The global conspiracy to miss the point

ScreenHunter_16 Feb. 25 01.47I see there’s a US nationwide campaign against private for-profit prisons. Maybe the campaigners are right. It’s certainly easy to imagine ways in which the profit motive would work against the interests of prison inmates and the public interest in lower recidivism rates and so on. Yet at least judging by the sign, it’s notable how the campaign is based not around either of these things but how the idea of private prisons makes us feel. How does it make us feel?  Well yucky. But that’s at least in part because prisons make us feel yucky.

Then again in some senses private anything sounds somehow worse than publicly supplied something. Who’d want those greedy private business people selling us bread? Wouldn’t they be tempted to cut corners, put in lousy flour and charge us too much?  Public providers of bread wouldn’t do that would they? Well we all know (I think) that those things that the private providers would like to do, they can’t do in a competitive industry.  So on reflection we’d rather take our chances against the pathologies of private sector misbehaviour than public sector misbehaviour.

And if private prisons are bad, the trouble is, we know that state run prisons are horrible too.

Then we all go into our corners with the people with the signs to your left arguing that privately owned prisons are Bad and economic rationalists arguing “what’s wrong with private ownership?” and assuming that all objections to private prisons are irrational and that the real issue is always and everywhere the adequacy of contracting.

It seems to me that the emotions around the campaign are reasonable enough. We want some kind of fiduciary relation – between the prison and the public interest and the prison and the prisoners’ interest. And profit seeking makes us uneasy about this. But like I said, however this is done it needs to be brought within some kind of organisational logic and there are likely to be some nasty things about that – whether you go public or private.

I made the same kind of point when offering a sympathetic critique of Ken Harvey’s opposition of ads in medical prescription software. Yes ads are tacky – indeed they’re ethically dubious. But while we squabble about that we seem to spend almost no time on a much more compelling question which is how could we use things like medical prescription software as decision support technology and in so doing hugely improve the quality of prescribing.

And I’ve suggested the same thing regarding regulation of financial advisors and other professionals. “We regulate them within an inch of their lives, and there’s disclosure regulation all over them, but no-one troubles them to (for instance) keep sample portfolios to demonstrate how capable or not at what they are advising others to do.”

We won’t get far while stuck in the ‘regulation as morality play’ rut. But how does one get out of it? Any suggestions?

This entry was posted in Economics and public policy, Political theory. Bookmark the permalink.

47 Responses to The global conspiracy to miss the point

  1. Yobbo says:

    There’s a very large difference between a private business who has to compete for paying customers – like a bread shop, and a private business whose one and only client is the government. Your analogy doesn’t address this at all.

  2. Nicholas Gruen says:

    I didn’t think I was making an analogy – just asking some questions.

    But if you want me to make an analogy it is this. A lot of services are purchased by the government and this is better than the government providing them itself. This is self-evidently likely if the market they’re buying from is competitive. But even if it’s not, it doesn’t follow that the government should supply the service. If it can contract properly it may get much better value from the private sector, and even if it can’t, the major issues may have more to do with the clarity of its contracting (from the private or public sector) than with the choice with which sector it is done in. After all, both in the private and public sector one needs governance to deliver services, and a lot of workers will respond the same way to that governance whether it’s in the public or private sector.

    That having been said, I’m OK with the uneasiness of having the private sector doing this stuff, but my mind isn’t closed on it, and I suspect there are more important issues than the symbolic ones.

  3. gregorylent says:

    there is only one “distrust” and it is radiated omni-directionally.

    at a certain point no single issue can be looked at without the context of distrust for all issues being present.

    private prisons? deals to keep them at 90% occupancy? perfect for omni-distrust. ANYthing with a corporate or government connection is distrusted now … and that distrust has been earned.

    system reboot, and start over, it’s the need of the time … in ALL disciplines and human endeavors, from agriculture to politics.

    enjoy, gregory

  4. David Walker says:

    Nick, this post makes two points that resonate particularly with me:

    1. The left is prone to promote an idealised view of government-provided services. In the world of the private prison’s opponents, government prisons are paragons of good conduct. In the real world, though, not so much.

    This became obvious during the privatisation of Victorian electricity, which critics claimed would disastrously reduce service quality levels. Unfortunately, it turned out that the old SECV had simply not kept good track of its service quality. This led to a suspicion that claims of terrific service might not be completely accurate. What research had been done – not much – had to be ferreted out; when it came to light, it indicated that the SECV’s service had fallen short in quite a few areas.

    2. The left is hung up on ownership, when regulation is now far more important. Good regulation is an ally of privatisation, not an enemy. And regulation is better done by governments that do not own the entities they are regulating. Left-of-centre administrations had not cared enough to measure the SECV’s service quality; an independent ombudsman now does so. It is important that an effective independent ombudsman oversees prisons, though I would not be surprised to find that it is not so.

    3. “Regulation as morality play” is far too common on the left. It has played a malign role not just in the privatisation debate, but also in the problems of the current federal government. (Another fine example of “expressive regulation” is the reaction anytime anyone on the left makes the argument for reducing corporate tax.)

    That said, plenty of people in the centre-left now understand that, in the words of David Osborne and Ted Gaebler, governments do better when they steer instead of row. Hawke, Keating, Carr, Brumby and probably Gillard all know it. One of the deeper divides between the ALP and the Greens is that much of the ALP now believes in steering, while the Greens want to keep rowing.

  5. David Walker says:

    Like I said, two points: one, two, three :-)

  6. David Walker says:

    My third point – that is, point (4) – would have been that the question of when government ownership’s benefits become overpowering is a messy empirical one. In the case of prisons, it would need an understanding of prison system which most people simply don’t have. In such cases, the temptation to retreat into knee-jerk ideology becomes more attractive.

  7. Patrick says:

    Carr knows it? Really???? Funny definition of steering he has! Rowing by regulation would seem closer to the mark.

    Prisons are however exceptional cases, mainly because of the ridiculous contractual terms governments sometimes agree to.

    It wouldn’t be so hard, conceptually, to have private prison contracts with
    1) guaranteed recoupment of construction costs (sovereign risk is too high given susceptibility to criminal law and policy changes – and this is much better than guaranteed minimum prisoner numbers!!)
    2) a prescribed minimum standard of service (this is already common)
    3) deferred incentive payments/clawbacks based on beating certain recidivism targets and post-incarceration employment.

    That last bit is to the best of my knowledge vanishingly rare if it exists. But that would seem to be the whole point, to me.

  8. Nicholas Gruen says:

    David @ 4 – but no-one expects the Spanish Inquisition

  9. Nicholas Gruen says:

    More seriously, the right-centrist critique of the left is all very well, but there are problems with it too. There are problems regulating private industries as well – as they dip into their pockets to lobby for their own feather bedding. So long as purchaser and providers are split and regulators and service providers, the political economy of state ownership is not obviously better than the political economy of regulation. Then there are fiduciary issues. Working as a servant of a public enterprise is a powerfully different framing of one’s employment to working for some private entity. This will have benefits and costs depending on the circumstances.

  10. David Walker says:

    Patrick, the biggest problem with private provision of services such as prisons frequently turns out to be the issue you’ve point to – contract design. This is a real problem and not always easily solved, to the point where public ownership will in some cases be the better alternative.

    How do you write a contract, for instance, that says “treat prisoners decently and do what is necessary to ensure they don’t kill/rape/beat up each other”? Or a contract that says “make sure your private road interoperates sensibly with our public road network”? Or for that matter, a pair of contracts that tell rail and bus operators to make sure their systems interoperate as effectively as possible?

    P.S. Carr may or may not have been a good regulator. Just because you decide to steer doesn’t guarantee you’ll steer well. My point is that Carr recognised that regulation had become more important than ownership in many cases.

    P.P.S. One bloke to read on these issues if you can get hold of the material is Gary Sturgess, Greiner’s right-hand man on corporatisation, privatisation, environmental markets and electricity markets in the 1980s. An under-rated reformer in this area was Alan Stockdale, who as the privatising Victorian treasurer in the mid-1990s took regulation seriously. It seems to me that these two grappled with these issues as seriously as most on the left of politics. Stockdale’s position on telecommunications privatisation was pretty close to Lindsay Tanner’s at one stage.

  11. Don Arthur says:

    This issue is being played out in the UK right now with welfare to work contractor A4e facing allegations of fraud. The Guardian reports:

    A4e boss Emma Harrison paid herself £8.6m last year. Nothing unusual for a top banker perhaps. But her company is funded by the government to find jobs for unemployed people. And it’s being investigated for fraud.

    With the economy in the doldrums, a lot of British taxpayers resent the idea that their taxes are funding Emma Harrison’s celebrity lifestyle.

    The Guardian’s John Harrison writes that A4e “is just one of scores of companies who feed off the public purse and pay their high-ups amazing sums of money”.

  12. Patrick says:

    The Guardian is of course contributing to the problem David is going on about – ‘feed off the public purse’..!

    If a private agency was successfully improving outcomes for job-seekers and in particular the long-term unemployed, we should be pleased to fork out for their executives to make a mint – wouldn’t that be more or less the definition of ‘socially responsible business’?

    Of course, nothing suggests that A4e was in fact achieving anything worthwhile. This too is an area where the contract design skills/principles required are probably just too far beyond most politicians’ fathoming (and unfortunately that of their civil servant advisors as well).

  13. Ken Parish says:

    Privatisation of “inherently” public services raises a range of issues that aren’t readily susceptible to simplistic leftish or rightish analysis. The entire public/private distinction is increasingly problematic in an era of corporatisation, privatisation and outsourcing of functions traditionally regarded as public. To what extent (if at all) can or should public law accountability mechanisms (e.g. merits review, judicial review, freedom of information or FOI) be imposed on government business enterprises or outsourced private providers? Are market disciplines enough? The dilemma is especially acute where a GBE or outsourced private provider is competing with a private sector provider of similar services. The private competitor generally is not subject to public law accountability mechanisms, and therefore has a lower cost structure than a GBE which is constrained by those requirements. One answer would be to impose similar accountability requirements on private sector providers of services that have traditionally been regarded as public. That sort of approach was favoured by Murphy J (in a minority of one) in the High Court in Forbes v New South Wales Trotting Club Ltd (1979) 143 CLR 242 especially at 274, where His Honour said:

    “When rights are so aggregated that their exercise affects members of the public to a significant degree, they may often be described as public rights and their exercise as that of public power. Such public power must be exercised bona fide, for the purposes for which it is conferred and with due regard to the persons affected by its exercise. …. There is a difference between public and private power but, of course, one may shade into the other.”

    This potentially very broad concept of public power did not commend itself to the majority in Forbes, which nevertheless held that the NSW Trotting Club was bound to afford procedural fairness (natural justice) to a racegoer who was to be ‘warned off’ indefinitely from attending race meetings. However, that decision was at least reasonably consistent with a long line of cases which have held that members of clubs and other domestic bodies and tribunals are entitled to natural justice, even though they can in no sense be regarded as arms of government. Of course, this line of authority itself amounts to a blurring of the public/private distinction.

    Murphy J’s approach to classifying highly aggregated (i.e. quasi-monopolistic) power as “public” would potentially result in dominant players like the News Limited group (which controls virtually all Australian capital city newspapers), and perhaps holders of scarce public broadcasting licences, being subject to public law accountability. Many people might well regard this as a good thing. Will Ray Finkelstein agree? Nevertheless, it is an approach that has not commended itself to governments in the modern era of deregulation and “economic rationalism”. Instead, they have tended to take the view that market forces provide an adequate protection of the public interest. Under the prevailing “economic rationalist” orthodoxy, there are virtually no services or goods whose provision can be regarded as inherently “public”. That includes the provision of basic public infrastructure like roads, sewerage and electricity. Perhaps only core regulatory functions can be regarded as inherently “public”, although “economic rationalism” holds that even these functions are often best performed by industry self-regulatory ‘codes of practice’. In my view self-regulation is likely to prove ineffective unless it is under-pinned by a public regulatory body with legislative “teeth” and a willingness to use them where necessary (although ACMA seems little more effective in making the electronic media behave civilly than is the toothless self-regulating Press Council for the print media).

    It appears that Community Service Obligations (“CSOs”) are not enforceable by the individual community members they are intended to protect, even where the CSOs are contained in an Act of Parliament rather than just a Code of Practice, contract or licence. See Yarmirr v Australian Telecommunications Corporation (1990) 96 ALR 739. In that case the Federal Court held that a legislated CSO requiring Telstra (or rather Telecom as it then was) to provide standard telephone services to all Australians on an equitable basis did not entitle a remote area resident to compel Telstra to provide any service at all: the statutory object was expressed in generalised language, and there was no intention to confer any private legal rights on individuals. Effectively, therefore, CSOs do not protect the public interest where the government of the day is of a non-interventionist “laissez-faire” persuasion (a description which fits both major political parties to slightly varying degrees).

    The prevailing orthodoxy appears to favour exempting GBEs and outsourced private providers of publicly funded services from the umbrella of public law accountability mechanisms altogether, almost irrespective of whether they operate in a competitive market. OTOH the Administrative Review Council’s Report No. 38 ‘Government Business Enterprises and Commonwealth Administrative Law’. In summary, the Council considered that Commonwealth administrative law statutes should ordinarily apply to bodies that are government-controlled, including GBEs. It considered, however, that GBEs should be exempt from the operation of those statutes, in relation to their commercial activities, undertaken in a market where there is real competition. The Law Reform Commission agreed with this recommendation, although the Commonwealth Ombudsman at the time didn’t. In any event, generally GBEs are not subject to FOI, and most GBEs are also not subject to merits review by the AAT. Many are also expressly exempted from the operation of the Administrative Decisions (Judicial Review) Act (“ADJR Act”).

    Fairly obviously, if GBEs are not subject to public law accountability mechanisms, then fully privatised ex-government utilities are certainly exempt, as are outsourced private providers. Moreover, where services are provided for government by a private provider under contract (e.g. SERCO and immigration detention centres), there is by definition no privity of contract between the contract provider and the “consumer” or “customer” and therefore no ability for those customers in private law to enforce the provider’s contractual obligations. Of course, the government could create such rights for the customers either by statute or the terms of contract, or the government could enforce them itself, but where the “customers” are marginalised or despised minorities (e.g. prisoners or immigration detainees) history and current observation suggests they are unlikely to do so. JS Mill’s remarks about the tyranny of the majority are apposite.

    The British courts, by contrast, have tended to adopt a considerably broader approach to defining what is “public” for the purpose of imposing public law accountability. See, for example, R v Panel on Take-overs and Mergers; Ex parte Datafin Plc [1987] 1 QB 815; R v Jockey Club; Ex parte Aga Khan [1993] 1 WLR 909. However, the British approach is itself rather confused and fraught with difficulty. The public law/private law divide is an issue very much in a state of flux. Further moves towards developing some workable basis for adequate accountability measures, without undue interventionism, are clearly essential, unless you have a quasi-religious faith in the universal ability of markets always to deliver fair outcomes in the public interest.

    Of course, the existence of public law accountability mechanisms does not guarantee that an agency will treat citizens fairly, but market mechanisms provide next to no redress to aggrieved “consumers” where the provider is a monopoly (as with private prisons or immigration detention centres) or where all providers have similarly minimal incentives to provide decent service (e.g. the Job Network that replaced the old CES).

  14. Don Arthur says:

    Patrick – The contract design is a big problem in welfare to work programs. But if you read Osborne and Gaebler you’d come away thinking it was simple.

    Reinventing Government is a maddening book that’s full of hoopla and oversimplification.

    Steering not rowing works where it’s possible for policy makers to:

    (1) Clearly identify what they want

    (2) Measure the extent to which they’ve received it

    It also requires (3) providers who are able to deliver what policy makers want for the kind of money government is willing to pay.

    It’s surprising how few policy areas can meet all three conditions. Welfare to work looks relatively straightforward (get people off benefits and into jobs) but as it turns out it doesn’t meet 1, 2, or 3.

  15. Yep, I bought Reinventing Government and read it greedily. So evasive of the difficult and interesting questions as to be more or less a fraud.

  16. Don Arthur says:

    Management books are like diet books.

    Remember In Search of Excellence?

  17. rog says:

    There is a problem with the business of prisons – they need crime and prisoners to make money. I had this conversation with a prisoner I once employed, he was on day release, tried to make him understand that he was important to the screws because he gave them employment.

    Without his and others criminality careers are on the line.

    After a while you get this mature industry dependent on the legal system to provide them with product with all sorts of deals happening to keep the status quo. A bit like defense, without warfare there doesn’t seem much point in having all this weaponry and stuff.

    I would be looking at other ways to reduce costs.

  18. David Walker says:

    I’d judge Osborne and Gaebler a little more gently. Theirs was a book about applying business process re-engineering to public-sector settings in the US, rather than a public policy handbook. But it did put the case for concentrating on ensuring service provision rather than seeing ownership of service providers as the whole answer. At the time (1992) not many people were saying that.

    Indeed, it was remarkable how long policy experts took to put a rigorous intellectual framework around these issues.

  19. derrida derider says:

    “Who’d want those greedy private business people selling us bread? Wouldn’t they be tempted to cut corners, put in lousy flour and charge us too much?

    Yes, and that’s exactly what happened in the nineteenth century. In fact adulterated bread (most commonly by chalk, but sometimes by less innocuous substances) was so common that it was actually a major motive for the passing of Pure Foods Acts in most developed countries in the late nineteenth century.

    These laws were necessary because the market failure was a classic asymmetric information one – consumers were not in a position to assess the quality of the product when they bought. The objection to private prisons is surely the same – we cannot write contracts which specify outcomes well enough to be sure what we’re buying. Plus of course there’s the nasty habit of pollies of washing their hands of such outcomes if they can find someone else to blame – “who could have known that private contractors holding asylum seekers in un-airconditioned fibro huts in the middle of the desert would not look after them properly?”.

  20. Don Arthur says:

    It’s a pity Jeremy Bentham is dead. I’d love to see him to speak about his National Charity Company proposal at a social enterprise conference.

  21. Dan says:

    [email protected]

    Yeah, that’s always been my sense about privatision as well. Gov’ts aren’t idiots, and certainly Treasury wonks aren’t. So while when a privatisation looks like a bad deal for the public it usually is, it’s not necessarily a bad deal for the government, who get to move a whole lot of accountability off and plausible deniability onto the other set of books that governments keep (the ones that don’t have $ signs in the first column).

  22. Paul Bamford says:

    dd @ 19:

    Here we are in the 21st century and its still going on and not just with bread. Every supermarket you go into has metres and metres of shelves of artfully packaged food substitutes.

  23. Sancho says:

    Two obvious flaws with the bread analogy:

    1. Most people eat bread, so there’s strong market pressure to provide decent bread. Fewer people are concerned about the treatment of prisoners, and many think prisons should be more brutal, if anything.

    2. A bakery will get more return custom if it produces better bread, but a prison will encourage recidivism if it provides poor rehabilitation, so a private prison has incentive to work AGAINST the public interest in order to maintain or increase profits.

  24. hc says:

    There are incentive arguments against private prisons and literature on this. Such institutions would have incentives to cut costs by restricting the options available to prisoners – retraining, exercise – and perhaps by exerting strong control measures. These restrictions might foster recidivism. Writing a contract for such operators based on the costs of service provision and the future recidivism experience seems difficult.

  25. JC says:


    So isn’t the obvious point then, not to award bakeries contracts run prisons?

    Instead of making all these hypothetical claims, there have been private prisons around for a long time now. Are there any studies that help with the process of deciding if they work. Surely that would be a good place to start instead of worrying if bakery firms pitched a bid.

    And by “work” I mean did they meet objective and conditions.

    The business line is really not that much different to running hospitals.

    The real problem with a private prison system is the recent shenanigans going on in the US at the moment with deficit ridden State Governments agreeing to minimum prison numbers. I don’t see that as the fault of the firms negotiating these deals, but more of problem with the states doing these repulsive deals that could cause potential conflicts down the road.

  26. Sancho says:

    Better ask Nicholas why he wants Bakers Delight to run a sideline in prisons, JC. I only pointed out how inaccurate the analogy is.

  27. JC says:


    Did you bother reading the link you offered? It’s not research about the effectiveness of the US private prison business, which now houses around 3% of the US prison population thereby offering a decent sample population. It’s model based research on private vs public for a host of services, with a conclusion based on various theoretical parameters. It speaks very little about hard data results.

    One consideration they discuss that has an important impact on results and may spew out one here is the level of unionization and the strength of these unions.

    The link seems redundant to what is needed… and that is studies that offer some guide to how these enterprises are performing.

    I’m open on the idea and have no bias either way. However it would be good to see if the contractual arrangements/objectives by and large meet expected outcome.

  28. JC says:

    This is you, isn’t it, Sanchez?

    Sancho said:

    Two obvious flaws with the bread analogy:

    1. Most people eat bread, so there’s strong market pressure to provide decent bread. Fewer people are concerned about the treatment of prisoners, and many think prisons should be more brutal, if anything.

    2. A bakery will get more return custom if it produces better bread, but a prison will encourage recidivism if it provides poor rehabilitation, so a private prison has incentive to work AGAINST the public interest in order to maintain or increase profits.

    The above is what I was pointing out was silly. Furthermore it makes no sense at all.

    The prison firms have zero involvement or influence in the judicial process prior to incarceration, so the idea they could in theory have any influence on the judicial system is flawed.

  29. Sancho says:

    So, you disagree that most people in the western world eat bread, and you disagree that prisons can affect recidivism rates through their management of prisoners? Is that right?

  30. JC says:


    It’s been nicely said to you by others, like Yobbo etc., that you find it impossible to follow a normal discussion. I once found you denying your own comment three times on the same thread here at Troppo even though I pointed out what you said and posted the comment number. Remember?

    You must play chess the way you converse. You take the bishop and suddenly want to use it as a queen.

    So, you disagree that most people in the western world eat bread,

    No, sanchez, I said I think the business model for a bakery and a prison are very different and cannot really be compared so easily.

    and you disagree that prisons can affect recidivism rates through their management of prisoners? Is that right?

    No, I said nothing about the recidivism rate but suggested that there seems to be a lot of moralizing about this subject and it would be good to look at the hard facts in terms of outcomes through prior experience.

  31. Sancho says:

    Classic JC: move the goal posts with every comment, then complain that people aren’t addressing the new topic of conversation just invented.

    For example: “I…suggested that there seems to be a lot of moralizing about this subject”. You suggested no such thing until now, of course, and my point that you’re contending is about recidivism, not moralising.

    You’re welcome back to the topic whenever you’re ready.

  32. Tel says:

    There are no prisons by the way, not officially at any rate.

    What we have officially are “Corrective Services”, and since I believe in truth in advertising, they should be paid proportionally to the number of people they can get into steady jobs, who don’t re-offend for several years.

    In terms of the difference between private and public… that should be obvious. The public system is a monopoly, whereas the whole benefit of a private system is to make it competitive. Thus, we should never have a single supplier of these “Corrective Services”, it would work very much better if we insist on always having a number of suppliers. Naturally the convicted man should be given the right to choose whose “Corrective Services” he is to avail himself of. He is the one who has the most to lose or gain after all.

  33. JC says:

    What we have officially are “Corrective Services”, and since I believe in truth in advertising, they should be paid proportionally to the number of people they can get into steady jobs, who don’t re-offend for several years.

    So you would expect what is an intolerably higher standard from the private sector than you currently do from the public one. Why?

    And how would you compare a hypothetical bid from performing the service in-house when the conditions are onerously different.

    Seriously, would you expect anyone to even contemplate placing a big on those conditions and they don’t even get to choose their own “clients”?

    Naturally the convicted man should be given the right to choose whose “Corrective Services” he is to avail himself of. He is the one who has the most to lose or gain after all.

    The impact of such a choice would be having firms potentially pandering to the “clients”. That would be the last thing you want to create. This isn’t the Hilton we’re talking about here.

  34. Tel says:

    DD: “who could have known that private contractors holding asylum seekers in un-airconditioned fibro huts in the middle of the desert would not look after them properly?”

    You might want to check up what the WWII migrants from Europe were offered by the Australian government when they got here. Galvanised iron sheet, black tar on the roof, stuck out in inland NSW or QLD, and none of your Kevin Rudd in the attic either. They were not held as prisoners though, they were free to take long walks in the desert, I’m sure that little bit of freedom meant a lot to them.

    Funny how air conditioning was once the most amazingly luxurious item, and now the only people who live without it are those poor buggers who bought a fibro hut in Western Sydney for a quarter of a million bucks, and would rather fatten up the bank’s profits instead of trying to pay the 300% markup on electricity.

  35. Patrick says:

    I am broadly sympathetic to Tel’s view on prison providers here but I must say JC’s objection occurred to me too.

    Of course the issue is mitigated if they are only paid for rehabilitation.

    In the end however prison reform, like much else about good government, is rather dependent on ending the war on drugs.

  36. Tel says:

    JC, so you don’t like the idea that someone offering a service should tell the truth about what they offer?

  37. JC says:

    JC, so you don’t like the idea that someone offering a service should tell the truth about what they offer?

    You need to spell out exactly what the service is that firms are bidding on and then establish agreements based on that. That was the point I was making.

    You suggested that firms should only be paid on the back end, after the ex-con has been out of the clink for x number of years. We don’t exactly have that sort of expectation on the public system now.

    Look, you could stick anything you want in a bid spec. You could even enter a condition that a number of the prisoners need to become CEO’s of ASX 200 before firms receive a red cent in payment. But whether you get bidders is an entirely different story. Or if you get bidders the price would be impossibly high. There’s no free lunch.

  38. FDB says:

    Two obvious flaws with the bread analogy:

    1. Most people eat bread, so there’s strong market pressure to provide decent bread. Fewer people are concerned about the treatment of prisoners, and many think prisons should be more brutal, if anything.

    2. A bakery will get more return custom if it produces better bread, but a prison will encourage recidivism if it provides poor rehabilitation, so a private prison has incentive to work AGAINST the public interest in order to maintain or increase profits.

    One obvious flaw with this comment – it basically makes the same argument twice.

    However, that argument is quite compelling, and I’d like to hear one against it.

    Just for shits and giggles.

  39. Don Arthur says:

    What we have officially are “Corrective Services”, and since I believe in truth in advertising, they should be paid proportionally to the number of people they can get into steady jobs, who don’t re-offend for several years.

    That raises some interesting issues. The first is the issue of where service providers would get the money they need to run prisons while they wait for their outcome payments. A fashionable idea right now is ‘social impact bonds’. As the Economist explains:

    Peterborough is where the proceeds of the world’s first “social-impact bond” are being spent. This instrument is not really a bond at all but behaves more like equity. In September 2010 an organisation called Social Finance raised £5m ($7.8m) from 17 investors, both individuals and charities. The money is being used to pay for a programme to help prevent ex-prisoners in Peterborough from reoffending. Reconviction rates among the prisoners recruited to the scheme will be measured against a national database of prisoners with a similar profile, and investors will get payouts from the Ministry of Justice if the Peterborough cohort does better than the rest. If all goes well, the first payouts will be made in 2013.

    I see three problems with applying this model to prisons:

    1. Impact measurement depends on a comparison group who are outside the program. That means you can’t apply payment-for-impact to the entire system.

    2. Private sector investors will demand a premium in return for the risk of not getting paid. Since there’s no proven technology for preventing recidivism, the premium is likely to be large. It’s hard to see how government would save money.

    3. Governments have other reasons for incarcerating offenders. For example – incapacitating offenders (it’s harder to commit crimes against the public if you’re in prison), deterring potential offenders, and exacting retribution.

    After we’ve solved the problem of a payment-for-results model for privatised prisons, maybe we can move on to defence policy.

    Instead of having politicians involved in debates over what kind of submarine to buy, perhaps we could simply contract out the defence of Australia.

    How could we encourage private investment and construct a payment-for-results system? ;)

  40. Dan says:

    [email protected]

    “Since there’s no proven technology for preventing recidivism…”

    Gallows, guillotine, firing squad, electric chair…

  41. rog says:

    There is no evidence that private prisons are more cost effective than govt run prisons. There is also the the problem of corporate donations influencing legislators.

  42. Sancho says:

    Dan’s exemplifying what I was talking about upthread: the widespread belief that prisons are too soft.

    It’s not as though we have no basis for comparison when discussing rehabilitation versus punishment – Scandinavian prisoners have a re-offending rate of around 35%, in contrast to 50% – 60% in the US and Australia.

    More importantly, the re-offending rate of prisoners after serving their first prison sentence is significantly lower. Australian prisons have a reputation as trade schools for crims rather than somewhere to get back on the straight and narrow.

    Many prisons in Scandinavia are set up more like rehab centres than traditional prisons, with comfortable rooms and lots of opportunities for recreation and skills acquisition.

    Imagine trying to implement that in Australia, where tabloid readers have a fit if they so much as hear that selling an ounce of pot doesn’t warrant ten years of hard labour.

  43. Sancho says:

    Yes, but using satire, not farce.

  44. Yobbo says:

    The public system is a monopoly, whereas the whole benefit of a private system is to make it competitive.

    I doubt that’s the point of private prisons, to be honest. The benefit from privatising them is getting rid of unionised government prison workers and replacing them with non-union private workers on lower pay and benefits.

    There’s also the benefit that comes with privatising anything in that people who are spending their own money tend to spend less of it than they do when they are spending someone else’s.

    That said I’m always suspicious of any private business that has the government as its only client. The incentives are all wrong.

  45. stephen bartos says:

    Nicholas’ post raises some key economic and regulatory design questions, and Ken Parish gave a great response from a legal perspective. There is however another way of thinking about this – what is the appropriate role of the state.

    There is little doubt that contracting out of prison services is possible. With requirements for good information, independent monitoring and external accountability to get over the principal-agent problem it can be made to work well. If done only to reduce costs, then what you’ll get is a bad prison system that is low cost to run but has high negative externalities (the cost of recidivism is enormous and hidden, effective rehabilitation and reintegration is obvious and up front). However, if the contracting parties understand this it is a perfectly workable option.

    That they can be outsourced is though an entirely different question from the normative one of whether prisons should be privately provided. There is a long standing debate on whether the state should have a monopoly on the use of coercive power. It relates not just to prisons but to armed force more generally (police and the military). Although it is quite feasible for a state to employ a mercenary army – see for the example a recent example with Sandline in our near north – there is a strong body of thought that says this is not desirable.

    But there is a contiuum in relation to what constitutes the use of coercive power. It ranges from the armed forces through police, prisons, down to mall security guards. Where you draw the line through this spectrum, with state on one side and private providers on the other, is ultimately a political decision. It can only be determined through the democratic process, rather than quantitative analysis.

    In governance terms, this requires any proposal to provide such service privately to be transparent and open. If it is part of a party’s platform, and voters accept that, then it is fine. If it is done as a result of private backroom lobbying in secret (as has apparently happened in some cases in the US), then the test is failed.

Leave a Reply

Your email address will not be published. Required fields are marked *

Notify me of followup comments via e-mail. You can also subscribe without commenting.