Once in a while, a single event can bring a whole range of apparently unconnected developments into a new and clearer focus.   One such instance was the two-hour stoppage a week or two ago by 1500 employees of the Oceania Group, the country’s largest rest home operator.

The stoppage, although staged again this week, quickly dropped out of the news, as other industrial disputes in the port of Auckland and in Affco freezing works took centre stage.  But that limited action by aged care workers gave us a valuable insight into so much that is going wrong in our country.

The facts can be simply stated and are wearyingly familiar.  The Oceania workforce is largely female and part-time; many are paid just $13.61 an hour, only 11 cents above the minimum wage.  Oceania will not budge from their offer of a 1% pay increase - much less than the rate of inflation.  The workers – with very little bargaining power – tried to draw attention to their plight in the only way open to them.

But it is when we dig a little deeper that the real significance of the dispute becomes apparent.  The aged care industry (as we must now call it) is a prime example of the privatisation of what was once a public service.

As public services that care for the elderly in their own homes have been – supposedly on financial grounds – wound back, the opportunity to make a profit by providing accommodation and care in privately owned rest homes has increased.   The public purse still provides the funding, so the taxpayer still largely picks up the bill; but the money now goes via a per capita payment to private companies rather than public employees.

The expanding industry has offered a tempting investment opportunity to private investors.  Two New Zealand-owned companies, ElderCare and Qualcare, had built a strong market position; Oceania achieved its dominant position in the New Zealand industry by buying both of these firms.

Oceania is a group of private equity investors which was set up under the aegis of Macquarie Bank, the Australian banking entity popularly (or should that be unpopularly?) known as the “millionaire’s factory”.  The new Australian owners knew nothing about care of the elderly, apparently motivated solely by the prospect of making a good return on their investment.

But they had miscalculated.  The new venture offered a smaller return on their investment than they had hoped, perhaps because they had paid too much.  They found themselves owing a large debt to Macquarie Bank, rather than enjoying the fat profits they had expected.

The investors demanded that this position should be corrected.  Since the operation’s income was largely pre-determined by the amount paid to them by the government, the only way of squeezing out a higher return was to cut costs – and that meant making real-terms cuts in the wages of an already low-paid workforce.  With costs cut, and the debt re-paid, rich pickings were in prospect.

That exercise has been reasonably successful, at least from the viewpoint of the investors.  The operation is now producing a profit and the debt is being reduced.  But the profits have been squeezed out of the workers, and have no doubt meant as well a lower standard of service to elderly customers who have little power to insist on better.

Those profits – tens of millions of dollars produced from the funding provided by New Zealand taxpayers - are now being paid across the foreign exchanges into the pockets of Australians.  They thereby add to the burden we face in trying to balance our overseas payments and compel us to borrow more from overseas.

Changes in employment law – both actual and planned – mean that New Zealand workers are pretty much at the mercy of their employers, and – as other industrial disputes currently demonstrate – employers are newly confident that they can do what they want.  Like most overseas owners, Oceania have little knowledge of and even less interest in the welfare of their New Zealand workers – to say nothing of New Zealand customers and taxpayers.

The current ethos, after all, is that the bottom line is all that matters.  As in the cases of both the Port of Auckland and Affco, owners need only specify a desired rate of return  to ensure that everything else – including of course the interests of the workers –must be subordinated to that goal.  We increasingly see workers treated as just another production component rather than as human beings with families to support.

What lessons can we learn from this sorry tale?  They are short and sharp.

The real goal of privatised companies is profit, not service.  We cannot prevent privatised firms – despite the government’s obfuscation on this issue – from falling into foreign hands.  Enterprises owned overseas have little concern for the interests of their workforce.   New Zealand workers are increasingly at the mercy of hard-nosed employers.  Profits paid to overseas owners are not only a loss to the country but an unwelcome addition to our borrowing requirement as well.

As we look at the wider issues now facing us and our under-performing economy, can we have any confidence that our leaders are learning these lessons?

Bryan Gould

8 March 2012

This article was published in the NZ Herald on 14 March.