This topic is old news in blogosphere terms, and the reason I haven’t written about it here is that I’ve been engaged on other blogs (and more I can’t be bothered linking to), either as reader or participant. There are several facets to the story – the changes in regulation that allowed ABC Learning to get so big, the reasons why they collapsed, the bailout, the quality of their service and the debate over private care (or, as one person put it, “ask yourself if you think some shareholder should be earning dividends literally from the mouths of these infants and preschool children?”
It’s not a simple picture, but I think I can say something simple about the last point.
The assumptions of the person I quoted are 1) that it costs x to run a childcare centre, that non-profit groups and government charge up to x and no more; 2) that private companies can only make a profit by charging more than x or by compromising care by reducing cost below x.
My instincts tell me (based on historical patterns in all industries) that what government spends on running something is highly unlikely to be the absolute minimum (without lowering standards). But let’s say I accept that x really is the lowest cost. What does that imply?
I was told that, given the choice, parents choose non-profit centres, and that waiting lists are always longer there. Firstly, waiting lists mean demand is not being met, so the community needs more centres, so it is a good thing that ABC (or any other private company) tries to meet that demand. But if ABC lowers standards to make a profit, what parent would leave their kid there? Except in a minority of cases, parents are extremely choosy about where they send their children. The only reason they would use ABC (assuming the lower standards) is because they really need the childcare service, and so would obviously be willing to pay more (because it’s worth more to them), and ABC would have no need to only charge x, and thus could make a profit without stealing from the mouths of babies.
I was also told that ABC would compete with established centres by unsustainably under-charging until they got a big share of the market and the other centres closed down, and then raising their charges. I think that’s a highly unlikely scenario (I was given no evidence of that happening), but again, let’s say it’s true. What happens then? Another company comes along and charges slightly less (but still above x, so still making a profit), that’s what. Then another repeats the process, and ABC is not taking it lying down either, and the price is driven towards the minimum. It’s not theoretical, it’s not the output of some idealised econometric model – it’s precisely what happens time and time again, across every industry you care to name.
Of course, government interference will slow or stymie this process. The childcare rebate and childcare subsidy are biggies, and the plethora of other regulations are not insubstantial contributors to the overall friction the market has to overcome. That’s why the promise of yet more regulation will mean the problems are not solved, and we will end up with worse childcare provision than we would otherwise have.