Consultancies Running Laps Around Think Tanks

Competition can crush their slower-moving brethren, and that is the existential problem that think tanks are now facing as hard-hitting consultancies and banks flood the ideas market.

Here is more from Dan Drezner in the Washington Post:

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.

Drezner correctly notes that think tanks have taken a huge hit over the years because of various conflicts of interest and pay-to-play schemes.  It is now rare to find an unbiased, credible think tank.

Here is a recent Think Tank Watch piece about the "death" of think tanks.

Here is a "cheat sheet" of the University of Pennsylvania's annual think tank rankings list, which includes a category for the "best for-profit think tanks" such as Mckinsey (more about them here) and Boston Consulting Group.

History and Reputation of the McKinsey Global Institute

This in an excerpt from the book "The Firm: The Story of McKinsey and Its Secret Influence":

Despite some missteps, [Frederick] Gluck also grasped that the firm had to do a better job publicizing its accomplishments.  Under his direction, in 1990 the firm launched the McKinsey Global Institute (MGI), an independent research operation with the goal of developing "substantive points of view on the critical issues" faced by McKinsey clients.  Even in a world overflowing with economic think tanks, McKinsey brought a unique perspective to the table: The firm's understanding of actual company economics and industry structures gave specificity to its work.  "What's different about MGI is the unique access we have to information that doesn't show up in statistics that we can use responsibly to inform research," said Diana Farrell, head of MGI from 2001 to 2008, when she left to join the Obama Administration.

MGI has been successful in giving the firm a quasi-academic glow that's yet another in the long list of the ways it is differentiated from the competition.  The institute's work on productivity in the early 1990s is widely regarded as groundbreaking in economic circles.  Later work on global capital market developments, the US healthcare system, and energy productivity continues to give McKinsey a voice in conversations to which its competitors are not invited.  But it has also given an outlet to the firms' recurring eruptions of arrogance.  When the institute paid significant sums to lure Nobel laureate Robert Solow and other leading economists to its board, then-chairman Ted Hall reportedly professed the belief that the institute itself was doing Nobel-quality work instead of merely buying Nobel-quality window dressing.

According to rankings by the University of Pennsylvania (which takes money from the think tanks it ranks), McKinsey Global Institute is ranked as the best for-profit think tank in the world.