In recent years, international corporations and financial investors have appropriated more and more areas of the social infrastructure. In Austria, this development has so far been mostly insidious. Your profit-maximizing business models – e.g. Skimming off profits, tax avoidance, “cherry picking” or profitable risk selection – endanger the common good and the stability of the economy and society. Therefore, protective measures must be strengthened.
The need for care, health and housing is increasing. As a result, this critical infrastructure is being targeted by profit-oriented investors. The fact that they are pushing into the predominantly public areas should arouse our skepticism. Because their business models harbor considerable risks and side effects – especially for the employees and those who depend on these vital services.
Shareholder: interest in profit, not in the common good
While many are finding it increasingly difficult to go about their daily lives, others sense the big business in housing, health and care: In recent years, listed corporations such as Vonovia (living), Fresenius (health) or Orpea (care) and financial investors (e.g. private equity funds, pension funds, insurance companies) in areas of critical social infrastructure. As a result, they expect stable returns from a risk-free business that is largely supported by the public sector. They invest private capital in a variety of ways, for example in the construction and operation of nursing homes, specialist practices, medical care centers and student residences and in social housing. Instead of increasing the common good, their business models aim to maximize the so-called shareholder value: The primary goal is to increase the capital of the investors. This is particularly evident in inpatient geriatric care: Here, the 25 largest shareholder-oriented investors have increased their bed capacity in Europe by more than a fifth since 2017 increased to an estimated 455,000 beds.
withdrawal of the public sector
This advance of private shareholder interests took place parallel to the withdrawal of the public sector from these (survival) supply areas. As in other countries, Austria has so far been comparatively spared from a neoliberal dismantling of the critical areas of public services and crisis provision. At the same time, however, these developments are progressing slowly. An example of this is the comparison with England, where since the 1980s all governments – in different constellations – have artificially constructed markets and thus rolled out the carpet for profit-oriented actors.
From two-thirds to just under 4 percent: the proportion of public beds in inpatient geriatric care has fallen so sharply in England since the 1980s. It has also fallen in Austria, albeit to a lesser extent: from more than three quarters in the mid-1980s to less than half. In the area of housing supply, the share of public housing in England shrank from more than 30 percent at the beginning of the 1980s to 6 percent in 2020. In contrast, the share of public housing in Austria remained stable at around 22 percent. In the healthcare sector, the proportion of public hospital beds in Austria has fallen from around three quarters at the end of the 1980s to around two thirds. In England there is no official information on the development of hospital beds broken down by provider. However, various studies and reports point to the increasing importance of various forms of participation (e.g. outsourcing, public-private partnerships) by for-profit investors in the tax-financed National Health Service.
Politics rolled out the carpet
These developments do not appear out of the blue. In the course of neoliberal “reforms” since the 1980s, the economy, state and society have been increasingly restructured in a market-oriented manner. As part of a larger ideological program, some of this was planned and obvious. This includes the state-subsidized privatization of apartments to former tenants under the conservative British Prime Minister Thatcher in the early 1980s. Another example is the privatization of hospitals under the Red-Green Party in Germany around the turn of the millennium.
Other political measures had a rather insidious effect, such as the underfunding of municipal care in England, the abolition of non-profit housing in Germany or the liberalization of tenancy law in Austria. Sometimes “windows of opportunity” opened up for profit-oriented investors even where politicians had not explicitly intended this. For example, within the framework of the medical care centers, which have become a gateway for private equity investors in Germany in recent years.
The risks to the common good
With the spread of shareholder-oriented investors, their strategies and business models are also gaining ground. Their often value-extracting business models, which regularly include profit skimming, tax avoidance and “cherry picking”, harbor numerous dangers from the point of view of a risk assessment oriented towards the common good. They range from a lack of affordable offers and increased prices to a lack of transparency and control. The higher susceptibility to crises, the risk of poorer quality of care or poorer working conditions are also often overlooked in the usual discourses.
What threatens in practice when shareholder-oriented business models undermine the critical social infrastructure? Experience so far shows that:
- Unequal access and affordability: Health and care should be universally accessible, affordable and of high quality. This is also stated in the European treaties. Shareholder business models, on the other hand, increase the risk of unequal access. There is also the risk of a spatial concentration of profitable services in high-income regions, while structurally weak areas are underserved. A current example of this “cherry picking“ are the medical care centers (MVZ) in Germany run by financial investors. One current investigation shows that the investor-managed dental MVZs are settling in high-income regions of all places, where the density of dentists is already high.
- More instead of less costs: Private employees work more efficiently and economically? – Not in the critical social infrastructure. More than a quarter of the income goes to large international care groups such as Orpea or private equity-managed care chains as unearned income to investors or owners of nursing homes. This is made possible by so-called financial engineering (e.g. excessive rent or loan payments) and the use of tax swamps and shadow financial centers. The latter also play an important role in public-private partnerships between hospitals in England. Here, the short-term relief of public budgets turned out to be an expensive undertaking in the long term capitalize on globally oriented infrastructure funds.
- Lack of transparency and control: The value-extracting business models work with complex transnational company structures. These pose a transparency and control risk. If a company gets into trouble, this only becomes visible to the public sector to a limited extent or too late. This endangers the stable, everyday provision of services, such as the insolvencies of large care chains in England.
What to do in Austria
In order to prevent developments like those in England or, to some extent, in Germany, and to ensure that the critical social infrastructure is geared towards the common good, existing instruments in Austria should be adapted and expanded. These include in particular:
- strengthen philanthropy: The existing regulations on non-profit status, for example in care, need to be improved and could be modeled on non-profit housing with its principles (asset commitment, cost recovery, profit limitation) be more comprehensively protected.
- Push back shareholder interests / fend off investors: Similar to the regulation of primary care centers, where financial investors have been kept away with foresight, a protective shield could also be considered for other areas. In the residential sector, the number is increasing of moratoria and defensive measures against foreign investors and in the city of Berlin at the constitutional expropriation of large housing groups worked.
- Investment control with bite / expansion of investment screenings: The existing investment screening, which is heavily geared towards geopolitical security risks, should also include risks for the common good. Links to this can be found, for example, in the Canadian investment screening, where the recruiting investor demonstrate the net benefit of its investment to Canada.
- Investment offensive by the public sector: The renewal and further development of the real estate portfolio by public interest actors would undermine the risky, debt-financed expansion strategies of profit-oriented investors. At the same time, the public sector has better conditions on the capital markets and can therefore build more cheaply. Finally, the public sector could also appear more directly as a service provider. For example by the ÖGK takes on the necessary expansion of primary care or the municipalities together with others the municipalization of nursing homes as recently in Norway or South Korea advance.
Only one can meet the numerous challenges of the 21st century resilient welfare state get over. The public sector must again assume more responsibility for the provision, financing and regulation of critical (social) infrastructure instead of shifting responsibility and passing on costs as in the past. Otherwise, there is a risk of continued enrichment from publicly fed systems, which primarily takes place at the expense of the top performers in everyday life.
For further information see study: Shareholder-oriented transnational investors in critical social infrastructure