Jailhouse Crock: Are Private Prisons a Problem?

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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I've made no secret of my belief that the government should privatize a lot of what it does. But I'm prepared to draw the line at administering prisons and welfare programs. The thing that makes markets work is that your customers can leave your establishment if you're doing a bad job. When the "customers" have no choice, then you at least want to think hard about whether the private sector should be providing the service.

So I'm prepared to be sympathetic to the aim of pleas like this one, if not the means. They want the government to stop contracting with private prisons, and in service of this goal, they would like people to stop investing in private prison firms.

It isn't that I'm against divestment on moral grounds; you certainly have the right not to invest in things you find abhorrent. Indeed, I think you shouldn't invest in companies that you think do great moral wrongs. But I don't think that divestment actually achieves any concrete goal, other than keeping blood money out of your pockets. Enough people don't participate in any given campaign to make a material difference in the stock price.

But beyond that, in this case, I'm not even sure we should want to put a stop to private prisons. Last year, I went to Hawaii to learn about their probation system. I discovered a lot of things that surprised me, but none more than this: Many of Hawaii's prisoners prefer being sent to a privately run facility in Arizona, rather than staying in the overcrowded government-run facility on Hawaii.

I wouldn't have believed this if their own defense attorneys hadn't been the ones telling me so. The Arizona facility was (comparatively) spacious and well appointed. The prisoners could have televisions in their room. And there were vending machines in the visiting area, so that they could have a little picnic with their families. (Two separate people used the word "picnic." Everyone mentioned the televisions and the vending machines.)

The reason this is possible, as far as I was able to ascertain, is real estate arbitrage. Land in Hawaii is really expensive, and it's surrounded by people who don't want more prisons built there. Land in Arizona is in the middle of empty desert -- low price, and no neighbors. You can build a large, light-filled facility that gives everyone more room, and even provide some extra amenities for the prisoners, and it still costs a lot less to house a prisoner there than it does in Hawaii.

Obviously, this is going to be the truest for prisoners in high-cost states like Hawaii, California and the northeast coastal areas. And there are other potential issues with far-off private prisons: They're harder to monitor, and harder for families to visit. But before I took steps to shut them down, I'd want to make sure that doing so would actually make the prisoners in them better off. I am completely open to persuasion on this subject. But we shouldn't just assume that because someone is making a profit, that money must come from making prisoners worse off.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net