I’ve been wondering when someone would wake up to the fact that the implosion of ABC Learning likely poses a political problem for the Liberals. Bernard Keane has:
It was the idea of making money from looking after children that so many people found objectionable, and the fact that they had no choice but to participate due to the lack of child care choice in their area. It was almost like WorkChoices for the under-fives. And there was the suspicion that ABC Learning cut corners and offered lower quality care — a view reinforced when it tried to stop the Victorian Government from inspecting its centres and argued its directors weren’t legally responsible for the children in the company’s care, when figures emerged of the company driving down the wages and working conditions of its staff, and when stories emerged of poor quality care.
That’s all now linked to the Coalition. Not just because of the subsidies model that massively expanded under John Howard, but because of the company’s willingness to embrace the Coalition, with Sallyanne Atkinson as chair and Larry Anthony on the board. ABC Learning has now become emblematic of the Howard Government’s approach to childcare, and Eddie Groves will come to be identified with the era just as surely as Alan Bond and Christopher Skase represented the Hawke years.
For those of us in Brisbane who remember Sallyanne Atkinson as both Liberal Lord Mayor and perenially unsuccessful federal candidate, her protestations about her own financial position and avoidance of responsibility repeatedly made in the Courier-Mail have been an all too familiar, and quite predictable tale. Particularly damaging, and revealing, are her comments expressing puzzlement about how ABC could lose money – being a “government supported business”. Keane is quite correct to say that the sorry tale of ABC Learning will redound on the Coalition. But I also think he doesn’t quite understand the paradigm shift in public thinking he himself describes – and I note that bloggers and commenters here at LP were questioning the validity of the market childcare model a long time ago – when he writes:
Whenever the Coalition now talks about private-sector child care — an eminently reasonable concept, given sufficiently rigorous accreditation requirements — people will recall ABC Learning and a profit-obsessed approach to looking after their kids. This is slow-burn stuff, the type of political background radiation that doesn’t show up in polls but slowly accretes over time, shaping voters’ perceptions of parties, making them resistant to their messages, or in their opponents’ case, more receptive. But it’s not yet clear that the Coalition realises how much baggage it is carrying in the debate.
I’m not sure that private-sector child care is an “eminently reasonable concept” at all. Not only – as Atkinson admits – was its business model based on what is basically rent seeking – a transfer of public funds to private profit, but whatever accounting and managerial errors were made, ABC demonstrated that the only way you could make a profit was through aggressive acquisitions in search of market dominance and local monopolies and cutting costs. It seems very clear to me that the market logic is precisely the problem, and Keane is right to point to the fact that people are questioning it, without accepting that the question about the desirability of profiting from child care is absolutely valid.
I think we’re going to see a return to child care as a matter of non-profit and voluntary association provision, with more of an educational and development focus, which I think is fantastic. But I also think we’re going to see a return to the legitimacy of state and community sector provision more broadly, as the lessons of “letting the market rip” are drawn. It would appear that some commentators can’t see those lessons even when they’re staring them in the face.
As a parent who has been lucky enough to have a fantastic community-run centre available for my buttons, I’ve been mightily relieved not to have had to resort to a private ABC centre, of which there are a number in my area. Their reputation around the traps has always been mucky indeed.
I agree with you Mark that the likely shift back to community-run centres is much for the better and people will begin wondering how we became so lop-sided that looking after kids became a profitable pursuit.
But Sophie Mirabella, when fending off questions about setting caps on market share for a single child-care operator, couldn’t help herself from spouting the ‘ah, you can’t get in the way of the market, etc., etc….’. Like GW in his ‘markets forever’ moment at the G20, she sounded like a complete anachronism. After this wave of bail-outs and collapses, people are just not going to buy that line any more – particularly when so much government money is required to keep ‘free-market’ operations like this one afloat.
Yep, anachronism is the right word in this context I think, Aussie Oskar!
I suspect that there is much, much more to come out of the ABC mire. Currently the debt is in the order of $16 000 per enrolled child. Quite an achievement.
But one also needs to look at associated companies. Try Independent Colleges of Australia, chaired by a former Director-General of Education in Queensland. Apparently they were to set up a number of money-making schools.
Any news on that front?
Childcare & ABC Learning are only the tip of the iceberg.
I’m well aquainted with the privatisation of the job network and the string of corporate failures that has followed in that sector over the years.
While the inefficiencies of the privatisation model in the employement exchange function has pretty well gone unnoticed to date – the real failings of the model will become apparent shortly when it is unable to handle the rapid increse in unemployement that we expect over the next year or more.
Howard was an ideologue – it will take years before we understand how dangerous an ideologue he was.
Quite – there’s nothing remotely reasonable about for-profit childcare. An ideal opportunity to turn the job lot over the councils and communities. Cleanse the sector of this rent-seeking scam artists. You wont find one parent who liked the idea – ABC just thrived on govt-induced scarcity, and in return, he collected public dollars, pocketed them, then donated fat sums to the Liberal party and appointed their hacks to paid positions.
Let’s call it what it was: a corrupt scam which ‘laundered’ and channeled public funds to the Liberal party of Australia.
The view that care can’t be provided by profit-making entities is just pure 100% emotion. After all, we have retirement villages and nursing homes that are also run for the evil demon of profit. Some are crappy; others are not too bad. My dad is in a for-profit retirement home that seems OK. The key is good regulation, not the profit status.
And don’t forget that the paediatrician, who plays such an important role when little Johnny falls ill, is a high priest of the cult of profit. But nobody seems to mind, as long as they do their job properly.
This is a sort of left-wing equivalent of “what about the children?” — the anguished emotional cry of the right-winger trying to launch a moral panic about something or other.
And the fact that ABC collapsed is not, of itself, proof that for-profit childcare is wrong. If GMH or Ford Australia collapse, should the government rush to set up a non-profit carmaker?
No, the really interesting question about the fall of ABC is: why? Businesses that enjoy local monopolies, government support, an inelastic demand curve, and cheap labour, should be making money hand over fist.
So, what happened? Was there some big internal fraud going on, and millions are now sitting in a bank in Lichtenstein? Or what? Does anyone have any theories?
I wouldn’t be so sure of that Mark. Gillard was surprisingly pretty non critical of the coalition around the privatisation of childcare on the 7:30 report. Her criticism centered around allowing a single commercial company to dominate rather than criticism of private companies running childcare centres.
I would be very surprised if this government went away from the private provider model for childcare. All the old arguments will be trotted out, which I won’t repeat. The big problem would be the cost involved, a cost that doesn’t provide a new service just a slightly different service.
Not really Paulus: ask a parent whether they want the centre funded and costed on the basis of children’s needs, or the stockholder’s interest in reducing outgoing and maximising income.
I doubt you’d find a single parent who choose the latter. This “private” deal is only made possible by scarcity.
Id frame daycare within the education system (by eg incorporating it with kindy, which is enroute anyway) – and then its game over for these shysters.
Personally, I dont care if its ‘private’ (a trust like private schools) – I just dont want for-profit custodianship of children.
Chris @ 7 – I don’t think it actually has all that much to do with Gillard. The receivers want to sell the centres and non-profit providers are negotiating to buy many of them.
Paulus, it’s evident from what I’ve read that there was a lot of dodgy stuff going on inside ABC. However, that doesn’t change the basic point – it was only by market acquisition and thus local monopolies that they were able to make money because the costs of doing child care well are high and there is a limit to the degree to which people can afford to pay high costs, even with government subsidies. They got around that to some degree with cost cutting, but you can’t charge fees high enough to make the sorts of profits listed companies are supposed to make because no one could afford to pay for them.
But, Lefty E, you have no problem with a paediatrician making buckets of profit out of treating sick children?
When I was in the ATO, for a while there were heaps of medical specialist BAS forms coming through my computer, so I know whereof I speak.
The profit these guys make is staggering. (Hint: take your income as an academic, and multiply by at least 10.) But that’s OK. Why?
The SMH had an opinion piece on it in the Saturday edition. Basically, it’s an old story that always surfaces when borrowing money is cheap.
The directors simply never had to show a profitable year while they were “growing” (i.e. borrowing and spending furiously). The bigger the balance sheet got, the more credible it looked, despite every year having a big “unusual” expense usually related to (you guessed it) acquisitions. The commentary referred to it as a pyramid scheme but it doesn’t quite fit the criteria (although financial fraud seems to have been committed if the claims in the article are correct – the company was basically insolvent for most of it’s existence if it were true).
The comparisons to Skase and Bond are very apt as they used many of the same tricks (grow furiously and nobody asks questions, at least for a while). As the old saying goes, if you borrow $10,000 and can’t pay it back, you’ve got a problem. Borrow $100,000,000? The bank has one.
Paulus, the traditional argument for high remuneration for medical specialists is the very long period of time involved in training and education, and the highly specialised skills required. You may wish to make an argument for socialised medicine, I don’t know!
But you should surely see that your analogy with child care workers is faulty.
By the way, I used to sit on the management committee of a community child care provider and I can tell you for a fact that the cost base of doing child care well is quite significant.
I do, Paulus. Well I would, except that most of them aren’t doing that. They are being paid for their services – regardless of how they might subsequently like to misrepresent their financial affairs to the ATO.
A company extracting profit out of a business for the benefit of passive shareholders is an entirely different thing.
Everything you say about specialists is true, Mark. I’m just pointing out that profit is not some sort of corrupting force which is incompatible with professional care for the vulnerable.
It’s interesting that you seem to think that non-profit childcare could survive and flourish, if profit-making ones can’t. After all, profit is simply a return to those who provided the capital to a business that enabled it to set up.
So, where will non-profits get their start-up capital? The government? In that case, are we establishing effectively a universal right to childcare for every Australian family? Because once the government gets involved, it will be hard to justify just subsiding it enough for middle-income people to afford. It will have to offer it to everyone, at all income levels. Could get rather expensive.
David Rubie: yes, that seems very plausible. One would have thought that after all the past corporate misadventures, accounting and auditing rules would have been toughened to prevent such chicanery. If not, they should be now. On this issue, at least, I’m with the lefties!
The elitism inherent in Teh Left’s distaste of for-profit child care (won’t someone think of The Children?!) is always amusing. When will the well-to-do get proper stuck into child-related profits? I’m thinking of essential goods and services like baby formula, prams and kid’s shoe fitting.
Anyway, clearly the industry structure is less-than-adequate. Both the supply-side and the demand-side need work. On the supply-side, there needs to be a much greater focus on fostering local competition by lowering barriers to entry (including the government-created restrictions that help create the scarcity that Lefty E mentions), substantial direct assistance for centres whose services are over-demanded, and a willingness to step in and directly fund/build new centres in areas of very high unmet demand (from memory Rudd is already well and truly on to this). On the demand-side, we need serious prudential regulation of all centres to underwrite parental decision-making.
Finally, the post as a whole is a little confused. A system in which parents choose from a variety of not-for-profit community-based centres is in essence a market, albeit one in which the incentives to respond to parental preferences are subtantially and meaningfully reduced (still, really bad community-based centres are unlikely to last). Unless the proposal is to compulsorily allocate children to specific centres, it seems we are all happy to ‘let the market rip’.
BBB
Mark @ 10 – from the sounds of the report there are a few private companies interested as well. Of a bit of a concern is the second largest provider,now largest who is interested. They are a non profit, but if things go pear shaped for them in the future we’ll be back to the same place.
Btw what is the dominant costs of running a childcare centre?
“And the fact that ABC collapsed is not, of itself, proof that for-profit childcare is wrong”
I’m not sure anyone actually claimed that though. Indeed, if ABC generally had a good reputation of providing quality care, paying its staff well and only minimal reliance on government subsidisation, there would be some sadness at its parting, but that’s about it.
I would ask though of those here that are so certain for-profit childcare is wrong by its very nature – are you proposing that it actually be banned? If so, why shouldn’t a parent be able to choose to send their children to a for-profit child-care centre if they so wish? And note I don’t really buy that ABC *only* gained customers because no other choices were available – within a 2km radius of where we live there are at least 8 childcare centres, one of which belonged to ABC. Now personally it wouldn’t be my first choice, but obviously at least some fraction of parents preferred it over the alternatives available.
BBB, re your example of baby formula, there are plenty of examples of atrocious goings-on from big corporatations that produce the stuff, especially in the Philippines.
Paulus, you seem very sure of yourself stating that “profit is not some sort of corrupting force”. Aphorisms like “The love of money is the root of all evil” haven’t survived millenia for nothing. I’d suggest the desire for profit is far too often a corrupting force (otherwise we’d barely need any regulation at all) – the real question is what’s the best way to minimise the corruptive tendencies while maximising the ability of that same desire to encourage improvements in the quality and efficiency of providing services. And I think it would be a mistake to assume that the competitive striving for higher profitability could do nothing at all to help lower the costs of providing child care, though without adequate regulation, there’s every good reason to suppose that for-profit providers will cut any corner they can, ignoring any long-term disadvantages such cuts will have on the children being raised. Which is actually one reason why you can’t really compared child-care with care of the elderly – poor child-care quality can affect the children in a manner that will influence their entire lives. Poor care of the aged may shorten their lives by a few months or even a year at worse – and except in cases of senility, the patients can reasonably express their unhappiness at the level of care they receive.
Staff costs, Chris. Particularly if you follow recommendations about (a) ratio of workers to children optimal for age; (b) employing qualified staff; (c) employing teachers and nurses in supervisory and caring roles. These three a b c s were rarely practiced by ABC!
That point seems a bit facetious to me, BBB. I’m not opposed to markets per se, and certainly not to parental choice. The problem with the market dominated by ABC in many areas (among other factors) was surely lack of choice.
I can’t speak for teh left, though!
A little cheeky, perhaps. But the point is a serious one. Lack of choice is, as you suggest, a key problem (although Lefty E identified what underlies that: undersupply caused by government regulation and mismanagement). So why didn’t you just say so instead of all this guff connecting ABC’s failure to ‘market logic’ and questioning the validity of ‘market childcare model’ and for-profit child care as a whole? It’s all a little incoherent and opportunistic, if you ask me.
BBB
I say gulags for all not just teh rich!
*whispering*
Wait, what?
*more whispering*
I thought Mark did speak for us?
*again with the whispering*
What’s our position on childcare?
*frenzy of whispering*
I suppose we support, I dunno, caring for children on a whole? I guess, wtf else can we say?
*angry whispers, probably from the Daily Kos or somewhere*
Oh, right. Yes. Markets are evil etc. We hates the markets. (sigh)
*pause, looks confused*
I suppose we could support a nationalized childcare system run by the government – but isn’t that what just collapsed? Seriously, I don’t think I have a position on this.
*snickers* *runs off to read XKCD and to pursue leftists things, like lattes and immorality or something*
Heh!
BBB, “guff” is obviously in the eye of the beholder. I’ll repeat my point that it is impossible to run a child care centre at optimal levels of care and performance and make the sorts of profits listed companies expect to make. You can substitute “profit motive” for market if you like – because it’s possible – as you suggest, in a way I in turn don’t think is all that rigorous – to have a market which is not driven by the pursuit of profit. The two are analytically separable, and markets can also be designed which don’t seek to enable participants to maximise shareholder gain.
I can’t say all I’d like to say on this one, but here goes with a couple of comments.
I gather the financial administration/accounting practices of ABC were incredibly bad, so they were bound to come to grief when it is basically a low margin business.
It’s also a monopolistic and high entry business. ABC used this to squeeze other operators out on occasions.
There is a difference between medical specialists and private for-profit hospitals on the one hand and child care on the other. If the former don’t perform to the satisfaction of the medical profession they don’t get referrals. So they don’t trade directly on the target market.
There is a heap of difference between a childcare centre run as a family business by an enthusiastic and dedicated specialist and the corporate model, where increase in shareholder value is the fiduciary duty and the prime concern of the corporation’s administrators.
paulus @ 6 …And don’t forget that the paediatrician, who plays such an important role when little Johnny falls ill, is a high priest of the cult of profit. But nobody seems to mind, as long as they do their job properly…
I do, I would prefer that paediatricians, or all doctors for that matter, received only refundable medicare payments from the public. I would prefer that no taxpayer funds were provided to support the private health industry.
What we haven’t heard anything about since the collapse is what happened to the Property trust initially run by ABC Learning known as the Australian Education Trust. It was listed separately from ABC Learning on the stock exchange but was set up to control the property owned by ABC Learning.
Did API ever take up the option to buy the rest of ABC Learning’s stake in AET? What sort of a landlord was API anyway?
http://www.smh.com.au/news/Business/ABC-sells-stake-in-property-trust/2007/04/19/1176696993123.html
Which is why I suspected the ACCC had been asleep at the wheel on this one. Until I checked:
http://www.accc.gov.au/content/search/index.phtml?filter=1&rowLimit=25&fromItemId=142&collection=accc_internet&searchQueryString=ABC+LEARNING&Search.x=30&Search.y=6
Another private childcare provider goes into administration. http://www.theage.com.au/national/second-childcare-company-sinks-into-mire-20081118-6adm.html
Childcare is expensive to do well, while it is considered unskilled the workers will continue to be poorly paid and subject to the same range of ills their young charges succumb to.
Community based childcare has its problems including
- inability to provide long term day care
- difficulty in providing continuity of parental directors
- cost of building/property in established metro areas
- time and distance from parents place of work
I think that childcare should be provided like schools but when governments step into provide these services labour costs will skyrocket if the workers unionise. In fact they probably should unionise now.
There are some community day care facilities that are well run, that the parents like and have operated for 25 to 30 years but in areas without middle class parents well run community facilities would be harder to find.
We seem to be ignoring workplace based child care.
Many people have taken issue with my comparison between medical specialists and for-profit childcare. Let me make a few more points:
1) A specialist will incorporate a company, put their fee income into that, pay GST and company tax, and withdraw profits as they wish. So, in accounting terms, they’re a for-profit enterprise just like ABC.
2) Brian calls them “enthusiastic and dedicated”. Yes, they are: to the goal of enriching themselves. One of my friends lived near a row of mansions owned by various specialists. It forever disabused me of the notion that they get into medicine because they just love helping people. (A few actually do, but they go and work in the outback or join Medecin Sans Frontieres).
3) And yet, most do provide totally professional service. There’s no necessary contradiction between profit and professionalism.
4) wbb observed that specialists do not have to create profits for “passive shareholders”, which is apparently a good thing. That’s true: the specialist’s start-up capital is his or her human capital, and they don’t need much else. But a childcare centre will need buckets of start-up capital, and the people who provide that will actually *shock* *horror* ask for a return on their investment. Is that so wrong?
5) Finally, Brian noted that a specialist goes through a GP, whereas childcare centres deal directly with the public. Yeah, but so what? Part of that is just a rort to boost GP income through referrals. And furthermore, childcare is, you must admit, a less complex area than medicine, and Mr and Mrs Ordinary Dumb Public should be able to work out for themselves whether or not a particular childcare operator is OK.
Incentivisation, the deformed bastard off-spring of the NuRight, will always attract spivs & shysters, garnering the gov. largesse rather than providing the ostensible product/service.
All subsidies, EU’s CAP, Button’s various Car Plans, childcare (and, VERY soon, aged care, hi Boomers!)distort so why not try the opposite – disincentives.
A workplace larger than a certain size that doesn’t provide a creche pays a penalty, forwarded (with minimal churning) to a local provider.
Anyone remember playgroups? Crushed by over regulation. Grans can’t even look after their offspring’s kids if from more than two mothers without pro forma interferance.
Actually this is probably a moot point if the $$ Meltdown reduces employment as expected. Here’s an brilliant NEW innovation – how about parents look after their own kids? Radical I know but just a suggestion.
Here’s the best article yet on the flawed ABC business model.
http://business.smh.com.au/business/learning-an-old-lesson-a-sucker-is-born-every-minute-20081114-677q.html
The highlights:
“small family-run suburban child-care centres will always be more efficient than small corporate-run ones.
It is the same ethos that has ruled the economics of rural production in this country. Corporate farming has never overtaken family-run operations because a family will run their business on a much tighter budget and will endure leaner returns than any corporation just to ensure their survival.
A corporation will only be more efficient than a family business if it can amalgamate small disparate holdings, achieve economies of scale in purchasing power or marketing power, and lower the cost of production.
It works in retailing, and that is the reason large retailers can offer lower prices than corner shops.
That model was never adopted by ABC Learning because it could never be implemented. Child care is labour intensive. It requires skilled labour by individuals devoted to the task, not just paid employees.
Groves and ABC could not lower the cost base of a family-run operation. His business merely added to costs because of the enormous amount of administration required to maintain the compliance demands of a stockmarket-listed public company.
Did anyone in the investment world or our big banks realise that it simply was not possible for Groves to shut down 10 suburban centres and amalgamate them into a “super preschool”? Did they ever twig that there were no economies of scale, just extra costs?”
The only way Groves could disguise the inherent uncommerciality of his business to keep on expanding. But that meant more and more debt, and the interest payments will end up biting you on the arse eventually.
There’s nothing evil about private, for profit child care. But it is difficult to compete against not-for-profit child care centres who don’t have to send dividend cheques to shareholders. Not-for-profits can afford to offer higher quality or lower prices or both. Groves’ solution to this problem was to take out the competition as much as he could, but there are limits to how much you can do that, and in doing that you build a corporate empire with costs that are going to bring you down.
We have private, for profit, makes of baby food and clothes. If they are providing good safe products no one cares that they make a quid, and no one should. But they don’t face competition from not for profits.
What’s interesting is why private, for profit, corporate aged care companies don’t appear to have same problems as ABC learning. I think it might be because they charge higher prices and get bigger public subsidies.
Gotta agree with Mark on the politics of it. ABC Learning and the Liberal party are joined at the hip. It’s not just Larry Anthony and Sally Anne Atkinson. Andrew Peacock and Michael Kroger have also been closely associated. If the Labor party has any brains they will exploit this connection to the fullest — after the crisis has settled down, and without exploiting the children, of course.
Unless the wholescale collapse of private childcare forces the labor Governmebt to take over it won’t happen. To some extent they’re still terrified of the effect of neocon propaganda. And some of them seem pretty close to nice cuddly varieties of noeconservatism themselves – eg Rudd, in some of his behaviour . (Oh, we don’t really want to stuff up the free market or the capitalist system, you know. We’d never go that far.)
You can always trust the current crop of Labor people to make it easier for incoming Liberal ideologues. NSW, anyone?
Lefty E, according to the AFR today CFK sold some centres to ABC and was owed $8.5 million. Receipt of that money was a necessary condition for NAB to extend credit facilities.
So ABC went bust, the payment wasn’t forthcoming and NAB pulled the plug.
“Mr and Mrs Ordinary Dumb Public should be able to work out for themselves whether or not a particular childcare operator is OK”
I’m not so sure – it’s actually very hard to judge just by looking around a childcare centre and a brief conversation with the staff whether the level of care being given is actually optimal for the child’s long-term development. Further, the children themselves are obviously not capbale of judging whether the service is any good.
However, I think this problem is reasonably solvable with regulation: there’s no reason not to make use of the best available research on what young kids need most in terms of child care and ensure that any business wishing to set themselves up as a child care centre must meet such standards.
By and large that’s what we already have, but parents do need to be more aware that companies like ABC Learning have no particular motivation to lift standards beyond those minimums – indeed, their responsibility to shareholders basically means they couldn’t if they wanted to, because there’s almost no way the costs involved would result in higher profits, given that the benefits of higher standards aren’t something that will typically come to light immediately.
Indeed, I’d be all for parents having to sign an agreement that explicit stating that such centers’ first responsibility is to their shareholders. If for-profit child care suppliers can still run profitably once parents better understand the business model, then good for them.
Paulus, I think it is just as hard for an ordinary citizen to decide about good childcare as about competent specialist medical services.
With medical specialists you have the advantage of a GP to help you who can hear feedback though their own patients and their own networks. Some of the better specialists have to close their books to new patients or have ridiculously long waiting lists for an initial consultation.
BTW when I said “enthusiastic and dedicated” specialists, I was referring to childcare specialists, not medical specialists. Sorry if that confused.
An enthusiastic and dedicated childcare specialist can, it seems, own and operate a centre, provided they find the right niche, and make a decent living.
The corporate model requires considerable unproductive overheads, as Spiros notes. But another factor is that the growth imperative and that is not always understood. Acquiring more centres doesn’t in itself produce increased earnings per share, which is what shareholders are really interested in. For that you need greater productivity, whether through new technology, economies of scale in purchasing inputs etc, better work organisation and work practices, or a cheaper cost of labour.
In retail you can cut margins, increase turnover and still make more profit. In childcare you can’t and as Spiros notes you have very limited options without affecting quality. ABC, it seems to me, reduced quality and increased advertising to pretend they weren’t.
Brian, “new technology, economies of scale in purchasing inputs etc, better work organisation and work practices” are exactly the sorts of areas that the profit motive should be able to encourage. I suppose the pertinent question is whether it’s likely to encourage it any better than a desire of a non-profit childcare centre to pay its staff well and keep fees to a minimum.
Let the childcare “market” RIP, perhaps?
Or as the old joke goes: “Sure, we lose a dollar on every one we sell, but we make it up on volume.”
I think we need to be very careful about claims of why ABC failed. It failed because Groves used lots of debt to pay way way too much for competitors. If you can get your hands on some financial data for ABC you’ll see it used to earn fabulous returns on equity and investment. As time went on that collapsed. Paying way too much with debt is a problem whether you run a child care centre, casino, grocery store whatever.
Likewise the mooted mis-classfication of capital receipts as normal revenue. This is not a problem unique to ABC, indeed if there is any parallel to Bond and Skase this is it. This problem has existed since Pacioli invented double entry accounting.
That said I have also heard from people close to the coal face like Mark ie involved in the actual administration/.governance of a child care centre that the labour costs are a constant severe challenge.
However I would be very interested to understand why ABC’s ROI/E was so high in the earlier years. That suggests it is possible to make legitimate significant returns. Whether that what due to unjustifiable cost cutting will be a moot point I guess but I have not heard of ABC failing on maintaining appropriate child to staff ratios etc. Maybe there have been isolated centre by centre instances but not company wide.
I find Spiros points about it not being well suited to economies of scale interesting but I think sometimes big corporations through superior systemisation still manage to succeed where family owned small business only achieves ordinary results. Look at hamburgers. Look at industries like trucking, the trucking industry has been around for a 100 years but Paul Little seems to wring so much more out of it at Toll than the family run 3 rig outfit. Likewise travel agencies, been around for donkeys years yet Graham Turner has made truckloads out of it at Flight Centre. Where are the obvious low hanging fruit for large corporations here to overcome their additional administrative overheads etc? I think systemisation is the main advantage here. I’d say in the early days Groves succeeded at this and then got greedy thinking he could grow even faster through acquisition.
Mark is also talking about the returns listed companies need to make. In fact there is enormous differenes in the returns various companies in various industries listed on the ASX make. ABC could have made half its earlier spectacular returns and remained happily listed. Its PE ratio might have been half but that would have brought it down to just the Blue Chip long run average.
Well, since we never have and still dont accept “for-profit” compulsory education provision for children- the onus is probably not on ‘teh left’ to establish why it should not be permitted, but rather on Groves et al, and the Liberal Party, as to why it should.
Kingsley wrote:
McDonalds is a pretty poor comparison here. They make their dough out of real estate deals and running the largest public toilet system in the world, not food. The food is merely there to advertise the toilets.
LeftyE @ 43 – I think thats a good point. We’ve moved on from childcare being considered babysitting (just keep them comfortable and happy) to a recognition that the early years are very important from an educational point of view.
And its too bad that government subsidies/deductions aren’t payable towards immediate family care either. The quality of 1 on 1 care by a close relative is often of very high quality (basically considered second only to care by one of the parents).
LeftyE – is it really true that schools are expressly forbidden to be non-profit?
Er, make that “for-profit”!
Actually a quick search reveals that for-profit schools definitely exist in Australia, though at least in NSW they are not eligible for any government funding. It’s not clear whether any are regular primary schools that fill compulsory education requirements. In Victoria it seems for-profit primary schools are explicitly banned.
DR,
i will refrain from making comments about the toilets at KFC. But i don’t go there anymore. Apologies for being way OT.
Heh Paul. That’s why KFC is a bad business and Mickey D’s is a good one. McDonalds understand exactly what they are selling and KFC don’t (they think it’s about chicken for some bizarre reason). Same goes for ABC learning – if they’d run it as a clean and safe nappy changing service for the terminally over employed, somebody could make reasonable returns on it. I don’t think most people who are forced to use child care facilities bother looking past “clean”, “safe”, “close” regardless of who runs the facility – the “learning” bit is just a piece of fluff designed to help salve your conscience about dropping tots off with strangers and getting royally screwed on fees.
And from another ex-board member of a community child care centre, i’d like to add a massive ongoing cost was the renovations that were regularly legislated by state govts to make changes to properties. Unlike staff wages, these costs would fall out of the sky and make budgetting a nightmare.
I found the changes often penny ante administration for its own sake, but the costs were often way out of proportion.
One year we actually created a budget containing bonuses for staff in an attempt to keep the quality of care at the level we as parents all enjoyed. The bonuses themselves were absurdly small in the context of the outside world, but at least once we covered costs, there was some flow back direct to workers. And we as shareholders in the value of the centres were rewarded by, one assumes, happier staff.
It felt quaint compared to the expansions of ABC. But it felt good.
via collins, yep, the capital costs can be significant too. My answer to Chris referred only to operational/running costs.
Kingsley is spot on, and I would add that a big childcare operator would have the balance sheet to set up in new areas and cope with periods during which a centre becomes unprofitable. Small operators, whether for profit or not have less capacity to deal with periods when revenue is less than costs.
The fact that one big operator bit the dust on a debt binge does not mean big operators are necessarily a bad idea.
I used to work for the wife of an architect who owned three childcare centres. I cleaned up the yard, mowed the grass, blew the leaves out of the car park etc for one centre and used to work also in the yard next door.
She tried to run a quality show, couldn’t make any money and sold to a smallish but growing chain, who then sold to ABC.
Looking in from next door I observed that what I had done was simply not done any more.
I know several other people who similarly tried but couldn’t make a crust. They seemed to me quite competent people.
Kingsley, I know enough people working in the area and related areas to know that there were heaps of anecdotes of lousy practice coming out of ABC centres right from the start. There have been plenty in previous threads on this blog, and include things like a preference for unqualified staff, inappropriate staffing ratios, children not having their nappies changed in 12 hours, equipment and resources being trucked in when notice was given of an inspection.
University researchers apparently could never get approval to do research in ABC centres, so anecdotes is all we have to go by.
I still have objections in principle to corporate childcare, so I never took any notice of the ABC investment metrics. However, the administrators found the books in such a mess that I’d seriously doubt the validity of the early returns.
Agreed Pedro, smaller centres do not have the balance sheet to cope.
But they have to be adaptable to fluctuations, flexible and imaginative in planning, a fund-raiser every now & then to cover crisis.
Communities are invariable responsive to support their own, I’d argue they’ll be more responsive than ever once this present fiscal wave crashes. To me, it’s one of the benefits of a clean-out of unwieldy and/or lax management.
Deb Brennan.
The problem with work based child care is that your childcare is reliant on your continued employment.
I am another who thinks that child care should be not for profit. Ultimately there will be less money for resources for the children, training of staff etc if CEO’s salaries and shareholder dividends need to be paid.
Childcare centres should be dedicated to childcare NOT constant growth.
Kat, but on the flip-side for-profit organisations have a much greater capacity to raise capital, which in most industries is enough to mean that for-profit organisations will generally out-compete non-profit organisations, even though they have extra overheads. Several things make child-care more complicated though, including the ability to raise capital via government funding. Indeed, if the government was to lend to non-profit child-care centres (or those wishing to establishment) on sufficiently easy terms, then they would simply crowd out for-profit child-care centres without needing to expressly ban them.
very good article, Liam, thanks for linking to it.
Given all the studies showing how critical early childhood development is, and if you want to talk economics, the truly staggering amounts of money government can save by providing comprehensive early childhood sevices & education, here’s hoping that as Brennan says, the Rudd government grasps this ‘unparalleled opportunity’. Can’t say I’ll hold my breath now though. 1 year in, lots of disappointments – really wish Rudd would grow a spine.
Brian – we’ll never know conclusively but I think you’d find the early numbers are pretty reliable. As a general rule financial shenanigans can’t outlast 3 years. Certainly cashflow will exhaust within that timeframe. The timing of ABC’s failure is pretty much running to the usual timetable. So I’d say the probabilities do indeed favour paying way too much with debt is indeed the chief culprit.
I think you also have to be careful about ancedotes. I would be quite certain all the things you list have happened at ABC the question is how often and widespread and also versus other centres profit or not-profit.
David Rubie – I think McDonalds probably does represent a good example at the franchisee level. The average McDonalds Franchisee would be making far superior returns compared to “Joes Burgers” even though ostensibly doing the same thing.
“The average McDonalds Franchisee would be making far superior returns compared to “Joes Burgers” even though ostensibly doing the same thing.”
Tell me Kingsley, what is Joe’s Burgers’ promotional budget? How about their distribution chains? Global, or supplied by Joe’s Onions and Horse Parts in Nunawading?
wizofaus, back at 39 you said:
Yes, but these areas seem to have little relevance to providing childcare services more efficiently. Indeed there seems to be a perverse incentive to use poor work practices.
The two big costs appear to be the capital cost and staff salaries and wages. I think at 58 you might be onto the reason why Labor will end up not doing very much.
The receivers of ABC will no doubt sell centres to the highest bidder, and prospective community providers may simply be outbid. Labor is unlikely to put in capital or lend any dosh simply because it’s now a scarce commodity.
You would also need someone within the community or local government who was keen to do it and be prepared to put in considerable effort. Such people don’t grow on trees.
If one assumes that the average franchisee is making better quantative returns than the solo operator, what of the qualitative returns?
For my consumption needs, the latter has more value than the former. And for those that care about quality child-care, I’d suggest a similar concern.
I agree with you Kingsley that third hand opinions on ABC Childcare are not useful in and of themselves. But as other posters have pointed out, there was a management directive to not participate in analysis outside private concerns. I’d say that’s not a useful policy for the society in which ABC operates, er, operated.
Kingsley, yes of course you have to be careful about anecdotes. My informants have excellent networks, didn’t come down in the last shower and can recognise when something is quite unmistakably on the nose, and has been consistently over the duration.
Kingsley wrote:
On a much higher capital base Kingsley – the investment in plant and machinery in a McDonalds is enormous (and available from only one place). Your average corner shop takeaway is generally a couple or family owned business with debts around the size of a smallish family mortgage, whereas a McDonalds franchise runs to the millions mark very easily. McDonalds ask for and expect franchisees to kick upstairs for all that advertising, and in return you are expected to buy very quickly whatever new food machine they tell you to. The returns would want to be pretty stellar.
Although, to get back on topic, it would be plausible to run a large corporate childcare company, but you have to know what you’re selling. As other commenters pointed out, ABC learning’s primary business wasn’t really childcare, it was acquisition through debt and political influence. All of which was underpinned by induced government largesse through the tax system. Like McDonalds food, the childcare part of the business was largely incidental.
That doesn’t mean you couldn’t run an actual childcare business on that scale, just that the incentives for doing so are currently so perverse that it’s incredibly difficult. Which leaves us with community based care, small operators and a drastic and sudden need to chop the legs out of childcare fee subsidisation in favour of direct federal funding. In return for that funding? Some standards.
“ABC demonstrated that the only way you could make a profit was through aggressive acquisitions in search of market dominance and local monopolies and cutting costs”
But isn’t the obvious point here that ABC didn’t make a profit precisely because of their aggressive acquisitions? There’s plenty of more honest and sensible smaller private providers who’ve made a nice, sustainable profit by providing a decent service.
This is first and foremost a regulatory failure, both of State failure to develop and enforce appropriate accreditation requirements (more true of some states than others), and of failure of corporate regulation. I don’t think it discredits the general idea of private child care at all.
Your point about how the Howard government’s ideological blindness and cronyism led to that failure, though, is perfectly correct.
David – my understanding is the largest part of the cost to a franchisee of a McDonalds franchise is the goodwill/licence/intangible component. The point is despite outlaying for that and the franchise levy coming out of revenue etc they are still earning excellent returns. They are paying rent to cover the cost of the capital tied up in the land and buildings. Still they make excellent money. To my mind 2 things are at play, brand power and systemisation. Not too dissimilar to ABC.
What we really need to see is what was ABC’s genuine operating profit before interest and counting only true genuine trading revenue not capital receipts dressed up as revenue. If that gives an acceptable number on the capital deployed on a centre ABC set up themselves ie did not pay a huge goodwill number to previous owner then we finally get to see whether ABC did have a viable business model.
I think you’ll find that number was at an “acceptable” level.
That leaves the far harder issue to pin down of was that number generated on unreasonable perhaps even unsafe cost cutting. My guess is there were probably some things that were open to debate but on a wholesale level probably not.
I think also people pointing to ABC’s reluctance to wishing to participate in “independent” research etc as evidence of something to hide is possibly right in the last 1 to maybe 3 years but prior no. It is because they feared it was anything but independent. ABC has been the dog the Left have loved to kick since it came to prominence. Even this thread demonstrates how many from the Left have automatically assumed its corporate failure vindicates their argument of childcare should not be in private hands when other far more obvious explanations stand there screaming why it failed.
If private ownership is unsustainable we would be seeing mulitple exits and failures and ABC would have failed to ever get to the critical mass it needed to “play the stockmarket” in its latter years. As big as ABC is it is only one failure and as said above far more due to debt load and grossly overpriced acquistions. Maybe the Left will be ultimately vindicated here, I tip not, but if they are ABC’s failure is not the smoking gun.
I don’t know a lot about McDonald’s but I understood it was a high volume, low margin business.
If anyone hasn’t read the article by Deb Brennan linked to by Liam they should do so now. This about the changes introduced in 1991 gives cause for pause:
But it understood that there was a direct trade-off between profits and the employment of qualified staff in sufficient numbers.
On The World Today today if I heard right, the same Deb Brennan quoted international research that showed that lesser quality was associated with corporate ownership. I’ll put up a link when the transcript is available. If this is true, we should accept it as a fact and try to understand why.
Nothing is inevitable. It seems that some of the Bendigo Bank’s community bank branches are considering operating local ABC Learning childcare centres.
This comes out of quite a different corporate culture where community development is part of the core business. Interesting.
Kingsley wrote:
That ABC had brand power is indisputable – that it was a useful commodity in childcare is yet to be seen. Unless you’re after the childcare market that needs to drop kids off to a different centre every day (note sarcasm).
We did see failures though – all the centres that sold out to ABC when they were aggressively expanding.
What comes to mind is the laughing stock you’d become if you proposed to privatise Saturday morning soccer clubs for kids. These enterprises rely to a massive extent on community goodwill (fundraising, volunteering) to cover their costs. Neither of those were an option for ABC learning, leaving them as just another shop in the strip mall. Nobody gathers up community support to save their local Gloria Jeans, but whisper that the local community child care facility is in trouble and the response is astonishing.
They only existed because the market was effectively distorted to bring them into life like a golem who proceeded to whack all competition. Chop that government subsidy now and the community based centres would spring back up like mushrooms.
There are three things that are considered fundamental to quality… staff qualifications, low child to adult ratio’s and small group sizes. The federal government is floating about a national quality framework for early childhood, and acknowleges that those three things are the basis for quality. In 2001 Australia didn’t come out so terribly well in the OECD report on Early childhood care and education. Those three things were noted as needing improvment. Those things cost a lot of money. There are some centres that employ extra staff, and make sure they’re qualified, but if a corporation needs to be profitable, it doesn’t make sense for them to pay the extra if they don’t have to. I think that’s what Deb Brennan is talking about.
The problem as I see it is that hamburger production is pretty easy to systematise whereas childcare? I think a little bit harder.
Brian @ 68 – With such a labour intensive business, isn’t it inevitable that significantly increasing quality will come at a significant cost? Its already at the point where without a government subsidy, childcare is simply unaffordable for many.
Presumably Labor were concerned about the future cost of childcare as quality and use increased. As we’re seeing now, whether it be privately run or community run there is a need for even higher government subsidies if we’re going to increase the quality of the care.
Chris (a different one), yes, I think it’s inevitable that costs will increase if you go from a staffing ratio of say 1 to 12 to 1 to 3.
I seem to recall that there were quite a few horror stories on Australia Talks last week. From memory, there were some reports of well-run for profit centres as well, albeit some from their owners.
It’s interesting how the market is a phrase used to to describe a monopoly that’s granted by government favour. I guess I’m old-fashioned but I tend to regard a market as a place where I have at least two vendors selling me any given commodity.
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The increasingly cozy relations between people in the public and private sectors – Salaryanne Atkinson? Come on! – in furtherance of creating captive markets serviced by a corporation that’s the only game for miles and is too large to care much about what customers or staff or the kids think is not a market.
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It’s setting up GOSPLAN and putting a Robber Baron in charge, the worst of both worlds.
Adrien @ 74 – are you claiming that the childcare sector is a government granted monopoly?
“It is because they feared it was anything but independent. ABC has been the dog the Left have loved to kick since it came to prominence.”
Kingsley, I believe it’s possible that not all researchers interested in accurate outcomes are necessarily of a left persuasion. Possible, but unlikely. I’d propose ABC Learning, for a variety of reasons all covered above, has not been held up as setting an acceptable bar in early childhood development. There’s a suspicion, well-founded or not, that flowing profits out of a centre, rather than back into it. is not in th best interests of the customers – the parents, and their kids.
“Still they make excellent money. To my mind 2 things are at play, brand power and systemisation”
Ther’s no consideration in your modelling for the quality of care. Why not make money, create brand power and systemisation with inert objects like say, washing powder? I’d propose that the day to day care and development of young children is best handled well outside of “brand power”. I’d agree with you that the collapse of ABC Learning by no means represents the end of corporatised child-care. In fact, the greed of a few is going to cause immense pain to a huge amount of Australians who don’t give a toss about the niceties of “community care” and so on.
I’ve just checked again with one of my informants, and ABC has been on the nose from the outset, as I said. One of the things they are known for was the lack of basic materials, like crayons and paint. And for letting the kids rip in what might be called unguided play. It happens when you don’t have enough staff and what staff you do have lack skills.
Anyway that’s what the teacher and parent networks have been saying consistently.
There are other crook childcare establishments around the place. It’s just that ABC is the one that draws attention in the blogs and the MSN because of its brand power.
Kingsley, some on the Left have been concerned about the increasing commodification of human experience. In this regard there is little more sensitive than human care and development, in loco parentis, during the early childhood years.
BTW the transcript of the segment from The World Today is now up. Professor Deborah Brennan said:
She’s not calling for the private providers to exit the arena. But I think we need to know why the corporate sector underperforms.
Kingsely, when you rock up to a childcare centre with your toddler or indeed baby, the last thing you’d notice is the signage or be swayed by the branding. This is one industry which is impervious to marketing and branding – you can’t gloss over the faces of the little children enrolled in the centre nor the faces of the staff or the coordinator and the whole feel of the place.
Parents and I’d suggest mothers in particular are hard-wired to consider far more important things than advertising pamphlets etc when they are about to hand over their child to a bunch of strangers for their on-going care. Childcare centres are the most local of local services in many cases.
Obviously parents with financial pressures who must return to work asap and parents who themselves hail from less than ideal parenting backgrounds, do not have the luxury in the first case or the skills in the second, to make preferred or rational judgments about different centres, if indeed there is a choice of centres to choose from. However if there is a choice available, not-for-profit centres and secondly small independent owner-operated centres are overwhelmingly preferred by parents and have the longest waiting lists – and parents who do enrol their child in a corporate centre will often move if a place becomes available in their preferred non-profit or owner-operated centre.
Mark and via collins and a few others have pointed out besides initial land/building/conversion/renovation costs – operating costs are probably up to 85% labor. I’d have to go back and have a look at the last budget I’d did – years ago thankfully so could be out by heaps… but you get the picture – the rest is insurance/food/toys/office stuff/r&m.
One of the one side you have pretty fixed demographics – you just can’t raise fees beyond a certain level in most areas as it becomes unaffordable and on the other hand your costs are entirely determined by National Standards in respect of staffing & qualified staffing ratios and wages for such.
The only blood in this stone was the Fed Govt increasing childcare benefit subsidies to make childcare “more affordable” – which the corporate sector sucked straight back up, as their mission is to deliver profits to shareholders, none of whom have any personal interest in the wellbeing of any particular child or indeed the sustainability of any particular centre.
Deb Brennan in the article Liam linked to mentioned Julia Gillard’s public comments when the 50% CC Tax rebate came in this year, but fees were raised immediately, and when the previous Govt. introduced the 30% tax rebate as I recall and so on. Like the Private Health Insurers – it becomes a vicious cycle. http://www.news.com.au/dailytelegraph/story/0,22049,23845132-5005941,00.html
The entire sector desperately needs Fed Govt oversight and planning beyond the ABC debacle in relation to enrolment policies in respect of access, assessing geographic areas of need and what to do with areas that are now overserviced, the best staffing formulas going forward, and also revamping the Kindergarten/Long Day Care/State/Federal divide – and not only for benefit of children which is of course paramount – but also to rein in childcare fees and the huge Govt. outlays which have increased well beyond inflation etc.
I don’t have a problem with added costs if they are being used to pay for increased hourly rates for staff (or higher ratios) because at the end of the day, it is childcare workers in this country who helped to subsidise the boom. Our economy prospered greatly by having millions of women re-enter the workforce after having children. The top award rate for a qualified Coordinator – the manager responsible for up to 100 children every day has just gone up last month to $27 a hour – and this has gone up a few dollars in the past few years, while an unqualified worker with 4 years experience’s hourly rate has just been raised to $18ph. It was about $14 only a few years ago – so things have improved.
The Govt should also look at the (thankfully ) mostly intact OOSH sector – one of the biggest providers of childcare in this country is provided by single entity not for profit Out of School Hours Centres operating in primary/infants schools between the hours of 7-9am and 3-6pm and 7am-6pm during school holidays. These centres operate just like community based LDC’s or as sub-committees of P&C’s in some cases and some have been privatised. Fees in this sector do not seem to have increased to same degree although they are subject to exactly the same Child Services Regulations under respective State Govt and National Standards.
I don’t have a problem at all with small independent owner-operated centres – and most serious commentators from the not-for-profit sector don’t either. Many small owner operated centres have worked together with non-profits particularly in small communities for decades. It is corporate market listed childcare companies which are the problem. ABC Learning for instance used market raised capital to prey on both community and owner-operated centres by under cutting fees and opening centres in areas without adequate demand. What was cooperative and sustainable and affordable became competitive, expensive and ultimately unsustainable in ABC’s case. (And yah btw!) ABC drove many small indies out of business as well as community centres as well as buying them out. And Kingsley there quite a bit of evidence and there will be more of ABC’s understaffing, using trainees, not having enough qualified workers, using predatory and aggressive pricing to drive out competition etc all beyond their sloppy governance and dodgy property dealing and all supported by billions of dollars of taxpayer funding and overseen by a board made up of Liberal Party cronies including the ex-Child Services Minister who lost his seat and sat straight down on the board of ABC.
Some sensible centre-right people might want to look at the childcare sector and see how hands-off “direct voucher” systems and corporate for-profit care providers almost stuffed up what was once considered one of the world’s best childcare sectors and contrary to pet theories drove up prices and drove down standards. People who aren’t wedded to particular ideologies that is.
Thanks for the Radio National link Brian, and all your comments amongst others.
jo, I reckon that was a very good summary. You’ve shown on previous threads that you know more than most of us about the area.
There was another The World Today segment, an interview with Gillard about the demise of CFK.
I know that Maxine McKew has consulted some good people in developing their policies, so we’ll have to wait and see what they come up with. Gillard seems to be aware that there is a monopolistic element that operates on a local level which flies beneath the ACCC radar. I think she’s going to try to restrain their predatory opportunities in some way and try to rebalance the playing field to make it more friendly to community groups, schools and small private operators. Anyway she’s clearly got her mind on the job and is trying.
David – I wish I had been one of those failures who sold out to ABC at vastly inflated PE’s.
High labour content doesn’t preclude someone making high returns. Indeed go and look up the ROI’s of most service based entities and you’ll find very high ones.
Why? Because you lease the buildings and real estate and so beyond maybe a fitout the only main capital you need to inject is enough for a couple of pay cycles.
The analogy with McDonalds at the franchisee level still largely stands as again it might cost even millions to acquire land and build a Maccas restaurant but the franchisee only needs to lease it. So we see a lot of young “cheap” labour and a highly profitable enterprise providing a pretty simple product where you might not initially expect much opportunity for differentiation and satisfactory margins.
It is indeed plausible with the big caveat of satisfactory govt subsidies that ABC could at the basic operational level make good returns.
Talk of lack of crayons etc I am sceptical of because I bet at any point in time the vast majority of child care centres are short on something until this months order goes in etc.
I would also say that Brennan is utterly politicised in this debate. She is the first person the media have gone to for an anti ABC viewpoint because they know they’ll get exactly what they want.
I think people should be very careful about under-estimating the power of brand and the image of professionalism justified or otherwise.
There have also been publicised instances of non-ABC centres engaged in atrocious work practices and this all worked to ABC’s favour even if it was very very rare in actual practice.
Likewise saying ABC moved into suburb X and Child care centre Y went broke is not evidence of ABC engaging in unfair predatory pricing of itself. IS it just possible some of the not-for-profits and smaller profit shows were simply not well run.
I guess my bottom line points are these
1) ABC failed because of paying too much for competitors with largely debt
2) It is possible for a labour intensive business to earn high ROI’s this is actually to be expected of service based industries.
3) IT may prove in the fullness of time that ABC were indeed taking short cuts etc but you would need to determine if that was due to the financial stress of 1) before you conclude a private business model by default has to do this to succeed. You also need more than anecdotal evidence of this plus a comparison to the industry average and to not-for-profits to see if ABC was indeed worse.
“Indeed, if the government was to lend to non-profit child-care centres (or those wishing to establishment) on sufficiently easy terms, then they would simply crowd out for-profit child-care centres without needing to expressly ban them.”
Wiz it is a big if. Especially considering the Howard Govt did all it could to create an advantage for ABC learning. I am against Govt funding to any private enterprise – if business is so good at raising capital why do they need taxpayer handouts?
Why all this ‘protectionism’ for free market enterprises when they are so ideologically opposed to such?
If people want to exercise their ‘choice’ shouldn’t that be at their expense? Especially when there are taxpayer funded alternatives available. Generally they would not. It has taken concentrated dismantling of public services, not to mention the carrot of taxpayer funded rebates, to coerce people into private alternatives.
More
debtresponsibility for the individual, less debt for the Govt, more profit for the private sector.Sounds good if you are wealthy, or have a well paying job. For everyone else its a complete rip off.
“I am against Govt funding to any private enterprise”
Including private schools?
Actually my own position is that the government should act as a “lender of last resort” to organisations wishing to provide an important service that is unlikely to be sufficiently profitable to attract private funding. And the important term there is ‘lender’ – it would be expected to pay the amount back in time, potentially depending on means to pay (i.e. something like HECS for businesses).
I don’t see that child-care really needs to be an automatically subsidised service. I’d think a means-tested rebate for lower-income parents would be enough.
…though interestingly enough it’s seems I’m in the minority in believing something like HECS could be used to fund childcare organisations:
http://www.itnews.com.au/News/87178,australians-support-hecs-for-businesses-survey-finds.aspx
“It was the Hawke government, in 1991, that introduced market forces into early childhood and promised that the market would lead to greater choice and lower fees. Labor extended child care assistance (the forerunner to the Child Care Benefit) to the users of for-profit care, marginalised the community sector and encouraged provision by private businesses.”
Sorry, it seems the ALP are just as much to blame.
How many times do we have to see the failure of the ‘greater choice, lower costs’ mantra to realise this ideology is completely wrong.
“Actually my own position is that the government should act as a “lender of last resort” to organisations wishing to provide an important service that is unlikely to be sufficiently profitable to attract private funding.”
Wiz I don’t agree. Why should everything be beholden to private funding. Why do we even pay tax if the Govt ’shouldn’t’ fund anything?
Also it is clear that the private sector probably would not be competitive without Govt coercion including private schools and hospitals. Funding to religious for-profit organisations especially annoys me because these groups do not even pay tax.
Yes the patrons of these establishments do pay tax, but it is their ‘choice’ to go private and should be their cost. What ever happened to that other capitalist favourite ‘user pays’?
Govts IMO have a responsibility to provide services such as education, health, utilitis etc. In every one of these areas the private sector has been involved with cost have increased, and Govt handouts flow like water.
By the free market ideology these businesses do not deserve to be operating. But socialism appears to be ok when it is not ’social’.
Wrong – Well managed centres don’t run out of basic equipment. Does your office run out of pens? And if they do they go to the corner shop and buy some immediately.
No Kingsley, there is evidence of ABC opening centres in small communities and undercutting prices. That is called predatory behaviour. You show very little concern for small business btw.
And I think people should be very careful of people who talk out of their arse without any knowledge of childcare. Word of mouth, personal recommendations, family-friendship groups, maternal health groups, organised playgroups, and playground/schoolyard conversations revolve around discussing in gripping detail every single aspect of child raising. From the best GP’s in the area, to the best and worst daycare, preschools, schools, which teacher not to get at X school, and a million health, eating and development obsessions etc.
As someone pointed out above – people don’t rally to keep their local chain coffee shop open. I suspect Kingsely you have very little to do with community organisations or indeed children?
How many times do we have to go through this? You can’t cut costs without adversely affecting outcomes in terms of development, safety, and education etc… Your continued comparison of childcare to hamburgers reveals way more than I’m sure you would care to admit in other circumstances.
“Wiz I don’t agree. Why should everything be beholden to private funding. Why do we even pay tax if the Govt ’shouldn’t’ fund anything?”
Because fairly clearly there are services that the private sector doesn’t do a good job of providing, for various reasons.
What’s the problem with having anybody able to apply for a government loan to start up a childcare centre, with the understanding that if it generates any profit, it will be expected to pay back the loan? What’s your suggestion – that once an organisation has received funding, it’s expressly forbidden from being profitable?
jo, clearly you know a lot about childcare. I don’t – I’m childless (so far) and my own stint was too long ago to bear thinking about. However, I’m finding it hard to follow some of your logic.
“there is evidence of ABC opening centres in small communities and undercutting prices”
This contradicts your claim of fees going up at #78 – “contrary to pet theories drove up prices”. Which is correct?
And while we’re on contradictions, you also say they “drove down standards”, but previously mentioned government standards that you can’t get around.
“That is called predatory behaviour.”
It’s called competition.
I’m not trying to defend ABC Learning. Their business model was bad, and probably could not have been entertained had it not been for ill-advised government subsidies (which you rightly point out have done no good). Also high-risk, debt-fuelled expansionary strategies like ABC’s are unsustainable in a credit crunch.
are you claiming that the childcare sector is a government granted monopoly?
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Not exactly. I don’t have enough information. But I reckon Old Salaryanne might’ve gone to the right cocktail parties. It’s also something does happen, at least casually.
“Because fairly clearly there are services that the private sector doesn’t do a good job of providing, for various reasons.
What’s the problem with having anybody able to apply for a government loan to start up a childcare centre, with the understanding that if it generates any profit, it will be expected to pay back the loan? What’s your suggestion – that once an organisation has received funding, it’s expressly forbidden from being profitable?”
Clearly there are services the private sector doesn’t do a good job of providing, IMO childcare is one of these.
What is wrong with Govt actually providing some service like childcare, like education, like healthcare etc, like roads, like water and electricity, and communications etc?
Not for profit is just that, not for profit. Any income recieved goes back into providing the service. It is not unreasonable to expect Govt to support these public services.
They always used to before capitalism became the order of the day, and Govts went out of their way to destroy the public sector in order to privatise everything.
These days Govt seems to be little more than a apparatus to channel public money into private enterprise, with little benefit to the public they are supposed to serve.
“These days Govt seems to be little more than a apparatus to channel public money into private enterprise, with little benefit to the public they are supposed to serve.”
That’s quite true, sad to say.
Fatfingers,
There are some very obvious answers to your questions (I’ll try and save Jo the trouble)
You can undercut a competitor’s prices by accepting short-term losses in one area while raising fees at other centres that have high demand (Could this be why ABC owes an estimated $16000 per child care place in their centres?). This doesn’t seem to have any connection to the steady drive upwards of fees nationally as operational subsidies were removed (raising community-based centre fees), and as child care benefit limits were raised, allowing for-profit services, and perhaps others, to raise fees at the expense of the tax-payer. Community-based services always aim to keep fees as low as possible, because they ARE the community – but they don’t have a lot of wiggle room to play with their numbers from year to year, leaving them at the mercy of others who do.
It is even easier to drive down standards if you understand that those standards are rarely meaningfully policed. Most centres are “accredited” for a two day period every two and a half years (this had changed slightly now) and are lightly overseen by state regulatory bodies (involving perhaps one hour long visit a year). ABC centres, if they were badly run, could get away with a whole lot of below legal requirements (particularly in terms of qualified staff), at any other time. Of course a parent could complain, though you’re kind-of shooting yourself in the foot, if this is the only care you can get, and they end up shutting the centre down…
Having worked in community-based services for almost fifteen years, I have seen them all struggle to keep to the SPIRIT of the regulations, and ensure that if they err it is on the side of better ratios, more qualified staff etc. Persistent stories (t’would be nice to have actual research, but see above entries) about the dodgier operators in the for-profit sector show them regularly failing to meet minimum requirements, and even when they do, doing so with huge staff turnovers, or high numbers or relief staff, which though technically fine, any teacher or parent will tell you is a nightmare for children (sometimes quite literally).
“It’s called competion”
I don’t think you even want to get me started on this one. If you see ‘competition’ as some sort of ‘race to the bottom’ when it is about children, care, and education then by all means have some children, so you can appreciate the very real ‘benefits’ of such a system.
“What is wrong with Govt actually providing some service like childcare, like education, like healthcare etc, like roads, like water and electricity, and communications etc?”
Why stop there? Because there’s quite a lot wrong with it, actually.
Personally, I like the idea of government funding health and education, but not providing it.
Incentives matter.
“If you see ‘competition’ as some sort of ‘race to the bottom’”
I see competition reducing costs and improving services, by and large.
“What is wrong with Govt actually providing some service like childcare”
Because we don’t have any a priori reason to assume that governments will do the best job at it. Indeed, we have quite good evidence that it can be provided well by independent organisations.
Also, unlike health, education, roads etc., childcare is something that’s only used by a relatively small fraction of the population (basically, dual-income families with children under 5 or 6).
Of course, the fact that “everybody uses it” isn’t a sufficient condition for qualifying as a good candidate for public provision of a service – after all everyone eats food, but nobody seriously believes today that we would be better off if the government was responsible for food production. However, “nearly everybody uses it, or is likely to need to use it” is probably a necessary condition.
Depends. The lesson of the last few years (and particularly last few months) – if the public needs to rely on a service, regardless of whether cycles are boom or bust, whether or not the cashflow situation is good or bad at any point in time – its safer and more reliable in public hands.
If its inessential, sure, let the private guys have a rip. Knock yerselves out.
What Yaz said!!
But as I was busy typing away while youse were all posting …….
Fatfingers – predatory behaviour is where you enter a market place and you undercut the competition by undercutting prices which would be unsustainable across your whole group and when your chosen target/competitors can no longer afford to compete and closes down you can then do what you like.
In relation to standards – there are National Standards in relation to staffing and qualifications etc – which weren’t always been adhered to – and that is one thing – and the other is always operating at the minimum standard with young trainees or 1st year staff etc – sailing close to the wind all the time – and then there are whole areas which aren’t subject to standards and that are so easily quantifiable – i.e. how much is in each lunch serve – how much is pre-prepared and how much is fresh and cooked on the premises by a loving and caring cook? What sort of games are purchased – are they educational games or cheap rubbish and are there enough quality programmes and are the staff trained to lead activities, do they have any skills in music, art, craft, early childhood education? Are they trained sufficiently to deal with behavioural problems or developmental problems or even recognise such or recognise abuse and know to report it?
Why is it that most kids with special needs are enrolled in the not-for-profit sector? What oversight is there of enrolments to provide access for special populations etc? None btw.
It’s a total package – obviously the main ingredient is ‘quality’ and enough staff and not all staff have to be qualified to be quality carers. But without a certain amount of qualified staff working with staff with long experience together training up new employees then standards drop.
Of course, not every ABC centre was poorly run and understaffed as a matter of course – I’m sure most were operating as well as they could, as I’m sure the vast majority of staff and coordinators employed were trying to do their best given their circumstances – but if the whole business model is based on creating a ROI for passive shareholders then you can’t have it both ways. Something has to give in the equation ok?
So you either close your eyes and ears pretend that you don’t know what is happening or you say enough….our children’s care is not for sale to the highest bidder – so take your tedious corporate profit-mongering and stick it where the sun don’t shine, cause as a society we can still make choices about where to draw the line.
We don’t further endanger certain flora and fauna by developing in certain geographical regions. We protect many old buildings and preserve important historical sites. We say that surf clubs and rural fire services and all sorts of other community organisations don’t have to pay income tax and that indivudals who donate money can have that money deducted from their taxable income. We don’t allow for-profit K-12 education and so on and so on.
Of course, there are unfortunately always going to be people whose only concern is to create wealth for themselves, never considering or more, caring how that wealth is created and ignoring any and all negative outcomes that have to be endured by the rest of the society. Where is the concern for entire economy for pushing up costs to pay a small group of shareholders? Where is the concern for the children of the nation whose development is shown in research again and again to be poorer if childcare slips below certain standards?
As I’ve stated, I don’t have a problem with owner-operated centres, if there are a bad apples amongst thousands, then they are often known in their communities and sometimes by authorities, although as Yaz points out – accrediation is given for multi-years etc.
However, ABC expanded so fast and took over so many centres and set up many new centres that an entire sector was suddenly being dominated by one single corporate player in a sector that instead required Govt oversight & planning to ensure sufficient places in areas of need, and to support regional and rural communities which may not be able to support profitable entities, amongst a range of other issues.
I am passionate about childcare, as am I about schools and hospitals and all other non-profit organisations and sectors. I have also helped set up numerous small businesses in a range of industries from the ground up – so I am not anti-business at all. However there is place for business and there is a place for corporations but there is no place for corporations shortchanging little children. And if you don’t have children, I can understand how you can feel a little removed from this debate, but next time you are passing a childcare centre – you might like to stop and spend a few minutes (not too long!) looking in at the little dears as they play in the sandpit and climb on the equipment totally innocent of all that is going on in the world beyond their tiny playground…. and then ask yourself if you think some shareholder should be earning dividends literally from the mouths of these infants and preschool children?
I think some people here are going round and round in terms of Govt provided and Govt funded services. The non-profit childcare sector includes single entity community-based organisations, council operated centres, big non-profit organisations like KU & some church based groups. OTOH, the majority of centres are privately operated. We don’t need to re-invent the wheel entirely.
We do however need the Federal Govt to clean up the mess created by ABC and some other failing corporate chains by looking at each of these centres individually to assess which are profitable – and many are profitable – although they are not profitable enough for the ABC model. We need the Govt to support centres in communities esp. rural and regional that have no other centres or until alternatives can be found. They also need bring some proper long term planning to the table to see which areas are overserviced and where there is an undersupply and work out how to get centres into these areas. And they need to work with the sector in terms of rules about anti-competitive and monopoly behaviour.
Fatfingers, you sound all sensible. What’s going on?
Lefty E should get sick or have an accident and go down to the emergency department. That really restores your faith in government service provision.
Actually pedro, I’ve only had good experiences with the emergency departments at various public hospitals, both here and overseas. There was once we gave up waiting for a relatively minor issue, but there was probably no real need for us to be at the hospital in the first place – and we ended up having to wait over an hour at the private clinic we went to instead.
OTOH, medical emergencies not infrequently bankrupt people in the U.S. I’m not sure I see how that’s an improvement.
Wizofaus, I uess you haven’t heard about the people dying in coridors or waiting ages to get a bed and so forth? My limited experience is that you can spend a long time waiting to see someone, even with a very sick kid. I’m not saying it is all bad, just that hospital emergency departments show that the govt can do a very poor job of service provision. These days we go straight to the private hospital emergency and make sure we or the kids get treated quickly.
Except almost no private hospitals have emergency departments! If there were able to profitably offer a better service than public ones, they surely would be motivated to. Like you, being able to afford it, I would probably prefer it – but at least around here, it simply doesn’t exist.
As for people dying in corridors etc. – it’s exceptional rare, and a problem largely solvable with adequate funding. OTOH, if private health care and insurance were all that was available, there would be far more who’d be simply left dying in their homes.
Private hospitals dont do emergency as a rule, so its a fairly meaningless contrast.
Anywau, its all a neoliberal 3-card trick, straight from Thatchers playbook: You systematically underfund public health (or education) and then spend a lot of time cataloguing its failures and ranting at the sector.
Dont fall for cheap neoliuberal stunts: they put one hand round the throat, and with the other point a finger and say “see, you’re not viable!”
its all bullshit – and their days of conning the public are up.
Gotta say Pedro, I have had two reasons to visit public emergency in the past 12 months, both times the service was exceptional, the follow up even better.
The second visit prompted me to kick a fair donation their way when they followed up. Over the past decade, I’ve taken kids to Royal Children’s twice, similar results.
In answer to your question, yes I have “heard” of people waiting in hallways, waiting for hours etc. I’ve just never seen it in real life.
Like Lefty E said, I’ll politely call bullshit on those diversions.
People waiting for hours is often as much a function of triage as underfunding and understaffing. The other issue is the lack avenues for urgent (perceived or real, the difference is moot when it comes to people rocking up looking for treatment) medical care that could be quickly assessed by a doctor or nurse but will most likely not need surgery or access to expensive diagnostic equipment.
The only time I’ve ever waited hours was when we took our very young little boy to the Children’s Emergency, which was a misjudgement about the relative waiting times between the Emergency and the nearest after hours medical clinic and also a function that there just happened to be a large number of broken limb cases that came in, which will always get priority.
And of course if voters actually had a proper chance to have some say over spending on public health, given poll after poll show support for more spending, the level of service would only improve. I think there’s definitely a case for more direct democracy in such areas – I don’t doubt that people would feel more in control of their taxpayer dollars if they had some real input into top-level budgetry decisions (there’s a number of ways this could be achieved).
I agree with Lefty E at 101. Emergency sections need spare capacity so that decisions on priorities can be made in a calm and timely way with waiting periods not affecting medical outcomes. It’s primarily a matter of funding, but also personnel policies and appropriate work practices.
I understand that the Swede’s think more positively about their public institutions than any other country. No guesses as to why.
When I worked in education I saw over 300 schools, public and private, around Australia. At no time while I was working was there more than one private school on my mental list of the best of the best, and of course it was not for profit. There’s plenty of excellence in the public sector in schooling.
When we were in Toronto recently our sister took us to visit a couple of old folks homes – both excellent and both state-owned and run.
I remind you of what I quoted @ 77. Deb Brennan said:
So far I haven’t heard of a corporate in childcare offering excellence. I’m hoping that Bendigo Bank might be one such because of their different philosophy. But meanwhile I’d respectfully suggest that the notion that public institutions are incapable of quality service is ideological rubbish.
“the notion that public institutions are incapable of quality service is ideological rubbish”
eronslla
…true, but the more interesting question is whether public instituions are the best use of taxpayer money. I think there are a number of good arguments for health services to be provided by independent institutions, backing by government funding (or at least, single-payer health insurance), but once you’ve established a culture of public hospitals it’s very difficult to move away from it, and probably not worth the hassle. Increasing the funding to such hospitals is far more likely to be successful, especially because of the high level of public support for doing so.
LeftE @ 101 – I think you’re right about emergency care – and overall I’ve had a pretty good experience when I’ve had to go to public hospital emergency centres. However I have been very grateful to have private health insurance for followup care – without it I would have been left for longish period of time before being able to see a specialists – in pain, unable to work and possibly risked permanent damage.
It really is a matter of willingness to increase funding to the public hospital system. Everyone wants more money to go into the system, but a lot fewer want to actually be the ones to pay for it. Like we see with global warming – people want it fixed, but don’t want electricity prices, fuel prices etc raised without being compensated. Thats pretty clear from the woefully low uptake of green energy programs that the electricity companies offer even in rich areas like Canberra.
Actually chris, there were polls before the last election showing a very large percentage of people willing to forgo tax cuts in order to boost funding to public hospitals.
Now as it happens, purely because of the threat of recession now upon us, the tax cuts in hindsight were probably a good idea. But I will be truly disappointed with Rudd and the ALP if they don’t have the guts to raise taxes as necessary once it’s clear that recession is behind us.
wizofaus – I think people underestimate the amount of money required for the hospital system and overestimate the effect that forgoing the tax cuts would have had. As important as most people believe that global warming is, why are so few taking up the opportunity to encourage renewable energy production by buying green power? Why do so many people complain about higher petrol prices and when electricity prices go up? Its exactly what is required to reduce CO2 production.
Well, sure, most people want to have their cake and eat it too.
But I think a lot of voters still remember back to when taxes were higher and hospitals were funded properly, and see that as preferable to the current situation.
The “we can’t stand higher fuel prices but we want to reduce CO2 emissions” issue is obviously a serious disconnect, and one that our political leaders have done a very poor job of addressing. But the problem is that no individual stands to gain anything from paying higher fuel prices (even if it’s voluntarily to buy wind power – the resultant drop in CO2 emissions isn’t going to benefit those of us that do so in any meaningful way) – especially because not a lot has been done to assist consumers in finding ways to reduce their petrol/gas/electricity usage.
Personally, I like the idea of government funding health and education, but not providing it.
.
And not making the choice about who does either.
There were a few outrage articles in the Terror today about childcare – all privately owned of course..the headline grabber was about a toddler being left and locked in the centre before the mother had come to pick up.
And another on CFK centres. As I said above, you can put your fingers in your ears:
http://www.news.com.au/dailytelegraph/story/0,22049,24695452-5001021,00.html
At the risk of being viewed as monomaniacal, but so the usual suspects can’t say they didnae know:
http://www.smh.com.au/news/national/childcare-centre-in-court-over-strangling/2008/11/30/1227979844949.html
This is a terrible case of professional neglect which luckily didn’t end in a worse tragedy, but more describes an environment where children were basically unattended etc.