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Election 2022 – How the care economy turned into a market meltdown

Why is that? Well, it’s complicated. But let’s argue it is because our politicians actually don’t know what is going on because almost all of these services – except the state-run hospitals – are run by contractors.

This is particularly true in aged care and disability care. But it is also true in employment services (helping people get into jobs).

We talk a lot about the problems that exist as a result of having several layers of government in Australia. And there are occasional scandals involving an operator in a particular sector, or even a group of them.

Do we have to actually rethink the way the whole system works?

But it’s been a long time since anyone in politics actually said “hang on, we as politicians (and therefore the voters), don’t really have any direct line of sight, or accountability, on what happens in these most vital of services” .

The care economy is now one of the fastest growing parts of the economy, it is the sector which is forecast to generate really seriously large numbers of new jobs, yet we know very little about how it is structured or who actually runs it.

That is, current government services to people is one of the fastest growing sectors of the economy. But we don’t talk about it because it lives in some limbo land between “the government” and “the private sector”.

Do we have to actually rethink the way the whole system works?

Contracting out became fashionable in the 1980s and 1990s when everyone was desperately trying to look like they were reducing the (apparent) size of government. The belief that the private sector always did things better was holy writ. But it has become a low farce as time has gone on. Politicians have some half life, or muscle memory, that this is “what you do”.

But there have to be questions now about how efficient these arrangements are in either a financial or outcomes sense.

As taxpayers, we don’t know all that much, for example, about the structure of the industry that delivers aged care or disability services.

Anecdotally, people in those sectors, and in the public service which now largely exists to run the contracts, will admit that governments increasingly want to just have a few large operators running things for them. Having thousands of small operators who you have to deal with and regulate is a drag.

That creates a sultry swamp for the gradual build-up of oligopolistic, or at least not very competitive, markets. It provides the breeding ground for corruption and conflict of interest.

If you build up just a few operators over time, the relationship between government and operator is eventually going to get unhealthy.

Deliver outcomes

For the government, it is reliant on that service provider to run a large slab of the system. For the provider, they have an enormous amount of capital invested in the presumption that their services will continue to be required.

The risk is that governments eventually write contracts, or even design funding, to prop up service providers, not because it will deliver outcomes to taxpayers.

We have seen examples of this in the past in employment services and more recently in aged care.

Almost three years ago to the day, this column documented how the Morrison government had announced a $320 million “investment” in aged care when it was under pressure from shocking revelations about the sector that had appeared on the ABC’s Four Corners program.

The way the funding was announced implied it was going to add “$1800 per permanent resident” to the subsidy provided to each resident “to deliver quality aged care services”. But in fact this announcement of one-off funding actually just went straight to the bottom line of aged care operators. Even the operators were uneasy about this.

The latest quarterly report of the National Disability Insurance Agency has some statistical breakdown on the market concentration of service providers.

It shows that in the six months to the end of last year, between 45 per cent and 85 per cent of payments were going through the 10 largest operators in 70 per cent of the districts in which it operates.

It is hard to work out from those numbers exactly how concentrated the service delivery markets are across the country.

But we are talking about big bucks here. The largest provider of what is called “supported independent living” is an organization called Life Without Barriers, which in the 2022 year is receiving $266 million. (That number doesn’t include any other payments going to this group for other services provided).

The 10 largest providers combined are providing services worth $1.3 billion in 2022.

Similarly, in employment services, where the combined programs are worth about $2 billion a year, the contracts can be incredibly large, and incredibly lucrative.

Just days before the federal election, the results of tenders for both the major employment service – which will now be called Workforce Australia – and for another one designed to help young people with special needs into work – the Transition to Work program – were announced.

Well, announced is a bit strong. The details of the tenders were released on the departmental website. Bedlam has largely reigned ever since.

It is estimated that 80 per cent of existing arrangements were overturned. Providers who had delivered services in particular areas, who had links with local employees, and people seeking work on their books, suddenly found themselves being given contracts in areas where they had never worked before, but missing out on their existing business, regardless of their performance.

Just as a tight labor market gives a lot of people who have been long-term unemployed the best chance of actually getting a job, somebody decides to blow up the place.

One thing that has received at least some attention in the campaign is an anti-corruption commission.

But while colour-coded spreadsheets, car park funding and pork barreling should be under scrutiny and might be more colourful, there are much broader issues to be considered about the accountability, transparency and responsibility involved in the way government works for us.

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