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Will America Finally Stop Privatizing Everything?

The Justice Department’s decision to shut down private prisons could signal the end of an era.

David McNew/Getty Images

Is this the beginning of the end of the three-decade-long project of privatizing public functions? Ronald Reagan started us down the privatization path in the 1980s, championing the myth that private enterprise is always and forever more efficient than the government. Last week’s Justice Department decision to not renew 13 contracts with companies managing incarceration facilities for the Bureau of Prisons—and phase out of all federal private prisons over time—has cracked that foundation, perhaps irreparably.

Thirteen contracts may seem like too small a disruption to threaten the entire private corrections industry and its $629 million in annual profits. But DOJ’s repudiation has already spurred demands to close other privatized facilities. And the logic of the decision underscores the core truism of privatization, one that citizens are increasingly finding unconscionable: The only way to manage these public operations and skim a profit off the top is to do it deficiently.

Despite years of bad publicity for the nation’s two leading private prison companies (Corrections Corporation of America, or CCA, and Geo Group), it took a Justice Department Inspector General report to force the government to act. Private prisons only house 12 percent of the federal prison population, roughly 22,660 inmates. But that’s enough to have allowed the IG to directly compare the management of those facilities to those operated in-house by the Bureau of Prisons.

The findings were not pretty. Private prisons experienced more safety and security incidents. They had higher rates of assaults, inadequate medical checkups and compliance, eight times as many incidents of contraband cell-phone smuggling, and often housed new inmates in solitary confinement units, seemingly for lack of space. The report also detailed several grisly incidents since 2008: three riots in one Reeves County, Texas facility in two months; the death of a corrections officer in a riot in Natchez, Mississippi; and the closure of the Willacy County (Texas) Correctional Center, after inmates burned it to the ground.

It’s not hard to figure out why this happens. Private companies win contracts to manage federal prisons by undercutting the Bureau of Prisons’ operational costs. Unlike the government, private prison companies must also take their profit margins out of their budgets. The only way to make that work is to massively drop labor costs, corresponding to a severe degradation of the quality of prison management.

The examples of this are legion. Wages for private prisons are over 20 percent lower than their public counterparts, and the penitentiaries are routinely short-staffed. Equipment requisitions are insufficient. Maintenance is routinely deferred. In one CCA prison in Idaho, corrections officers let the gangs help them run the facility.

That reflects the problem with privatization as a whole. Private companies must carry out a government function—be it water, parking meters, mass transit, or K-12 schools—at a lower cost than the government can provide it, while taking their profit off the top. Time and again, the results reveal that to be impossible, at least if you want to provide the same quality of service. Yet we keep privatizing. Whether it’s Republicans expanding Medicaid or cash-strapped cities handing over bus service to Uber and Lyft, eventually costs shift from taxpayers to the users of the services, oversight becomes impotent as officials grow reliant on outsourcing contracts, and attempts to maximize profits lead to service breakdowns.

When the Justice Department made its announcement, stock in CCA and Geo Group collapsed. But investors were probably too hasty in thinking that private prison companies base their business model solely on managing private prisons. It turns out that’s just a small part. Mindful of the negative publicity—and of growing bipartisan support for criminal justice reform—these companies have diversified, seeking profit from wherever an individual touches the justice system. They have robust business lines in parole services, halfway houses, and electronic monitoring. And their largest federal contracts come not from prison management, but running immigrant detention facilities.

In fact, while 12 percent of all federal prisoners sit in private prison facilities, at least 62 percent of immigrant detainees are housed in private jails. Nine of the ten largest facilities are private. These numbers have increased with the introduction of family detention centers for women and children seeking asylum. And the contract terms are outrageous; one billion-dollar contract recently unearthed for a 2,400-bed facility in Dilley, Texas, pays CCA whether the beds are filled or not.

These facilities are incompetently managed as well. As of May, CCA’s camp in Dilley had been cited for 12 different state regulatory violations. Former interned Japanese-Americans have said the Dilley camp mirrors their experiences. For more than a year now, women in another facility in Pennsylvania have held a hunger strike to protest conditions.

Immigration and Customs Enforcement (ICE), a division of the Department of Homeland Security, awards contracts for private immigrant detention facilities. And almost immediately after the Justice Department’s announcement, activists and public officials were demanding that ICE follow its lead and shut them down.

Immigrant rights group Presente wants ICE to “stop paying corporations to lock up immigrants.” The American Civil Liberties Union agrees, as does AFSCME union leader Lee Saunders, and the New York Times editorial board. Senator Bernie Sanders and Representative Raul Grijalva jointly penned a letter to Homeland Security Secretary Jeh Johnson seeking an end to private detention centers. California Senate candidate Kamala Harris has a similar petition. Even Democratic presidential nominee Hillary Clinton has said, “we should end private detention centers.”

While ICE has not responded publicly to this drumbeat—in fact, they’re actively planning to open new private detention centers—this cannot help but have an impact, especially if Clinton wins the White House.

Unlike the DOJ’s closures, losing its detention-center contracts would represent an existential crisis for the industry. Federal contracts comprise between 42 and 44 percent of all CCA and Geo Group revenues. Both companies attributed their strong financial performances last quarter to an increase in immigrant-detention center contracts. Private prison companies benefit from a government mandate to maintain at least 34,000 immigrant detention beds at all times. If this government-fed forced profit withers, the private prison companies will too. And this lesson in the brutal logic of privatization could spark a mass reconsideration of outsourcing what we know of as government to a company trying to make a buck.