An Economic Evaluation of the Private Prison Industry
The current debate surrounding the for-profit, private prison industry represents many of the timeless arguments made between free-market economists and individuals concerned with morality, especially regarding what industries are better to be controlled by the government. Those in favor of allowing private interests to participate in the sector claim that doing so inherently breeds competition, which reduces costs and increases the quality of the “product”. Those opposed to private prisons argue that profiting off the incarceration of others is immoral and that incentivizing financial returns in the corrections industry causes private prisons to neglect the most important. Either way, the reality is that the corrections sector in the U.S. is massive, currently housing around 2.3 million individuals and employing an additional 415,000 people (“Correctional” & Kann). If all these individuals lived together in a single city, it would be the third most populated in the country, ahead of Chicago. Uncoincidentally, there is also a lot of money to be made.
However, the proposition that private involvement would contribute to competition in the corrections sector has not materialized in the modern economy. Three corporations: CEO Group, Management and Training Corporation, and Corrections Corporation of America control over 96% of private prison beds in the United States (Mumford). Additionally, regional monopolies among these firms exist. If, as in any sector, there were a diversified, competitive market, the interests of the various companies would also be diversified and a more healthy competition would exist. However, because there are only three significant companies, including CEO Group which has a 55% market share, significant lobbying has taken place. The CEO Group is infamous for lobbying mandatory minimum sentences and other forms of legislation that feed into the already staggering incarceration rates in the United States. This is a distinct moral hazard as it creates profit opportunities by altering laws to the disadvantage of convicted individuals and taxpayers.
Because the private prison industry is monopolistic in regions of the U.S., the main basis of their existence, reduced costs for taxpayers, is not practically true. For example, in a study conducted among Mississippi penitentiaries, the average cost per inmate per day was $46.50 in private prisons versus $37.50 in public penitentiaries, 24% higher (Mumford). Despite this, the quality of service is, in many cases, inferior to public correctional facilities with widespread claims of inadequate officer training and lower officer to inmate ratios, 6.9 in private versus 4.9 in public (Mumford). In turn, taxpayers are effectively paying more for an inferior product, as is often the case in monopolistic economic sectors. With officer turnover rates as high as 90%, as seen in private prisons in Texas, the main goal of correctional facilities, correction of inmates’ behavior to avoid future incarceration, is clearly not being met and the facilities themselves have little utility. Based on current data, the private prison industry is not delivering desired results and the monopolistic market share of the industry allows few corporations to profit immensely while providing, in many cases, an inferior project to cheaper public prisons.
Another, much more prevalent, debate over private versus public service regards universal healthcare in the United States. Aside from moral appeals, supporters of universal health care claim that there are many economic benefits to be reaped, and that the provision would ultimately cut the costs of healthcare. According to a recent economic study conducted by the University of Massachusetts at Amherst, the administrative costs of dealing with various insurance companies totals 13% of revenue for physicians, clinics, and dentists and 8.5% of revenues for hospitals (Pollin). Additionally, universal healthcare would help to slash the infamously high pharmaceutical prices in the U.S., where the average price of the top seven highest selling drugs is 53% higher than the average costs of the same drugs in Canada, France, and Germany, all countries with universal healthcare (Pollin). The study concludes with a prediction that government-sponsored universal health care could reduce current average healthcare costs by 17.7% (Pollin).
In the case of correctional facilities and healthcare, as well as many other industries, the political debate rages on over whether private or public control of the industries is in the best interest of citizens. Recent legislation has moved against the private prison industry, and the economic data supports this legislation, given that taxpayers are currently paying more for an inferior product, while large corporations gain immensely. In the healthcare sector, economic forecasts predict that universal health care would be an effective economic decision, as the cost of healthcare would be reduced for most Americans. Whether this is true or not does not change the fact that some traditionally publicly serviced industries are benefited by the private market, and such decisions should be made on a case-by-case basis.
Works Cited
“Correctional Officers and Jailers.” U.S. Bureau of Labor Statistics, U.S. Bureau of Labor Statistics, 3 Apr. 2019, www.bls.gov/oes/current/oes333012.htm.
Kann, Drew. “The US Still Incarcerates More People than Any Other Country.” CNN, Cable News Network,21 Apr. 2019, www.cnn.com/2018/06/28/us/mass-incarceration-five-key-facts/index.html.
Mumford, Megan, et al. “The Economics of Private Prisons.” The Economics of Private Prisons | The Hamilton Project, The Hamilton Project, 23 Oct. 2019, www.hamiltonproject.org/papers/the_economics_of_private_prisons.
Pollin, Robert, et al. Economic Analysis of Medicare For All. University of Massachusetts, 2018, Economic Analysis of Medicare For All.
