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Cooking the Books: No Profit, No Care

'Elderly lose home care as providers pull out' read the headline in the Times (20 March), a reminder that under capitalism even basic needs are not met unless they can be paid for.

It must have seemed a good idea – to ideologically-motivated supporters of capitalism. Take running care homes for the elderly out of the control of local council bureaucrats and let the profit motive operate. So, the government came to require local authorities to farm out this service to private profit-seeking companies. These were invited to tender for the service and, if successful, would be given a contract paying them to provide the service which would include an element of profit.

The idea was that, as they would be able to increase their profits if they cut costs, this would act as an incentive to provide the service more cheaply than local councils had been doing. The principle was the same as taxation in Roman times when the collection of taxes was given to contractors who paid the state a fixed sum and then were free to tax people as much as they could get away with. The difference is that, today, the contractors are paid a fixed sum but are then free to reduce their costs, so making an extra profit.

It is applied not just to care homes, but to utilities, trains and buses, 'free' schools, and parts of the health service. This is not free market capitalism, but state-dependent capitalism, even crony capitalism where politicians campaign for 'privatisation' and the contracts go to those who had lobbied them.

The failure in 2011 of Southern Cross, then the biggest provider of care homes, had already shown that the priority was making profits not providing care. Southern Cross had been acquired in 2004 by a group of vulture capitalists who introduced a dubious scheme involving the care home buildings before getting out just before the property boom burst (in the meantime making pots of money). Commenting at the time on the failure, the Observer (11 July 2011) noted:

'Even during the best of times, profit margins in the care business are thin; as long as occupancy rates remain comfortably over 85%, a company that leases homes from landlords can make good profits. But below that level, it becomes harder to break even, leaving businesses vulnerable to relatively small changes in the trading climate'.

This is the other side of the profit 'motive'. If profits are good it is an incentive to produce, but if they are bad it's an incentive not to produce. This is what is now happening in the home care market. The 'trading climate' has changed; costs have gone up which local councils are not in a position to cover. The result, as the Times news item reported, is that 'dozens of care providers are going bust and a quarter are at risk of insolvency'. A spokesman for Mears, one of the largest care home companies, which had cut its losses and handed back its contract with Liverpool, was quoted as saying:

'We absolutely did not take that decision lightly, but frankly what choice did we have?'

What choice indeed. If you are a business providing a service for profit and are not making a profit then you don't have a choice. You have to stop providing the service. That's the way capitalism works. Profits before needs. And some people still think that this is the best way to organise the production and distribution of useful goods and services.