International financial investors and corporations are gaining ground in areas of critical infrastructure such as care, healthcare and housing. At a recent event, the trade union organisation Uni Global Europe drew attention to the dangers posed by private equity investments to the security and quality of supply and to employees. The new study by the Austrian Chamber of Labour was also presented at the event, underlining the need for effective early warning systems and protective measures.
By definition, there is always a need for critical infrastructure such as nursing care, medical care and housing. This need has increased even further in the wake of recent crises and will, due to demographic change, probably continue to grow in future. In addition, the critical infrastructure business appeals to financial investors and corporations, not least because of the opportunities to siphon off public funds. In the USA and the UK, forms of financing using private equity are already a common model. Other countries in Europe are also increasingly resorting to this. For example, strategic investors, often with some bearing on their objects of investment, are gaining ground. Private equity firms pursue a short to medium-term investment strategy in which equity is invested directly in companies, which are frequently restructured, resold and their profits taken. Profit-maximising business models, such as profit skimming, tax avoidance or profitable risk selection, endanger employees as well as those who depend on vital services.
Private capital interests as the cause of the catastrophic situation in care homes
At a conference organised by Uni Global Europa, a discussion and information platform was created to discuss the dangers posed by profit interests in the area of critical services. The report by former carer, whistleblower and activist Andrea Würtz, who described abuses in the Schliersee retirement home, was particularly poignant. She shared her experiences of a care system that had been devastated as a result of private capital interests. People in need of care were even subjected to the acute danger to life. But carers too suffered under the immense pressure. Staffing ratios were not adhered to and documents were forged. She also particularly criticised the lack of control systems in Germany, which made it possible for private equity firms to find loopholes and exploit them.
In the further course of the event, the results of a Study commissioned by AK on shareholder-oriented transnational investors in critical social infrastructure were presented. In a relevant example, one of the authors explained that profit-orientation in the area of critical infrastructure can lead to a significant deterioration in the quality of goods and services. For instance, flats are built in such a way that they meet the needs of investors rather than those of tenants. He points out that private equity is not only limited to the service sector, but that many investors also pursue a property-based strategy. This results in overpriced rents, which are subsequently passed on.
Liberalisation paves the way for financial investors
The results of the study are summarised and recommendations for action are derived in a current AK policy brief. The study compares developments in England, Germany and Austria. In England, far-reaching liberalisation measures have paved the way for transnational investors. As a result, high-risk business models are now widespread. Among other, these have also led to the largest care home operator going bankrupt. In Germany, the wave of privatisation has come with far more control mechanisms. In combination with the federal structure, this has made private investment strategies more difficult. Nevertheless, Germany too has seen an increase in recent years, particularly in respect of critical infrastructure. In Austria, these developments have been more gradual due to stricter regulations. Nevertheless, investment strategies are increasingly spreading there too, shown for example by the takeover of the Austrian care operator SeneCura by the international care group Orpea in 2015 The financial and care scandals surrounding the Orpea Group have recently shown just how risky the business models of shareholder-orientated investors can be.
Public investment in critical infrastructure and stricter regulations needed
In order to protect critical infrastructure from the interests of profit-driven investors, the authors of the study call for a series of measures. In areas such as health and care, operators must be bound by effective non-profit requirements and a stop must be put to profit-maximising strategies. In addition, companies should be obliged to be more transparent and to disclose their corporate structures. Stricter regulation of intra-group financial flows is needed to prevent tax avoidance. Public services should be exempt from internal market rules and trade and investment agreements. Sufficient funding opportunities for more investment in critical infrastructure are required to make social infrastructure more resilient across the European Union. This must also be urgently taken into account as part of the revision of economic governance.
AK EUROPA Policy Brief: Caring for Profit: How shareholder-oriented transnational investors are pushing into critical social infrastructures
AK Vienna: The business of housing, health and care – Portal of the Chamber of Labour and the ÖGB publisher (German only)
AK Vienna: The business of housing, health and care
UNI Europa: Private equity in critical services: a one-day conference
EPSU: New EPSU report chronicles the downfall of for-profit care giant Orpea
A&W Blog: How private capital interests are undermining our critical infrastructure (German only)
A&W Blog: Good old public services (German only)
Investigate Europe: The billion Euro business of elder care