Are we Really Saving Money?

According to a report by the Independent Institute by Blackstone and Hakim, states have been underestimating cost savings of private prisons.

For state-run prisons, important avoidable costs are not included in cost calculations and it is ambiguous whether short or long-run costs are considered. Often, avoidable state prison costs are delegated to other departments of the state government, which are not included in the state’s calculation of cost per inmate per day. Thus, these cost omissions are not adjusted for and deflate costs for state prisons.

However, the same can be said for private prisons.

According to a journal by Alex Friedmann published in Prison Legal News and the Fordham Urban Law Journal, cost-shifting factors (e.g. differences in prisoner populations, security levels, medical expenses, transportation costs and administrative overhead) inflates the expenses paid by the public contracting agency, while deflating the expenses of private prisons.

The article pulls out several examples highlighting the need to adjust for these cost-shifting factors, mainly emphasising that the non-adjusted rate of private prisons indicated cost savings while the adjusted rate instead indicated a net loss. The article also states how the cost of private facilities in Hawaii in 2007 and 2009 increased by 14.9% and 19.4% respectively, after adjusting for cost-shifting factors. The article quotes from the Florida Center for Fiscal and Economic Policy 2010 report, stating that

“[t]here is no compelling evidence that the privatisation of prisons has actually resulted in savings…. It is very difficult to ensure that a private prison is in fact 7% less costly to operate than a comparable public prison.”

Furthermore, Blackstone and Hakim’s report states that private prisons lower costs and improve quality by introducing more competition into the industry. However, according to The Hamilton Project, the extent of the competition is not substantial due to the small number of firms in the business. Compared to the year 1999 where there were 12 for-profit prison firms, since then, eight have been acquired and only two new firms have opened.

They calculated that the “two largest private prison companies account for around 55 and 30 percent of all private prison beds, respectively, and the 3 largest firms provide over 96 percent of the total number of private prison beds.”

Due to the complexity of the industry and difficulty in calculating accurate costs that take into account cost-shifting factors, how are we to know if private prisons are actually cost effective? With many of research articles and yet no clear answer, Friedmann suggests that we may be asking the wrong question. Instead, he invites us to take a step back and look at the bigger picture:

“Should we incarcerate people in private, for-profit prisons even if they do save money?”


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