A Strategic Assessment of the Children's Services Industry

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STRATEGIC ASSESSMENT OF THE CHILDREN’S SERVICES INDUSTRYproviders played a role in child care provision in Australia from the post-war period onwards.Little is known about these services, but it seems that most were owner-operated businesses,sometimes run by women who had trained as early childhood teachers, sometimes set up byindividuals who simply recognised a business opportunity and/or a chance to meet communityneeds. As noted above, the Child care Act 1972, introduced by a Coalition government,explicitly precluded private firms from receiving government subsidies. This aspect of thelegislation was completely uncontroversial and no explicit justification was offered (Brennan1998). The implicit assumption appears to have been that early childhood services (likeschools) were ‘public goods’.As pressure to expand the child care programme grew during the 1980s, the Commonwealthlooked for ways to expand service provision with minimal cost to itself. Not surprisingly, theprivate sector was an obvious part of the solution. At the time, there were several hundredsmall, private for-profit providers whose users were not eligible for fee subsidies. ExtendingCommonwealth subsidies to the users of these services enabled governments to expand thenumber of families in receipt of Commonwealth assistance at a rapid rate, and with no capitaloutlay. Further, the risks associated with capital investment were transferred to the privatesector. The emergence of commercial providers as a component of the Children’ Servicesprogramme took some time to emerge fully and was closely linked with the shift from supplysideto demand-side subsidies.• 1991: fee subsidies extended to users of for-profit long day care• 1997: operational subsidies withdrawn from most non-profit long day care centres• 2000: introduction of expanded child care assistance (renamed Child care Benefit)• 2004: introduction of Child care Tax Rebate• 2006: capital subsidies available to long day care centres (non-profit and for-profit) inlimited circumstances• 2008: extension of Child care Tax RebateAlthough the desire to limit Commonwealth expenditure (especially capital expenditure) wasan important element of the shift towards the market in child care provision, it was by nomeans the only factor. Additional, complementary, reasons for the change in policy included:(i)(ii)Equity: extending fee subsidies to families in like circumstances using any typeof approved service, was seen as an equity, or fairness, measure.Efficiency: for-profit providers were expected to deliver services at a lower costthan the non-profits, driving prices down across the board.(iii) Resisting the push to higher wages and qualifications: critics of the non-profitsector in the 1980s saw the push for higher quality standards and regulations asevidence of ‘creeping credentialism’ which would be eliminated by the disciplineof the market. The introduction of Commonwealth accreditation, combined withState regulations, was seen as a ensuring that acceptable quality standards wouldbe maintained.Since the early 1990s, the private sector has been the main engine of growth in Australianlong day care. In 1997, the Coalition government ended operational and capital workssubsidies to community-based centres, resulting in some closures and bringing growth of thisform of care almost to a standstill. (One of the ironies of the ‘choice’ philosophy behindmarkets is that, by their nature, markets cannot deliver the access to non-profit, communitybasedcare that is highly valued by many parents.) Private providers now account for almostthree-quarters of all long day care. In some states, a single corporation owns and controls up33
STRATEGIC ASSESSMENT OF THE CHILDREN’S SERVICES INDUSTRYto half of these places while independent, owner-operated services own most of theremainder. Long day care has grown rapidly, in response to market imperatives, rather thanas the result of careful planning for the needs of parents and children. Access is uneven acrossthe States and Territories.In other jurisdictions, particularly the UK, the market-oriented approach has been seen as away of extending parental choice. This argument did not play a large part in the Australiandebate, but should be acknowledged as an important element of the pro-market philosophy.The appeal of markets can be summed up as follows: ‘[markets] compel producers to servethe public interest by providing goods and services that are efficiently produced, of reasonablequality, and at prices that are close to costs’ (Cleveland 2008). Thus an attractive suite ofresults was anticipated as a result of the shift to market provision:• Rapid expansion of places• Increased parental choice• Lower costs• Higher quality• Greater diversity of provision• Encouragement of small business• Greater efficiency 4Most markets in ECEC are not ‘pure markets’ comprised of consumers and suppliers.Typically, governments intervene to set and enforce quality standards and, sometimes, toregulate entry into the market and to subsidise supply and/or demand. Governmentssometimes subsidise services directly (supply side subsidies) or indirectly through feesubsidies to consumers (demand side) resulting in ‘quasi-markets’ or ‘managed markets’(Whitty, Power and Halpin 1998; Davidson 2007).The application of market principles to children’s services is controversial. Canadianeconomist Gordon Cleveland points to two sets of arguments that illustrate why markets inchildren’s services may fail to meet broad public policy objectives. These are (i) publicinterest and (ii) information asymmetries.With regard to the former, Cleveland notes that ‘for most … goods and services sold in themarket, the public interest is well served if consumers get the quality and amount of the goodthey can afford (no matter what that quality and amount are) as long as there is competitionamongst suppliers. However, for early childhood education and care ... both the quality of theservice and the amount traded are of public interest ...’ In other words, the public interest isnot served if families cannot afford (or do not choose to buy) services of high quality. This isclosely related to the second issue, information asymmetry.A well functioning market requires certain conditions:• Information about suppliers is available to consumers at low cost• Consumers can assess quality of what they might purchase as well as availablealternatives• The costs of changing supplier are low• Suppliers are in a reasonably competitive market.4 Economies of scale are sometimes described as a benefit of markets, but not included here, since economies ofscale can also be achieved by large, non-profit providers.34
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A Strategic Assessment of the Children's Services Industry

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