Not as easy as ABC

By Legal Eagle

I see that ABC Learning has been placed into receivership, ending months of speculation about the financial status of the group. Apparently there is welter of related party transactions which makes it difficult to sort out the financial position.

I have never been a fan of ABC Learning Centres. As I said a year and a half ago in a previous post, with ABC Learning specifically in mind:

The problem is that now childcare centres are about making profit, they are not about providing care. Of course, it’s preferable that childcare centres break even, but the profit motive means that the focus is now on cutting costs, not caring for children.

Personally, I believe that education and health care are areas where the objective of quality care can conflict with the motive of profit. To make a good profit, you may have to skimp on resources, staffing or care. That’s not to say that schools, hospitals and the like should be allowed to be inefficient, or should be allowed to waste money. But the focus should not be on profit above all else – the reason for these institutions existing is to care for others, and for the greater societal good. As I said above, what we really want is for institutions to break even if possible.

I could never quite see how it would be possible to make a big profit on running a childcare centre unless the centre was (a) charging exorbitant fees, (b) skimping on the kind of care provided or (c) being bankrolled by the government. None of (a), (b) or (c) are satisfactory to my mind.

The other thing that concerned me about ABC Learning was the extent to which it had taken over the market share. After I had my daughter, it bought out a couple of local independently-run centres. My mothers’ group and I were disappointed, as it reduced the options for us, and we preferred not to send our children to ABC Learning Centres because we were all concerned that the level of care provided was not up to the standard we desired.

But the present debacle shows another risk of allowing one provider to have a very substantial market share. If that provider gets into financial trouble, then a large number of people may find themselves  without childcare. The receivers have indicated their commitment to continue to supply childcare for as long as possible, which is a good thing. However, one provider should never have been allowed to dominate the market so comprehensively because of the very difficulty which is now unfolding.

Anyway, I’ll keep watching this space to see what happens.

21 Comments

  1. Posted November 7, 2008 at 8:22 am | Permalink

    I can think of another area where the pursuit of profit frequently conflicts with the best interests of those who are the intended beneficiaries of the service: the law.

  2. Posted November 7, 2008 at 8:28 am | Permalink

    We may even see some of the centres become community focussed again. I’m guessing that someone else will step in to buy the actual childcare centres because with the fees they can charge, the pitiful wages for childcare workers, and government subsidies, these places are a licence to print money.

  3. Joseph Clark
    Posted November 7, 2008 at 3:51 pm | Permalink

    LE,
    The profit motive only leads to lower standards if nobody punishes poor quality providers by going elsewhere. If parents are vigilant and price sensitive the market will respond, just like anything else. You and your friends choosing to stay away from ABC is a perfect example of the process.

  4. Joseph Clark
    Posted November 7, 2008 at 4:47 pm | Permalink

    I’ve never seen a worrisome monopoly that wasn’t created by some government action. The old what-if-a-company-got-really-big-and-gobbled-up-everyone-and-started-ripping-everyone-off argument is empty without a fair degree of government complicity or extremely docile consumers.

    I suppose I just get cross when people jump to blame the profit motive for the ills of the world.

  5. Posted November 7, 2008 at 6:10 pm | Permalink

    School canteens might be something of a microcosm of what you’ve argued here: schools unable to staff them with volunteers outsource them to small companies or individuals who need to make a profit. So they quite often need to sell high demand items which invariably leads to stocking the shelves with junk food.

  6. Posted November 7, 2008 at 8:01 pm | Permalink

    I always thought that something smelled about ABC. I’m completely out of the demographic that would use their services, but there was something about Slick Eddie that made me think they weren’t to be trusted with the care of the vulnerable. I hope that a way can be found to return the centres to community-based organisations.

  7. Joseph Clark
    Posted November 8, 2008 at 8:23 am | Permalink

    I have to say you are an extremely polite interlocutor. I find it hard to summon the ill-will necessary for truly rigorous debate. 🙂

  8. Posted November 9, 2008 at 2:30 am | Permalink

    A tricky one. One of the things both governments and markets seem to struggle with equally (although there are exceptions) is when the good or service was traditionally provided on a quasi-voluntary or wholly voluntary basis. Tuckshop rosters and childcare are signature examples – although think of nursing before the interventions of Florence Nightingale and Mary Seacole.

    I’m not sure how to get around this, apart from making it easier (and cheaper) to volunteer (through efficient trust and charitable laws).

    Government intervention to prop up what was effectively a ‘child care chain’ has now created a perfect storm of government and market failure. Money from the state enabled ABC’s aggressive expansion without the company having to consider exactly what the market would bear. Now the whole lot has fallen over leaving Kevin Rudd and the taxpayer holding the bag.

  9. Posted November 9, 2008 at 2:50 pm | Permalink

    I somwetimes wonder why parents don’t form community groups to provide child care. Like poor folks used to do way back when.

    Oh silly me. There is no community.

  10. pedro
    Posted November 11, 2008 at 3:13 pm | Permalink

    “but the profit motive means that the focus is now on cutting costs, not caring for children”

    I guess that’s why Mercedes make such bad cars and Ladas were so good!

    The focus is on making a profit, we lawyers have the same focus, but I at least do it by trying to be a good lawyer and make my clients really happy so they’ll give me more work. And I know I’ve got to make sure that they are both happy with the work and feel they received value for money.

  11. Posted November 11, 2008 at 4:53 pm | Permalink

    I guess that’s why Mercedes make such bad cars and Ladas were so good!
    .
    That’s a spurious example Pedro. Cars can be made for various budgets. Those who want a higher quality car (or one they think is so) can spend more. You have to get a pretty cheap car before you’ve got a shitbox.
    .
    Child care has certain basic requirements. The question is can you fulfil these and still make money.

    With respect to child care I don’t know. But with public transport – no.

  12. pedro
    Posted November 12, 2008 at 1:17 pm | Permalink

    Well you should have read on Adrien. Why don’t childcare operators think the same as me? Do you know if they don’t? The for-profit centre my daughters go seem pretty conscientious about making sure we are happy with the care.

    A profit focus does not necessarily lead to cost skimping. The lack of a profit focus does not guarantee love for the kiddies and sensible cost decisions.

    Next year the elder girl is moving to a community kindy. It’s no cheaper. Though apparently at the meet and greet my wife was asked what I do, “a solicitor” she said, “what, not a partner?” was the response. So I guess we’re going to have to put up with few dickheads.

  13. Posted November 12, 2008 at 5:23 pm | Permalink

    Like I said Pedro I don’t know. A lot of friends are in the process of reproducing. Generally I stay away from them for 18 months after this happens. Then tend to speak baby-goo-goo all the time.

    Those kindy people sound like right wankers.

  14. Posted November 12, 2008 at 5:26 pm | Permalink

    Jason Soon’s boss has an interesting proposal to make use of existing capacity within the school system, coupled with a voucherised form of support. It still doesn’t deal with the fact that it actually may be very difficult to provide childcare either within or outside the market. Vouchers help deal with the anti-competitive aspects of a direct subsidy (the origin of ABC’s troubles, and their subsequent domination of marketshare). Although, at 25%, they were clearly not a monopoly.

  15. pedro
    Posted November 14, 2008 at 12:43 pm | Permalink

    I’m not sure that the childcare subsidy is any different from a voucher. I thought the centre only gets money for the children they have, so if you move your child the subsidy does with it. Which would is different from, say, universities, which get funding to offer a certain number of places.

    Also, the total number of childcare places is not (yet) capped, so new entrants can come in and compete. Given the subsidy, it is perhaps easier to compete on quality because childcare is relatively more affordable.

  16. Posted November 26, 2008 at 6:30 pm | Permalink

    There are obviously ideas and feelings here, so I’ll mention the new senate inquiry into childcare here closing 2008-01-30.
    the financial, social and industry impact of the ABC Learning collapse on the provision of child care in Australia; alternative options and models for the provision of child care; the role of governments at all levels in:funding for community, not-for-profit and independent service providers, consistent regulatory frameworks for child care across the country, licensing requirements to operate child care centres, nationally-consistent training and qualification requirements for child care workers, and
    the collection, evaluation and publishing of reliable, up-to-date data on casual and permanent child care vacancies; the feasibility for establishing a national authority to oversee the child care industry in Australia; and other related matters.

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