What is Consultocracy? NSO 10 juni 2014 Hanna Kuusela, PhD Academy of Finland/ University of Tampere

Kuusela & Ylönen 2013 What Consultocracy? From technocracy to consultocracy. An increase in outsourced expert services in the public sector. In a consultocracy, important tasks/power is removed from politicians and public officers to private companies. The political agenda is not anymore set by public officers with substance knowledge, nor by interest groups. Public officers increasingly as orderers or buyers of knowledge, instead of its producers.

Kuusela & Ylönen 2013 Outsourced Expert Services in the Finnish Ministries (all ministries, 1998–2011)

Kuusela & Ylönen 2013 Outsourced Expert Services in the Finnish Ministries of Finance and Foreign Affairs

Kuusela & Ylönen 2013 IT-expenditure in the Finnish Public Sector Overall state expenditure in IT The percentage of services in the overall IT-expenditure

Kuusela & Ylönen 2013 The number of state personnel in Finland in

Kuusela & Ylönen 2013 Some Reasons for the Rise of Consultants in the Public Sector The consultant business has been booming in the private sector. The declining reputation of bureaucracy. The great ideological reforms in the public sector: private sector models, new public management. The reformers of the public administration repeatedly describe the public sector as stagnated and outdated. In reality, the public administration has gone through numerous big reforms.

Kuusela & Ylönen 2013 ”The Productivity Program” as a Reason to use Consultants The program was started in The objective was to reduce the number of public officers by several thousands. The indicator was the number of / the decrease in man-years. When hiring new public officers was impossible, the ministries ended up buying more services. In , the salary expenses decreased by 216 million euros, whereas the use of services increased by 500 million euros. Expert and research services increased by 143 million euros.

Kuusela & Ylönen 2013 The Spectrum of Consultancy in Public Administration A public procurement consultant helps the public officer in the request for tenders. As a consequence of the tender bids, the project is managed by a consultant. A transition management consultant plans the organisation reform. An audit consultant audits the project and its quality, offering ideas for development. … BUT the public officer / the politician is accountable for the results and possible mistakes. A salary consultant designs the salary system. A human resource consultant helps in recruiting and in developing the work place. A politician or a public officer wants to reform the administration / organisation.

Kuusela & Ylönen 2013 Why are Consultants Used? Good reasons For singular tasks, that the public organisation is unlikely to encounter repeatedly. When an organisation needs an outsider perspective that the public sector cannot provide. Bad reasons Lack of human resources in the organisation. The desire to outsource political or administrative liability. Dependencies on the private provider. Ideology.

Kuusela & Ylönen 2013 The Result? A Dumb and an Inefficient State?

Kuusela & Ylönen 2013 The Difficult Public Procurement Act The public procurement act, based on the EU directive, sets the general provisions for public procurements. Procurements of more than EUR 30,000 are subject to a competitive procurement process (in some cases EUR and ). Making public procurements is conceived as difficult: –Organisations lack the know-how. –Contracting authorities are afraid of the market court. –A failed invitation of tenders may damage the entire project. As a consequence –Procurements are split into smaller units and ”concatenated”. –Public procurement consultants grow in number.

Kuusela & Ylönen 2013 Monopolies and Transaction Costs Public procurements can work only in sectors where there is enough competition! In a country such as Finland, competition in some public administration related services is sometimes non-existent. (E.g. salary consultants.) The rise in transaction costs = costs incurred in making an economic exchange (in this case, the costs of outsourcing expert services), e.g. –Search and information costs –Bargaining costs –Policing, enforcement and auditing costs

Kuusela & Ylönen 2013 The Dissapearance of Tacit Knowledge and Dependencies on the Providers When knowledge work is outsourced to a consultant, something that is hard to measure may disapper: tacit knowledge. While working in organisations, the consultants gain the latest knowledge and expertise, but they take this knowledge with them when leaving the organisation. This may result in relations of dependencies: –The consultant ”has accumulated the kind of special knowledge and know-how related to this reform, that is quintessential for the future of this project and that other potential consultants do not have”. (A contract between a Finnish Ministry and a consultant). Years of liaison and co-operation without tenderings (e.g. in the Ministry of Finance).

Kuusela & Ylönen 2013 ”The Bank of Finland Buys IT-know-how Flexibly.”

Kuusela & Ylönen 2013 The Privatization of Knowledge New debate on open data and transparency in public administration. However, closed programming interfaces in publicly financed and developed IT-systems. An example, the privatization of the State Computer Centre –> public utility –> TietoEnator –> Tieto. Too often contracts between consultants and the public administration are confidential because they are interpreted as business secrets.

Kuusela & Ylönen 2013 What Happens to Accountability? A public officers works under the liability for a public act (ämbetsansvar, tjänsteansvar). For whom is the consultant accountable?

A PUBLIC OFFICER (who is accountable for) A POLITICIAN (who is accountable) FOR THE PEOPLE.

A POLITICIAN, who does not meet THE CONSULTANT, who is accountable for NO-ONE. A CONSULTANT, who is hired by A PUBLIC OFFICER.

- BDO reserves all the rights to this report. This report is confidential and created solely for the use of XXXX. - BDO is nor accountable for, nor does it give any assurance regarding the validity of the possible cost estimates or any other estimates.

Kuusela & Ylönen 2013 What Remains of State… … when it has given up on material production. … when it is giving up on the production, processing, and ownership of knowledge and other immaterial assets (e.g. the rise of consultants, the reforms of the public research institutes and universities). - Is its role only to be the payer and carry the responsibility?

Kuusela & Ylönen 2013 What Can be Done? Now and in the Long Run. 1.Reforming the terms of agreements between private companies and the public administration – ownership, transparency. 2.Transparency to the structures – an open access policy and infrastructure for PPP- contracts and statistics; e.g. the public procurement agency, Hansel, should have an open policy. 3.Avoid dependencies – to protect tacit knowledge and fair competition. 4.Calculate all costs – including transaction costs and the treath of private monopolies. 5.Let’s do more ourselves.