Questions and Lessons from the collapse of ABC learning

The Fin Review last weekend had an interview with Eddy Groves. One of the excuses that he gave for the company failing was he only passed on half of the Howard Government’s 10% increase in childcare benefits as price increases.I

This raises an interesting question. If it is a valid statement it implies that Eddie knew in advance that the government was going to raise subsidies – it was part of the assumptions in his business model. So just how could this possibly be the case? Guaranteed increases of subsidies wasn’t public knowledge and couldn’t be guaranteed without “inside assistance”. Moreover the idea of raising subsides – ostensibly to take the pressure of child care costs of battling parents – was being criticised by observers who correctly predicted that in an undersupplied market, subsidies would flow to the owners of childcare centres, who would raise prices, rather than to the needy parents we were told it was aimed for.

 

So for my part we need to be looking very closely at the Howard government. How did the subsidies get passed, who voted in favour of them, did any of these people get back handed in any way?

 

The whole story of ABC is a scam from start to finish.

 

The AFR story was billed as – How I lost an Empire. The more interesting question is how did an “Empire” get to form in the first place? This is a corporate business model that was doomed from day one. The fact that an unsustainable business could get to the size it did meant that many people had to make mistakes – bankers, investors, regulators, journalists etc.

 

When ABC first came on the horizon I couldn’t believe it. How was a corporate business with corporate overheads going to make any money in a regulated business where non profit making companies determined the competitive dynamics? It was straight business strategy 101 – an un-defensible backyard business, low entry and exit costs, no way to get price or cost advantages. In BCG we used to call these “backyard” businesses.

 

So how is it that so many people have been taken in? Banks who lent the money. Analysts who recommended the stock. Investors who bought the stock. Governments who regulated the industry. Journalists who reported on the story?

 

We have a bunch of incompetents at the top masquerading as experts. It is the “Peter principle” in action. People like Terry McCrann clearly still haven’t understood that the private corporate model doesn’t work in an industry with these characteristics – this is what he had to say about ABC on the 6th November in the Courier Mail – “This corporate entity is now clearly doomed. Ironically, in large part because it IS a viable business.”

 

ABC a viable corporate business? Terry can’t have been looking at the same accounting figures that I saw. But it is more than that. It is emblematic of a lack of understanding about how the world works.

 

All around us we have examples of corporate entities replacing small operators. Our world is being hollowed out. Competition is replacing the social glue that maintains cohesion and stability in society. Why? Because it is more profitable in the short run. Because the rules of the system privatises the benefits and externalise the social costs. Deep pockets can be used to drive out competition from smaller operators

 

All around us are the wake up calls that we need to rethink our values and our world view. How many of the things that we think are our great success are going to turn out to be our great disasters and why? What is it about the way that we look at the world that allows us to see the current financial crisis as  a disaster while every year we loose 2-3 times the projected size of this loss in lost ecosystem services from forests alone?

 

There are many lessons to be learned from this story

Advertisements

Leave a comment

Filed under Economics

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s