Dr Barnardo's this week celebrates the 150th anniversary of its founder's birth. Polly Toynbee asks what lessons we have learnt about caring for kids
When we look back to Dr Barnardo's orphanages, we congratulate ourselves on our superior treatment of children in care these days. We have psychological insight. We know they need love and understanding. And we smugly assume that we do it so much better now.

Barnardo's is having difficulty celebrating the 150th anniversary of its founder's birth today. It has just published a history of the charity, warts and all - and some of the warts are hideous. Since its last orphanage closed in 1981, the charity has tried to distance itself from its past, when children were called by number, marched in silence, trained as domestic servants and shipped out in thousands to a slavery of "apprenticeships" in Canada and Australia.

Some 300,000 children have passed through Thomas Barnardo's. With his talent for self-publicity and fund-raising, his orphanages were caring for 8,500 children by the time of his death in 1905. The tragic ragamuffin faces from his archive are pitifully poignant. Right from the start, he had every child photographed in his own studio because he knew the income value of those small, sad images. Sometimes, he would create "before" and "after" pictures by dressing fresh arrivals in specially designed rags. He was charged at one point with financial malpractice, cruelty to children and keeping children against their will. He appeared in court 88 times for kidnapping children from natural parents he considered abusive.

But it is too easy to look at Barnardo's philanthropy with modern distaste. It is easy to be knowingly critical of the traumas Barnardo's inflicted on children with the wisdom of our post-Freudian, post-Bowlby age. We know now that children need more than an ironed frock and a clean hanky to thrive.

The question is, do we actually treat children in care any better?

The very word "care" sounds more like a threat than a promise. The forcible removal of children from their mothers is a desperate last resort these days because so little genuine affection can really be expected from those who are paid to "care". And for children who commit crimes, "care" is no more than a euphemism for detention. Talking to professionals in the field, that tritesentence from the Children Act 1989 keeps recurring: "The child's needs are paramount." It rolls comfortably off their lips, with no apparent irony. What does "paramount" mean? Money is, in fact, paramount.

Latest government figures show 51,000 children are currently in the care of the state, a sudden drop in numbers from 88,600 10 years ago. Some ministers claim this as a success, but many professionals doubt it. Where are all those missing children in danger now? There is every reason to believe that just as many are in trouble, since many more children live in real poverty, largely on account of the growth of single-parenthood. Nor is there any sign of bigger battalions of social workers out there helping troubled families, easing crises before they happen. Quite the contrary: social workers say they have less time than ever before to give to chaotic families. If in the past the state was over-eager to remove children from their families, many fear it is now dangerously reluctant, partly because of cost.

Ironically, the state could point to its own failure as a good reason for not taking in more children. For the fate of children entering the care system is little short of a national disgrace: 75 per cent of those leaving care have no qualifications, compared to a national average of 8 per cent. While 80 per cent of young people stay on in education after the age of 16, only 9 per cent of children in care continue. A quarter of children in care miss at least one year of school, partly because so many of them are excluded, now that headteachers are allowed to do this. A recent Audit Commission report found that between a third and a sixth of children in care were not in school on the day they took a census.

Twenty-six per cent of the prison population has been in care, but that is hardly surprising since educational failure is a prime creator of young offenders. Disturbed and under-educated boys commit crimes against others, but girls in a similar plight self-destruct: one in seven girls, leaving care between 16 and 18, is pregnant or already has a baby. Two-thirds of male prostitutes have been in care, and care-leavers are five times less likely to have jobs or training than other young people. Forty per cent of the young homeless begging on London's streets are children from care. The prognosis for these children of the state is shamefully poor.

To be fair, it is extremely difficult to measure how far the system is to blame for these outcomes. Social workers, residential social workers and foster parents try hard. They take in some children that one manager described as "feral". Most have lives so deeply damaged that recovery is against the odds.

It's 3.45pm. A group of five young children bounds into a small suburban semi. Brightly dressed in new, crisp clothes, rosy-cheeked and apparently friendly, they sit down to their juice and biscuits. One wanders off to write a story on a computer, another kicks a football outside the front door, while the youngest displays her denim hat. They are all one family of brothers and sisters, aged four to 11, living in a residential home run by Hammersmith and Fulham. They are cared for by eight members of staff at an average national cost of more than pounds 700 each a week. If anyone wanted a large ready-made family, they look like a good bet.

Not so. They are a bad bet. They were taken into care two years ago from a family already well known to the social services. They have been appallingly neglected, and are lucky to have survived a "chronically dysfunctional family". Two children who recently left this home had been brought up by a mother who flung dog meat on to the floor for them to eat. A case is pending of severe sexual abuse. When the children arrived, they were all well behaved out of fear and shock, but then the tantrums and scenes began, together with explicit sexual play and provocativeness. Staff at the home take them through their life stories to help them to make some sense of their terrible past. Some co-operate, others are silently defensive.

Three families have volunteered as foster parents with a view to adoption. But it may not work: the most recent study (Berridge and Cleaver, 1987) suggests that between 20 and 46 per cent of foster placements break down.

If they were to find themselves within the care system for the rest of their childhood, the chances are they would endure a life of turmoil and failure. Many children live through 10 or 15 placements in the course of their lives. They lose touch with where they have been and who they are. One survey found that two-thirds of the moves made by children in care happened for bureaucratic reasons. So much for "paramount".

These days most children in care are fostered, on the good principle that a family is better than an institution. But as with other aspects of community care, a principle is sometimes used as an excuse for a cheap alternative. Fostering costs anything from pounds 42 to pounds 150 per child, per week, depending on the authority; it is a very great deal cheaper than residential care. Latest figures for 1992 show 16 per cent of children in care were in residential homes. But since then there has been a rapid drop. Calling round London boroughs listed in a directory as having many homes, several said they had none, Lambeth and Camden among them. Cost is one reason, fear of responsibility for scandals is another.

Yet many children are too disturbed to go straight into foster homes, and some teenagers who have suffered countless foster breakdowns refuse to go into another family. One leading expert estimates that 20 per cent of children in care need residential homes.

As a society, we increasingly turn to therapy for help. Yet, from the moment they enter care, most of these profoundly disturbed children do not have intensive psychiatric help. Indeed, several highly successful children's therapeutic communities have recently closed down for lack of funds. Most children are simply warehoused, and not well. Overworked social workers who had no time to help them to stay with their families have even less time to work with children once they are with a foster family. Some foster families can be driven to their wits' end, with an impossible child 24 hours a day, excluded from school, virtually unaided by social workers who might help to prevent a breakdown.

The cost of caring well for these children would be huge. They need social workers to see them frequently; they need psychiatry. Better-rewarded foster families need proper support, as do the natural parents, to help to take them back. Nearly all these children need extra education, and all this should last into their early twenties, instead of casting them adrift alone at 18, or sometimes 16.

A utilitarian might say that if we had all these extra resources, why waste them on the damaged? The moral answer would be to say we owed it to them. The practical answer is that if we don't spend money on them when they are children, they may continue to cost the state colossal sums for the rest of their lives, in prisons, mental hospitals, and through general troublesome behaviour. They are our unloved children, but by neglecting them, we will continue to reap the whirlwind of their despair.