The perverse incentives of private prisons

By W.W. | IOWA CITY

LAST week authorities captured two fugitives who had been on the lam for three weeks after escaping from an Arizona prison. The convicts and an accomplice are accused of murdering a holiday-making married couple and stealing their camping trailer during their run from justice. This gruesome incident has raised questions about the wisdom and efficacy of private prisons, such as the one from which the Arizona convicts escaped.

Mother Jones reporter Suzy Khimm, writing at Ezra Klein's spot, observes that the portion of Arizona's prison population now residing in privately owned and operated facilities is 20% and growing. "Nationally," Ms Khimm notes, "there's been a similar surge in private prison construction as the inmate population has tripled between 1987 and 2007: Inmates in private prisons now account for 9% of the total US prison population, up from 6% in 2000." Should we welcome this development?

The dominant argument for private prisons is that they will save taxpayers money, as for-profit owners have an incentive to seek efficiencies bureaucrats overseeing government institutions lack. Anyway, that's the theory. According to the Arizona Republic, the reality is that private prisons in the Grand Canyon State so far cost more on a per-prisoner basis than do public institutions. Some experts contend that firms in the prison business reap profits by billing government for rather more than their initial lowball estimates while scrimping in ways that may make prisons less secure.

Ms Khimm says she doesn't see "anything inherently wrong with privately run prisons," as long as they work as well at a lower cost. But I think I would object to private prisons especially were they more efficient.

As the economist and legal theorist Bruce Benson has observed, it is important to distinguish between "privatisation" and "contracting out". To fully privatise a government service is to get the government out of the business altogether. Consider garbage collection. If a municipal government decides to sell its garbage trucks and buy the service from a private company with taxpayer money, that's not privatisation. That's contracting out. In a fully privatised scheme, households deal directly with privately-owned garbage-collection services. In that case, government is cut out of the loop entirely.

From an economic point of view, we should expect firms that compete for and rely on government contracts, such as weapons manufacturers and prison operators, to maximise the spread between the amount billed and the actual cost of delivering the service. If contractors can get away with providing less value for money than would the government-run alternative, they will. Moreover, contractors have every incentive to make themselves seem necessary. It is well-known that public prison employee unions constitute a powerful constituency for tough sentencing policies that lead to larger prison populations requiring additional prisons and personnel. The great hazard of contracting out incarceration "services" is that private firms may well turn out to be even more efficient and effective than unions in lobbying for policies that would increase prison populations.

When we add to the mix the observations that America already puts a larger proportion of its population behind bars than does any other country (often for acts that ought to be legal), and that the US already spends an insane portion of national income on the largely non-productive garrison state, it is hard to see the expansion of a for-profit industry with a permanent interest in putting ever more people in cages as consistent with either efficiency or justice.

(Photo credit: AFP)