ABC learning collapse is a policy failure
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The collapse of ABC Learning is not merely a business failure, but a government policy failure of the highest order. Julia Gillard should be undertaking a fundamental reconsideration of child care support in Australia. The full causes of the disgraceful collapse of this company may eventually come to light. Perhaps Eddy Groves’s penchant for related party transactions played a role. The reliance on an ever-increasing stock price to help fund ceaseless expansion certainly did. The Australia Institute argued back in 2006 that the company was vulnerable to share price collapse. But the real blame lies in with successive governments’ child care policies. Over the last three decades, Australia has moved from a community-dominated childcare model to a private-dominated model without any real debate about the type of industry structure most appropriate for families and what the role of government should be. In particular, the Howard Government strongly encouraged private sector child care provision. There’s nothing, in theory, wrong with that. Private-sector child care was and is a sound model, when accompanied by a rigorous standards and accreditation process. But as the sector consolidated, government subsidies grew and ABC Learning began focussing on acquiring child care centres rather than running them, the hands-off attitude of the Howard Government set us up for the spectacular failure we’ve now witnessed. Sue Lines of the LHMU, which covers workers in the sector, told us “governments have never thought through what sort of childcare sector they want. The current government has just come in on top of that. We need to go back to basics and debate how we want to provide this important infrastructure.” As both a basic service that enables much of the Australian workforce to function effectively and as a critical component of early education, childcare has huge economic consequences. And it can’t function like a normal market. This year, the Commonwealth will provide over $2.5b to subsidise nearly 700,000 child care places. Reported figures vary, but ABC Learning would on a rough estimate get about $330m for its 120,000-odd places. In previous years, subsidies have provided over 40% of ABC’s revenues. The private health industry, which also heavily depends on subsidies, must look at child care in amazement, given the tight regulation and heavy government control under which it is required to operate. Private health insurers have to obtain ministerial approval for premium rises and demonstrate their capital adequacy. Another industry heavily-reliant on subsidies, aged care, has a tough — even, according to some in the industry, aggressive — regime of standards monitoring and accreditation requirements across all aspects of aged care operation. With minimal government supervision, ABC Learning tried the Macquarie Bank trick of leveraging a reliable income stream to fund acquisitions, and hoping an ever-increasing share price would fund limitless growth. But they didn’t have the nous or the diverse asset base to run the model properly and were hopelessly exposed to an increase in credit costs. Given the Government’s role in providing nearly half the revenue for the 70% of childcare providers in the private sector, it shouldn’t be so quick to dismiss out of hand the idea of taking control of ABC Learning. But the sheer size the company’s debt — it owes over $1b to the big four banks alone — would be problematic even when budget surpluses seemed unlimited. And as Sue Lines pointed out, ABC Learning doesn’t own most of the land on which its centres are sited. How much it owes to property holders is unknown. To say nothing of about $20m in basic employee entitlements. The alternative, however, is cherry-picking of profitable centres by ABC Learning’s competitors, leaving low-profit or unprofitable centres in limbo. At the very least, the Government should start playing a governance role commensurate with its financial importance. The ABC Learning board, top-heavy with politicians, appear to have radically failed in exercising a basic level of control over Eddy Groves and his management. The Government should impose significantly higher accountability requirements on private sector operators, and in particular establish the same sort of price regulation as the private health insurance has to submit to. This will help to prevent the sort of subsidy-price spirals witnessed earlier this year when the Government increased its childcare benefit subsidies. It will also enable regulators to see directly into childcare providers’ accounts, something ABC’s shareholders and creditors would dearly love to have been able to do in years past. Successive governments have failed to think long-term about the provision of childcare for Australians. It’s time the Rudd Government corrected that failure. |
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19 Comments
Bernard its a policy failure the Howard Government failed to detect and one the major banks overlooked as a disinterested public service dozed. Says little or a whole lot about federal administration in this country. There’s no point in handing out bandaids for all the other policies that most certainly are unworkable. Do we just sit here forking out Tsunami rescue packages or change the system that’s failing us. We need astute visionary political parties to field similarly bone fide candidates supported by a merit-based public service. Not only are global finances in crisis - so is the Westminster system. For lack of interest and intellect.
Luckily I am neither a shareholder or patron of ABC Learning but after noticing the inability of the new Auditors to sign off the 2008 Financial makes it pretty clear that the previous Auditors where asleep at the wheel. From what I can see these were a small local Auditing firm who were probably completely out of their depth and ABC Learning will have probably provided them with 80% plus of their income… so that any third party independence probably was thrown out the window a few years ago, so the shareholders will have a target for their ire. In addition the apparent insider deals between top management and their friends and relations suggests what must be verging on fraudulent transactions.
But as far as White Collar crimes go in this country, the ladies and gentlemen concerned have probably salted lots away and at the drop of summons will take off for a Skase palace in Spain.
That the Howard Government were shoveling taxpayers’ money indirectly into the crooks’ pockets is yet another case of the unacceptable face of right wing capitalism. The solution would be to sell these facilities to local authorities who would need to run them as separate profit centres.
So what are we going to do about it all? What we have come to refer to as economies rather than societies are all going down the drain thanks to those who have been in power. Now those in power are going to squander our wealth to bail their mates out whilst we who built the wealth will go poor. Really, it will be the people who stop all this nonsense, not the government - they will be too frightened. Let’s start talking about the revolution again!
I’m with Whiskers on who DO we get to run our economies now that the financial fraternity - the so-called professionals have stuffed it? Economies or societies are all suffering because political parties are so drained of astute professional managers they keep handing over their responsibilities to private enterprise. Let ABC run childcare..let XYZ run prisons…hire HIH for insurance and hand over rail, roads and airservices to Railroadjet.!! None of us…the labor, liberal or green-plus movements have a clue about hands-on administration…we’re all ideas.!!! But we’ll front electorates every poll and masquerade as government managers - and then hand over the real governance to private enterprise!!!
Another wonderful legacy of the Howard years. Thanks John!
Well said… at the moment the government is virtually being held hostage by a badly managed financially and morally irresponsible corporation that is the most dominant player in a vital service. It would be too much to hope that the government could persuade the liquidators to transfer ownership of these centres - plus all their government subsidies - to the local councils they are located in, where they could be managed by employees who only had to answer as to the level of care and service they provided to the local community rather than to shareholders.
I cannot wait for the day the Fast Eddy’s red Ferrari gets impounded and is sold off with the rest of his assets - including any that may be sitting in any tax havens around the globe - to pay the entitlements of his many underpaid staff. The whole episode has been a disgusting example of greed exploiting the most vulnerable in our community.
” Well Australian’s have never been better off” remember that statement another example of the market forces which should not prevail in areas of need.
another hole in the budget NOT of this governments making
Howard was/is such a dumbass market fundamentalist he truly believed a swindler like Eddie Groves had providing quality service for children & parents in mind when he attempted to monopolise much needed childcare centres. WRONG AGAIN arselicker. Bring back a community focussed childcare providers. Once again this is another example that MORE regulation is needed on essential services. We have now finally learned that the corporate sector cant help but put their own interests (& shareholders) first and last at the expense of taxpayers who they expect to bail them out when it all falls apart. NO MORE! Lets start this “new era” with a rethink on this corrupted economic system. While I’m at it we dont need more lectures from greedy corporate executives like Murdoch either. Banks, oil companies, brokers, CEO scum… I’m so over it.
While I love to blame John Howard for most of life’s untoward events, in this case the rot began before Howard. Back in 1989 a group of pregnant women met in my dining room to develop a strategy for convincing the then Labor government that outsourcing child care to business was – bad business. We lobbied and advocated for community and work based child care- unsuccessfully as it turned out.
When Howard and Co came on-board in 1996, childcare was ready for the market sharks. Instead of deploying undercover officers to spy on the Victorian Childcare Action Group’s teddy bears picnic, the Labor Government should have listened when we called for community based child care. We predicted that increasing privatisation of the care of our babies was a disaster waiting to happen.
When businesses are failing they are advised to cut costs- staff and outgoings. Clearly this is not acceptable to the parents of children in private centres. ABC child care expanded recklessly until it has became politically impossible for any government to let them go under. Now taxpayers are expected to bail it out to the tune of $22 million so that this essential service survives in private hands.
When will governments own up to the provision of care for our most vulnerable- the very young and the very old instead of putting them in the hands of shareholders and profit-takers?
News stories circa 2014. Dave, Larry, Matt, Bill, Sallyanne, Le Neve and Eddy plus a few more ..spill out of various correctional centres across the country and in a motorcade of BMW’s and Benz drive off to their inner-city pads, mansions and seaside retreats. The knaves of government policy have served minimal sentences, the taxpayers are back where they started behind the eight-ball and ASIC launches another investigation into the XYZ political party – an amalgam of the nations former mainstream factions after they ran out of members. And over at Parliament House in Canberra someone turns out the energy-efficient fluorescents that were installed by some malcontent back before the country’s treasure was privatized. It was sold to China in a last ditch effort to pay out the pensions and super of past politicians. And up in Sydney’s Kings Cross there’s a big red sign flashing – live and die on the Coke side of life - the cost of Capitalism.
Please come off it blaming the current government. Howard and his motley crew should have noted the way Edy Groves simply grew the business on borrowed money constructing an upside down pyramid structure. A sort of Ponzi scheme. It was bound to fail as were the other schemes that grew regardless of proftability by expanding and growing. They were bound to fail and the Smirk and Mirrors Treasurer knew so little about the consequences of these sort of action even though they have many centuries of history.Now we must pick up the pieces. But surely after 11 years of accepting this type of thing and encouraging it the Howard crew have to pick up the blame and what of the Board of Directors who let this happen, what does this say about corporate governance? There are certainly other examples of this which are yet to reveal themselves. How much of the subsidy by taxation measure support is middle class welfare. Shouldn’t it be means tested?
It comes as no surprise to see just another cowboy of the so-called free enterprise motley crew falling over hismself in the quest for wealth with complete disregard for his fellow man. The constant barrage we have to put up with about how free markets are the best way to manage our social structures and businesses is just another con played out whenever two conservatives get together. Unfortunately Australia has been governed too many times by these short-sighted self engrandising types and what is the result? Just look at no further than today’s world financial crisis for ready examples of the chaos everything is cast into when we so lemminglike accept the glib reassurances that “they “know how to run an economy and especially a business. Nationalise the lot and start again. We should have had a national plan half a century ago.
thought this might interest you, it’s probablys what you’ve heard already…
Mon
As usual, everybody is wise after the event, but Bernard has made some valid points: taxpayer money wasted on what is ostensibly private enterprise, the various governments cosy relationship with ABC, the latter being regarded as a stock market darling, and of course, widespread opportunity for corruption. This is but the tip of the iceberg, and Government largesse, with our money, is not confined just to childcare `industry`, it encompasses a major portion of Australian capitalist `community`, from mining, transport, car manufacturing to health providers, to name just a few. In fact, it is very hard to name an industry that is NOT, in one way or another, subsidised, and this is in a `free market` economy, where neo-liberal principles of `user pays` and `individual responsibility` apply, and profit is the king, underpinned by sometimes ruthless competition. Truly a dog-eat-dog scenario that is in existence since the `70s and which is the real cause of the present economic crisis. Clearly, Rudd pro-business government will try to `save` ABC with taxpayers` money, but the scale of the debacle makes it a dangerous precedent, both politically and economically. Still, with the Big Banks, they have already created such a precedent, so why not save Fast Eddy and his Ferrari by his political buddies. Still, it`s the children who are the real victims, so why not use the NTI model, and send in troops and police, after all, it worked there! , .
One possible solution is for the workers at each centre to buy their centre like a franchise operator. That way, they will also secure their ongoing employment. ABC’s banks could finance them into the purchase. Then all we need to solve is the problem of who will run the franchisor. Maybe Fast Eddie would be prepared to run it and to be paid peanuts.
I agree! The idea of the ABC centres has always been, to me, obscene and a huge error. Childcare should not be a ‘for profit’ activity on such a large scale, given its absolutely crucial role in our society. If it were only the Board and shareholders who suffered, it woudn’t be too bad, but children, their families, and centre staff are all paying a high price for the greed of a few. Hope it can be sorted out somewhow.
Richard Farmer’s prediction in this issue of Crikey has been proved true already: Gillard has announced that the Australian Government will give $22 million to the the receiver of ABC Learning to keep all its centres open until 31 December 2008. Gillard reports the receiver’s estimate that 40% of the centres are unprofitable.
Let’s be optimistic. The Rudd cabinet is reasonably smart so this failure will temper its enthusiasm for ‘market design’ and its agnosticism over whether social services are provided by private or public bodies.
This tawdry saga of exploitation, greed and the inevitability of collapse pretty much sums up the Wasted Years – where prosperity that should have been used to improve our communities was squandered. All wrapped up in a shallow ideology that assumed, and thereby encouraged, base human motives. An audit of major shareholders , directors and fellow spruikers would make for instructive reading.
Mmm, on a flippant note, can we now officially say ABC Learning is the true “demon child” of the Howard years with Larry Anthony one of the main managers?
Refer http://www.childcare.com.au/the-hon-lawrence-anthony
and
AM - Larry Anthony moves from youth portfolio to childcare company …
17 Mar 2005
But methinks it’s a bit convenient too to say Groves could foresee the GFC coming. He’s gone down just as the budget has lost $40B in the last 2 months. The GFC is real. It’s just done over the ascendant market model in a critical service industry. To say it’s Howard’s fault is to say you don’t believe in market based capitalist government … which I don’t really on a planet in peril, or maybe I do a bit - the bit that ‘guarantees’ individual liberty.
Which will be next - all northern half of Sydney private bus lines? Private hospitals? Private insurers? What other sectors will people be calling for govt nationalisation argubly as critical to “the economy” and “working people”. I really don’t know but as Swan was saying ‘something changed radically in the world’ with the GFC.
Even Rupert Murdoch is suggesting we aren’t ready for the back wash (only he calls it market challenges). Talk about bad timing exhorting greater market competition for Oz in a GFC - perhaps we can it the Senile Boyer Lecture?