Prisons Inc.: The big business of incarceration

When it comes to a captive audience, there may be few as attractive to some businesses as the 2.2 million people locked up in America’s prisons and jails.

Incarceration has become a profit center for companies ranging from private prison operators to telecom companies, raising concerns among advocates about the ethics of profiting from incarceration as well as high recidivism rates for private prisons and safety issues. That’s why the Department of Justice’s announcement on Thursday that it will “ultimately eliminate the use of privately operated prisons” was heralded as a step forward by reform advocates as well as lawmakers such as Senator Bernie Sanders (I-VT).

Yet the private prison industry may represent only the most visible part of a growing trend to sell services and goods to prisons and jails. Phone companies, for instance, charge rates as high as $1 a minute for calls to people behind bars, creating a $1 billion industry. Providing health care to inmates has also become a privatized billion-dollar business. Even financial services companies have gotten into the business by selling “release cards,” or pre-paid debit cards (with high fees) that are given to inmates when they are discharged, rather than the traditional check or cash.

“Most of the prisons are publicly run, and a tiny number of them are outsourced to private companies,” said Peter Wagner, executive director of the Prison Policy Initiative, an advocacy group for prison reform. “Private prisons are conceptually easier to understand for the public” than issues such as the private probation industry and the outsourced goods and services sold to prisoners and their families, he noted.

Wagner said he doesn’t view the DOJ’s announcement as particularly exciting, given the small slice of the industry that’s handled by private prison companies. He said that the policy change isn’t designed to reduce the ranks of incarcerated people, which has surged more than four-fold since 1980. It also doesn’t include halfway houses and Immigrant Detention Centers, which is the fastest growing area of the private prison industry.

Private prisons hold about 8 percent of the prison population, according to Ruth Wilson Gilmore, a professor at the City University of New York. On the other hand, the private prison industry runs about 62 percent of all beds in immigrant detention centers, up from about 25 percent in 2005. 

The privatization of prisons and jails stems from the early 1980s, when the Corrections Corporation of America was formed. One of its founders said their approach was the same as any other business. “You sell it like you were selling cars or real estate or hamburgers,” CCA co-founder Thomas W. Beasley told Inc. magazine in 1988

It should go without saying that prisons -- as well as the goods and services within them -- are very different than hawking consumer goods to people who aren’t behind bars. People who aren’t incarcerated can take their business elsewhere if they feel they have a bad deal. People who are free have recourses if they are sold a bum product or are treated badly.

And things do go wrong with private businesses operating prisons. In one 2012 case, a youth facility in Mississippi operated by GEO, one of the top private prison companies, was described by a judge as a “a cesspool of unconstitutional and inhuman acts and conditions,” exacerbated by excessive force by prison officials and staff that was affiliated with gangs. 

“Study after study after study has shown private prisons are not cheaper, they are not safer, and they do not provide better outcomes for either the prisoners or the state,” Sanders said in a statement on Thursday in response to the DOJ’s decision. Last year, Sanders introduced legislation to bar private prisons.

Private prison stocks plunged after the DOJ’s announcement, but rebounded slightly on Friday. Investors may be realizing that even if the DOJ does eliminate its contracts with private prisons, this represents just a small part of their business. The Geo Group (GEO​), for instance, relies on the DOJ contracts for 11 percent of its business, while Corrections Corp. (CXW​) receives 9 percent of its revenue from the contracts, according to CNBC​. 

On Friday, the Geo group sought to reassure investors that it was business as usual by noting that a Bureau of Prisons contract for one of its facilities had been renewed through 2022. “We are very appreciative of the continued confidence placed in our company by the Federal Bureau of Prisons with this important contract renewal,” CEO George Zoley said in a statement.