Southern Cross: How capitalism abuses the elderly

The inability of the largest care home monopoly in the country, Southern Cross, to pay the rent on all the premises it uses, throwing into question the future of both the company and the 31,000 vulnerable elderly people under its care, raises issues way beyond the crass errors of one board of directors, the speculative greed of one gang of equity capitalists or a single lapse in the performance of the regulators.  The scandal goes to the heart of capitalist Britain.

Once there was an extensive network of care homes owned and run by the state.  Whilst by no means perfect, they had the advantage of a degree of local accountability.  However with the spread of privatisation, many homes previously run by the state now entered private ownership. As such, they now became first and foremost business propositions rather than social resources, presenting a prime target for capital investment.

They combined two great sources of revenue: rents underwritten by tax payers and vast quantities of real estate. True, the rents brought with them a duty of care in regard to the elderly inhabitants, but by cutting corners on staff training and keeping wages low this unfortunate drain on profits could be minimised.  More troublesome was the chain which bound the operational side (running the homes and farming the inmates’ rents) to the property side (the profits to be derived from the buildings and land through their sale, rental or employment as collateral). It was this chain which the US equity capital group Blackstone successfully broke after it took ownership of Southern Cross in 2003.  So successful was its exercise in escapology that in 2006 Blackstone was able to sell Southern Cross on at four times the original value, banking a billion pounds in the process.

In order to go on milking upward of £500 a week from each of the homes’ 31,000 inhabitants (subsidised by the tax payer when personal savings dwindle below a given threshold), there had to be a roof over their heads.  Blackstone’s billion pound brainwave then struck: why bother owning the property when you can sell it at a profit and then rent it back? That way, you could swell your coffers with sales revenues and still get to use the premises for selling cheap care at expensive prices. 

During those last-ditch boom years, as tottering credit mountains and inflated share values still dominated the landscape, a wheeze like this seemed like a cast-iron licence to print money.  The small print on the deal which raised the rent Southern Cross would have to pay to its new landlord by 2.5% every year seemed a trifling matter when stacked up against the vast sums to be had up front from property sales.  Indeed, the fixed rise of 2.5% looked like a real bargain, given that the boom-time retail price index stood at 5%. Anyway, if all else failed, demographic trends would surely guarantee an endless supply of old people whose rents, driven up by the intensifying competition for places, would be backed up by state subsidy. Meanwhile the company could concentrate on expanding its empire, borrowing to make new acquisitions rather than spending to raise the standards of care. Indeed its capital expenditure fell from 8.3 per cent of revenue in 2006 to 3.7 per cent in 2010.  

When 2008 came along, all these calculations went awry. Property values and the retail price index both declined, but the rent demands continued to rise relentlessly by 2.5% every year, costing the company something approaching £250 million a year, a quarter of its turnover. Meanwhile, whilst the aging population has continued to swell as predicted, the welfare state upon which privatised health and care providers have so profitably battened over the years is preparing to shut up shop.  Competition for places does indeed drive up the profits to be made from residents’ fees, but only if the elderly can afford to pay.  With local councils of all political stripes wielding the austerity axe, the age of guaranteed state subsidy for rack-renting landlords is passing, whether in the field of housing benefit or care provision. Southern Cross says that local authority admissions have fallen by 15% in the last six months and councils are unwilling to spend as much as before. According to Graham Ruddick in the Telegraph, “With the Government trying to cut costs, a report by Age UK has claimed private care homes are receiving fees £500m below the cost of care.” (5 June 2011, ‘Is there still life in Southern Cross?’ 5 June 2011)

Southern Cross ended up with the worst of both worlds.  Having set a time bomb ticking by committing to the sale-and-leaseback scam on Blackstone’s watch, it had then gone on to buy up a load more care homes (on borrowed money) with a view to repeating the process – just as the property market went pear shaped.  The property magnates and landlords who had hitherto been eager to snap up dilapidated properties at fancy prices, and the lenders who had facilitated this by cheap loans, abruptly lost interest. The result is that the company is now stuck with hundreds of homes up north and in Scotland, areas which have been hit harder and sooner by the crisis than have London and the south-east.

When we hear that Southern Cross’s homes in Sunderland have only 80% occupancy, we can safely assume that this is because the fees cannot be afforded, not because there are fewer old people in need of such care than there are in Surrey.  As company chief Jamie Buchan sensitively expresses it, “It’s because we have homes that we should never have had and homes concentrated in areas that have had particular problems.” As the Telegraph notes, “In a reflection of the shrinking state, there will also be more self-funders, with care homes, therefore, requiring a larger presence in the affluent South East and more sophisticated sales and marketing techniques”, going on to quote Buchan’s view that “Care homes in the future will be much more on a tariff basis”. (ibid)

So capitalism’s plan for dealing with the elderly is for those with independent means to fund their own care whilst increasingly the rest must make shift the best they can.  Precisely at the moment that home support and day care services are being wound down, making it harder for the elderly to remain in their own homes, the growing reluctance of councils to meet fees in full raises the bar on access to care homes. For thousands the choice will be either to rely increasingly for support upon close relatives, already under pressure themselves, or live out their final years staring at four walls and driven into a cycle of “self-neglect” – or more accurately, robbed by capitalism of their human dignity after a lifetime of exploitation.

Each of the key players in the Southern Cross debacle, equity capitalists, landlords and care home tycoons, blames the others for the outcome.  Yet the equity capitalists and asset-strippers of the City simply did what any self-respecting monopoly capitalist does when overproduction closes down profitable avenues of productive investment: they sought to maximise their profits through market manipulation and speculative investment. For the rack-renting landlords who vilify their bourgeois brethren in the care home industry – the Telegraph quotes one piously affirming “My sense of responsibility is that I do not want old people to be looked after by this lot. I want an operator to run the homes properly. We are not going to be showing older people on to the street. We are going to find other operators” – the immediate future may not be too bleak either.  Even if a deal cannot be struck with Southern Cross and it goes bankrupt, Bupa or some other bunch of cowboys can probably be persuaded to cough up the rent with a bit of help from the state.  Meanwhile the directors of Southern Cross could reasonably argue that, were it not for the collapse of first the property market and then the welfare state, their strategy would have remained profitable.

All of which special pleading however simply reduces to this statement of the obvious: if the crisis had not reared up to bite capitalism in the backside in 2008, all the key players would have kept the game spinning merrily on, with the only losers being the elderly residents.

Because Southern Cross was left holding the parcel when the music stopped, it is under the spotlight right now.  Yet it is not the “one bad apple” in an otherwise well-organised care sector.  Just how extensively care of the elderly, mentally ill, disabled and others has been hit by privatisation in crisis is documented in a recent investigation by the Financial Times. 

In the course of articles covering several pages of the 31st May issue, written by Sarah O’Connor and Cynthia O’Murchu, we are told that “analysis of the regulator’s quality ratings from April 2010 showed that companies subject to risky deals and private equity ownership often provided a poorer quality of care… A care home’s biggest expense is its staff, so care home operators often spread staff thinly to reduce costs. ‘We quite often would have 24 residents [and] two members of staff,’ said one care home worker of her previous job at a privately run home. ‘You’ve got meals to give out, medication to give out, you’ve got visitors to see, you’ve got doctors’ visits … then you’ve got one resident trying to hit another one.’ Many of the residents in her home had dementia and could be violent. Once a resident backed her against a wall and started punching her in the face. ‘I reached out and touched the emergency buzzer and heard nothing[it] hadn’t been tested,’ she said. Sometimes she and other workers would drug residents who were hard to handle. She was never offered training on how to deal with dementia. ‘You’ve worked an extra two hours because no one turned up … and then the director turns up in a Bentley with a fur coat and an Armani suit and you just think, “Oh my god, that two hours’ work I’ve just given you has gone straight in your bank account”.’ Regarding the pressures upon the managers of privately owned care homes, they note that “even good managers struggle when their employers try to cut costs. One care home manager, who works for a large private operator, said she was under increasing pressure. ‘We’ve always had a budget [but] now the emphasis is very much: this is your budget, but on that budget you need to save 20 per cent on food or 20 per cent on staff, or you’ve got this to spend on equipment but we want you to underspend that by 10 per cent every month’.”

Despite the postures of outrage and astonishment struck across the capitalist media, it is hardly news that privatisation serves the needs of capital accumulation, not the needs of society. Since the railways were privatised, public expenditure on the industry has been greater than it was in the days of nationalisation.  Nobody who has been awake through this period can be in any doubt about the way in which the capitalist state directly serves the monopoly capitalist interest, subordinating everything to the maximisation of profit, not least the safety of the travelling public. Why would it surprise anyone that the privatisation of the care home industry, and increasingly of the NHS itself, should be following the self-same pattern?  Indeed the phenomenon of sale-and-leaseback, or PFI, has long since been exposed as a costly disaster for patients, staff and taxpayers, and a cornucopia of glittering profits for City financiers.  Southern Cross’s sale-and-leaseback scam operates essentially on the same basis, is as much of a disaster for residents, staff and taxpayers, and constitutes a no less glittering prize for the City.  The question arises: why then does the FT, not usually a friend of the common man, now find it necessary to commission a survey on the failings of the privatised care home system? Why does the Telegraph, no less, find itself bemoaning the “comm-oditisation of frail, elderly people”? (‘Is there still life in Southern Cross?’ 5 June 2011)

The explanation for this uncharacteristic outbreak of humanitarian concern must surely be the dawning awareness that, all these years on into this privatising frenzy, though the winning players have profited mightily, the capitalist system as a whole is in direr straits than ever, with no let-up in sight.  Despite consigning ever more of the welfare functions of the state to the tender mercies of monopoly capitalism, the system continues to plunge deeper into crisis, requiring ever sharper attacks upon the standard of life of the mass of the population.  The danger for capitalism in all this is that it will not only spur workers into resistance but that it will also make conscious enemies out of those upon whom it counts as allies.  As the relentless downward pressure pushes the relatively privileged, the petty bourgeoisie and the better-off workers, down towards the “lower depths” of the proletariat, capitalism worries that simple repetition of the bland assurance that “we are all middle class now”, all equal under canvas in the Big Society tent, will lose its power to mesmerise. If seeing your pension postponed and discounted and your children effectively barred from Higher Education is not enough to inspire disaffection, try telling everyone that their grandparents are now surplus to requirements and cost too much to look after.  

Whilst some of the tabloid fury has been directed at the obscenely wealthy ex-directors of Southern Cross who jumped ship in time and are now hunkered down in their fabulously expensive rural retreats, these targets are for the most part untouchable.  The whipping boys of choice now therefore are the hapless bureaucrats at the hopeless Care Quality Commission.  Already in the pillory for their failure to act upon concerns raised by the whistle-blowing employee at the infamous Winterbourne View special needs hospital in Bristol, where the routine and gross abuse of vulnerable residents was recently revealed in an undercover Panorama investigation, CQC is now in the frame over the Southern Cross debacle.

Yet as Polly Toynbee reminded readers in the Guardian on 3 June (“Southern Cross and Winterbourne View have tested public tolerance to the limit”), “CQC’s budget is 30% less than the regulators it replaced. In the past year it cut its inspections by 70%, taking a minimum of 120 days to register new homes. Its 900 inspectors are expected to cover more than 8,000 GP practices as well as 400 NHS trusts, 9,000 dental practices and 18,000 care homes. It has been told to recoup all its costs by raising the fees it charges all these providers – which limits its income.”

The consequences of making the regulator economically dependent upon the regulated are too obvious to require statement, and express in a nutshell the whole relationship between social need and private profit: he who pays the piper calls the tune. This has always been the bottom line under capitalism, long before privatisation reared its head to disturb the fragile social harmony established by the old welfare state. But now, with care homes no longer run with even nominally accountable local council ownership and control, instead subject only to periodic inspection by box-ticking regulators whose funding is geared to the prosperity of the very businesses they are tasked to regulate, the triumph of greed over need is now written a mile high in letters of fire which even social democracy cannot hide. Calls for a few dispensable heads to roll at the Commission, for cuts to their funding to be mitigated and their regulatory powers beefed up will not succeed in drawing the curtain back across the inhumane and mercenary attitude towards the care of the elderly now on full display. 

It is capitalism itself which is to blame, and only its overthrow can end the sick tyranny of private interest over social need.  In socialist societies, the elderly are seen not as a burden but as valued and respected members of the community. 

For example, Cuba is blessed with many elderly comrades, thanks to the way the revolution has raised the standard of living of working people. In an article posted on Inter Press Service News (IPS) on 5 March 2010 (‘A Good Old Age in Old Havana’), Patricia Grogg talked about Cuba’s continuing efforts to improve her provision for the elderly. One old lady of 77, spending her day in a day centre, tells Grogg, “When I came here, I was sad and downhearted. But that’s all in the past, now I feel fine, and I’m useful. The older adults themselves elected me their president.” It turns out that she used to be a teacher, and now uses her experience to help organise the other 600 daily visitors. 

Grogg continues: “On a day like any other, IPS visited the Day Centre and found groups playing animated games of dominoes, which is very popular in Cuba, while two or three women were busy making pyjamas for the sick, and others were helping Magali Hernández, who cares for 150 bed-ridden elderly patients in their own homes.

“Hernández, a retired nurse and a volunteer, shoulders the responsibility for sick people in the neighbourhood, with the support of 26 helpers from the Day Centre. ‘We visit them and provide them with the food, clothes and medicines they need, especially if they have no family and live alone,’ Hernández said.

“Elderly men and women in better health come to the Day Centre, and start their day with a refreshing exercise session in the small square in front of the building. After a period of ‘reflection,’ discussing current affairs and topics of interest to them, they join activities in various workshops.

“The range of workshop options includes visual arts, computers, leather working, knitting, papier mâché, theatre, music and dance. ‘Taking part in these activities changes their lives because they themselves have the starring role. They help distribute donations, or they visit the sick, and they help each other,’ said Esther Ruiz, a nurse.

“As for housing, one of Cuba’s most pressing problems, there is a system of homes for older people without any particular infirmities but who were living in precarious conditions. So far, four such homes have been built, housing 54 people including a number of married couples.

“The apartments are fully equipped to suit their needs, including safety rails, grab bars in bath tubs and shower chairs. In emergencies, they can press either of two buttons to alert management. ‘As you see, we lack for nothing to live with peace of mind,’ said 68-year-old Victoria López.

López works as a cleaner in the old city. Her husband, 73-year-old Emilio Medino, is already retired, but he likes to make himself useful and is a volunteer in charge of plumbing and maintenance in their 12-apartment building. ‘Coming here was a radical change. My wife weighed only 70 pounds (under 32 kilos) back then,’ he said.

“Residents in these units pay no rent, keep their retirement pensions, and get extra help with food and medicines. A state employee does their laundry and cleans the common areas… The Day Centre has a physiotherapy room, a pharmacy, and ophthalmology and optometry services. During tropical storms and hurricanes, it is used as a shelter for vulnerable sectors of the population like the elderly, or people living in the areas of greatest risk. It also cooperates with the care of children with disabilities.

“Experts point out that rapid ageing of the population in any country implies structural changes that require appropriate responses, by means of public spending programmes that anticipate future needs in terms of housing, transport, and infrastructure generally.

“‘From the point of view of urban planning, appropriate facilities and services must be created, incorporating the latest architectural and functional design concepts,’ wrote architect Miguel Coyula in an article published in Temas, the leading Cuban magazine in the social sciences.”

In short, the social needs and responsibilities of the elderly, so far from being viewed as a burdensome distraction from the main business of accumulating capital, are located right in the mainstream of social development.  In the Soviet Union, such an approach to the welfare of all workers was routinely implemented on such a vast scale and to such good effect that the example being set to workers under the capitalist yoke became a serious concern to imperialism.  That is why capitalist Britain tried after World War II to ape these achievements with the creation of a flawed and temporary “welfare state”, funded by a fraction of the super-profits derived from the loot of resources and the sweating of the world’s oppressed masses.

Now, as the overproduction crisis deepens, the capitalist state is as unwilling and unable to stump up the rent on the welfare state as is Southern Cross to clear its own rent arrears. The bourgeoisie is justifiably nervous when contemplating future confrontations with a working class which will learn that all the safety nets are down and revolution is the only way out of the hole (hence the current wobble over the Lansley plans to demolish the NHS).  But as the Communist Manifesto reminds us, capitalism just cannot keep itself from producing the grave-diggers of its own system.  Bring it on.

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