For-Profit Prisons: A case study in inefficeincy

During the 1970s, overcrowding and cost increases began to place considerable strain on the infrastructure of the United States prison system. In response, governments at both the federal and state level began outsourcing elements of prison operation to private contractors, beginning with basic components like laundry and cafeteria services before moving to the wholesale outsourcing of entire facilities to private market concerns. In the United States, this process has engendered considerable debate. On one hand, proponents of privatization argue that free-market competition works to lower costs and produce improved outcomes. On the other hand, opponents of privatization argue that privatization decreases the quality of inmate treatment and rehabilitation, perhaps even generating inhumane conditions. Both lines of argument sound at least superficially convincing. Only one, however, is supported by any kind of empirical evidence. Prison privatization has tended to increase the costs borne by the state and – by proxy – tax payers while simultaneously increasing recidivism rates1,2. Rather than an example of government pragmatically taking advantage of private sector efficiency, prison privatization is a clear and vivid illustration of astounding political ineptitude and the inability of market forces to sculpt successful optimal social service outcomes when solutions entail any criteria beyond profit maximization. Prison privatization is an outworking of broader social processes, including mutually constructive, reciprocally reinforcing systems of expanding socio-economic inequality, and the marginalization of the nation state and participatory governments as primary facilitators of public action.

The involvement of private, profit seeking interests in prison systems is by no measure a new phenomenon. Only a decade after English county sheriff John Howard and architect William Blackburn (ca. 1790-1800 A.D.) began designing prisons with an eye toward mitigating the horrendous conditions of contemporary prisons and encouraging a penal environment of reflection and punishment3, Jeremy Bentham designed the infamous Panopticon. Bentham’s writings explicitly state that the Panopticon’s purpose was to cut the costs of prison management and, ultimately, earn him a profit4 by allowing a minimal force of guards to track and control large incarcerated populations.. Many modern penitentiaries retain vestigial elements of Bentham’s design.

Bentham’s Panopticon

In a very literal sense, the entire institution of slavery was a system of for-profit incarceration. Men and women held in captivity were forced to work in order to make a few individuals wealthy. Even after the Emancipation Proclamation abolished slavery (1863) and the Thirteenth Amendment placed a legal prohibition on all involuntary servitude (1865), for profit incarceration continued with the “convict lease system” up until the 1920s4. Privatization efforts were rebooted in the 1970s and 80s, first providing outsourced services, such as food and medicine. In 1984 prison privatization was thrown into high gear as the state of Tennessee contracted the Corrections Corporation of America to take complete control of its Hamilton County facility. Thereafter, political opportunists and free-market ideologues across the nation began to parrot the neoliberal policies enacted in the 1970s. By 2004 thirty-four states had officially outsourced some portion of their penal system to private companies5. As a result prisons have ceased to be state or federal institutions, ideally meant to serve as mechanisms of punishment, deterrence, and rehabilitation. Instead, they have shifted back to their old role as a cruel avenue for the accumulation of profit.

Perhaps it would be best, before going further, to unpack this recurrent term neoliberalism. Neoliberalism is an array of policies based on free-market ideologies aimed at maximizing profit by limiting government interference in the affairs of market agents, with the ultimate goal of establishing a global system wherein the political, economic, and social agenda is set by a market force uninhibited by government interference6. In essence, neoliberalism is a form of free-market fundamentalism, wherein the ideologies suggested by Adam Smith and his acolytes are extended to the social sphere. The basic argument is that market forces should dictate the course of both economic and social social. While neoliberal philosophy is rooted in Adam Smith’s ideas of self-regulation within a market free of government interference, its benefits tend to accrue in rough accordance with the observations of Karl Marx. In essence, Marx noted that capital has a tendency to concentrate and centralize, such that larger and larger quantities of wealth and influence come to be held by a smaller and smaller fraction of the population7. Writing in the forward to Chomsky’s Profit over People, communications scholar Robert W. Mchesney6 suggests that less than 1,000 corporations currently dictate the predominant economic agenda of the entire world. Over the course twenty-seven years between, 1973 and 2000, the income of bottom 90% of Americans has remained stagnant, while the income of the top 1% rose 143%, and that of the top 0.1% increased 343% – excluding capital gains8 – a phenomena corresponding with the consistent implementation of neoliberal economic policies of deregulation and privatization. The application of neoliberal ideology to the American penal system is not, to be clear, an assertion of some backroom conspiracy. There is probably no cabal of cigarette-smoking men plotting global domination, maniacally laughing as their sphere of influence expands to encompass another public interest. Instead, it is a product of shrewd people coldly and myopically pursuing their individual interests.

Initially, the argument for prison privatization was based on the fact that prisons in the United States were becoming overcrowded, and the institution of privatized prisons might be a cost-effective means of dealing with the increasing numbers of incarcerated individuals5. I see no reason to believe that this was not the impetus for privatizing some corrections institutions. But over time the system has failed to demonstrate its efficacy in managing costs, and, considering the massive concurrent growth in prison populations5,9, suggests changes in legal policy would be a better recourse in dealing with overcrowding. There is, on the other hand, reason to argue that prison privatization has in fact played a role in increasing prison populations, as corporate interests profiting from privatization lobby for mandatory minimum sentences, three strikes laws, and the continuation of the War on Drugs5. Indeed, the majority of new inmates over roughly the past thirty years have been incarcerated on non-violent, drug-related infractions4. Here, it is worth noting that the war on drugs itself costs taxpayers billions (trillions, to be fair10). As near as I can tell, the only beneficiaries seem to be criminal drug cartels and private prisons.

It is the relationship between companies participating in the private prison industry and lawmakers that most strongly suggests prison privatization is an evolving (and expanding) artifact of neoliberal policy initiatives. In 1998 the private prison industry donated $540,000 to 361 individuals running for election to state legislatures 87% of whom one their respective election. As of 2000, 40% of state legislators were members of the American Legislative Exchange Council (ALEC), a policy advocacy group that supports legislation like mandatory minimum sentences, three-strikes laws, and habitual offender laws – all of which benefits the private prison industry. The majority of the ALEC’s funding comes from corporate donors, including the Corrections Corporation of America, currently the largest private prison company in the United States5. The 2004 Intelligence Reform Bill authorized the Bureau of Immigration and Customs Enforcement to acquire thousands of new beds while the Protecting America’s Borders Initiative eliminated “catch and release” procedures, with no recourse to the public sector, thereby creating an expanded resource pool for the private incarceration industry4. According to the Economist11, lobbyists for the private prison industry were behind Arizona’s recent immigration bill, which again stands to expand the resource pool from which private prisons draw their income. This is, quite explicitly, neoliberalism – the alteration or creation of laws at the behest of or for the express benefit of market interests.

The role of private prisons in the presumed system of social justice is further complicated by the contradictory nature of merging the profit-motive with institutions designed to enforcement some level of social stability and security through the punishment of those break the rule of law. First, the very notion that competition among rational agents reduces costs and produces optimal outcomes entirely fallacious. The rigid, Ayn Randian free-market capitalism preached by conservative crusaders is based on misplaced and ill-supported assumptions about human rationality and is rooted in a crude and selective understanding of Adam Smith’s outdated economic theories. In short, it is an market ideology that exists entirely independently from empirical justification and resoundingly rejected by the vast majority of professional economists12,13,14,15. Second, the relative quality and cost of services provided by private versus state operated facilities provides ample evidence in that claims of improved outcomes proffered by proponents of privatization are not well founding. The very nature of the profit-motive, the primary driver of free-market behavior, compels private prison owners to cut costs wherever possible in order to increase profits. At a Corrections Corporation of America operated prison in Youngstown, Ohio, newly transferred maximum-security prisoners were reclassified to medium security in order to avoid cost increases incurred by raising prison security levels5. A 2001 Department of Justice study found that privately operated prisons saw 65% more inmate-on-inmate assaults and 49% more inmate-on-staff assaults than documented in government run facilities – a surprising figure, as private prisons typically house inmates of lower security classifications5. Private prison guards generally received less training and lower wages than those working in government run facilities, leading to higher turnover. As a result, they also tend to have more inexperienced guards on duty5. Within the private prison industry there is also a tendency to disregard or sideline rehabilitation, while simultaneously avoiding early-release, parole, and good behavior programs in order to keep their source of income robust and their production of goods (prisoners) as cheap as possible. Private prisons are also very selective when it comes to prisoner intake, choosing only those inmates least expensive to maintain in terms of health and security16. Rather than pass these savings on to the tax payers, for-profit prison companies apparently funnel them into the pockets of executives and share-holders, since it appears they do not actually save governments any money. In 2005, for instance, the state of Arizona was paying $11 more per prisoner per day to house inmates in private facilities than it would have cost to house them in government facilities. All told, it is estimated that private prisons have cost Arizona taxpayers $3.5 million more per year than they would have paid otherwise. This does not include the additional costs implicit in the ridiculous sentencing laws and enforcement policies advocated by the for-profit prison industry.

There are, of course, other costs to prison privatization that are less easy to quantify than monetary expenditures. Prisons, both private and government operated, are places of extreme inequality, as the vast majority of inmates come from the lowest ends of the socio-economic spectrum, and incarceration rates for minorities (African Americans, Latinos) are particularly high, with most inmates – regardless of ethnicity – coming from backgrounds of limited education. The consequences of incarceration are felt not only by the inmate, but by the inmate’s family, and tend to be passed on from generation to generation18. Because most measures of cost do not take into account recidivism rates, which some suggest increase in the minimum rehabilitation environments of private prisons a full tabulation of costs is a difficult. Strict parole conditions, mandatory sentencing laws, and nonsensical government initiatives like the “war on drugs” – all supported by private prison lobbyists – also increase the ultimate costs incurred by the taxpayers.

In 2006 the now defunct Lehman Brothers reported that “we continue to remain positive on the private prison industry, quite simply because the demand that exists for private prisons today is at an all-time high since we started coverage in 2001” and that the private prison industry was essentially “recession-proof”4. That might be taken with a grain of salt, given Lehman Brothers track record, but is well in line available evidence. The Economist10 reports that Correction Corporation of America reported $1.67 billion in revenue in 2010. CCA is also a publicly traded (limited liability) company, which means it has even more incentive to cut costs in order to increase profits and attract investment (but very little incentive to pass the saving on to the taxpayer). When it comes for the enforcement of laws and punishing those that break them, the profit-motive is not in any way compatible with interests of the public sector. There is even evidence that contracting prison facilities to private corporations is illegal:

The constitutional doctrine of nondelegation prohibits the Government from assigning certain functions to financially interested private actors. Similarly, the Federal Acquisition Regulation (FAR) and the Office of Management and Budget’s revised A-76 Circular also protect certain “inherently government functions” from privatization. Under these legal guidelines, prison administration – discretionary duty that directly impacts inmates’ liberty – may not be outsourced to the private sector. (Anderson, 2009, p. 117)5

Unfortunately, issues of legality often do little to inhibit the interests of the market and those agents motivated primarily by the accumulation of wealth. That prison privatization is an expression of a broader neoliberal agenda is not a conspiracy theory. Neoliberal ideology is the culmination of powerful market forces working in conjunction with ideologically like-minded political concerns to facilitate the acquisition of capital by cutting-back government regulations and shrinking government institutions in order to secure increasing market liberty and corporate domination. It is not negative by design. In some third-world markets that have accepted market deregulation at the behest of agencies like the IMF and World Bank  the introduction of first-world influence has provided valuable improvements to infrastructure. These benefits come with a cost, since market liberalization also allows corporations to exploit the resources of said nations at considerable profit with little economic benefit (and many costs) to the indigenous population18,19. Such seems to be the case with prison privatization, as a small minority reap monetary rewards with little benefit (and a lot of collateral cost) to the majority. That these trends are a symptom of widespread neoliberal trends is evidenced in their very nature, as elements of the social sphere are seized by the private sector, which in turn works to increase its profit margin by guiding legislation to further feed private sector coffers, all with little to no regard for the broader social costs. The privatization of prisons in the United States is not some novel phenomenon, but part of larger trend. The ultimate consequences of that trend have yet to be fully realized, but the available evidence suggests they could be disastrous.

Works Cited:

  3. Casella, E.C. (2008) Landscapes of power, institution and incarceration. In B. David and J. Thomas (Ed). Handbook of Landscape Archaeology. (pp. 619-615). Walnut Creek, CA. Left Coast Press.
  4. Hallett, M (2009). Imagining the global corporate gulag: lessons from history and criminological history. Contemporary Justice Review 12(1). 113-127.
  5. Anderson, L. (2009) Kicking the national habit: the legal and policy arguments for abolishing private prison contracts. Public Contract Law Journal, 39(1), 113-139. Retrieved from Academic Search Complete. EBSCO. Web. 28 Oct. 2011
  6. Chomsky, N. (1999) Profit Over People: Neoliberalism and Global Order. New York, NY. Seven Stories Press.
  7. Marx, Karl. 1867. Das Kapital
  8. Berman, M. (2006). Dark Ages America: The Final Phase of Empire. New York, NY. W.W. Norton & Company, Inc.
  9. Mears, D.P. (2008). Accountability, efficiency, and effectiveness in correction: shining a light on the black box of prison systems. Unknown ||server05|products|c|CPP|7-1|CPP112.txt
  11. (2011 June 22) We’re in the jailhouse now. Economist. Retrieved from
  12. Chang, H. (2010) 23 Things They Don’t Tell You About Capitalism. New York, NY. Bloomsbury Press.
  13. Beinhocker, E. D. (2007) The Origin of Wealth: The Radical Remaking of Economics and What It Means for Business and Society. Boston, MA. McKinsey & Company, Inc.
  14. Polanyi, K. J. Stiglitz.(2001) The Great Transformation: The Political and Economic Origins of Our Time. Boston, MA. Beacon Press.
  15. Arthur, B. W. (1994) Increasing Returns and Path Dependence in the Economy. Ann Arbor, MI. University of Michigan Press.
  16. Oppel, R.A. (2011, May 18) Private prisons found to offer little savings. New York Times. Retrieved from
  17. Western, B., B. Pettit (2010) Incarceration and social inequality. Daedalus Summer 2010 American Academy of Arts & Sciences.
  18. Gerlach, A. (2003). Indians, Oil, and Politics: A Recent History of Ecuador. Wilmington, DE. Scholarly Resources, Inc.
  19. Karl, T. L. (1997) The Paradox of Plenty: Oil Booms and Petro-States. Los Angeles, CA. University of California Press.

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