Public Policy, Inc.

[The issue discussed here is not particular to the Trump administration, but it does illuminate many of the driving forces for basic policy positions.  bp]


How the private sector is taking over policymaking.

April 6

Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and a regular contributor to PostEverything.

Anybody who works in Washington knows that think tanks play an important role in advising the government on policy. For most bureaucrats, anything past two weeks is long term. Because experts at think tanks have fewer real-time deadlines, they specialize in the strategic thinking that many Cabinet agencies cannot do. Over the years, think tanks have had a hand in conceiving the Reagan administration’s first-term governing strategy, the expansion of NATO and the post-2006 surge in Iraq.

One organization in particular has dramatically increased its influence over the past decade. Foreign policy professionals respect its work more than that of the Heritage Foundation or the Center for American Progress. Its reach is so great that it has advised numerous foreign governments on their environmental policies. British officials relied on it when considering reforms of the National Health Service. Saudi Arabia’s ambitious economic reform program had its origins in one of the group’s reports. Its alumni are littered throughout the federal government.

The policy shop in question is McKinsey, a global — and highly profitable — consulting firm.

In the foreign policy community, think tanks are widely viewed as the traditional brokers in the marketplace of ideas. But this is changing. Whether based in investment banks like Goldman Sachs, management consultancies like McKinsey or political risk firms like the Eurasia Group, private-sector institutions have started to act like policy knowledge brokers. Consultants have been key advisers to the government for decades, but recent trends have caused their star to rise at the same time that traditional think tanks face new challenges. The University of Pennsylvania’s annual think tank report has stressed “the fierce competition think tanks are facing from consulting firms” in recent years. As the Trump White House searches for actionable foreign policy ideas, and as Jared Kushner looks to the private sector to inform his White House Office of American Innovation, do not be surprised if they turn to McKinsey more than Brookings or the Council on Foreign Relations.

If this sounds pernicious, it does not have to be. I’ve studied the practices of the think tank and consulting worlds. The latter brings real strengths. A more heterogeneous foreign policy conversation might be a good thing.

But the forces that have enhanced the influence of consultants are not weakening. What looks like heterogeneity right now might turn into a homogenous world where consultants rule the foreign policy roost. And for all the perceived flaws of think tanks, consultants have even bigger faults when it comes to thinking about international relations.

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Consultants have been involved in government since World War II, when Booz Allen Hamilton reorganized the Navy to prosecute a two-ocean campaign and A.D. Little helped develop operations research to better organize military logistics. After the war, the Eisenhower administration hired McKinsey to reorganize White House functions.

In recent years, however, certain trends have accelerated the rise of consultancies in public policy. Globalization and geopolitical instability have midwifed a new class of political risk consultants with strong ties to the intelligence community. The increase in government outsourcing has created new demand for private-sector actors to provide services and advice on national security matters. Although the bread and butter of management consulting is catering to the private sector, by 2015, close to a quarter of these firms’ business came from advising government and nonprofit clients. Booz Allen and PricewaterhouseCoopers have consulted in areas like bioterrorism and cybersecurity; Edward Snowden got his start at the National Security Agency as a Booz Allen contractor. McKinsey’s influence over the Saudi reform program was so pervasive that in Riyadh, the Ministry of Planning is jokingly referred to as “the McKinsey Ministry.”

One significant way these firms affect the marketplace of ideas is through a conscious strategy of thought leadership — promoting publicly accessible and marketable ideas to catch the attention of clients. Dominic Barton, McKinsey’s global managing partner, bragged to the Economist in 2013 about the firm’s “university-like capabilities.” Many private-sector firms have set up in-house think tanks. The McKinsey Global Institute (MGI) and the McKinsey Center for Government produce foreign-policy-relevant research. JPMorgan Chase created the JPMorgan Chase Institute to advise policymakers, hiring Diana Farrell, a former National Economic Council deputy director and the former head of MGI, to run it. Kohlberg Kravis Roberts created the KKR Global Institute, integrating “expertise and analysis about emerging developments and long-term trends in geopolitics, macroeconomics, demographics, energy and natural resource markets, technology, and trade policy,” and hired David Petraeus to be its chairman.

These for-profit think tanks are generating more research pertaining to world politics. The BRICS grouping of emerging economies — Brazil, Russia, India, China and South Africa — had its origins in a 2001 Goldman Sachs study. More recently, Credit Suisse has reported about the return of multipolarity in world politics, while KPMG and HSBC have sketched out what the global economy could look like a generation from now. Some firms have developed eye-catching rankings and indices of countries, cities or other actors. The Legatum Institute built a global prosperity index . DHL and McKinsey have marketed their own indices of cross-border connectedness. Deloitte produced a global manufacturing competitiveness index. Michael Chui, a partner at MGI, told me that the creation of such rankings “is a great way to engage people” in McKinsey’s work.

While for-profit think tanks are making their mark, traditional think tanks have come under fire for possible conflicts of interest. The 2008 financial crisis forced these organizations to seek more private-sector support. A welter of think tanks have developedcorporate sponsorship programs to offer companies privileged access to their experts. At the Council on Foreign Relations, a six-figure corporate contribution comes with three CFR briefings “tailored to the company’s interests .” Many other think tanks have received money from foreign governments.

These attempts to find more revenue have threatened think tanks’ brands. The New York Times and The Washington Post have documented the ways corporations like FedEx and foreign governments like Qatar have partnered with prestigious think tanks such as the Atlantic Council and Brookings. And think tank officials have acknowledged the sway of donors. Bill Goodfellow, the executive director of the Center for International Policy, toldthe Times: “It’s absurd to suggest that donors don’t have influence. The danger is we in the think tank world are being corrupted in the same way as the political world.”

The irony is that the nonprofit actors, in trying to expand their base of support, have been accused of compromising their independence, while the explicitly for-profit world of consultants has avoided the charge. This is true even though much of the private-sector advisers’ information comes from their proprietary work, so the transparency of their intellectual products is opaque at best.

Why have consultants avoided the accusations that have ensnared the think tank world? One reason is that consultants do bring some genuine intellectual strengths to the foreign policy table. As an academic who researches foreign economic policy, I can testify that Goldman Sachs or McKinsey or State Street often puts out the first piece of cogent analysis when a new issue crops up. These organizations produced informative research when sovereign wealth funds emerged. They were also quicker to detect China’s economic slowdown than traditional foreign policy intellectuals. That does not mean they will always be right — but if identifying problems is the first step in solving them, then they have a leg up. Furthermore, their work can be just as rigorous as that of think tanks. Like those organizations, consultants lean on the ivory tower to bolster their intellectual firepower. DHL’s connectedness index, for example, was created by academics.

Another reason consultancies are thriving is that they are perfectly positioned to exploit the political shifts that led to President Trump’s election. Political polarization has made it difficult for any outlet to catch the attention of ideologues. Unlike universities, however, the private sector is not seen as a creature of the left. And unlike nonprofit think tanks, the private sector can exploit an implicit inference clients draw: If someone is willing to pay for their services, then they must have value. An awful lot of consultants are rich, and this is a White House that seems to see net worth as a leading indicator of intellectual prowess. The fall of traditional institutions and the rise of polarization have created conditions that are ideal for private-sector intellectuals.

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While for-profit intellectuals make valuable contributions, it would be problematic if they crowded out traditional think tanks. For one thing, consultancies have their own biases. In some cases these are political; a few financial thought leaders have told me that their bosses have reproached them for being overly pessimistic about Trump’s effect on economic growth. In other cases, their advice is biased toward highlighting their services. You will not see Booz Allen or McKinsey recommend against government outsourcing, for example. In foreign policy, they care about making money, which means they will neglect the parts of the world with no profit centers. These are often the places that become foreign policy hot spots.

In an effort to sell certainty in an uncertain world, private-sector thought leaders often engage in “overfitting” — over-interpreting statistical noise as representing an underlying trend. Consultants are no better at understanding how politicians behave and are sometimes a bit worse; more than a year ago, the Eurasia Group dismissed the idea of a Trump administration as an overhyped risk. That was an odd prediction, since political risk firms are usually likely to exaggerate such risks — the better to hype the need for their consulting.

It used to be that foreign policy professionals had a choice: take the credit or take the money. Those intellectuals who wanted to own the ideas they ginned up, such as academics, were happy to promote them to others. Those who were comfortable with outsourced and subcontracted work could earn generous consulting contracts, while policymakers could take credit for their ideas.

That trade-off may no longer exist. The modern marketplace of foreign policy ideas has enabled for-profit thought leaders to have it all. Through their thought leadership, they can claim credit as a marketing device. Through their bespoke work, they can earn money as well. Through the Trump administration, their ideas will find a receptive ear in the corridors of power.

60 Comments  so far, I especially liked this one – – – 
John Marke
 Recall the last time business crossed the threshold to military strategy? It was McNamara and the “Whiz Kids.” The legacy is over 58,000 Americans killed along with millions of Vietnamese.  
[And incidentally, several consultancies headed by former Whiz Kids, including American Management Systems, where I worked for a while.  bp]

About Bruce

Work for sustainable development of small islands and the Chesapeake Bay; ex-Peace Corps (Volunteer and staff) in LA & Caribbean; cruised Caribbean on S/Y Meander for three years; like small tropical islands, French canals, Umbria, Tasmania, and NZ. Married 52 years to the late Kincey Burdett Potter (see President of the now-sunsetting Island Resources Foundation.
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