A series of ABC 7.30 reports tells a familiar story of failure in human services. Inadequate staffing, dangerous incidents brushed under the carpet, ineffective regulation and, at the back of it all, for-profit businesses, either ASX-listed or financed by private equity.
This time it’s childcare but the same problems have emerged in vocational education, aged care, prisons, hospitals and many other services. Every time the answer we get is the same. More and better regulation, we are told, will make the market work better, allowing competition and consumer choice to work their magic.
The reason for this record of failure has been pointed out many times, and ignored just as often by policymakers. Businesses providing publicly funded or subsidised services can increase their profits in one of two ways. The hard way is to make technical or organisational innovations that provide a better service at lower cost. The easy way is to avoid meaningful improvements and approach rules with a “tick a box” attitude.
It would appear the easiest way of all, however, as claimed in the reports on childcare, is to cut corners on service quality, particularly in areas that are hard to check. Another favoured strategy is “cream-skimming” – providing services where the regulatory setup yields high margins while leaving the public or non-profit sector to deal with the intractable problems.
All of these strategies were employed on a huge scale to exploit VET Fee-Help, the vocational education and training scheme that represented the first big push towards for-profit provision of human services, beginning in 2009. Fee-Help was a disaster. Before it was scrapped in 2017 it swallowed billions of dollars of public money. The scheme left students with worthless qualifications and massive debts, which were eventually wiped by the Morrison government in 2019.
The central statement of the ideology driving public policy in this area is the Productivity Commission’s 2016 report on competition in human services. The report presented market competition as the desired model for a wide range of human services, including social housing, services at public hospitals, specialist palliative care, public dental services, services in remote Indigenous communities and grant-based family and community services.
After being presented with ample evidence of the problems of for-profit provision, the PC responded with a single, evidence-free sentence: “The Commission considers that maximising community welfare from the provision of human services does not depend on adopting one type of model or favouring one type of service provider.”
Although the PC had previously hailed competition in VET as a model of well-regulated competition, the undeniable failure of Fee-Help was now blamed on the regulator, the Australian Skills Quality Authority. But the only solution offered was more and better “safeguards”, a term which usually means Band-Aid solutions to fundamental design problems.
Since then we have seen catastrophic failures in aged care, the reversal of the move to private prisons and the exclusion of acute care hospitals from so-called “public-private partnerships”.
Even the PC is backing away from the for-profit model. Its latest report on childcare noted the growing dominance of the for-profit sector and observed that a much larger proportion of for-profit providers failed to meet standards. The chair of the inquiry, Prof Deborah Brennan, provided a supplementary statement urging action to reduce the share of for-profit businesses. Brennan observed that aspects of Australia’s “highly marketized approach” to childcare will “work against equitable, high quality provision unless moderated”.
“Accordingly, I suggest measures to strengthen and expand not for-profit provision, attention to the financial strategies of large investor-backed and private equity companies, and regulatory strategies to discourage providers whose business models and labour practices do not align well with the National Cabinet vision,” she wrote.
This expert judgment was a bridge too far for the PC ideologues, who ducked the issue for the most part. An exception was the idea of a tendering scheme for “persistent ‘thin’ markets”, where the commission proposed to “strongly prefer not-for-profit providers where a service is completely or substantially directly funded by government”. It was unclear why this preference did not extend to the much larger part of the sector that relies on indirect government funding through subsidies to parents.
To its credit, the Albanese government has done a good deal to repair the damage done to the public Tafe system, with increased funding and fee-free places. For-profit providers are complaining about the “complete annihilation” of the private sector, even as yet more dodgy practices are revealed.
But we need more than a sector-by-sector response. Rather than repeating the cycle of for-profit booms, failures, exposés and re-regulation, it’s time to admit that that the ideology of market competition has failed. For-profit corporations have no place, or at most a peripheral place, in the provision of basic human services, including health, education and childcare. “People before profit” might seem like a simplistic slogan but it is much close to the truth than “competition and choice”.
John Quiggin is a professor at the University of Queensland’s school of economics
