An Open Letter to Kevin Rudd…from a Canadian economist who cares about Australian child care

This is a letter I wrote in 2008 (yes, 15 years ago) to the Prime Minister of Australia, Kevin Rudd. He had recently promised to expand demand-side funding in Australia by extending the Child Care Tax Rebate to cover 50% of parents’ child care spending, up from 30%. I argue in this letter that this will do little in the long run to improve child care affordability, but that it will put a lot of money into the pockets of for-profit child care operators. Unfortunately, I think I have been proven right. I propose that Australia should treat child care as a public service funded with operational funding with strong measures of financial accountability for public dollars. I would make the same proposals today as Australia’s Productivity Commission studies how to make child care provision universal.

Dear Prime Minister Rudd,

The spectacular “collapse” of Eddy Groves’ debt-fuelled ABC Learning empire in the last week leads me to offer you some thoughts on future child care policy in Australia, which has become my second home in increasingly lengthy visits over the last few years.  Under the Howard government, Australia has become the leading example of a country that delivers child care services according to the late Milton Friedman’s dictum on public services: deliver them through private providers funded by vouchers that maximize consumer choice. 

The theory is that private providers would compete against each other for consumers, ensuring low costs and high quality that parents would purchase with their vouchers plus a parent contribution.  The private market would deliver public services much more efficiently than a bloated, inefficient, public sector could. In theory, the Child Care Benefit (geared to parents’ incomes) combined with the Child Care Tax Rebate provide the “voucher” for parents to be spent on approved child care services.  In theory, competition between providers, along with a nudge from the National Childcare Accreditation Council, ensures good quality child care services at affordable prices.  However, as the great baseball philosopher Yogi Berra once famously observed “In theory, there’s no difference between theory and practice.  In practice, there is.”

Competition is not a good mechanism for developing quality in child care.  The kind of quality that optimally promotes child development is very difficult for parents to observe.  It’s based on the nature of the interactions, over time, between teachers/caregivers and children.  Most parents don’t have hours and days to sit in their child’s child care centre and judge the nature and quality of interactions.  And, in any case, the interactions would change because the parent was there.  So parents can’t play their gatekeeper role in the child care market of punishing low quality producers and rewarding high quality ones.

In this case, the profit motive, normally loved by economists, becomes pernicious.  Corporate child care providers, anxious to serve their shareholders’ interests, do best by claiming to produce high quality services, but failing to hire the expensive trained staff necessary to actually provide them.

I do love Australia, but I believe that the Australian model of child care funding and regulation needs rethinking.  Although Milton Friedman’s model of private delivery of public services works not too badly for some public services, it doesn’t work well for child care.  The evidence lies in front of you.  Instead of competitive private provision, you have a single corporation completely dominating the market.  Instead of competitive pressures to keep prices low, you have prices leaping up each time the government tries to increase funding to make services more affordable.  Instead of high quality child care services, you have the Australian Council of Social Services identifying the “variable quality of early childhood care and education” as a major concern. Instead of good quality child care services delivered by knowledgeable staff trained in early childhood education, you have an expensive child care system in which, nonetheless, about 40% of staff are “unqualified” – have no early childhood education diploma or equivalent (National Children’s Services Workforce Study, 2006) and your legislated standards for staff:child ratios are low by international standards.

Instead of a free flow of public information about the quality of services, helping parents to make choices and forcing providers to compete to raise quality, you have the Accreditation Council guarding quality information to protect commercial confidentiality, you have an accreditation process that pretends to guarantee high quality but only actually slaps the hands of the worst offenders.  In fact, instead of inviting the cleansing winds of free competition into the production of a high quality public service, the Friedman model of funding has produced the inefficiency and greed of managed and protected private monopoly.

I realize that you have promised to expand the Child Care Tax Rebate from 30% to 50% in order to improve affordability for parents.  I think you should delay and rethink this change (while putting priority on the companion promise of 15 hours of free preschool).  You know full well what an expanded CCTR will do. Immediately, it will increase the value of Eddy Groves’ assets and that of other private producers.  Next, it will lead to an increase in the price of child care.  Several years down the road, child care will be no more affordable than it is today.

Good quality early learning and child care services have important public benefits, both by reducing the barriers to employment for those mothers that are anxious to enter the labour force, and by stimulating the play-based development of children while their parents are working or studying.  Government can contribute to the achievement of these twin public objectives only if it can find a way of facilitating the provision of high quality care at affordable prices for parents, with special attention to affordability for low-income families.  I would argue that Australia is not scoring particularly well on any of these objectives: not on quality, not on affordability, and not on affordability for low-income parents.  You do have some fine examples of good programs scattered around Australia, and many good individuals working hard to provide better services, but these are only at the margins of the system, rather than at its centre.   It appears that the system of delivery of this important public service is broken, and needs more than a quick-fix solution.

In what direction do solutions lie?  I think you should acknowledge that early learning and child care is, fundamentally, a public service rather than a private market commodity.  Public and community-based not-for-profit providers will have fewer incentive-conflicts in pursuing the public objectives of good quality, and the integrated delivery of care and education.  Many parents recognize this, as the ballooning waiting lists of many community-based centres attest. Governments should find ways of strengthening this sector’s ability to act as a leader and a standard in the provision of community-oriented high-quality integrated child care and family services. 

If the private for-profit sector is going to continue to be an important part of the Australian delivery system, it will need to have strong incentives to serve public interests better.  This means using the money promised for expansion of the Child Care Tax Rebate to, instead, develop effective, conditional, supply-side funding for long day care facilities.  The OECD’s 2006 report on child care policy in member countries (with a prominent Australian co-author) advised that “direct public funding of services brings…more effective control, advantages of scale, better national quality, more effective training for educators and a higher degree of equity in access and participation than consumer subsidy models.”  This subsidy money would be provided to services conditional on their openness and transparency, and on observed meeting of quality standards and measures.

Finally, and importantly, based on my Canadian experience, I would advise serious consideration (in the 2020 review and elsewhere) of publicly-provided maternity and parental leave and benefits.  In Canada, nearly every currently-employed new mother is eligible for 15 weeks paid leave, and, on top of this, employed mothers and fathers can share another 35 weeks of paid leave in the year after the child’s birth.  The leave and benefits are enormously popular, and provide a superb opportunity for (both) working parents to bond with their new-born children.  The benefits are financed by employer-employee contributions; because only a small fraction of the employed population is on leave at any time, the necessary contributions are small.  For many families, maternity and parental leaves make it possible to reduce the conflict between employment and raising a family, making continuous labour force attachment possible.  Maternity and parental leave also make the use of child care before the age of one unnecessary for most families.  This is the age at which child care, when it is done well, is startlingly expensive; when it is not done well, this is when child care can have important negative effects on children.

I urge you to take the opportunities you have created in your new government to redirect early learning and child care policy in new directions.

A shortened version of this letter will be sent for possible publication in an Australian newspaper. 

I would be happy to clarify, or defend, any of the propositions I have advanced here, in further correspondence. 

Yours very truly,

Dr. Gordon Cleveland,
Economist and Associate Chair,
Department of Management,
University of Toronto Scarborough