Testimony presented before the Little Hoover Commission, State of California State Capital Building, Sacramento, California
August 28, 1998

David J. Theroux
Founder and President, The Independent Institute

I greatly appreciate the opportunity to discuss the problem of California prisons and corrections. Founded ten years ago, the Independent Institute is a non-profit, non-politicized, scholarly public policy research organization. The Institute pursues a program of producing 8-10 books annually plus numerous other studies, including our series, Independent Policy Reports, and our quarterly journal, The Independent Review. The results of this work then form the basis for our numerous conference and media programs.

Unlike most all policy organizations and “think tanks,” the Independent Institute was not started by and is not viewed nor does it represent any partisan or political group or special interest. Instead of examining issues in terms how they may be momentarily framed politically in Sacramento or Washington or in the media, the Institute analyzes public issues in terms of the cause and effect nature of the entire range of government policies that affect any particular problem.

In so doing, we have been engaged in a series of research projects on the nature and causes of violent crime, and its possible reduction and prevention. This work has focused on such issues as juveniles, firearms, drugs, policing, victim’s rights, restitution, welfare and poverty, civil liberties, sentencing, prisons, and more. As a result, I have also been a member of the Kansas State Crime Commission, appointed by both past Governor Joan Finney (D) and current Governor Bill Graves (R).

In my presentation, I wish to discuss the problem of crime in the U.S. and California in particular, and how privatization offers promising solutions: in financing construction and operation of prisons, parole and other corrections functions. In addition, the prison population of California could be reduced through a redefinition of what behavior should be criminalized. Furthermore, we should move toward making prisons self-financing. My discussion will draw from a number of Independent Policy Reports we have produced including “Prisons and Corrections, Privatization in Criminal Justice, Victim’s Rights, Restitution and Retribution”, and “Illicit Drugs and Crime”, as well as our forthcoming book from New York University Press, To Serve and Protect: Privatization and Community in Criminal Justice.

The Problem:

Nationally and in California, the 1980’s saw a continuation of the steep rise in the total number and percentage of individuals “under correctional care, custody, or control” that had begun in the early 1970’s. In addition to a rising crime rate, factors such as general “get-tough-on-crime” policies and their application to the use and trade of drugs, in particular, played a dominant part. By 1990, 4.3 million adults were either on probation (the largest number), in jail, in prison or on parole—over 2% (2.35%) of the total U.S. adult population. In addition, 66,000 juveniles were under custody nationwide in public and private juvenile facilities (a rate of 259 per 100,000 or .26%). As of November, 1995, the prison population in California state prisons totaled 134,718 of which 93% being men, with this figure having been projected to grow by almost 13% (12.8%) to about 150,000 (148,599) by June 30, 1996. This contrasts with a California prison population of just less than 35,000 inmates as recently as 1983. By mid-’96, California’s prisons were projected to operate at a crowding level of approximately 185% of capacity at a cost of $4.3 billion or 10% higher than for the previous year. And during the past ten years, the state’s parole population has grown from less than 28,000 to a projected 93,400 by mid-1996. These projections incidentally do not include the possible explosion of incarcerations as a result of “Three Strikes and You’re Out,” which well might produce as many as over 19,000 additional inmates per year.1

In 1972, just before this prison population explosion was set to go off, the number of sentenced prisoners in state and federal facilities stood at 196,000 (93 per 100,000 in the total adult population).2 By 1980, the numbers had grown to 316,000 (and 138 per mill, respectively).3 By 1990, the number of prisoners had reached 740,000—almost 2 1/2 times the 1980 total.4 And for 1993, the total of state and federal prisoners approached one-million (at 948,881 an incarceration rate of 351 per thousand resident Americans), with annual increases of 7% in the state prisons and 13% in federal facilities.5

Privatization of course is the transfer of ownership, operations and responsibilities from the government to private hands. The concept takes many forms in practice, from the wholesale divestiture of major government-run enterprises to the contracting-out of services to private vendors.

The motivation for embarking on a course of privatization is that the private sector tends to be far more efficient than government bureaucracy, so that there is substantial money to be saved. Furthermore, firms in a market exist so long as they provide goods and services that customers want and will voluntarily pay for.

Correctional services constitute one of three components of law enforcement, the other being the police and the courts. The importance of corrections is reflected in that it consumes on the average as much as what the states spend on the other two combined.6

Corrections in the form of prisons began in this country as a private enterprise run by Quaker societies during the colonial period.7 The type of privatization most common today involves the management, construction and financing of entire prison facilities by private companies under government contract. Beginning in the early 1980’s, this movement has grown from a few contracts to where today it ranges from relatively small detention facilities to sizable medium-to-heavy security institutions. Estimates of the current number of private facilities around the country under private management have been put at 80 or more, with the total number of beds approaching 40,000. By 1994, the industry’s leading company, Corrections Corporation of America, had approximately 15,000 beds under contract in 27 correctional facilities, with its business having grown 41% in number of beds annually. Today, the firm “operates 59 jails and prisons in 17 states, the District of Columbia, Puerto Rico, Australia and the United Kingdom.”8

By privately contracting out, states can literally guarantee themselves cost savings in all aspects. This is because government contracting with private parties should be approved only if they save the government money. In fact, at least one state, Tennessee, requires by law that prison management contracts be at least 5% below public costs.9 In Texas, the bidding process operates on the stipulation that bidders only submit proposals at 10% below public cost projections.10

Comparisons of publicly available cost figures substantiate the economic advantage of turning over prison management to private vendors with savings ranging from 5-10% resulting from operational costs.11 Given the large costs involved, 5-10% savings are no negligible gain in efficiency. In the California Department of Corrections, they could result in annual savings of some $155-310 million for the state’s operational budget.

Various estimates for prison construction under government auspices range from $50,000-100,000 per cell nationally, while in California, the average cost per design bed for the most recently constructed state prisons ranged from $68,000 to almost $120,000.12 In comparison, the costs of “private prison construction” are far less. For example, the private construction of a 350-bed minimum-security facility in Houston was completed at a cost of $14,000 per bed.13 A more recent example is the Metro-Davidson medium-security facility in Nashville, where total costs of building an 870-bed unit was $20,700 per cell.14 Equally important is the Silverdale Detention Center outside Chattanooga where $1.6 million in construction additions were made without the government having to spend a penny.15

Efficiency in construction means not only lower costs but also the all-important factor of greater speed. For example, the Houston facility was built in just six months, as against the government agency’s own average of 2.5 years.16 The state of Pennsylvania in 1975 turned to a private contractor to deal with a newly-imposed legal mandate that juvenile offenders could no longer be incarcerated with adults. In ten days, the private company was able to put into operation an “intensive treatment unit” for juveniles by converting a building complex already owned by the state.17

Prison construction and management companies are also often now becoming the primary financiers of prison-construction projects in a growing number of instances, namely lease-financing techniques.

Even many of those who, for a variety of reasons, oppose the idea of giving the private sector a large part to play in corrections are willing to concede these efficiency gains that can be achieved. Their concern however is that quality will suffer if costs are cut. However, studies of private prisons now show the opposite to be the case. Private prisons have been found to outperform their governmental counterparts on nearly every dimension of quality.19 Furthermore, private prison companies are willing and able to take on management responsibilities from minimum to maximum security institutions.

Efficient design and building techniques used by private vendors in the construction of prison facilities have also not compromised quality. There is today a store of knowledge on how to build prisons that are safer and require less manpower to operate. Private companies have been in the vanguard in taking advantage of innovations in design, selection of materials and other construction technologies.20

The weakness of the arguments against prison privatization suggests that much of the opposition is driven by other interests, including the fear that privatization will lead to loss of jobs or “turf.” And, it explains why public employee unions are among the staunchest and most vocal critics of privatization. However, I believe that such opposition can be very effectively defused through innovative approaches which include Employee Stock Ownership Plans and other means to involve existing correctional workers as participating owners. Fears and concerns of all manner can be further allayed by good competitive contracting procedures.

Prisons are presently populated in large part by people who have committed drug-related crimes, including both non-violent offenses such as the using and selling of drugs as well as the violent offenses associated with black market enforcement of contracts by illicit drug enterprises. Although controversial, an increasing number of scholars, journalists and public officials, including Nobel Prize-winning economists Milton Friedman and Gary Becker, columnists Anthony Lewis and William Buckley, Baltimore Mayor Kurt Schmoke, former Secretary of State George Shultz, Judges Vaughn Walker and Robert Sweet, and former San Jose Police Chief Joseph McNamara, have been urging alternatives to imprisonment for a variety of non-violent offender classes. And, private vendors have traditionally been major players in these services and today, they are in the vanguard of providing the more novel aspects, such as electronic monitoring.

However, as I mentioned earlier, California is experiencing an enormous prison problem. The costs involved cannot be covered merely through the savings from the private contracting out of prisons nor from further proposals to reduce prison populations by decriminalizing non-invasive illegal behavior.

At present, taxpayers cover the direct costs of running the prison system, as well as such indirect costs as the maintenance of an inmate’s family through welfare programs since criminals cannot earn money for family support. In effect, inmates are guaranteed an all-expense stay at taxpayer expense with unlimited health care benefits, legal services, college educational opportunities, and much more.21

To address this problem, I would suggest the following: (1) a private market for criminals’ labor services should be developed, and (2) criminals should post bonds if they are released under a probation or parole arrangement, thereby creating a private bonding market that will also tend to supervise probationers and parolees.

When prisons were first developed, they were self-financing. Later during the 19th century, many state prisons were able to finance their own operations and indeed turn over surplus funds to state treasuries. As late as 1885, 70% of all prison inmates were involved in some form of productive endeavor, mostly in private contract and leasing systems.22 Today however, the prison population represents a huge pool of unused labor that simply drains state treasuries rather than contributing to them.

It is important to note that the earlier work programs which became notorious for inhumane treatment of prisoners arose in state government-run facilities with a government-monopoly over the labor provided by prisoners. However, these problems could be avoided through competitive contracts between a firm and the government (or preferably the criminal himself or herself), specifying work conditions and wages, proportion of wages going for room and board as well as to the criminal’s family and to victims for restitution. Criminals once convicted could voluntarily accept or reject various contracts, all the time still having to select some option that would work off in the most expeditious manner a court-mandated fine including restitution to victims.23

As a result, prisoners would be paid wages based on productivity and where they can develop and apply marketable skills. Because the purpose of prison in such a system is to direct the offender to work toward repayment of a debt, there would be strong incentives to put the prisoner’s time to its most productive use. This directly contrasts with current prison systems where prisoners are largely idle, at best put to work at menial labor to support the prison laundry or kitchen, or engaged in make-work programs such as making license plates.24

In 1979, Congress removed the federal restrictions on the interstate sale of prison-made goods under conditions pertaining to prevailing wage rates. And between 1979 and 1988, more than half the states passed legislation authorizing private-sector involvement in prison-work programs.25

Consequently in 1989, the National Institute of Justice identified more than 70 private manufacturing, service, and light assembly firms employing prison labor in 16 states, with the number having doubled from just the previous year.26 In South Carolina for example, prisoners in the start-up phase of two private-sector programs had earned $2.4 million in wages by the end of 1992, with about $500,000 going to taxes, $119,000 to victim compensation, $322,000 to room and board, $364,000 to family support, and even $1.1 million to inmate savings accounts.27

  • In Florida, for example, PRIDE (Prison Rehabilitative Industries and Diversified Enterprises) is dedicated to operating all of the state’s prison industries for job training on state-of-the-art equipment. PRIDE overhauled optical factories, a tire recapping plant, a furniture manufacturing facility, and several garment industries—some forty-seven industries in twenty prisons doing $80 million in volume in 1989. During the first seven years of PRIDE’s operation, the state received financial benefits of $35 million from profits, capital improvements including new prison industries, and cost avoidance in vocational training. But despite its success and because of special interest politics, PRIDE’s employment has been limited to about 6% of the prison population.28

  • Control Data, the electronics firm, tested and trained 150 Minnesota prisoners to assemble computers. Inmates did the job one and a half times as rapidly as regular employees, and during one three-month period the error rate of the prison workers was lower than that at any of the company’s other assembly units.29

  • Best Western established a telephone reservation center in an Arizona women’s prison. Since 1981, the company has regularly employed more than 175 inmates with 50 having been promoted to supervisory positions.30

  • In North Carolina, Hugh Morton hired female inmates to handle telephone reservations in the state’s Travel and Tourism division. The operation has saved taxpayers substantial amounts and freed up valuable space.

  • The Chino Prison in California trains inmates to be deepsea divers. Some 90% of the graduates find jobs in commercial diving, inspecting dams, bridges, underwater pipelines, and oil platforms. Only 8% of the Chino graduates return to crime.

  • The Federal Bureau of Prisons has established UNICOR, one of the finest prison industry programs in the country, but even this is resisted by private and political interests.

  • In Singapore, private companies have set up factories in various parts of the prisons, and they are run with astounding efficiency. At one site inmates assemble sophisticated circuit boards; at another they manufacture beautiful rosewood furniture; there is a large bakery, a printing plant, and a massive crafts area. Through open competitive bidding, private industries win the right to run shops inside the prisons. Approximately $8 million goes toward prisons costs, and the businesses make a profit. Inmates are paid a percentage of the going wage for comparable work outside, some of which are saved and some are paid to the prison for room and board.

  • Prison industries are also large and flourishing in Japan, where private entrepreneurs contract for prison labor. Convicts work in industries such as salvage, metalwork, tooling, and carpentry. They also participate in regular industrial work at the shipbuilding docks where they work alongside non-inmate labor.31

  • Massachusetts has a program called EARN-IT. If an offender refuses to pay back his victims, he will be sentenced to weekend in jail. If he continues to refuse, the sentence is increased. Given the choice, 70% of all offenders, and 86% of juvenile offenders, choose to repay their victims. Local businesses provide jobs for offenders.

  • Over half of the states now have restitution programs. Most have authority for it but simply haven’t funded it. Private work prisons now provide that opportunity to do so.

  • Through Prison Fellowship, non-dangerous inmates are released to renovate ghetto homes or community centers, or to do other meaningful community work. There are more than fifty such programs a year—like Fullerton, California, where inmates renovated the home of an elderly couple whose wheelchair-bound daughter needed a ramp to get up the front stairs. Or Los Angeles where ten inmates turned two sheds and a house into a live-in treatment center for drug-dependent infants. OR Columbia, South Carolina, where a group renovated a child’s playground in the inner city.

However, more criminals today are sentenced to probation than to prison. In fact, 38% of the people arrested for felonies are under criminal justice supervision in the form of parole, probation, or pretrial release.32 I suggest that parole and probation supervision be privatized as well. Prisoners eligible for parole could be required to post a financial bond against specific violations of their release program. As with a bail bond, the amount could be set by the courts or a parole board based on the criminal’s history and prospects. These bonds might be obtained from family or friends as bail often is (or for parole, the money might be earned in a prison work program as I have discussed), but in addition, they could be obtained from private bondsmen for a fee. Upon completion of the period of supervised release, the bond would be returned. Violating the terms of the release program would result in imprisonment, whereupon some portion of the private bond could be returned to the bonding agent who successfully turns over a violator. A private bondsman would have strong incentives to insure compliance in order to obtain full repayment of the bond upon successful completion of the period of supervised release, and a bounty hunter arrangement could easily develop to pursue those who flee, given that turning in such a fugitive results in repayment of a substantial portion of the bond. Inability to obtain a bond would be a reflection on the high risk of the individual who is unable to attract the assistance of either friends, family, or private bondsmen. In such cases, “why should the general public risk having such a person on the street?”33

Such a private financial market would provide valuable information for the courts and parole boards in their attempts to sort out who should be released and who should not. It would also substantially reduce the need for public parole and probation officers since private bondsmen would provide close supervision in order to insure loss of the bond. If such privatization of probation and parole were to increase the effectiveness of selection and supervision, as private bail does relative to pretrial release, then the criminals released to these programs would pose less significant threats to citizens. Perhaps they would become less unpopular, relieving some of the pressure to put certain types of criminals (e.g., non-violent felons) in prison and leave them there for long periods.


In closing, the state of California today has an opportunity to embrace privatization as a way of enhancing the efficiency and effectiveness of its criminal justice system, and at huge savings! In addition, the huge prison population is an untapped resource that could be employed to substantially reduce taxpayers’ costs, thereby making prisoners pay for their own punishment (and rehabilitation). Furthermore, if criminals want to avoid prison through probation or parole, let them pay for that right as well, through a bonding system run by a private bonding market.

I would be delighted to address any questions you might have pertaining to this or other areas of the Institute’s program on criminal justice.


1. Governor’s Budget Summary for 1995-96, Office of the Governor, State of California, pp. 177-186.

2. Sourcebook of Criminal Justice Statistics 1992, U.S. Department of Justice, Bureau of Justice Statistics, Table 6.58 at 581.

3. Id.

4. Id.

5. Bureau of Justice Statistics Bulletin, Prisons in 1993, U.S. Department of Justice, Bureau of Justice Statistics, Table 2 at 2.

6. See 1992 Sourcebook, supra, note 3, Table 1.7 at 7. The precise percentages vary according to whether local (county and Municipality) expenditures are counted or those drawing on the state budget only.

7. C. Rothman, Conscience and Convenience: The Asylum and its Alternatives in Progressive America (1980).

8. Information culled from CCA News Releases and quarterly and annual Stock Holder Reports; Robert B. Gunnison, “Privately Run Prison Planned for Mojave,” San Francisco Chronicle, August 1, 1997, p. A22.

9. Tennessee Code Ann. § 41-24-104 (4) (c) (1).

10. Information provided to Independent Institute Research Fellow Samuel Jan Brakel on site-visit to Nashville (1987); confirmed in Ramirez, “Privatizing America’s Prisons, Slowly,” The New York Times, August 14, 1994, Sec. 3, pp. 1,6.

11. Edwin Meese, “Why We Need More Federal Prisons,” Chicago Tribune, February 1988.

12. DeWitt, “New Construction Methods for Correctional Facilities,” Construction Bulletin, National Institute of Justice, U.S. Department of Justice, March 1986. David Ashley and Melvin Ramey, California Prison Capital Cost Reduction Study, University of California Office of the President, July 1996, p. 21.

13. Grant and Bast, “Corrections and the Private Sector: A Guide for Public Officials,” Heartland Institute Policy Study, No. 15, May 1987, note 26; Report Relative to Prisons for Profit, Massachusetts Legislative Research Council, House No. 6225, July 1987.

14. The New York Times, supra, note 24.

15. Logan and McGriff, “Comparing Costs of Public and Private Prisons,” Research in Brief, National Institute of Justice, October 6, 1988.

16. Brakel, “Privatization and Corrections,” Federal Privatization Project, Reason Foundation, Issue Paper No. 7, January 1989.

17. DeWitt, supra, note 40.

18. J. Mullen, K. Chabotar and D. Carow, The Privatization of Corrections, National Institute of Justice, U.S. Department of Justice, 1985.

19. C. Logan, Well Kept: Comparing Quality of Confinement in a Public and a Private Prison, National Institute of Justice, 1991, note 31. Logan’s primary collaborators were prison specialists John J. DiIulio (Princeton University) and Charles W. Thomas (University of Florida). While Thomas is a proponent of prison privatization, DiIulio is at best a skeptic on the subject.

20. DeWitt, supra, note 40.

21. David Rasmussen and Bruce Benson, The Economic Anatomy of a Drug War: Criminal Justice in the Commons, Lanham, MD, Rowman and Littlefield, 1994.

22. Morgan Reynolds, Using the Private Sector to Deter Crime, Dallas, TX, National Center for Policy Analysis, 1994.

23. David Anderson, “EARN-IT: A Key to the Prison Dilemma,” Across the Board 20, November 1983, pp. 34-42. For instance, in a restitution program called EARN-IT, in Quincy County, Massachusetts, forty local businessmen provided jobs to offenders who are unable to find them elsewhere. The employees acted as supervisors during work hours, and offenders reported to probation officers. In other experimental restitution programs, offenders returned to jail or a “half-way house” at night (recall that most half-way houses are contracted out to private firms, which clearly could also take on the role of collecting and distributing restitution payments).

24. Bruce Benson, Privatization in Criminal Justice, Independent Policy Reports, The Independent Institute, Oakland, CA, 1996.

25. Barbara Auerbach, George Sexton, Franklin Farrow, and Robert Lawson, Work in American Prisons: The Private Sector Gets Involved, Washington, DC, U.S. Department of Justice, National Institute of Justice, 1988.

26. Id, p. 16.

27. Reynolds, supra, p. 34.

28. State of Florida, Office of the Auditor General, Report No. 11594, Performance Audit of the Prison Industries Program Administered by Prison Rehabilitation Industries and Diversified Enterprises, Inc., March 4, 1991.

29. Warren E. Burger, “Ex-Prisoners Can Become Producers, Not Predators,” Nation’s Business, October 1983, pp. 38-39.

30. Auerbach et al, supra, p. 28.

31. Elmer Johnson, Open Prisons in the Japanese Manner, Center for the Study of Crime, Delinquency, and Corrections (Carbondale: Southern Illinois University), pp. 15-18.

32. National Institute of Justice, Felony Defendants in Large Urban Counties, 1990, Washington, DC, U.S. Department of Justice, National Institute of Justice, May 1993.

33. Reynolds, supra, p. 31.