McKinsey and Co: The Anarchist Austerity Cult

Robin’s Book Report #51
by Robin Kaiser-Schatzlein

Agenda
-recent writing
-my round-up about McKinsey and Company, the transnational management consulting firm

I recently wrote for the Baffler about Bill de Blasio’s failure to address the housing crisis in New York. He claims to be the candidate for “working people,” but it’s not really true. The housing crisis is working people’s largest problem, and depending on how you look at it, he either did nothing or made it worse.

Unfortunately for me, de Blasio’s campaign is so doomed I’m not sure anyone cares to read a critical take-down of the dunderhead. However, it’s an important article because it says a lot about why Democrats often posture as defender of the working class but flail once in office. They employ regressive market mechanisms to solve problems instead of considering alternatives. De Blasio continued to use Bloomberg’s housing mechanisms, which are really just expensivization techniques. He demonstrates a disgraceful lack of imagination. Enjoy!

McKinsey and Company is an anarchic cult out to extract the wealth of nations

McKinsey and Company, as you may know, is the transnational, ultra high-end management consulting firm, founded about a hundred years. I wrote about them a little bit in a review of Louis Hyman’s Temp earlier this year. McKinsey is not a publicly traded company; it’s a partnership. This means they are free to be completely secretive. McKinsey is not unlike Skull and Bones or other secret societies; former members are proud to have belonged and loathe to reveal information about inner workings. To be made a partner (of which there are now thousands) at McKinsey is to be given a boat of money and a golden ticket to the executive class. Many make partner and move on after a few years.

McKinsey is an advisor to a large majority of the biggest corporations, governments, and NGOs in the world. Management, executives, and people in power love to hire McKinsey: it’s a signal that greater efficiency and larger profits lie just beyond the horizon.

But there are some structural deficiencies with McKinsey that are worrisome. As they expand across the globe, spreading the gospel of austerity, they have run out of stand-up clients to work for and have extended themselves into some unsavory relationships. This has revealed that at their core, the consultancy is an amoral, anarchic organization just as likely to aid legitimate groups as they are criminals. And they’ll always push for what the best for those in power (who, of course, hired them), which is austerity. Today I am reviewing some material that reveals why McKinsey is an anarchic cult out to extract the wealth of nations.

McKinsey & Company: Capital’s Willing Executioners

An insider’s perspective on how the world’s most elite consulting firm spreads the gospel of capitalist by Anonymous (Current Affairs)

Not a great article but does highlight the structural flaws of McKinsey, namely, it has no structure:

“McKinsey’s governing model, when compared to other firms of its size and age, is anarchy. The Managing Director (CEO equivalent) has surprisingly little ability to control who the firm serves (said a partner about the Managing Director, “you are definitely not in charge”). McKinsey remains the world’s largest partnership, and partners rule. The general rule of thumb is that if a partner can staff a team, the firm will do the work.”

This is something that is disturbing about capitalism: that unregulated, it is highly amoral. You can’t predict whether McKinsey will be good or bad for the world because you can’t necessarily predict how people will act inside the firm.

The firm is pervasive, global, and influential:

“McKinsey serves more than 2,000 institutions, including 90 of the top 100 corporations worldwide. It has acted as a catalyst and accelerant to every trend in the world economy: firm consolidation, the rise of advertising, runaway executive compensation, globalization, automation, and corporate restructuring and strategy.”

The firm claims to be ethical, but it doesn’t work in all directions:

“The closest value is a commitment to “observe high ethical standards,” but I only ever saw this applied to the treatment of clients: don’t lie to them, don’t fudge your expenses, etc. If McKinsey had values that considered the human impact of its work and attempted to honor Sneader’s pledge, it would need to pull out of engagements all over the world.”

Why would consultants go into a room and present a Powerpoint that didn’t argue the powerful people who hired McKinsey shouldn’t get more money? Austerity always sounds good to those who hire McKinsey, whether they are business owners who free up capital by firing a bunch of employees or governments who free up capital by cutting social services.

The McKinsey Way to Save an IslandWhy is a bankrupt Puerto Rico spending more than a billion dollars on expert advice? By Andrew Rice With Luis Valentin Ortiz (New York)

McKinsey’s secretive internal hedge fund bought Puerto Rican government debt, and now its consultants are on the ground trying to find ways for the government to pay back it’s debtors with financial austerity, essentially trading public services for debt repayment. Is Mckinsey engaging in high level bankruptcy fraud? They are essentially running the Puerto Rican government:

“With consultants taking on more and more responsibility, McKinsey has virtually become a shadow agency of the government, and a powerful one at that — feeding a colonialist dynamic that PROMESA was supposedly designed to avoid. In January, a federal official familiar with McKinsey’s work in Puerto Rico told me: ‘They’re doing everything. If McKinsey leaves, the board essentially ceases to operate.’”

McKinsey is a secretive group that is out to suck the wealth out of businesses and countries:

Already the island is an object lesson in what happens when the logic of capitalism overtakes the structure of government. It is an article of faith at McKinsey that the same management theory that makes businesses run more profitably can be applied to further the public interest.”

Governments can’t be run like businesses, often because the government can’t really dissolve like corporations might. Governments have responsibilities to people regardless of profit, or any other kind of bottom-line analysis.

How McKinsey Has Helped Raise the Stature of Authoritarian Governments” By Walt Bogdanich and Michael Forsythe (New York Times)

Once again, as McKinsey has expanded globally, they have run into problems.

“In Ukraine, McKinsey and Paul Manafort — President Trump’s campaign chairman, later convicted of financial fraud — were paid by the same oligarch to help burnish the image of a disgraced presidential candidate, Viktor F. Yanukovych, recasting him as a reformer.”

The implication of all this is that in absence of global governance, we essentially have McKinsey:

“While the United States pulls back from international cooperation and adopts a more nationalist stance, major companies like McKinsey are pursuing business in countries with little regard for human rights — sometimes advancing, rather than curbing, the contentious tactics of America’s biggest rivals.”

Reporting on McKinseyHow We’ve Reported on the Secrets and Power of McKinsey & Company by Walt Bogdanich and Michael Forsythe (New York Times)

McKinsey likely encouraged or simply fueled the opioid crisis:

“That point was driven home in startling fashion when we recently reported that the Massachusetts attorney general had accused McKinsey of fanning the flames of the opioid epidemic. In legal papers, the attorney general alleged that McKinsey had instructed the maker of a powerful opioid on how to ‘turbocharge sales’ of the drug, how to counter efforts by drug enforcement agents to reduce opioid use and how to ‘counter the emotional messages from mothers with teenagers that overdosed’ on the drug.”

The Country That Exiled McKinsey” A dubious project raises serious questions about the world’s most prestigious consulting firm and its work for corruption-plagued regimes.

by Ian MacDougall, ProPublica, and Anand Tumurtogoo (Propublica)

McKinsey entered into a consulting relationship for infrastructure contracts, to build railways to transport minerals out of Mongolia, that were shared by a company owned by the government official who brokered the deal:

“But as the Cold War’s end opened new markets worldwide, McKinsey reoriented its priorities toward aggressive expansion. Between 1989 and 2019, the firm vastly enlarged its global footprint, from offices in 44 cities across 23 countries to offices in more than 130 cities spread across 66 countries today. McKinsey reported $10 billion in revenues last year.”

“To sustain that kind of growth, McKinsey had to push into less familiar territory, like Mongolia, and into sectors, like government contracting, that the firm had traditionally eschewed. Government contracts often require more disclosure, bring more scrutiny, and are subject to more rules than corporate ones. ‘McKinsey has grown to the point that it is taking on work that prior incarnations of the firm would have turned down due to the political risk involved,’ a former McKinsey consultant wrote in an anonymous recent essay in the magazine Current Affairs.”

Foucault suggested that the term for our current economic arrangement is anarcho-capitalism (he said this in 1978 but it’s still applicable). McKinsey and Company, in many ways is the model of this idea. Secret, unstructured, influential, powerful, and pervasive, they are in some ways a catalyst and some ways a menace.

Fyre docs: A report on an over-caffeinated seven year old

Book report

Fyre Fraud (Hulu) and

Fyre: The Greatest Party That Never Happened (Netflix)

 

These two documentaries are good tragicomic stories but miss the greater historical context: fraud is inherent to capitalism and most rampant in moments when the culture worships innovation and risk.

 

I have no doubt you saw or heard about these two movies. They both clumsily explain that millenial’s fear of missing out caused them to spend tens of thousands of dollars on a poorly planned music festival. Millennials cry on a bus. Millennials slash each other’s tents. Millennials record every moment of their lives with their damn video phones. Both documentaries explain what influencers are, and both try and fail to answer a question about how culpable advertisers are in perpetrating scams. They fail because that line of thinking just begs the question: whose fault is it when scams occur? Is it simply buyer beware? If not, how responsible are advertisers to verify their clients’ products? Better yet, how responsible are venture capitalists and financiers in ensuring they are funding a legitimate businesses? Should the government be policing businesses?

 

Fraud has always been present in America. As Duke Professor Edward Balleisen explains in his recent book about fraud, periods of technological innovation that rely on the use of financial capital are the most fraud filled (that is, our current era). From the frauds of westward expansion to lightning rod salesman of the 1920s to Bernie Madoff, unstable times make people vulnerable to those who promise them what they want most.

 

The two documentaries focus on the schadenfreude of watching Millennials get scammed, but it was a trans-generational group who got sucked in: the spineless advertisers, the clueless financiers, and Bahamians of all stripes who turned out to work for little pay. All these parties believed that the rich-seeming tech bro Billy McFarlane–who looked and acted like a caffeinated seven year-old–could pull off a music festival in the Bahamas with no prior experience. Some wanted to believe, and some were too desperate to have any choice.

 

For his entire adult life, Macfarlane found that capital was easy to drum up. He, like Elizabeth Holmes of Theranos, raised real, legal capital. As another contemporary fraud, the ”Soho Grifter” Anna Delvey, told a reporter from jail, her fraud wasn’t about just stealing cash, “If I really wanted the money, I would have better and faster ways to get some. Resilience is hard to come by, but not capital.” Macfarlane is comparable to Holmes and Delvey–confirmed frauds–but also to one of his funders, deceased fracking billionaire Aubrey McClendon. The question is why is capital so accessible to people like Billy Macfarlane when we can’t even fund a infrastructure improvements? Fraud is important to pay attention to; it exposes real fundamental flaws in our economic arrangement.

 

Elwood, Illinois (Pop. 2,200), Has Become a Vital Hub of America’s Consumer Economy. And It’s Hell. by Alexander Sammon (The New Republic)

 

Elwood, a town 40 minutes south of Chicago, attracted business by allowing itself to become an inland port. Warehouses and distribution centers for Walmart, Amazon, and other quickly populated the area. But these companies were attracted with the typical corporate giveaways. First there were tax breaks, temp labor, and now the local municipality is losing control of its corporate tenants.

 

Truck traffic alone is a major problem, because the roads aren’t big enough and truck drivers are a less experienced, more desperate lot. A trucker gets stuck on a local road: “It’s gonna be a problem trying to get him out of here,” Buss grumbled. “There’s no training now. Most of these guys don’t know how to back up.”

 

Bait and Switch by Barbara Ehrenreich

 

Ehrenreich goes undercover in the mid-2000s to see if she can get a job in white-collar executive America. I enjoyed this book, but it felt strange and disappointing. The book has no culminating action. She never even gets close to finding a white-collar job. She regales us with dark, funny stories of career coaches she employs, networking events and job training seminars that she attends. They all practice some form of victim blaming–she needs to have a positive attitude, she needs to be networking more, the corporate world does not owe her a job–but also make no real attempt to help her find work. The only job she is offered is a temp job selling insurance for AFLAC, which is not really a job. It’s a freelance position with no benefits, or guidance even. The reality is that the white-collar world is more akin to a feudal court than to a factory, and who you know, who you were raised to be, who you genuflect to, is most important. Skills have nothing to do with it.

 

The Real Legacy of the 1970s by Michael Tomasky

 

The rampant inflation of the 1970s made us not trustworthy? Interesting theory, though incomplete and not totally believable.

 

Until the Next Crash by Jonathan Levy (n+1)

 

Levy opens his review of Adam Tooze’s Crashed with a discussion of the deleterious preoccupation of the global economy: liquidity. He writes that “liquidity is a fetish, because for the community as a whole the concept makes no sense. What looks like liquidity to an individual owner of wealth means a decline in the aggregate rate of long-term investment for the macroeconomy—fewer jobs, less wealth, and more wasted human potential.”

 

The Federal Reserve stepped in, after the 2008 crash and over the past decade, to ensure liquidity with a number of complex policies that reaminmated the American and global economy. Is this new economy based solely on complex tools durable? The fed is like Dr. Frankenstein, animating his monster with brilliant technical wizardry. An undeniably amazing achievement. But the monster is fucked-up and ghastly. You couldn’t confuse it for human. What hath God wrought?

 

Stuck In A Gilded Age by Jonathan Levy (Dissent)

 

Industrial productivity ended in the 1970s, and never came back. This is industrial crisis. Levy says that, “by the 1970s, the productivity gains of the Second Industrial Revolution were exhausted. Productivity flagged, contributing to…inflation and the wider sense of industrial malaise. It has not revived—aside for the period 1996–2004—because technological innovation has occurred in the relatively narrow sector of information technology. The narrowness of the Third Industrial Revolution means eight years of solid productivity growth was all this revolution could muster.”

 

So what happened in America after the 1970s? One thing that is certain is that capitalists stopped doing the only thing that made them capitalists, plugging money back into their businesses. They stopped reinvesting and the rate of investment or investment in capital stock, as it’s also called, dropped. And this trend has only increased since 2000s. Hmm

 

Levy explains that “the [rate of investment] has been trending steadily downward ever since 1970, and plummeted after 2000. This has continued while, at the same time, entering 2016, U.S. corporations sat on some $1.9 trillion in cash, which they have not yet invested. Gordon does not include the broken state of U.S. investment as a “headwind”—even as so much money sloshes around domestic and global financial markets, inflating asset prices and thereby contributing directly to the growth of wealth and income inequality.”

 

One simple explanation of inequality is that business have stopped investing in business. Growth, as a goal, leads businesses to hoard cash instead of reinvesting. This leads to the worst of all possible worlds: “The chief economic problem today is not that we do not have enough wealth, but that we do not have the ability to direct it towards the most worthy of human aspirations.”

 

The Orchid Thief by Susan Orlean

 

People are crazy for orchids.

 

Bruno Latour, the Post-Truth Philosopher, Mounts a Defense of Science (The New York Times)

and

The Philosopher Redefining Inequality by Nathan Heller (The New Yorker)

 

Bruno Latour theorized that scientific ideas make the world, scientists don’t discover buried truths. Scientists felt this might be an attack, but Latour actually loves them. He is, as a philosopher, not comfortable saying that gravity exists without the frame of scientific inquiry. His position is similar to that of the pragmatists (William James, John Dewey, etc): ideas are tools. I’m not interested in pure science unfortunately, but I like pragmatism.

 

In Heller’s profile, he digs into University of Michigan’s Elizabeth Anderson, a professor who named her chair after John Dewey. I don’t know if she calls herself a pragmatist, but her ideas stem from that tradition. She is looking to see how ideas work in the world, not how they are supposed to work. This leads to a rethinking of how inequality comes to exist.

 

The Neoliberal Optimism Industry (Citations Needed)

and

Accentuate the Positive by Anthony Gottlieb (NY Review of Books)

and

Consolation Prizes by Alex Pareene (The Baffler)

 

There is sector of thinking that posits that things have never been better (so stop complaining!). It is occupied by thinkers like Malcolm Gladwell, Steven Pinker and Bill Gates. Pinker wrote a book many years ago about why violence has declined and has a new book about why capitalism has raised the standard of living for everyone on the planet. Not to be glib (or repetitive) but why, in that case, does poverty still exist? The rhetorical twist of the optimism industry is a rebuttal to protestors and reformers,  and it is an obsequious theory. It’s tailor-made for those in power. In “Consolation Prizes” Pareene explains how we’ve come to believe that the ability to buy consumer goods, alone, makes poverty okay, as opposed to other countries that provide healthcare and education by reducing disposable income.

 

Everyone hates open offices. Here’s why they still exist By Katharine Schwab (Fast Company)

 

Open offices are a way to indicate a company’s value to venture capitalists and talent. The goal is “not to improve productivity and collaboration, but to signal that the company [is] doing something interesting.”

 

Cubicles and offices are expensive, which apparently matters more that helping people get things done.