At Crikey Stephen Mayne’s been following the fall and fall of Eddie Groves’ ABC Learning, commenting on the latest financial news:
There is no doubt that ABC Learning is desperate for the cash after almost going broke courtesy of paying too much to become the world’s biggest childcare company.
However, Eddie’s attitude to stakeholders is best summed up by yesterday’s outrageous and utterly desperate $82.2 million placement at the bargain basement price of $1.15 a share, with no corresponding offer for small shareholders.
Remember all those claims by Eddie that his great Australian company had been destroyed by short sellers. That was when the stock slumped 43% to $2.14 on February 26 in response to the previous day’s shock 40% slump in half year profit.
Eddie was subsequently cleaned out of his shares at around $1.80, but if his theory about short selling was true, shares in this “great Australian company” would have recovered.
The stock closed last Friday at $1.35 and knowing full well that Wall Street had just suffered its biggest one day fall in more than a year, Eddie sold 15% of the company yesterday at a record low price that diluted everyone else.
Last year’s audited accounts claim net assets of $1.9 billion, yet Eddie has just agreed the entire equity was only worth $551 million. Stand by for the $1.5 billion write-off as ABC Learning joins this list of Australia’s biggest corporate losers.
Mayne also notes that ABC Learning is persisting in plans to raise prices by 10% in July, despite warnings from Julia Gillard. He speculates that Larry Anthony, former Childrens Services Minister and ABC Learning board member, might have advised Groves to stare the government down. Mayne makes an interesting suggestion at the end of his article:
The Rudd Government won’t have much sympathy for Eddie or his shareholders and will probably take this 10% price rise as a declaration of war.
While withdrawing government subsidies would be extremely messy, perhaps a government takeover bid for the whole company is the order of the day.
After all, child care isn’t an industry that lends itself to colourful entrepreneurs. It’s time to put Eddie Groves out of his misery and close the book on a failed experiment, handing the Australian centres back to councils, community groups or state education departments.
I strongly suspect that there are other weapons the government has in its armoury to counter an excessive price rise which would chew up the increase in the childcare tax benefit applying from 1 July than withdrawing subsidies. Leveraging the “one stop early childhood centres” announced earlier this year by Kevin Rudd or creating incentives for community centres to open in the same areas served by ABC Learning might be others.
I doubt that the government would go down Mayne’s suggested route, but it’s good to see a small l Liberal and a supporter of free markets acknowledge that market failure exists in the childcare industry. I’d suggest it goes far beyond the slapdash approach to corporate governance exemplified by a fastbucks entrepreneur like Groves. Last year, when it was suggested at this blog that childcare might have particular characteristics making it unsuited to profit-making enterprise, the usual suspects trotted out all the usual lines about the grandeur of market discipline and competition, apparently oblivious not just to philosophical arguments for not-for-profit early childhood care, but also to the particular empirical characteristics of the childcare “industry”.
Leaving aside Groves’ own eccentric approach to corporate governance and financial management, it’s clear that ABC Learning is now reaping the fruits of cost cutting on one hand and an extremely aggressive approach to market share on the other. This is one “market” where the needs of children – and of parents who work – should be placed far above those of corporates.
Well said. The aggressive corporatisation of the child-care sector (I don’t want to acknowledge it’s an industry) has led to many child care centres owned by independent operators and community groups (who actually care about kids) being run out of business by what is the McDonalds of child care, ABC.
While I don’t disagree with everything Anne Manne says in her QE, I think she’s spot on when she says that if we’re going to have a child care industry it’s got to be about caring for kids and providing them with a loving environment where their needs are met rather than running it as a business with the aim of making a profit. The kind of people who go in to child care must, at some level, be passionate about enriching the lives of children and it is sad that someone like Groves turned caring for kids into a cash grab.
I’m not convinced that either the government or the corporate sector is best positioned to provide high quality child care. I’d rather see NGOs, community groups and independent operators given resources from government to provide the services.
Yes, so would I, Sam. A community sector or local government model seems to have worked best in terms of quality and accountability to parents. I think Mayne’s suggestion is a bit off the mark, but it’s interesting that he’s making it.
“While I don’t disagree with everything Anne Manne says in her QE..”
Glad you mentioned her, Sam.
She makes a lot of sense around this subject of caring.
This is the link to that Big Ideas talk.
It is well worth a listen.
http://www.abc.net.au/rn/bigideas/stories/2008/2264547.htm
Woah woah woah…Mayne is many things, but a supporter of free markets….no.
There was a strange headbanging moment I had once when the Brumby government broke the Tabcorp-Tattersals duopoloy on pokies. Mayne questioned this on the basis that it lowered shareholder value. We might not want more poker machines, but this is a poor reason for opposing it!
He isn’t what you’d call a capitalist really. He’s a mercantilist. The good ‘ole, pre Adam Smith kind. The objective of the game is to accumulate money, earn it through increasing economic output or anything so useful as that. In his mind a government is successful for running surpluses and building foreign reserves (because accumulating money is good), as well as portecting shareholders from management, because protecting shareholder value rewards the accumulation of money. It doesn’t reward investment in the economic sense (using savings to increase production), just protecting unproductive capital.
I’m am almost certain that Mayne’s greatest desire to see a nationalisation of ABC is to see its shareholders not miss out.
Mayne is neither pro-market, nor pro-business (which are distinct things incidently, which is why business donates so much to avoid competition), nor utilitarian or rawlsian in the way a social democrat might be. He’s merely pro-hoard, pro-vault, pro-piggybank and under the matress. He beleives neither in “to each according to his need” or “to each according to his ability” but to “to each according to his jam jar”.
Sorry to rant a bit, but man, the bloke is in the 18th century.
As Mayne suggested there is one level of Govt that is uniquely placed to take over childcare operations from ABC Learning.
Local Govt.
Many councils already operate LDC’s as part of their social services depts and often already work with State Health, Community Services & Disability Services in respect of families.
LDC’s run at a profit.
Once the infrastructure is paid for – which are mostly converted residential houses or small purpose built centres etc – there are few overheads other than on-going building maintenance to budget for. Wages, insurance, administration, toys & food etc. are all covered by parent fees.
The Federal Govt could buy up the entire stock of ABC Centres, transfer all titles to whichever Local Govt and recoup all monies in a few years, from the savings on unsustainable CCB rebate rises currently gobbled up by private shareholders.
I’ve gotta go – but it’s a once in a generation opportunity to wrest back control of early childhood education/care from corporate raiders!
Richard, ok, hadn’t really studied Mayne’s economic opinions closely. Substitute “capitalist” for “pro-free markets” if you like – they’re also not the same thing!
Excellent comments from Sam & Kim. Agree w/ some of what you say jo but I’m not keen to see taxpayer’s money used to help Groves & others recoup losses. Unless a reasonable value is negotiated. I’d like to see Childcare Centres built on State primary school land or closeby. Handy for parents & guardians.
And the community centres & public centres should be run under a State Govt. accountability umbrella. If control went to the Federal govt. you would only need one CHANGE in government to see much of it being privatised again.
The children can’t be left to the whims of shareholders, corporate raiders, political party donors and the money lenders.
“I’m am almost certain that Mayne’s greatest desire to see a nationalisation of ABC is to see its shareholders not miss out.”
Richard Green is probably correct to assume such.
The state governments are also busily privatising everything in sight so I don’t think they’d be any more secure. I think its more important to get the regulation and standards for childcare right with adequate enforcement. And getting conditions right so you ensure diversity of providers (eg providing land for small and community providers). Turning it into private/public issue will just result in a series of nationalisation/privatisation flip flops as governments change (or just change their mind).
“While withdrawing government subsidies would be extremely messy…”
The Mayne line is at it’s most effective here. Many “working families” may well become non-working families if the government pulled the plug on subsidies or Eddie is just left out to dry.
Isn’t it about time the Government (Federal) had its own childcare centers preferably staffed by its own carers and properly vetted too. Leaving children in the care of anyone can have bad repercussions as we know so well via news.
Kim and everyone:
Alright, the very naughty swear-word “Nationalize” has been uttered [now wash out your mouth with soap].
So I’ll take it as a signal to use that other dreadful obscenity in connection with child-care…. “CREDENTIALISM”.
Funny that nobody wants to talk about the most important factor in the blow-out of child-care costs; the one thing that has made child-care so unaffordable …. and it is the one factor that neither Labor nor Coalition are game to mention at all. Yes, I DO want to see a return to the “bad old days” when so many of “the unqualified [??}" took care of kids.
Jo [5]:
Thank you for mentioning Local Government – the ideal level of government for running child-care.
Better hide though – the hystericals will be out screaming for your blood because you made such a sensible suggestion.
“The state governments are also busily privatising everything in sight”
Then Labor needs to get rid of some of the privatisers & profiteers in its ranks…;) Tho some privatisation is handy if the sector is about to change dramatically, become archaic perhaps…& holding onto it could be ridiculously expense.
Maybe you’re right about it becoming a federal responsibility Margo. I’d hate to see it go LOCAL & then we find our RATES go thru the roof everytime some council decides it needs more money, or wants to drive farmers off the land for its property developing mates, and uses younguns in childcare as one of the excuses. Look at America & the way responsibility for public service is often shifted onto the householder…whilst so many of the RICH get away w/ avoiding paying taxes.
I wonder if Australian Ethical superannuation fund will now finally admit the error of their ways. ABC Learning was never an ethical investment. And now it’s turned out to be a financial dud too. At least I can say I tried to tell ‘em. (So much for my retirement, though!)
“Nationalise childcare.” – Brilliant! I love it. But…
My baby girl is three, she goes to a childcare center which has been family-run by the same owners for over 11 years, quite a rare thing in this day and age. The staff are very caring and kind, eschewing more lucrative career paths for the sheer love of their jobs (some have left and come back again). Every child should have such care, and every parent in Australia should be aware that profit-driven operations like ABC Learning make it extremely to accomplish.
At this age, quality of care has to be the prime consideration, but I cannot help wondering if government-run centers would necessarily provide that. I think any such nationalisation would logically fit as an extension to the primary school system, but I think we need to generally improve the quality (and pay) of all teachers at all levels in order to deliver top quality care and education right though the system.
Oh, and another big issue re nationalising anything nowadays: Who would volunteer to tell our overlords in Washington, and what guarantees do we have that they would not invade (or at least replace the PM – again)? Hmmn?
Thinking of how to fund childcare,
perhaps when you think about how the FEW benefit from the education & skilling of these MANY younguns,
WE should re-introduce the inheritance tax?
We know how the well-off, lucky & privileged like to ensure their children get the best opportunities in life, that’s understandable…
…well perhaps they wouldn’t mind contributing to an ESTATE TAX that would ensure QUALITY CHILDCARE for all those kids who might possibly in the future:
serve them, pave their roads, build their cars, sew their clothes, design their styles, provide them w/ security, build their mansions, swab their decks, clean their pools and homes, design their cars & planes, maintain the same, transport their goods, grow their food, slaughter their beasts, stomp on their grapes, repair their systems, unplug their toilets, wire their houses up, build street lights and rampways for their businesses, lift their boxes, deliver their newspapers, massage their muscles, manicure them, check their places for red ants, spray for pests, make the shows they watch, create the music, play the sports, place the bets, make the phonecalls, fly their jets, entertain their kids, make their appointments, check their health…the list goes on & on.
If we received any money/assets from our families by way of wills etc., we’d be fully prepared to fork some over to ensure the children of Australia got quality childcare, education & healthcare.
It’s FUTURE PROOFING…doing what’s necessary to construct a harmonious, educated, opportunity blossoming & fair-go-for-all society.
As Jo says, we need to return to the local government model such as the one we still have (by the skin of our teeth) here in inner Melbourne, namely, Community run Childcare centres (linked physically and administratively to kindergartens) plus council-supported family day care. In my area these options have just escaped being killed off by the Eddie Groves of this world. They represent world’s best practice in MO and they should be supported and funded.
Nasking – well means testing the childcare rebate would be one option for making it more affordable for the government as well as make it harder for providers to increase prices for everyone. I do generally agree with inheritance taxes though because I think it encourages philanthropy – people would rather give money away than have the government take it.
Helen – is there evidence that the community run childcare centres deliver the best care? Some of the small for-profit ones have very good reputations and other people seem to really like the home care model where a mother looks after a small bunch of other people’s kids in her own home as well as her own at the same time.
Chris note I said “plus council-supported family day care.” So we are in furious agreement with that one.
I’ve had two children in community run childcare centres, Annie Dennis in Northcote then Norfolk st in Yarraville. Both were excellent and because Norfolk St had a kindergarten integrated into the building, there was no issue with kids missing out on kindergarten. Family Day care is great for the under 4s as long ans the carer is compatible, although the kindergarten option is not possible for the bigger kids.
other people seem to really like the home care model where a mother looks after a small bunch of other people’s kids in her own home as well as her own at the same time.
amused – are you suggesting we might bring back wet nurses (at least for the wealthy)?
As long as we are talking about nationalising things, Joseph Danison has an interesting article today at ICH exploring the difference between modern “progressives” and old-fashioned “populists”. Get this:
Helen – yes, sorry I missed that – though I don’t believe all the family day care available is council supported. On the surface I find the family day care option more attractive than childcare centers as you know you are going to have the same carer looking after your child every day.
Amused – yes personally speaking I think I’d prefer not to use childcare at all in the early years. I’d point out that its not just monetary issues, but just getting leave which is a problem. With the current legislation its next to impossible for fathers to share even unpaid parental leave – its really framed around either the mother or the father using it. And in the very early days it of course makes sense for the mother to use it exclusively which locks out fathers from accessing it.
“well means testing the childcare rebate would be one option for making it more affordable for the government”
true Chris…probably more palatable than an estate tax…;) Considering you couldn’t hit people w/ an inheritance tax who inherit less than 500,000 considering the cost of HOMES (do we still refer to them as that?) these days.
Helen, as a HOME owner w/ out kids I worry about local councils using rates as a means to an end. Seen too many people overseas driven off their land & out of properties due to education etc. being linked to housing.
Also have seen local councils that are religiously KOOKY or too narrow, to say the least. Those care centres & schools can become a breeding ground for oddball behaviour. Think of the numerous viruses that have entered this country of late. Some spread to politicians…even help give them FEVER….assist to spread it.
But as someone who empathises w/ the needs of many Mums & desires good outcomes for children based on some choice (local/individual needs) I’m willing to read & try & comprehend your views. I find many of your comments insightful. It’s good to hear from the Mums not on the Queen’s honours list…:)
Best to remember tho, plenty of people w/out children may not have the same opinion. Some can be quite self-centred. Particularly when it comes down to them perceiving they hand out too much dosh already for what they see as poor returns.
Means testing will probably go down well w/ them. And the building of more affordable centres that don’t see FEES jacked up at taxpayer’s expense a couple of times a year.
As they say, to help the MANY we can’t always get what WE want. Compromises & bridge building & moderation were words my wise old Grandpop used to use.
I dunno. Because “populist” is generally a perjorative term, if you define the wish to leave any activity in government hands as “populist”, you are whiteanting it from the get-go. And “populist” campaigns are often conservative ones, like the Laura Norder campaigns of various right wing politicians and shock jocks, so I don’t think it corresponds to “progressive” at all.
My childcare centre was run by a university, I think. That went pretty well.
I dunno. Eddie Groves’ financial engineering shenanigans are one thing, the structural problems with childcare are another.
Ultimately the quality problems with childcare in Australia come back to too few staff, too poorly paid. That’s a regulation problem not a corporatisation problem.
And if anyone thinks it can be addressed without big lifts in fees then they are dreaming. In childcare you get what you pay for, whether its corporate, communities or government run.
I disagree. CCCC’s are not for profit centres with parent / carer committees providing some of the input. ABC Learning is a corporation which is bound to make a profit and return value to its shareholders, besides supporting the usual layer of corporate suits. The money which goes in profits and managers’ salaries just doesn’t apply to CCCCs – besides crap like glossy advertising, which they simply don’t do.
I’d be a bit cautious about linking childcare centres to local counciles to closely. Two distinct dangers – if its seen as profitable venture then they’ll be no less ruthless about extracting the most money out of them as they can as a normal business would. If its not and seen more as a community investment then you can easily end up with the situation where those who live in rich areas end up with better childcare because the councils have more money to spend.
Some of the comments on this thread have got far away from the day-to-day reality of the situation.
Many local councils already do operate childcare centres and family day care. If you don’t have children you may not realise this.
Nor generally the range of other community services operated by your Council – Meals on Wheels, Senior Citizens centres & activities, shopping services for seniors/disabled, community exercise & other classes, community buses to transport the elderly and disabled, local swimming pools, libraries and so on.
These services are often underwritten by State funding (or rather now where the State is trying to shift costs back onto Local Council!) and there are long standing relationships between State Area Health & Community Services etc in relation to the coordination & regulation of many these activities.
If you think there is oodles of wastage in any of these services in terms of either state grants or rates, look at the wages paid to workers either direct support workers or even council based staff. Obviously different councils have differing historical levels of services and the type of services they provide.
Back to childcare – you might like to read this post of mine for some background on childcare – it isn’t exhaustive by any stretch, but at least it might provide a little background.
http://larvatusprodeo.net/2007/10/26/whatever-happened-to-the-social-wage/#comment-413833
Before I make any further comments I want to look at the overall Federal budget position currently in relation to both the CCB (childcare benefit) paid and also the CCTR (Childcare Tax Rebate) – the latter which is being raised to 50%, and also the cited outlay required to fund a takeover of ABC Learning, and think about possible benefits in relation to putting downward pressure on fees by such a takeover, and this is totally irrespective of whether Local Government would even be interested in such a move, nor the Feds.
I’m with Kim btw, I doubt this is the model the Federal Govt would be looking at anyway. But an interesting exercise. (exciting life huh!) There is no doubt btw that the entry of corporate (not private owner-operated) operators into the sector has caused unsustainable fees increases, now getting onto 80-100% over a decade.
Lastly, in relation to community based centres – ie. those with Volunteer Boards of Management – there are a few reasons why ABC Learning took off – but one reason was that the expertise required to manage centres became increasingly complex over time (see my post) resulting in many community based centres winding up and ABC Learning stepping in to take over the clients or the centres etc. (And also no new community based centres opening – more to do with no capital Fed grants, thankyou Johnny). Anyway, suffice to say that Volunteer parent committees (who are working parents obviously) have a hell of job running a licensed childcare centre on the third Tuesday of the month.
As to the investment in new centres on state public school land – I sent a long 3 pager to Cheryl Terbutt the NSW minister on this a few years ago – so I should look a the Fed Govt’s policy and report back.. (bet you can’t wait!!)
***
FYI
The Child Care Tax Rebate was introduced in 2004-05. The Rebate covers 30% of out-of-pocket child care expenses for approved child care, with a rebate of up to $4,000 (indexed) per child per year. Out-of-pocket expenses are the total fees paid for child care expenses for approved care, less the amount of Child Care Benefit (CCB) you received.
The rebate is not a ‘cash in hand’ refund. It is a tax offset that reduces the tax calculated on your income when you lodge your income tax return.
http://www.childrenandyouth.wa.gov.au/MS/LMSfiles/2007-2008-australian-government-budget.doc
Which behaviours of the corporate operators do you believe have caused the fees to increase? Because it appears that the smaller and non-profit operators who already have established buildings have also significantly increased their fees?
So its really just a once a year lump sum payment then. Would probably be easier for parents if the government just paid the childcare operators directly rather than refund the parents at the end of every financial year.
“These services are often underwritten by State funding (or rather now where the State is trying to shift costs back onto Local Council!)”
Exactly. I guess some of my concern comes from the possible transference of State responsibility to Local & Federal governments. And cost shifting. I’m thinking particularly of instances in contemporary America. Not that I can’t see the necessity for ending duplication & have seen British councils work quite effectively at times. The QLD mergers have got many of us rate payers & service users thinking about the positives & negatives of transformation.
“There is no doubt btw that the entry of corporate (not private owner-operated) operators into the sector has caused unsustainable fees increases, now getting onto 80-100% over a decade.”
Spot on. CEOs, boards, shareholders, market manipulators, political donations & favors called in…makes for a hairy ride for the kids & the taxpayers.
Anyhow jo, you make many valid points & promote your views articulately & w/ verve. And you’ve done the research. Always appreciated. I like to play Devil’s advocate sometimes so policy promoters know some of what they are up against. The internet has brought w/ it a great deal of necessary querying, probing, opinionating & fresh debate/discussion…& of course, nonsense.
The days of shoving bills & policy thru parliament w/out much questioning are over. The same applies to councils. For better or worse…:) Let’s just hope valuable ideas like yours are assessed by ministers & councillors and we get movement…not stalemate as so often seen in the USA, particularly at the Federal level. Still, at least they have ballot/citizen’s initiatives. Democracy in action…depending on the money behind it of course. Seems to be a growing movement here. Would have a real bearing on who funds what.
The day-to-day reality can change quite dramatically depending on the Democratic & undemocratic initiatives that pop into existence.
BTW, the links are enlightening. Good one.
Amused [20];
Much of the criticism of the home care model is of where child-care is provided by a sole adult, usually a mother. The situation improves as if by magic when two or more carers are involved.
Funny thing, that’s just what primitive savages, bush kanakas and other unsofistikated pepol have been doing so successfully for millennia.
Maybe it’s time we went right back to the drawing-board on child-care.
“Maybe it’s time we went right back to the drawing-board on child-care.”
I will go for that.
Maybe, the previous governments bully boy tactics in dragging some single mothers back to work, when they are likely to go backwards financially/emotionally, could be abolished officially.
Section 96 of the Federal Constitution means that the government can’t nationalise things and that can only be changed by a referendum that wouldn’t get through
Paul Melville Austin [35]:
You wouldn’t want to bet on that, would you?
This is 2008 and Australia has changed a lot in the past four years.
Although a referendum NOW on nationalization would give a landslide for “yes”, I don’t think it would break the record of the fair-go-for-Aborigines referendum.
Let’s nationalise Stephen Mayne!
He could have his very own Commission solely dedicated to regulating him, ensuring that his AGM interruptions are in the public interest, and that he doesn’t own more than one share of a company in the same city!
I would like ABC to sell some of its beautiful centres to the govt for a one stop childcare shop now, they can get down to a managable size and out of debt and the government can also gain something by not having to build such big centres with no knowledge of how to structure them. there is one thing that eddy knows and that is how to build a great facility. that way everyone can really have considerable choice, at the moment its mostly ABC and thats it in some areas. Would it not be so bad having them join forces so all can win and get the best outcomes for ultimately the children