Profiteering on poverty


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THE development of a market in private prisons showing that ‘zero tolerance’ policy can be profitable, brings an unexpected twist to the debate about decriminalising drug use. The spectacular growth of the American prison population, largely due to the antidrug laws enacted during the last 20 years, has resulted in the creation of private firms specialising in building and managing prisons. These ‘correctional corporations’ are paid between US$ 50 and $ 150 per day per inmate from the budgets of states, counties or cities in order to manage prisons on their behalf.

At present, private corporations handle some 120,000 prison beds, or about 6% of the national total of 2 million inmates, but they are aggressively trying to increase their ‘market’ share. The largest correctional firm is Corrections Corporation of America (CCA). It manages 55,000 prisoners, or around 45% of the private prison beds in the country; it is the largest private prison firm in the world. The stock of Nashville-based CCA is traded on the New York Stock Exchange, and its shares are among Wall Street’s hottest with a rate of profitability usually associated with the high-tech firms of Silicon Valley.

Wholesale imprisonment and the parallel boom in prison building is a phenomenon that will affect American society durably into the third millennium, for its implications reach far beyond the enrichment of a few networks of southern old boys. Indeed, the emergence of private correctional firms is but one facet of a much more serious problem: the rise of a ‘prison-industrial complex’ with serious consequences on American democracy.

For the last 25 years the response of American politicians to the problems of drug trafficking and consumption in the United States has invariably been imprisonment. While U.S. drug control policy has failed to curb trafficking, use and, much less, money laundering in any significant way, sentences for drug offences have become increasingly longer. A 1998 report by Human Rights Watch, an American NGO, even defined the sentences as ‘disproportionate’ (meanwhile, Amnesty International has launched a campaign to end police violence in the United States and human rights violations in its prisons).

Indeed, because no politician, whether Democratic or Republican, wishes to be perceived as ‘soft on drugs’, breaches of drug laws, which are defined as ‘non violent’ by the judiciary, are more severely punished in many states today than crimes such as homicide, kidnapping or rape. This is the case in the state of New York which initiated the mandatory sentencing laws now in force at the federal level and in 50 states. In 1973, at the initiative of Nelson Rockefeller, a governor with presidential ambitions, the congress of New York passed a law obliging judges to hand down sentences of 15 years to life for the sale of two ounces of cocaine or heroin, no matter what extenuating circumstances may be involved.



That same year, America’s first ‘war on drugs’, waged by President Richard Nixon, federalised the punitive approach of the ‘Rockefeller drug laws’ – although with sentences that were not as harsh – and started a process whose latest development was the harsh crime bill enacted in 1995 at the initiative of Bill Clinton, who then hoped to win a second term in office. This 1995 legislation increased the punitiveness of the ‘mandatory minimums’ already widely used by the antidrug laws passed during the Reagan and Bush administrations.

With the antidrug hysteria that took hold of the United States in the mid-1980s, the spread of ‘disproportionate sentences’ has been accompanied by an intense nationwide wave of arrests: the number of state prison inmates sentenced for drug offences increased by 487% between 1985 and 1995, while 60% of federal prisoners are serving time for a drug offence according to the Office of National Drug Control Policy (ONDCP), the office of ‘Drug Czar’ John Walters.

The federal government estimated that at the end of year 2000 just under two million men, women and juveniles were behind bars in the United States, about 66% of them in state prisons (the rest are in federal prisons and local jails). And the national prison population is growing: there will be around 2.1 million prisoners in December 2001. The economically and socially deprived Black and Latino communities, which taken together amount to 22% of the U.S. population, provide more than 60% of the inmates in federal and state prisons.



Under these conditions, it is not surprising to see that more and more prisons are built in the ‘Land of Liberty’, and for the last 10 years the lion’s share of federal drug control budgets has been allocated to the U.S. Bureau of Prisons, the agency managing the federal correctional system. But despite the 1,000 or so new facilities built nationwide during the last 20 years, the prison system, which many Americans now call ‘the prison-industrial complex’, is overcrowded.

Since taxpayers have become reluctant to bankroll new facilities directly, an increasing number of states, attracted by the prospect of short term savings, are turning to private operators. At any rate, saving taxpayer money is the main argument of the correctional corporations and the justification given by states, especially in the South and West, such as Texas (formerly governed by George W. Bush, the current US president) that has the record of the number of private prisons, Florida (governed by Jeb Bush, brother of the US president) and California, where private operators are the most active. The General Accounting Office (GAO), which published a study comparing the profitability of private and public prisons, concluded that there were not enough elements to decide whether private prisons really cost less.1



Interlocking boards of directors and connections in political, university and government circles seem to be the rule with America’s four largest correctional corporations. Thus, the board of CCA has included members of the political and financial gentry of the South of the United States, most of whom also sit on the boards of other large firms such as fast-food chain Kentucky Fried Chicken and motorcycle manufacturer Harley-Davidson. The French multinational corporation Sodexho Group, which sells food to institutions and is well established in the United States, is one of CCA’s largest shareholders. Sodexho’s senior vice-president, Jean-Pierre Cuny, sits alongside CCA’s chief executive officer (CEO) Richard Crants, who in turn is a member of Sodexho’s board. In addition, CCA’s board of directors has included at one point or another: a former governor, a former senator, a former judge, the president of the Tennessee section of the Republican party, a member of the board of the University of Tennessee, and so on.

A similar situation prevails at CCA’s main competitor, Wackenhut Corrections, a branch of Wackenhut Corporation based in Palm Beach Gardens, Florida. Its CEO, George Wackenhut, is a former special agent of the FBI and an advisor of the business school of the University of Miami. Members of the board of Wackenhut Corporation have included a former governor and U.S. representative, a former assistant secretary of defence and U.S. ambassador to the United Nations, former high-ranking military officers, former ambassadors and active university deans, bankers, etc. This type of multiple hat-wearing exercise, which could be defined as ‘bureaucratic capitalism’, is a tradition at Wackenhut. Indeed, between its creation as a private security firm close to the federal government in 1954 and its foray into prison management in the 1990s, Wackenhut’s board of directors has looked like a club of the U.S. national security establishment, including a former director and a former deputy director of the CIA, a former director of the Defence Intelligence Agency (DIA), a former FBI director, a former head of the Secret Service and a former Attorney General. Unsurprisingly, despite George Wackenhut’s vehement denial, it has been alleged that Wackenhut Corp. is a CIA front-company.



The American public is worried by the results of a 1998 audit of a private prison requested by the Justice Department. While formally the audit was motivated by the escape of six inmates from a prison run by CCA in Youngstown, Ohio, in fact it constituted a reaction to several scandals – murders, rapes of juveniles, cruel punishment – in private prisons in the previous two years. The auditors found that ‘in response to a perceived emergency’ the authorities ‘minimised competition’ in the procurement process and signed ‘a flawed contract at a somewhat inflated price’ with CCA.

The report also states that CCA ‘failed to accomplish the basic mission of correctional safety’ in Youngs-town, noting that in addition to the escape ‘there were two homicides, numerous stabbings, assaults against inmates and staff, and the widespread presence of dangerous weapons among inmates.2

Students are concerned by the presence of numerous universities as shareholders of the correctional firms at a time when states are reducing expenditures on public education while resources allocated to prison systems continue to grow. Finally, opponents of private prisons are worried by the political clout correctional corporations have gained in some states, especially their ability to impede a change of drug laws.



Nevertheless, unlike ghetto dwellers and students, prison firms are confident about the future. California provides a striking illustration of their assurance. After investing some US $4.5 billion in the construction of new prison facilities during the 1980s, the Californian prison system is the largest in the United States and in the western world with 170,000 prisoners – more than France, Germany, Japan, Holland and the United Kingdom combined. Yet it is overcrowded since officially it contains ‘only’ 85,000 beds. And due to the tough laws voted by the Californian Congress in the 1990s – especially the 1994 so-called ‘Three strikes and you’re out’ law under which a third conviction automatically means a sentence of 25 years to life – projections show that the state will be short of an extra 70,000 prison beds by 2006.

Eager to cash in on this forecasted shortage, CCA and competitors have spent more than $ 400,000 in lobbying the Californian Congress, while contributing at least $100,000 to the electoral campaign of several politicians, including the state’s attorney general. The firms hope to overcome the opposition of the powerful union of California’s prison wardens, a fierce opponent of privatisation which could endanger the prerogatives of its members. But this does not seem to worry CCA too much: even before the state granted it a new license, in 1998 the Nashville firm had started building three new facilities (4,500 beds in all) in Southern California for a total investment of $ 230 million.

This seemingly risky investment has paid off: on 7 January 2000 CCA announced that it had signed a contract with the Immigration and Naturalization Service (INS), a federal agency, for the management of 800 prisoners in a new CCA facility in San Diego, on the border with Mexico. The INS will pay CCA $89.50 per day per prisoner.

The correctional corporations are also actively looking for new markets abroad. Wackenhut already manages a prison in New Zealand, one in Curacao (Netherlands Antilles), one in England, one in Scotland, at least three in Australia and one in South Africa. It is interesting to note that the governments of the countries where the American correctional corporations are established have asked the U.S. government for help in crime-management issues. Thus, the governments of Australia, England, Scotland and South Africa (as well as Chile) have requested technical assistance from the National Institute of Justice (NIJ), a government research centre on crime placed under the authority of the U.S. Justice Department, in order to implement programmes modelled on the Arrestee Drug Abuse Monitoring Programme (ADAM) that the NIJ has implemented in the United States for several years.



The illegal drug industry is a considerable source of revenue in the poor districts of American cities, where it subsidises the economy. But now researchers maintain that the policy of all-out repression of crime in force in the United States, especially as regards drugs, can also be a hidden subsidy, as well as a form of state intervention in the labour market. Contrary to most European countries, successive American governments have drastically reduced social programmes since the Reagan presidency. According to Washington, this explains the good performance of the American economy today and its unemployment rate, the lowest among western countries.

But the war ‘on drugs’ waged for the last 15 years has turned out to be an instrument for managing the unemployed labour force, and, so to speak, the mirror image of the social policies implemented in Europe that have attracted so much criticism from Washington. Some American social scientists have coined the term ‘Carceral Keynesianism’ to describe the U.S. policy.



American prisons are populated mainly by young, black males (around 60% of inmates) who are poor, without professional skills and live in cities. It is estimated that 60% to 80% of American inmates have a history of drugs and alcohol abuse (but drug treatment programmes in prison are available to a mere 10% of inmates), while 70% are illiterate and about 200,000 suffer from serious psychiatric illnesses. Since for the time being the correctional corporations control 6% of the ‘market’, it is the public sector of the ‘prison-industrial complex’ that manages the rest, or about 1.8 million people. And while the prison boom is subsidising entire regions, the large-scale incarceration of working-age people who cannot find a job in the formal economy is ‘doping’ the U.S. unemployment statistics – at least in the short term.

The state of New York during the two terms of office of Governor Mario Cuomo (1982-1994), a Democrat, is one of the most striking illustrations of the subsidising effect of the prison boom. It also sheds light on the unusual, not to say improper, methods that were used to bankroll it.

Cuomo faced major problems when he entered office: the prison population had doubled due to the 1973 ‘Rockefeller drug laws’, and the dangerously overcrowded New York prison system urgently needed new facilities. But the state’s coffers were empty and in 1981 voters had denied the state the right to issue bonds in order to bankroll the building of new prisons.



So Cuomo decided to use the Urban Development Corporation (UDC), a public agency that was established in 1968 in order to build housing for the poor. UDC, which was legislated into existence on the day of Martin Luther King’s funeral in order to honour his legacy, does not need to obtain the approval of the voters in order to issue bonds. In addition, in order to encourage investment in social housing UDC bonds carried higher interest rates than most other state-issued bonds. From the beginning of the 1980s to the mid-1990s, Governor Cuomo thus built more prisons than all his predecessors combined. But while Cuomo did in fact build housing for the poor, it was probably not of the kind that the creators of UDC had in mind.

In another diversion from its initial objective the Urban Development Corporation was turned into a rural development body. High real estate prices and the opposition of community groups in the state’s cities pushed the authorities to build the new prisons ‘upstate’, that is in the rural areas of the north of New York state, although 80% of the inmates come from urban areas.



Thus, a region close to the Canadian border known as the North Country has seen the building of 17 prisons during the last 15 years. The population of this rural area, which is a Republican stronghold and contains a national park, is made up mostly of white small farmers who have been hard hit by the crisis of the 1980s: the mean income per capita in the North Country is 40% less than the state’s average. The new prisons have created jobs in numerous sectors of activity and represent a windfall for the poor whites of the area. For after spending more than $1.5 billion to build the prisons the state disburses $425 million a year in operating costs. This is one of the largest infusions of public cash that has ever been made in the area, stabilising the local economy. An added advantage is that because prisons do not pollute, the environment has been preserved.

As a result, some small towns in the region, such as Danemora and Malone, now have more prisoners than inhabitants. But while the North Country is enjoying a new prosperity, the families of the inmates, most of whom live in the poor black districts of New York City, complain that they have to travel more than eight hours in order to visit their imprisoned parents, and since most families are poor visits are infrequent.3

Professor John Mason of New York University summed up the situation in an interview with this writer: ‘Nowadays, the unemployed whites of the rural areas, who were ruined by the agricultural crisis of the 1980s and whose land has been bought up by large agribusiness corporations, are paid to guard the unemployed blacks of the urban areas with the money of the social programmes that, precisely, were meant for blacks.’



At the national level, according to a study published in 1998 by two sociologists from the universities of Princeton and Indiana, the imprisonment of a very large number of working age men with little or no skills is giving a distorted image of unemployment in the United States. At the time of the study (1997), 1.6 million people were in prison in the United States and the official unemployment rate was 6%. But because inmates were not counted as part of the active population, the sociologists argue that this official rate is as much as two percentage points below the real unemployment level.

However, according to the same study the ‘doping’ of unemployment statistics is only a short term effect that will be paid later by a growth and deepening of the structural unemployment that is already an acute problem in the urban ghettos where the majority of inmates come from. Indeed, the study shows that inmates are even less likely to find a job after than before serving a sentence, and if nothing changes most of them are doomed to unemployment for life – and are likely to go back to prison.4

Moreover, while 500,000 inmates were released in 1999, it is estimated that some 3.5 million prisoners will be released between 2000 and 2010, and an additional 500,000 each year thereafter. Such a large scale release of unskilled people – most of them are illiterate – will have a negative impact on the already low wages paid in poor districts, due to a massive influx of men desperate to get a job. Especially because the reform of the welfare system implemented in 1996 severely restricted prisoners’ access to welfare money.

The high rates of HIV-positivity and drug abuse that characterise the US and world prison population could turn the released prisoners into vectors of AIDS, tuberculosis and other diseases in poor districts where the sanitary situation is far from satisfactory. Meanwhile, the 1996 welfare reform has banned known drug abusers from both Medicaid and access to many drug rehabilitation programmes. Finally, a rise in violence, which is already rife in the ghettos, is expected because the disastrous conditions prevailing in many prisons (prolonged isolation, cruel punishment, sexual abuse, etc.) are not conducive to rehabilitation but to further criminalisation and mental illness. In many states, the word ‘rehabilitation’ was replaced by the word ‘punishment’ as the official goal of imprisonment.



The wholesale incarceration of those excluded from economic growth is not only an economic and social problem. It has political implications too. Indeed, against a background where millions of Americans were, are and will be serving time in prison, and where on any day more than 5 million people are submitted to one or another form of judicial control (in prison, on probation or on parole), the loss of civic rights implied by a felony conviction in a large number of states is having a statistically significant impact on the democratic power of some social groups. In most states, drug offences lead to a felony conviction.

Researchers say that we are witnessing a gradual return to racial segregation in the South of the United States because African-Americans are the group most subjected to judicial control and, therefore, the community whose voting power erodes the fastest. And this in a country where people vote not only to elect political appointees but also to choose judges and police chiefs.



According to a study jointly conducted by NGOs Human Rights Watch and The Sentencing Project, in 47 states felons cannot vote while they are in prison; in 32 states, felons on parole or on probation cannot vote. Finally, in 12 states, 5 of them southern, felons are disenfranchised for life.5

As a result of the disenfranchisement of felons, some 4 million Americans have lost their vote, including 1.4 million black males (13% of all African-American men). In seven states, four of which are in the South – Alabama, Florida, Mississippi and Virginia – 25% of black males are disenfranchised for life. The problem is also acute in some cities like Houston, Texas, and Miami, Florida, where a quarter of young black men have lost the right to vote.

The future looks even bleaker. According to a Department of Justice estimate in 1997, 29% of the black males born in 1991 will spend time in prison (compared to 4% of white males). In time, in cities located in states where felons are disenfranchised for life, as black men born before the prison boom die out, an increasingly larger proportion of the black community will be barred from voting. In southern cities like Memphis and New Orleans about 33% of the black male population could be disenfranchised by 2020.

Thus, largely as a result of the war ‘on drugs’, one of America’s greatest democratic advances in the 1960s, the civic rights of southern Blacks, could be reversed.



1. GAO, Private and Public Prisons: Studies Comparing Operational Costs and/or Quality of Service, GGD-96-158. Government Printing Office, Washington, 1996.

2. Office of the Corrections Trustee: Inspection and Review of the Northeast Ohio Correctional Center. Report to the Attorney General, Washington, 1998 (

3. E. Schlosser, ‘The Prison-Industrial Complex’, The Atlantic Monthly, December 1998.

4. B. Western and K. Beckett, How Unregulated is the U.S. Labour Market? The Penal System as a Labour Market Institution. Mimeo, March 1998.

5. The Setencing Project with Human Rights Watch, Losing the Vote: The Impact of Felony Disenfranchisement Laws in the United States. Washington D.C. 1998.