The failures of privatised child care and aged care have starkly illustrated the inability of markets to deliver quality service. The failure applies to all human services.

The grand neoliberal experiment of the past four decades has also failed to deliver the thriving economy that was its central claim. The failures are not just a recent development, they were the inevitable result of plainly false conceptions of economies and people.

The arrest of a childcare worker for multiple alleged child abuses has recently brought the child care system into the spotlight. Revealed is “a litany of abuse, cover-ups, the rise of private operators putting profit first, and a regulatory system failing to protect children”.

It is all very reminiscent of the aged care system, within which a litany of abuses was revealed by a Royal Commission. A difference this time is that private ownership is being clearly named as a problem: profits come before children.

The pattern in both “industries” is that many centres are under-staffed, staff are under-paid and under-trained, and supplies are inadequate. Some under-trained staff lacked knowledge of basic hygiene and food safety, including the necessity of avoiding allergenic foods for allergic kids and knowledge of how to deal with an asthma attack.

The under-training and under-supplying are not oversights, they are policies, in the name of cost-cutting. Cost-cutting is the quick and necessary way to increase profits. Short-term profits must be maximised to keep shareholders happy, if there are shareholders, and/or to maximise re-investment to keep the company growing, and/or to feed the boss’ greed and ego. Shareholders must be kept happy because they are fickle and might pull their money and put it somewhere else, and that would lower the share price, reduce capitalisation and potentially put the company into a financial tail-spin.

Even a chief executive who cares about people and wants to see them well-cared for is subject to these pressures. She will be forced to adopt some of the policies just to stay afloat, because other companies will be undercutting her prices. She may have a personal aim to provide the highest-quality care for her clients, but the market will very likely force her to compromise on quality.

A provider may be able to survive by marketing top quality care to wealthy clients who can afford higher prices, but there will be far more potential clients who can’t afford top quality care and who need good, adequate care for a modest price. Unfortunately privatised care attracts players who are interested in profits, not service. ABC Learning Centres, before its demise, was a $2 billion company. Some of the companies in the care sector are private equity funds, which exist purely to extract profit from anything they see as a likely target. Quality is lower, on average, in for-profit providers.

The aged care Royal Commission put out a slew of recommendations, but its mentality was to try to reduce the problems through regulations. It did not recommend ending the open-market experiment and returning care to local government or community ownership or management, as they used to be.

Economist John Quiggin last May urged an end to the “marketisation” approach to child care. In fact, for some time Quiggin has argued that marketisation is inappropriate for all human services, including also vocational education, prisons and hospitals.

But neoliberalism doesn’t just fail at delivering human services. It fails in its core concern, the health of the economy. It has produced slower growth, gross inequality, homelessness, greater monopolisation and lower efficiency, and the concentration of power into the hands of a few ultra-rich men. It has, in short, been an economic failure and a social disaster. And these failures were built in from the beginning: neoliberalism is built on a plainly false theory of economies and a false conception of human beings.

Mainstream economics has a theory for why markets are supposed to yield optimal results in almost all activities. It is called the neoclassical theory, and it has become highly mathematical and elaborate. It is also completely and obviously unlike the real world, meaning its results are of no relevance to real policy-making. Among the many reasons are its assumptions that people can foretell the future, that people are merely selfish competitors and that social interactions do not exist. Among its many failures is that a financial market crash is not possible in its tidy little abstract world, which is why the profession failed to anticipate the Global Financial Crisis of 2007-8. The theory is highly misleading. It is a major reason the world is such a mess.

Here is a different theory of market behaviour: markets will go where the profit is. If it is profitable to skimp on aged care, then aged care will be substandard. If it is profitable to dump pollution into the world, that is what will happen, as most urgently demonstrated by global warming. This is quite a simple theory really, something even a politician might understand, and it seems to explain a lot of what goes on in this sorry world.

Yet the minds of mainstream economists and regulators are in thrall to the neoliberal ideology that claims markets are almost always best. Quite a few economists have, over a very long period, pointed out that the mainstream theory is rubbish, but they are marginalised by the profession.

One of the best things we could do would be to pry the neoclassical economists from policy positions and from academia and replace them with people who have some appreciation for how markets really work.

The views expressed in this article may or may not reflect those of Pearls and Irritations.