Monday, April 03, 2006

World: Ownership: you think they’re providing a service; that’s not what they think

A survey conducted by the Australia Institute made an unexpected discovery: going by what the carers themselves thought, childcare in corporate-owned centres was significantly lower quality than in other forms of childcare.

The study, wanted to “probe the views of child-care workers generally on the quality of care.
“But as the responses came in the differences were striking and could not be ignored”, said Institute director Clive Hamilton.

If you think this is all pretty obvious, hear me out and you may be surprised.

The Institute surveyed 578 workers in three general types of childcare: community-owned and run, privately owned (independent) centres, and ones that were owned by corporations, who typically ran a number of centres and were listed on the stock exchange. The general breakdown of attendance in Australia of children who go to childcare is: 30% to non-profit centres; 45% to independent private centres, and 25% to corporate chains.

Responses include:
Is there enough time to develop relationships with individual children? Responses were positive for:
54% in non-profit centres
49% in private centres
25% in corporate centres

Would you avoid sending your own children to such a centre (because of quality concerns)?
4% in non-profit centres
6% in private centres
21% in corporate centres

Does your centre hire more than the regulatory minimum staff?
40% (approx) in non-profit and private centres
14% in corporate centres

The last is telling because studies in the past have consistently shown a direct correlation between quality of care and number of carers.

The margins are similar for most questions, with corporate centres coming off significantly worse, and private centres slightly worse than community-owned centres.

It’s to be expected that when a service is run wholly for the good of the community, the community is the focus and the service is better. However, this also suggests that where profit is involved, the results are only slightly worse, because the owners are closer to the action – typically they will run the centre. Where ownership is entirely divorced from management, the service is significantly worse.

So in general, the motivation for supplying a service makes a difference. But when the managers are (legally) obliged to serve someone else’s profit requirements rather than their own, the service is significantly worse. I guess managers are more willing to sacrifice a little of the profit for the sake of professionalism, a better service, because they're closer to the ground, or somesuch.

That is, of course, a strong feature of the evolution of capitalism: the increasing divorce of ownership from management.

The biggest implication for today is regarding the fad for privatisation of government services. If you care about the service sufficiently, don’t privatise: the service will worsen.

A small diversion
This has interesting applications – if a few years late – for my area of postgraduate study, demutualisation. That is, where a non-profit organisation has transformed into a joint-stock – and thus profit-oriented – company. NRMA, St George Bank, AMP, etc. – most large member-owned organisations in Australia have gone down that route. Typically, the move is pushed entirely by management, who are concerned to improve the ability to raise further capital (for expansion, takeovers, or protection from takeover). I suggest that when a mutual organisation gets large enough, management and ownership are sufficiently divorced that the quality of service is no longer on a par with community-based organisations, with the added detractor that managers do not get the same level of steerage that joint-stock owners give, simply because the ownership is so dispersed. Managers managing for their own ends. With joint-stock companies, there are usually large enough agglomerations of shareholdings that institutions – typically – steer the boat. Note that when St George privatised, they added a sunset clause to ensure that in the first few years, no institution was allowed to own a significant shareholding. It gave the managers a few more years in the sun to better raise capital, without the interference of pesky owners. Never forget that managers and owners have divergent interests.

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