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US: America's Private Gulag

by Ken SilversteinPrison Legal News
June 1st, 2000

What is the most profitable industry in America? Weapons, oil and computer technology all offer high rates of return, but there is probably no sector of the economy so abloom with money as the privately run prison industry.

Consider the growth of the Corrections Corporation of America, the industry leader whose stock price has climbed from $8 a share in 1992 to about $30 today and whose revenue rose by 81 per cent in 1995 alone. Investors in Wackenhut Corrections Corp. have enjoyed an average return of 18 per cent during the past five years and the company is rated by Forbes as one of the top 200 small businesses in the country. At Esmor, another big private prison contractor, revenues have soared from $4.6 million in 1990 to more than $25 million in 1995.

Ten years ago there were just five privately-run prisons in the country, housing a population of 2,000. Today nearly a score of private firms run more than 100 prisons with about 62,000 beds. That's still less than five per cent of the total market but the industry is expanding fast, with the number of private prison beds expected to grow to 360,000 during the next decade.

The exhilaration among leaders and observers of the private prison sector was cheerfully summed up by a headline in USA Today: "Everybody's doin' the jailhouse stock". An equally upbeat mood imbued a conference on private prisons held last December at the Four Seasons Resort in Dallas. The brochure for the conference, organized by the World Research Group, a New York-based investment firm, called the corporate takeover of correctional facilities the "newest trend in the area of privatizing previously government-run programs... While arrests and convictions are steadily on the rise, profits are to be made -- profits from crime. Get in on the ground floor of this booming industry now!"

A hundred years ago private prisons were a familiar feature of American life, with disastrous consequences. Prisoners were farmed out as slave labor. They were routinely beaten and abused, fed slop and kept in horribly overcrowded cells. Conditions were so wretched that by the end of the nineteenth century private prisons were outlawed in most states.

During the past decade, private prisons have made a comeback. Already 28 states have passed legislation making it legal for private contractors to run correctional facilities and many more states are expected to follow suit.

The reasons for the rapid expansion include the 1990's free-market ideological fervor, large budget deficits for the federal and state governments and the discovery and creation of vast new reserves of "raw materials" -- prisoners. The rate for most serious crimes has been dropping or stagnant for the past 15 years, but during the same period severe repeat offender provisions and a racist "get-tough" policy on drugs have helped push the US prison population up from 300,000 to around 1.5 million during the same period. This has produced a corresponding boom in prison construction and costs, with the federal government's annual expenditures in the area, now $17 billion. In California, passage of the infamous "three strikes" bill will result in the construction of an additional 20 prisons during the next few years.

The private prison business is most entrenched at the state level but is expanding into the federal prison system as well. Last year Attorney General Janet Reno announced that five of seven new federal prisons being built will be run by the private sector. Almost all of the prisons run by private firms are low or medium security, but the companies are trying to break into the high-security field. They have also begun taking charge of management at INS detention centers, boot camps for juvenile offenders and substance abuse programs.


The Players

Roughly half of the industry is controlled by the Nashville-based Corrections Corporation of America, which runs 46 penal institutions in 11 states. It took ten years for the company to reach 10,000 beds; it is now growing by that same number every year.

CCA's chief competitor is Wackenhut, which was founded in 1954 by George Wackenhut, a former FBI official. Over the years its board and staff have included such veterans of the US national security state as Frank Carlucci, Bobby Ray Inman and William Casey, as well as Jorge Mas Canosa, leader of the fanatic Cuban American National Foundation. The company also provides security services to private corporations. It has provided strikebreakers at the Pittston mine strike in Kentucky, hired unlicensed investigators to ferret out whistle blowers at Alyeska, the company that controls the Alaskan Oil pipeline, and beaten anti-nuclear demonstrators at facilities it guards for the Department of Energy.

Esmor, the number three firm in the field, was founded only a few years ago and already operates ten corrections or detention facilities. The company's board includes William Barrett, a director of Frederick's of Hollywood, and company CEO James Slattery, whose previous experience was investing in and managing hotels.

US companies also have been expanding abroad. The big three have facilities in Australia, England and Puerto Rico and are now looking at opportunities in Europe, Canada, Brazil, Mexico and China.


Greasing the Wheels of Power to Keep Jails Full

To be profitable, private prison firms must ensure that prisons are not only built but also filled. Industry experts say a 90-95 per cent capacity rate is needed to guarantee the hefty rates of return needed to lure investors. Prudential Securities issued a wildly bullish report on CCA a few years ago but cautioned, "It takes time to bring inmate population levels up to where they cover costs. Low occupancy is a drag on profits." Still, said the report, company earnings would be strong if CCA succeeded in ramp(ing) up population levels in its new facilities at an acceptable rate".

"(There is a) basic philosophical problem when you begin turning over administration of prisons to people who have an interest in keeping people locked up" notes Jenni Gainsborough of the ACLU's National Prison Project.

Private prison companies have also begun to push, even if discreetly, for the type of get-tough policies needed to ensure their continued growth. All the major firms in the field have hired big-time lobbyists. When it was seeking a contract to run a halfway house in New York City, Esmor hired a onetime aide to State Representative Edolphus Towns to lobby on its behalf. The aide succeeded in winning the contract and also the vote of his former boss, who had been an opponent of the project. In 1995, Wackenhut Chairman Tim Cole testified before the Senate Judiciary Committee to urge support for amendments to the Violent Crime Control Act -- which subsequently passed -- that authorized the expenditure of $10 billion to construct and repair state prisons.

CCA has been especially adept at expansion via political payoffs. The first prison the company managed was the Silverdale Workhouse in Hamilton County, Tennessee. After commissioner Bob Long voted to accept CCA's bid for the project, the company awarded Long's pest control firm a lucrative contract. When Long decided the time was right to quit public life, CCA hired him to lobby on its behalf. CCA has been a major financial supporter of Lamar Alexander, the former Tennessee governor and failed presidential candidate. In one of a number of sweetheart deals, Lamar's wife, Honey Alexander, made more than $130,000 on a $5,000 investment in CCA. Tennessee Governor Ned McWherter is another CCA stockholder and is quoted in the company's 1995 annual report as saying that "the federal government would be well served to privatize all of their corrections."

In another ominous development, the revolving door between the public and private sector has led to the type of company boards that are typical of those found in the military-industrial complex. CCA co-founders were T. Don Hutto, an ex-corrections commissioner in Virginia, and Tom Beasley, a former chairman of the Tennessee Republican Party. A top company official is Michael Quinlan, once director of the Federal Bureau of Prisons. The board of Wackenhut is graced by a former Marine Corps commander, two retired Air Force generals and a former under secretary of the Air Force, as well as James Thompson, ex-governer of Illinois, Stuart Gerson, a former assistant US attorney general and Richard Staley, who previously worked with the INS.


Leaner and Meaner?

The companies that dominate the private prison business claim that they offer the taxpayers a bargain because they operate far more cheaply than do state firms. As one industry report put it, "CEOs of privatized companies... are leaner and more motivated than their public-sector counterparts."

Because they are private firms that answer to shareholders, prison companies have been predictably vigorous in seeking ways to cut costs. In 1985, a private firm tried to site a prison on a toxic waste dump in Pennsylvania, which it had bought at the bargain rate of $1. Fortunately, that plan was rejected.

Many states pay private contractors a per diem rate, as low as $31 a prisoner in Texas. A federal investigation traced a 1994 riot at an Esmor immigration detention center to the company's having skimped on food, building repairs and guard salaries. At an Esmor-run halfway house in Manhattan, inspectors turned up leaky plumbing, exposed electrical wires, vermin and inadequate food.

To rachet up profit margins, companies have cut corners on drug rehabilitation, counseling and literacy programs. In 1995, Wackenhut was investigated for diverting $700,000 intended for drug treatment programs at a Texas prison. In Florida the US Corrections Corporation was found to be in violation of a provision in its state contract that requires prisoners to be placed in meaningful work or educational assignments. The company had assigned 235 prisoners as dorm orderlies when no more than 48 were needed and enrollment in education programs was well below what the contract called for. Such incidents led a prisoner at a CCA facility in Tennessee to conclude, "There is something inherently sinister about making money from the incarceration of prisoners, and in putting CCA's bottom line (money) before society's bottom line (rehabilitation)."

The companies try to cut costs by offering less training and pay to staff. Almost all workers at state prisons get union-scale pay but salaries for private prison guards range from about $7 to $10 per hour. Of course the companies are anti-union. When workers attempted to organize at Tennessee's South Central prison, CCA sent officials down from Nashville to quash the effort.

Poor pay and work conditions have led to huge turnover rates at private prisons. A report by the Florida auditor's office found that turnover at the Gadsden Correctional Facility for women, run by the US Corrections Corporation, was ten times the rate at state prisons. Minutes from an administrative meeting at a CCA prison in Tennessee have the "chief" recorded as saying, "We all know that we have lots of new staff and are constantly in the training mode... Many employees (are) totally lost and have never worked in corrections."

Private companies also try to nickel and dime prisoners in the effort to boost revenue. "Canteen prices are outrageous," wrote a prisoner at the Gadsden facility in Florida. "(We) pay more for a pack of cigarettes than in the free world." Neither do private firms provide prisoners with soap, toothpaste, toothbrushes or writing paper. One female prisoner at a CCA prison in New Mexico said: "The state gives five free postage paid envelopes per month to prisoners, nothing at CCA. State provides new coats, jeans, shirts, and underwear and replaces them as needed. CCA rarely buys new clothing and inmates are often issued tattered and stained clothing. Same goes of linens. Also ration toilet paper and paper towels. If you run out, too bad -- 3 rolls every two weeks."


Cashing in on Crime

In addition to the companies that directly manage America's prisons, many other firms are getting a piece of the private prison action. American Express has invested millions of dollars in private prison construction in Oklahoma and General Electric has helped finance construction in Tennessee. Goldman Sachs & Co., Merrill Lynch, Smith Barney, among other Wall Street firms, have made huge sums by underwriting prison construction with the sale of tax exempt bonds, this now a thriving $2.3 billion industry.

Weapons manufacturers see both public and private prisons as a new outlet for "defense" technology, such as electronic bracelets and stun guns. Private transport companies have lucrative contracts to move prisoners within and across state lines; health care companies supply jails with doctors and nurses; food service firms provide prisoners with meals. High-tech firms are also moving into the field; the Que-Tel Corp. hopes for vigorous sales of its new system whereby prisoners are bar coded and guards carry scanners to monitor their movements. Phone companies such as AT&T chase after the enormously lucrative prison business.

About three-quarters of new admissions to American jails and prisons are now African-American and Hispanic men. This trend, combined with an increasingly privatized and profitable prison system run largely by whites, makes for what Jerome Miller, a former youth corrections officer in Pennsylvania and Massachusetts, calls the emerging Gulag State.

Miller predicts that the Gulag State will be in place within 15 years. He expects three to five million people to be behind bars, including an absolute majority of African-American men. It's comparable, he says, to the post-Civil War period, when authorities came to view the prison system as a cheaper, more efficient substitute for slavery. Of the state's current approach to crime and law enforcement, Miller says, "The race card has changed the whole playing field. Because the prison system doesn't affect a significant percentage of young white men we'll increasingly see prisoners treated as commodities. For now the situation is a bit more benign than it was back in the nineteenth century but I'm not sure it will stay that way for long."

This article originally appeared in CounterPunch, a Washington DC-based political newsletter.