The Greensill scandal

The growing scandal in the UK over corporate lobbing of government – which has implicated the former Prime Minister David Cameron as well as a former civil servant – is a reminder of the uses of bureaucracy and the dangers of its abandonment. Max Weber’s ideal-type bureaucracy is most closely associated with the State civil service, and many of its tenets can be seen in the traditional model of the British Civil Service which emerged from the 1854 Northcote-Trevelyan report (although in more complex ways than some of the received myths – see Greenaway, 2004 for details).

One feature of the Weberian ideal-type which nowadays seems rather quaint is that of the lifetime employment of bureaucrats, which links to the way that in the British system the civil service is a permanent one, existing independently of the government of the day. A virtue of such an approach is that it reduces the incidence of the ‘revolving door’ whereby someone might move between civil service and private sector employment. Of course, lifetime employment was never compulsory, so such moves have always occurred, but they were not the norm and, being rare, could more easily be regulated.

This revolving door (not just for civil servants but for government ministers) is at the heart of the present scandal, but it is much more widespread than that. The particular problem it presents is that the awarding of government contracts, or other favours such as, for example, laxer regulation or favourable planning decisions, is potentially corrupted.

Actually, one aspect of this particular scandal is not even a revolving door but a case in which, it appears, a senior civil servant was working simultaneously as an advisor to a now bankrupt finance company, Greensill Capital, of which he then became a Director after leaving the civil service. This seems to have happened not through oversight or concealment, but with official approval. It was not that the rules were flouted, but that they were followed.

It remains unclear how many similar instances of this there may be, but the more routine ‘revolving door’ cases have become far more common over recent decades because it has become an article of faith since at least the Thatcher governments that private sector expertise is needed to inject competence and dynamism into the supposedly archaic traditional civil service. This has even extended to the extensive use of management consultants not just to deliver policy but to contribute to the making of policy, and not just in the UK (Howlett & Migone, 2013).

At the same time, and for the same reason, the state has been reconfigured so as to be less the provider of public services and more the commissioner of those services from the private sector. This outsourcing, discussed extensively in my book, therefore offers particular opportunities for the award of government contracts, making the revolving door all the more problematic. Again, there are rules in place governing what former civil servants and government ministers may and may not do, but they are fairly lax. So it’s not necessarily a problem of rule-breaking but that the rules themselves are inadequate.

The issue here is not, or not necessarily, an overt corruption involving backhand payments in brown paper envelopes. It is more subtle, and more insidious, than that. It’s partly about conflicts of interest which, whether consciously or unconsciously, shape decisions. It is also about the way that personal networks and contacts – the ‘chumocracy’ – can be the basis for these decisions. So, all too easily, and again it may be both conscious and unconscious, nepotism and patronage creep in, and it flows both ways: ‘I’ll scratch your back if you scratch mine’. This might be to do with individuals (for example, a civil servant anticipating future employment) or organizations (for example a consulting firm which is both advising government but also potentially benefitting from government decisions).

Whilst this isn’t new (and the origins of the Greensill scandal predate the current government) there are reasons to think that it may be more prevalent now. One is that the present Prime Minister has shown, in numerous ways, a cavalier disdain for established norms of conduct, and even for the law (for example in illegally suspending parliament in 2019). He is notoriously dishonest (Oborne, 2021) and exhibits a sense of privileged entitlement which seems to suggest that ‘rules are for the little people’. If, as the saying has it, ‘the fish rots from the head’ then an administration led by such a person may be expected to be tainted.

Related to that, this is a government that is especially resistant to dissent and scrutiny, as shown by its draconian approach to policing protests, hostility to the legal system (‘activist’ lawyers, judicial review) the civil service and 'woke' universities, excessive use of Executive powers (Henry VIII powers, Statutory Instruments), disdain for the ministerial code, resistance to accountability to both the media and parliament, and much more besides. This then becomes the context for an illegal lack of transparency in public procurement with associated accusations of cronyism, assisted by the crisis situation caused by the Covid-19 pandemic which has been used to justify suspending standard rules for such procurement.

What is objectionable about all this isn’t simply the question of whether individuals and companies are lining their pockets – and often already over-filled pockets, at that. It is that they do so at public expense After all, the rationale for bringing private expertise into the civil service, and for outsourcing public services, is supposed to be that this will make more efficient use of public, or taxpayers’, money. Cronyism doesn’t as a matter of logical necessity preclude this – perhaps contracts awarded to cronies are undertaken superbly well – but nor does it require it. It makes it impossible to tell whether ‘value for money’ has been achieved.

Another way of looking at this is the way that the neo-liberal ideology of competitive markets as the most efficient allocator of resources has morphed into a ‘market managerialism’ in which bogus markets are created, with resource allocation being decided managerially by, in this case, politicians and civil servants. It is almost the worst of all worlds in taking the worst features of command economies and combining them with the worst features of capitalist economies.

It might be argued that the very fact that there is currently a scandal means that we shouldn’t worry too much. It shows that there is an accountability in operation. The difficulty with that idea is that we really have no way of knowing whether what has been identified is all that there is to be found, or whether it conceals a hidden iceberg. The only real way to be sure is through a system of formal rules. That entails far more than the often-proposed solution of ‘transparency’ and ‘disclosure’. It is not enough that conflicts of interest be ‘declared’, what matters is that, when declared, they are removed, most obviously by removing an individual from decision making.

That is no easy matter. Much of what is at issue here is extremely difficult to police – late night conversations between friends, for example – and probity requires moral norms as well as procedural rules. Perhaps a different way of putting this is to say that it is not necessarily easy to say where and when ‘decisions’ are made: the meeting room and the written minutes may not tell the whole, or even most, of the story.

So Weberian bureaucracy isn’t by any means the whole answer here. For that matter, we shouldn’t assume that the traditional civil service was free of chumocracy when, no doubt, the ‘old boy network’ was alive and kicking. Similarly, ministers and former ministers of bygone times were not paragons of unalloyed virtue.

But this doesn’t mean that cronyism and more or less overt corruption are simply facts of life. They flourish to a greater or lesser extent according to the particular rules and norms of political administration obtaining in particular places at particular times. Avoiding such problems is always a work in progress, sometimes going in the right direction, sometimes the reverse.

In Britain, at the present time, there is a sense of going in the wrong direction. As Rafael Behr, the Guardian columnist, argues, it is not country “riddled with corruption”, but there is “the stench of decay”. That may have its proximate cause in the particular character of the present Prime Minister and government. But they have been enabled by inheriting a state that had already been hollowed out, and a civil service that had been undermined, by the ‘private good, public bad’ ideology. That gave them a freedom of action that might otherwise been constrained. By the same token, with different ideologies and institutions that freedom of action could be curtailed.

 

The fifth edition of A Very Short, Fairly Interesting and Reasonably Cheap Book about Studying Organizations will be published by SAGE in November 2021.

Carillion: the Enron moment for public sector outsourcing?

Since the very early days of this blog, I have written several posts about the danger and damage done by public sector outsourcing and it’s also discussed in my book (pp. 88-90 and elsewhere). It is a practice which developed extensively from the 1980s onwards, and was given a particular boost during the New Labour period of ‘high managerialism’, but has by no means diminished since then. Indeed, one might say that it became normalised as the standard way of delivering public services so that what started out as a controversial ideological principle became a routine administrative technique, with its ideological roots concealed from view.

Those ideological roots are worth reflecting on. At one level, they derived from what might be called first phase neo-liberalism, in which it was assumed that markets and private companies were by definition more efficient ways of delivering goods and services of any kind. Such a view was most manifest in outright privatizations, but also informed the outsourcing of services which were either politically impossible to privatize, or which because of their cost structure would not attract any buyers.

This then morphed into a rather more curious second phase of neo-liberalism, whereby it was not markets as such which were lionized but a kind of state sponsored “market managerialism”, to use Martin Parker’s (2002) term. Here, the idea was less about ownership and more about the idea that private sector management methods were a guarantor of ‘efficient’ delivery: the entire distinction of public and private began to be erased. Typically, if not invariably, what that meant in practice was reducing the employment security and pension rights of erstwhile public sector workers re-employed by the new contractors. What was curious about it was that it created a kind of corporate welfare state – not simply in the sense of state services being delivered by corporations but in the sense of corporations being entirely dependent upon payments from the state – the real welfare scroungers, as I put it in a previous post on this blog.

It is highly doubtful whether any of this actually reduced the costs of service delivery in the round. Even if headline delivery costs were reduced, the extra cost of paying shareholders needed to be factored in and, more than that, the changing employment terms of workers created both a bill for tax credits to supplement earnings and contributed greatly to the emergence of a far more precarious and insecure workforce, with multiple economic and political consequences. In fact, a National Audit Office (NAO) report published this week shows Private Finance Initiative (PFI) construction projects are far more expensive than using the public sector.

Moreover, outsourcing was dogged by one failure after another as documented in the posts I have linked to. At the core of the myth of public sector outsourcing is the idea that it transfers risk to the private sector (with this, in turn, justifying the return to shareholders). The reason this is a myth is that, politically, the state always ends up having to deal with the consequences of a failure to deliver public services. This was well-demonstrated by the way that during the 2012 London Olympics the government had to use troops to deliver security when the outsourced contract failed to do so. In the end, the government can’t walk away and is stuck with the risk.

These failures revealed another myth: that is the firms to which services were outsourced did a poor job they would not get any more contracts. But they did, partly because there are only a few firms who can bid for the contracts (which in turn actually exacerbates risk to the government, since if one fails, it has huge consequences) and partly because the over-riding belief that this was the way to administer services had become so normalised. But in any case, each failure could easily be dismissed as a particular episode rather than revealing anything systematic about the entire approach.

Arguably, what has been created is a situation which, perversely, combines the worst stereotypes of both public and private sectors. On the one hand, there is no real competition to provide market discipline; and no public service ethic to provide normative discipline.

And so we come to this week’s news that Carillion has gone into administration. This construction firm holds massive numbers of contracts right across the public sector, including in education, schools, prisons, the military and transport and thus reaching far into the most basic functions of the State. These are precisely the kinds of PFI projects criticised by the NAO report, although that was prepared (albeit not published) before the news of Carillion’s insolvency. But Carillion did far more than build public facilities, it also had contracts to run and maintain them, right down to cleaning.

The Carillion crisis goes far beyond the failure of this or that outsourced service and reveals for perhaps the first time the massive transfer, and therefore vulnerability, of public services and the state as a whole into private hands. And whilst the government have not underwritten the company (if they had, it would presumably have stayed solvent but at great potential public liability) it is already clear that they will have to undertake to provide the services it has been providing or – more likely, at least in the long term – to transfer the outsourced contracts to new providers.

But the story does not end there. Because alongside the central issue of public service outsourcing another part of the business model – typical of the “new capitalism” described in chapter 5 of my book - is the creation of lengthy chains of sub-contractors, and sub-contractors to the sub-contractors. These, much smaller, organizations are likely to suffer considerably from Carillion’s collapse not least because this financialized model partly relies on very slow payments to sub-contractors who will now be on a long list of creditors. Even if they get paid eventually, it may be too late for businesses which are likely to have very tight cash flows to survive. At the other end of the chain, the massive salaries and bonuses of Carillion executives exemplify the huge inequalities which are associated with the new capitalism (pp. 117-118 of my book).

I apologise again to those who have read this blog regularly over the last few years for my recent neglect of it, which is due to the work I have been doing on my Brexit blog. But it is worth nothing that there is a Brexit connection to the Carillion collapse. Back in December 2016, shortly after the Referendum result, Carillion and other outsource giants identified the Brexit vote as impacting adversely upon them. There are many reasons for Carillion’s demise, and the deep flaws in the model of public outsourcing are nothing to do with Brexit. But nothing that happens in Britain now is entirely separable from Brexit, including the Carillion debacle.

At all events, the collapse of Carillion has now brought to the centre of political debate all of the issues that I (and of course many other people, both in academia and politics) have been raising for years now, especially the incoherence of the idea of risk transfer. It may be too early to say that Carillion is a ‘Lehman moment’ for public sector outsourcing, but perhaps it is its ‘Enron moment’.

 

Reference

Parker, M. (2002) Against Management. Cambridge, UK: Polity Press.

The Grenfell tower fire

The Grenfell tower fire, with its still rising death toll, not to mention the injuries and homelessness it has caused, is one of the most shocking disasters in Britain for many years. It is a stark and tragic illustration of many of the themes I have written about on this blog and in my book. Although more precise details and explanations of what led to it will emerge in due course, it is already clear that these will include the nexus of organizational and political issues around de-regulation and sub-contracting.

As with many other disasters – from the flooding of houses due to the removal of planning restrictions right through the banking crisis that grew from financial deregulation – the roots go right back to the 1980s, in this case with the relaxation of building and fire regulations. Layered on this was the shift from local authority management of social housing to outsourced companies, itself layered upon numerous further sub-contracting. At each stage costs are cut to the bone and with each stage the chain of accountability becomes more and more elongated.

This situation, which would anyway be precarious, has been stretched to breaking point by the policy of austerity which has hit local government especially hard. In other words, it’s the coming together of two different but related things – de-regulation and austerity – each dangerous in themselves which multiplies the risks of disastrous events. We are not talking here about the inevitable and never fully avoidable issue of ‘human error’, but systemic issues of how we organize and fund the public realm in particular. Which is why those who have argued that the Grenfell tragedy should not be ‘politicised’ are, whether knowingly or not, missing the point. The way we organize and fund the public realm can’t be anything other than political.

As with other cases I have discussed on this blog, such as cuts to legal aid and in the prison system, all of this bears most heavily on the poor and the socially marginal, especially – as can be seen from what we already know about the Grenfell tower casualties – immigrants and asylum seekers. But the consequences are happening right across the piece. Sometimes these consequences are direct: roads fall into disrepair, libraries close, the court system clogs up or the armed forces can’t fulfil the basic requirement of protecting the nation. Other times the consequences are indirect: social care provision disappears creating ‘bed-blocking’ in hospitals. As for outsourcing, this has been at the heart of every case of failure public sector that I can recall for many years now.

The issue of building regulations and their enforcement also goes to the heart of the problems of the all-out assault on ‘bureaucracy’ that has characterised organization theory and practice in both the public and private sectors. The former Prime Minister David Cameron’s announcement in 2012 of his desire to “kill off the health and safety culture for good” is typical, but very similar sentiments have been expressed by many politicians and journalists for many years.

Bureaucracy is important both as a preventative measure but also in the way that we respond to disasters, as I have discussed on this blog before. This has also emerged from Grenfell. Whilst it is generally recognized that the emergency services did a fantastic job in dealing with the immediate crisis of the fire, the follow up in terms of looking after those made homeless (both from the tower itself, but also from surrounding buildings that have been evacuated) has been weak. In large part, local residents and volunteers have had to fend for themselves without much official support or coordination. It’s exactly at times of crisis that much maligned ‘command and control’ organization is most needed.

The shock of Grenfell comes from the fact that it is, mercifully, highly unusual (although it is by no means the first tower fire in London, even if it is the worst), but that should not disguise the way that it is an extreme consequence of a much wider set of longstanding problems – organizational, economic, social. The now blackened and hideous hulk of the tower is a symbol of these and, it can only be hoped, will be a catalyst to begin to address them. At the very, very least, I hope that we no longer hear the lazy cliché, much beloved by journalists, bemoaning ‘health and safety gone mad’. Grenfell is the very harshest and most heart breaking of reminders that red tape saves lives.