing think-tanks, perhaps it is best that poor-country governments get some advice on how to handle their privatisations. After all, it’s a messy business that can easily go horribly wrong, even with relatively competent governments involved, and it’s just possible that the presence of the consultants, and by proxy the British government, actually reduces the risk of corruption and malpractice delivering a really awful privatisation, which would probably be even worse than a really awful nationalised utility.
I say this as someone who remains sceptical on the merits of privatisation in poor countries, for pragmatic as well as principled reasons. But it is happening, and not always for the worst reasons, in which case maybe getting a few experienced consultants involved is actually the best course of action. As long as they’re not swivel-eyed ideologues, of course.
Correct. Adam Smith International, an international consultancy, is a completely different kettle of fish from the loons at Adam Smith Institute. As far as I know, they are completely unrelated organizations.
I am sorry - I would have made that clear if I had realised that anyone was in any doubt on that point.
Loons? Owen, did you come across them when working for Ken Clarke then?
Owen: I’ve commented over at your shop as well.
Jim and Owen: In actual fact, DfID has contracted both AS Institute (who, confusingly, have an International Division) and AS International. So there you go.
Paddy: The thing is, private companies by their very nature are not revenue neutral: they have a legal obligation to maximise their profits.
Now, we can take the morality out of the equation if you find it disturbing and just argue on the logic. If you have a private company providing school meals or water to Africa or widgets to Lapland, by definition they are not providing the very best service because some of the money that could be used in the project over the life of the contract is withdrawn as profit. If you have a sip out of my pint, I have less beer, don’t I?
It remains to be seen whether the first major revenue neutral enterprise - Network Rail - is better or worse than its forebears. And wouldn’t you agree with me that this Government is particularly reluctant to wield the big stick with private companies? Or tighten their leash especially in strategic industries where it prefers to subsidise?
That seems to contradict the whole point of private involvement but that that’s the catch, isn’t it: roads, power stations, railways, hospitals - the state is always going to be the safety net when things go wrong and has no choice in the matter.
You say: “We could imagine a public sector capable of ensuring its own efficiency and innovation” which smack of Thatcherite prejudice to me. I, of course, try to imagine a private sector capable of ensuring its own efficiency and accountability, and that’s my prejudice, clearly.
At least that’s how I see it with my bizarre, wobbly notions of morality.
If you have a private company providing school meals or water to Africa or widgets to Lapland, by definition they are not providing the very best service because some of the money that could be used in the project over the life of the contract is withdrawn as profit
Justin, that’s an interesting point - but still a mistaken one, I think.
If a private company can provide clean water for 1p per litre, of which 0.25p is ‘withdrawn’ as profit, that’s still preferable to a public company providing water for 2p per litre but making no profit (even if it isn’t as good as one providing it for 0.75p per litre and making no profit). The rationale for privatisation, is that in practise public sector companies tend to be less efficient and innovative. The point is that we know of no system that produces the 0.75p profit-free company, we just have the 1p private or the 2p public possibilities.
That might smack of Thatcherite prejudice, but I’d argue it just happens to be true - and there are lots of well rehearsed reasons for why things should be this way (incentives, competition, etc.).
Interestingly, the notion of ‘profit’ isn’t straightforward. All enterprises - private, public or even hippy communes - require funding (whether it is explicit or not) and funding costs money (or in the case of a commune, effort) and the enterprise must produce returns to cover that cost. So a company can be ‘profitable’ yet only be producing the bare minmimum return it needs to cover its cost of financing - this is what economists call “zero economic profit”. In theory, in free and competitive markets, average company profits will tend towards this zero economic profit - which is as close as we’re ever going to get in the real world to the situation you’d like where companies ‘withdraw no profit’ (an economy where companies - private or public - produced no actual surplus/profit would quickly collapse because there’d be no way of subsidising or funding new enterprises).
You’re right that the case for privatisation is at its weakest when the tax payer provides a safety net for the private companies, and although that can arguably be dealt with by properly written contracts, supporters of privatisation need not necessarily be supportive of all forms of privatisation - perhaps not for roads, railways etc.)
sorry for coming over all ‘economics 101′ as the yanks say, but I couldn’t work out any other way of answering the points you made.
oh - wobbly. I wrote that because your notion of morality seems to vary depending on the nature of the goods or services being provided (I presume you’d not think it immoral for Apple to profit from the ipod) - and that element of subjectivity gives your way of looking at the world a bit of a wobble.