Failed market assumptions are undermining care for our children

Can the Productivity Commission review commissioned by the Abbott government recognise the possible failure of the market-model funding of many early childhood services?

This rather broad term now covers services that offer mixes of education and non-family care for children below school age. The core services are roughly divided into those offering long daycare and activities for children and those offering preschool education to meet children’s developmental needs.

This is a crude divide based on history and funding. It is not driven by the realities that all services for small children, when parents are not there, should deliver both social learning/developmental activities and safe, enjoyable alternative care.

What should be done

The public inquiry is receiving initial submissions until February 3. These are my recommendations:

  1. Reintroduce contractual funding links between the federal government and service providers that cover what services are to be offered, fees, hours etc.

  2. Recognise that services do more than care for children to enhance women’s workforce participation, or prepare them for school, so ensure diverse funding.

  3. Engage parents and communities in the design and provision of a range of services to families and children that are flexible and affordable.

  4. Create links between early childhood services, other community services and parents to recreate the community networks children and their families need.

These recommendations are drawn from my long-term involvement in this area as a user, advocate, adviser, bureaucrat and researcher. I have been engaged in its political processes since 1972 when the Commonwealth became seriously involved in funding these services.

Four decades of federal funding

Initially, the McMahon government funded a proportion of qualified teacher salaries in community daycare services. This was to boost the quality of care as mothers moved into paid work. The incoming Whitlam government then funded both preschools and long daycare, but the Fraser government returned preschool funding to the states.

All funding went to non-commercial centres seen as part of the not-for-profit community as they expanded. A proposal examined by Fraser government MP John Spender in 1981 for funding commercial services was not supported.

A decade later, however, the Keating government funded fee relief for such centres. By 1997, all direct community services funding disappeared. Federal funds became subsidies directed to parents using approved services.

In response to the increasing need for services, the rationale was that by offering commercial investors a profit, they would provide capital and expand to meet needs. By funding the parents, the government believed they would ensure the market would respond to their consumer needs for particular services. Competition would mean services would be affordable, and available where and when people wanted them.

However this market-forces 101 assumption has failed in too many cases because supply rarely exceeds demand. Meeting parents' and children’s complex needs are more than markets can manage.

The more things change …

In 1991 I wrote a submission to a government inquiry on funding childcare, which included a familiar and prescient plea: the problem still for many parents is a shortage of supply, particularly in the number of places for children aged under two.

As these services are subject to market failure, public provision is the only way that supply can match demand. What is noteworthy is that this was written before the big market expansion of childcare services, but the problem remains the same.

The original funding was via a contract between service providers and the government funder, based on a planning model that identified – among other issues – needed locations, agreed fees, age groups of places and hours of operation. This is because the market is driven by profits, so investors will look at higher profits, not family needs, which don’t really overlap. There are too many spaces for higher-profit over-threes and too few for the less-profitable under-twos.

While current fees diverge wildly depending on supply, area, capacity to pay, age of children, auspice and any other factor, this doesn’t necessarily mean high-cost services are offered. The price range, even within areas, can vary from A$60 per day to A$150 a day.

The fees do not apparently relate to quality of care as shown in an Early Childhood Australia survey. Factors other than quality of service delivery are having at least as much, if not more, influence on the daily fees charged for long day care.

Why the inquiry is too narrow

With Commonwealth spending on childcare to top $22 billion over the next four years, the funding model should be comprehensively reviewed. Child Care in Australia report

If we are serious about good services that enhance children’s lives and effective spending of the $5 billion-plus in annual subsidies, the inquiry needs to question whether the current model can offer value for money. The Productivity Commission brief is too limited.

The inquiry, which has until October 31 to report to the government, should look at who loses and benefits from current policy arrangements. It should question a hands-off model that fails to specify how the provider should use public money to meet complex family and community needs, not just generate profit. Maybe under another model this public money could be better spent on services.

Despite the ABC Learning debacle, there are no signs that the Commonwealth has seriously queried the flaws in the commercial model. Now is the time to do so.