Child care for people not profit!

The future of childcare services in Australia has been brought into question by the financial collapse of ABC Learning, the largest childcare provider in the country.

Its collapse, and government responses to it, reveal much about how public services and private profit interact in Australian society.

ABC Learning holds a virtual monopoly on child care in many parts of Australia, its 1040 centres accounting for more than 120,000 places — one in four children in care. In many areas of Australia, it is the only childcare provider available and as a result has been a very profitable enterprise.

That child care has become a profit-making enterprise is an outrage in and of itself, but the collapse of ABC Learning shows why such an important service within society cannot be left to the market to provide or regulate.

Part of ABC Learning's business success is in its context. During the 1980s, when profits soared but wages dropped due to inflation, many families survived by having both parents work, going from single-income to double-income with the spouse generally responsible for child care taking on a waged job as well.

Demand for childcare centres grew. ABC Learning was a company that benefited out of these changes because at the same time the government did not prioritise increasing childcare places through publicly funding them.

ABC Learning's virtual monopoly allowed it to charge exorbitant fees. When the federal government introduced a 30% rebate scheme for child care in 2004, ABC's profits soared, as happened again when the rebate was increased to 50% in July.

Clearly the best way to become a successful company is to get as much public funding as possible. The government rebate was equivalent to $1 million each day.

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ABC Learning seemed set to continue its success until its CEO, "Fast" Eddy Groves, began to do what investors with a great deal of profit did all over the world.

He invested in the subprime mortgage market.

At first, "Fast" Eddie tried to blame the collapse of ABC Learning's share price on speculators short-selling the company's stock, but it soon became clear that ABC Learning had converted its vast profits into the toxic debt of the subprime mortgage market.

The company went into voluntary receivership on November 6.

Fortunately for ABC Learning, the company had reached the dream of all venture companies — it had become too big to fail. It was performing a crucial service, albeit at a fee.

To avert a near total crisis in childcare services in Australia, the very next day, on November 7, the Rudd government announced a $22 million bail out, to keep ABC Learning solvent and stop childcare centres from closing until December 31.

The government has also called on other childcare providers to give expressions of interest in taking over some of the less profitable centres, which, according to ABC Learning, total 400.

In addition to the government bail out, a federal court hearing on November 12 — finalising the injection of government funds — heard that "an initial injection of funds from Westpac Banking Corp, believed to be under $10 million, [was] due to run out [on November 13]", according to the November 13 Australian Financial Review.

Westpac has led a consortium of other banks, which have now increased the loans to ABC Learning by around $30 million.

While, following the hearing, the receivers continue to pledge to keep the centres open until December 31, this is at odds with what parents are being advised, according to a November 14 Sydney Morning Herald report. Childcare centre directors are telling parents they may need to find alternative arrangements, possibly before Christmas.

The government has announced an inquiry into the virtual monopoly over child care with the intention of introducing legislation to stop individual companies monopolising entire sectors of the economy.

The government's bailout package runs counter to the workings of the market. Although the financial press is now turning on "Fast" Eddy, he actually did everything a successful capitalist should do.

He set out to achieve market domination, he met demands for more services and he made a great deal of money by doing so.

He then reinvested that money for maximum returns to expand his business even further.

In capitalist competition, some people win and use their winnings to keep on winning. As they win, they don't have to compete as much because there are now fewer, weaker competitors. ABC Learning's business practice of smothering other childcare centres through its enormous corporate power and securing greater and greater market share is an example of this.

The "free" market inevitably leads to monopolies like ABC Learning, which, if they crash, can take whole sectors of the economy down with them.

When the sectors in question are crucial services such as childcare centres, this becomes more than just an economic curiosity, it becomes a tragedy that threatens the ability of thousands of working families to survive.

Rudd's attempt to make up for "Fast" Eddy's high-stakes gamble by turning the "unprofitable" ABC Learning centres over to other operators and regulating the industry more heavily is a lacklustre response to a serious problem; too little, too late.

The major cause of this crisis lies in letting the market dominate this vital sector. The solution is to remove the market from the equation by placing childcare centres in public hands and employing the workers on adequate salaries through public funds.

It is no secret that childcare workers, most of whom are women, are among the most poorly paid workers in Australia.

Child care should never have become a private profit-making business in the first place. It should be a community service — publicly funded and democratically managed at the local level.

The administration of local ABC Learning centres should be entrusted to community-based childcare organisations and local councils. The not-for-profit childcare sector is fully accountable and responsive to the community.

It has demonstrated for more than 30 years that it can deliver quality services and manage public funds, unlike the bankrupt ABC Learning.

[Vanessa Hearman is the Socialist Alliance candidate for the South Ward of the City of Moreland.]

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