Sunday, September 04, 2011

Private prisons and "faux privatization"

At Forbes, E.D. Kain provides a poignant analysis of why "faux privatization" of prisons really isn't privatization at all, but merely a way to transfer monopoly rents from public coffers to private ones. In a post last week he posited:
Here’s the problem with faux privatization: If all you do is take taxpayer money and give it to a private corporation to do a mandated public service like prison work, you’re not actually shrinking government.

That’s just a ruse. All you’re actually doing is giving a monopoly rent to a private contractor who then goes about the same business the state would have provided. This is often referred to as “cronyism”.

Some services the state provides can actually be privatized. Imagine if the state provided snow shoveling services for all sidewalks. You could reasonably privatize this by deciding that the state would no longer provide the service and people would need to either shovel their own sidewalk or pay somebody else to do it.

That’s real privatization. The government is out of the equation altogether.

This simply doesn’t work with prisons, for obvious reasons. No matter what, the state is responsible for locking people up. Thus any ‘privatization’ that occurs is simply the transfer of the provision of a government service (in this case, incarceration) to a private contractor. The contractor still operates with the full force of the law. In other words, it’s still government, just government-for-hire or for-profit government.
Profiting off of crime should make us uncomfortable, I think, especially when it involves pocketing taxpayer money.

There are times when it makes sense to use a private contractor. For instance, government buildings are typically built by private construction companies. It makes very little sense for governments to have their own construction outfit. But things like construction are services for the government rather than for the taxpayer. Furthermore, they’re temporary. A contractor building a prison is very different from a contractor actually running a prison. Incentives differ in important ways.

So when we talk about prison privatization, it’s important to remember that it’s not actually privatization at all. It’s just a way to transfer monopoly rents over to private companies.
Bingo! Unless you believe government  has no function at all, imprisoning convicted felons must be a primary one. Private-prison companies provide at best short-term savings but bring with them more long-term problems. That's true both when the state leases beds (or management of its facilities) long term, and when counties overbuild their jails based on suggestions or promises from this or that private prison contractor. In the end, the company is obligated for no longer than the contract stipulates. By comparison, the government can't walk away from its obligation to incarcerate, so as contract partners go, it has a lot more skin in the game.

What's notable, but unstated: Mr. Kain's appraisal applies pretty much across the board to the entire private-prison industry, which collectively runs hundreds of units across dozens of states and countries. Is there any private-prison contract that withstands the critique that it "transfer[s] monopoly rents to private companies"? With scarce few exceptions, the entire industry relies upon a business model subject to Mr. Kain's harsh judgment. The stance, "You should not exist" is not one subject to too much compromise.

Given that, how should we regard Mr. Kain's provocative suggestion? From the perspective of theoretical economic efficiency regarding how to deliver monopoly public goods - the way the gray-haired Keynesians taught me as an economics major back at UT-Austin many years ago - Kain's analysis is right on track. From a practical perspective, there are times when private companies allow states to expand capacity more rapidly than would otherwise be possible, as Texas did in 2007 with new treatment and diversion dollars. And from a political perspective, private prison companies give a lot of money to a lot of incumbents, not just governors, and by comparison there's no powerful, monied PAC advocating on behalf of sound economic theory in these matters, now is there?

"Faux privatization," it is, then.


DeathBreath said...

As long as there is food in the trough, the pigs will feed.

I might point out that it was Wackenhut who hosted the security breach at Los Alamos several years ago.

I seriously doubt the author of the article in question has ever worked inside a prison environment. But, I have.

Texas had to clean up the mess at one of the state jails in Travis county. It was being run by minimum wage, poorly-trained, and ultimately compromised security force. What a joke.

The key word in this matter is "accountability."

Housing the incarcerated is big business. Crime pays. Hence, many communities in this barren state have begged for a prisons to be built near them. When that prison folds, it has a negative impact on the community.

The very people who complain about government staying out of their lives are sometimes the first in line to protest the prison closures, particularly when it affects the bottom line in that community.

If Texas had listened to Pretty Boy Perry, Texas citizens would be forking over cash to foreigners for a grandiose plan to build a super highway across the state.

But, whoring behavior is what is to be expected from certain politicians. Oink, oink, oink.

jdgalt said...

I would point out that even if privatization is "faux", it can benefit the state as well as the company involved, in several ways.

One is that private guards probably cost a lot less in pay and benefits than civil service employees, especially police. This is certainly true here in California, where at least the last four governors all received tens of millions in campaign contributions from the correctional officers' union.

The second is accountability, but not the kind you mention: the fact that if scandals such as staged fights at prisons take place, and it's a privately run prison, the fact will get out and heads will roll. Again, California's experience shows it's a myth that these things don't happen in publicly run prisons -- it does, and probably much more often, but the guards' union suppresses the news and prevents any heads from rolling, no matter how badly they deserve to.

So, private prisons are still a good idea. But the legislature needs to insist that the contracts be written so that the private company (or a private insurer) bears at least some of the risk if demand goes down. The fact that this was not done may very well be corruption on the part of the officials that wrote the contracts, and that possibility should be investigated now.

Don said...

JDG: This is Texas, not California. Generally, GFB discusses topics in Texas law enforcement and criminal justice, not California. As in most things, a comparison of the private prison "bidness" (to borrow from a great blog) in Texas and California will not fly. For one thing, there is no "guard's union" as such, in Texas. It is true that the private companies pay their employees less, but this results in lower quality workers. (The state doesn't pay them all that well.) I have worked for both public and private prisons, and the "accountability" gap you mention doesn't exist here. Private prison companies usually don't live up to their contracts very well. They are perpetually understaffed, in security but especially in programming. All in all, I agree with Grits. I agree with you that privatization benefits the companies. But not the state.

Prison Doc said...

I've never understood why making a profit is inherently evil, even if it is in the provision of services for managing the housing of felons.

That being said, contracting by the state should both save the state money and make money for the contractor...not counting, of course, political contributions to those letting the contract.

To me, these bad jail deals in which numerous counties found them selves mired were done by "prison profiteers" rather than by legitimate private correctional companies.

Having worked in both private and state run facilities, I saw NO difference in inmate care, food or services. The professionalism of the security staff seems to be higher in the state facilities, probably a result of the poorer pay and lesser benefits of the private companies...a condition that may change in the upcoming politico/economic climate.

Arce said...

It is also the case that the private prison bidness is a way to transfer additional government money from the public treasury to the bank account of government officials, above and beyond their due compensation, and off the tax books. In simpler language, graft.

The code word, "dentedu" is exactly what the private prison bidness has done to all of us.

Gritsforbreakfast said...

JDG, the California comparisons really don't fly. Our guards are paid literally about half what theirs are, and the TX union covering guards is a joke. It's just not the same situation.

Prison Doc, it's no wonder you don't understand why "making a profit is inherently evil" since no one claimed it was. Way to posit a straw man!

What was claimed is that privatizing public goods - particularly long-term obligations like incarceration - creates no efficiencies but instead merely re-assigns monopoly rents to a private company for provision of the same services. That's not "evil," per se, so much as, in Mr. Kain's words, mere "cronyism."

7:53, such graft is much-alleged but seldom proven, and I don't think you can back up the claim. Perhaps it happens, but I doubt it's the norm.

There's also a concern oft-expressed about the revolving door between TDCJ execs and private prison companies, but that's a tad more subtle than straight up graft.

Anonymous said...

Making a profit on imprisoning people is a terrible idea for one simple reason. The profit is in having as many beds filled for as long as possible. There is no incentive to rehabilitate people. The incentive is to keep as many people in prison as long as possible to maximize profit.

Anonymous said...

Faux privitization....kind of funny because we received the cost of incarcerating an inmate at our facility and a couple of years ago it was approx. $43 per day and now it is approx $100 or more per day. They use to send these books out to the units and now they only send out the page with your unit info on it. Very interesting and somewhat skewed results which would imply that privitization could house an offender cheaper than $100 per day. Something is really wrong with these reports!

Sheldon tyc#47333 said...

2:04 That’s been going on and continues to go on in TDCJ right now. The economics behind the count jumps out when looking at the parole rates between men and women. Have to keep that state job corps in biddess.

Anonymous said...

It is a known fact just look at the numbers. It is much harder for women to make parole here in Texas. There are fewer beds in the womens prison and they are never full so they say. So this is a reason to keep the beds as full as possible. Because they will never be 100% maybe in the 90% for womens prison. These numbers do not lie. The Gatesville Parole board has to do this to keep their family and cronies in jobs too.