Wednesday, December 03, 2008

One failure doesn't mean corporate child care can't be as simple as ABC

Two years ago ABC Learning Centres seemed an unstoppable force as it grew to become the largest private child-care provider in the world.  It had a vigorous acquisitions strategy, purchasing child-care centres in the US, Britain and New Zealand, as well as smaller private and not-for-profit centres in Australia.

Two years on, the company Eddy Groves built was to be placed in voluntary administration and receivership.

While the full story of the rise and fall of ABC is still being played out as receivers pore over the accounts, it seems that a simple case of being unable to pay the bills left the company unstuck.

Net debt increased from $110 million in June 2006 to $1.67 billion at December 31, 2007.  Net profit for the six months to the end of last year fell to $37 million, significantly less than market forecasts of up to $73 million.  This sparked a decline in ABC's share values.

Despite subsequent efforts to draw down its debt, including an asset sell-off, the company was forced to call in the administrators.  The global meltdown in credit markets has not helped.

What we have witnessed is the market rejection of the business model adopted by one company.  Not all companies within the child-care sector have adopted corporate strategies similar to that of ABC and those that remain are operating soundly.

A group of academics, social activists, media commentators and prominent not-for-profit child-care representatives have used ABC's collapse to make a general claim that for-profit providers are unsuited to the provision of child-care.

A long-time critic of corporate child care, Professor Deborah Brennan, recently referred to an alleged "incompatibility between the functioning of markets and children's need for high quality education and care".  She also claimed that "the pendulum has swung too far in favour of private interests".

In reaction to the collapse of ABC, federal Education Minister Julia Gillard accused her political predecessors of "letting the market rip".  This is despite the previous child-centred funding policies and measures for a more even playing field among different types of providers largely remaining in place.

The private sector has played an important role in expanding the supply of Australian child-care places, in response to the increasing workforce participation of women.  It is unlikely that not-for-profit centres, or governments, would have had the financial capacity to serve children already in corporate child-care centres.

Government subsidies that follow the enrolment of a child into any centre that meets Commonwealth and state regulations have supported the growth of for-profit child care.  The notion that parents prefer not-for-profit providers is countered by the fact that the private sector had grown to cover 70 per cent of day-care services and that ABC, alone, served 120,000 children.  No survey can beat the revealed choice made by parents.

Some of the critics simply appear to have a reflexive ideological reaction to the idea of private markets servicing the needs of children.

The reality is that corporations are delivering innumerable benefits to young people every day.  Bakers bake their bread, builders build roofs over their heads, publishers produce textbooks and manufacturers make notepads, biros and laptops to aid learning.  The list seems endless.  So we must ask where and how exactly do the critics draw the line, and why?

Ms Gillard has made it clear that the Government is "not in the business of buying and running child-care centres".  In almost the same breath, the Government throws $22 million to prop up ABC's operations, including those centres openly acknowledged as unprofitable.

We see the throwing of good taxpayers' money after bad.  The question is: what happens next?

It is possible alternative owners could be found.  After all, before ABC's consolidation phase, there were many smaller private child-care entities such as Hutchinson's Child Care, FutureOne and Peppercorn.  It is possible they could re-enter the market.

There is some suggestion that a superannuation fund, or an American-based organisation, such as Knowledge Universe, could purchase some of the 1100 ABC centres across Australia.  New for-profit entrepreneurs could spring up, or existing not-for-profit operators could purchase centres.  Clearly, these are decisions for individual investors.

One failing example should not obscure the fact that the private sector can be constructive in Australian child care.  It would be a backward step for working families across the country if (excuse the pun) a future government in its policy planning decided to throw the private sector baby out with the child-care market bathwater.


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