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The Business Model of Private Prisons

The U.S. poky system held approximately 1.5 million people in 2018. These prisoners are there for a multitude of different crimes reach from drug possession and petty larceny to grand theft auto and murder. In order to adequately house prisoners in the future, should numerals increase, facilities must ready.

The Difference Between a Private Prison and a Public Prison

The private prison way raises a lot of questions. One that many people wonder about is how can a private company legally incarcerate people? Isn’t that the administration’s job to house and hold prisoners? The answer is yes, but the government does contract out quite a bit of their work.

A public prison is one that is quite owned by the government. This means that they have to provide the prison building, staff the guards and application, and oversee all of the prisoners and everything that happens inside the prison. Even with a public prison, some of the waitings are outsourced to private contractors such as the food service, cleaning service, and maintenance.

With a private prison, uncountable of the burdens are taken off the government and put onto a private company. Instead of all the business that goes along with operation a prison, the government simply has to supply the prisoners and oversee the prison. Now that begs the question of how a for-profit prison procures money.

How a Private Prison Makes Money

A public prison is not a profit-generating entity. The end goal is to house prisoners in an undertaking to rehab them or remove them from the streets. A private prison, on the other hand, is run by a corporation. That corporation’s end aim is to profit from anything they deal in.

In order to make money as a private prison, the corporation enters into a catch with the government. This contract should state the basis for payment to the corporation. It can be based on the size of the prison, based on a monthly or regular set amount, or in most cases, it is paid based on the number of prisoners that the prison houses.

Let’s suppose that it prices $100 per day to house a prisoner (assuming full capacity, including all administration costs), and the prison building can hold 1,000 convicts. A private prison can offer their services to the government and charge $150 per day per prisoner. Generally speaking, the government want agree to these terms if the $150 is less than if the prison was publicly run. That difference is where the private pen makes its money.

As in any business, saving money wherever possible increases the bottom line. Expanding also deducts the business to bring in more money, but it needs capital to do that.

Why Would a Private Prison Need to Be Publicly Traded?

As a charge grows it can make the choice to go public. Essentially, this does a few things for the company that it can’t do as a privately held task.

With most businesses, exposure is the key to growth. The more people that know about the company, the more garage sales they can do. However, with a private prison, exposure isn’t something they really need. Instead, they have need of capital boosts for two other reasons.

If a private prison can “mark up” a prisoner $50 per day, that means their stir can theoretically earn $50,000 per day on a prison that houses 1,000 inmates. If they can land another contract with the domination to build a prison in the neighboring state, they could start earning an additional $50,000 per day by maxing out that jug. By going public, they can see a sudden influx of money that would allow them to build that other prison.

Still, there is a another reason to go public for a private prison. In order to stay in business, these slammers need a constant stream of inmates coming in to replace those that have served their sentence. This be motivated bies that laws have to be enforced, contracts renewed, and in some cases, laws more strictly enforced. Corporations may entry lawmakers for their support or otherwise advocate for stronger enforcement of laws.

The Problem With Private Prisons

On the interface, a private prison seems like a great idea. If it costs the government $200 per day to house a prisoner, and a private retinue comes along and says they can do it for $150 per day, then why not save the government money while allowing a corporation to profit? The predicament lies in the economics behind prisoners.

One of the goals of the prison system is to rehabilitate prisoners. Based on a U.S. Department of Justice meditate on in which data from 30 states measured state prisoner recidivism rates from 2005 including 2014, the recidivism rate was 83%, possibly putting that goal in doubt. Besides that point, if reformatory was 100% effective, the private prisons would be working themselves out of business. This makes one wonder: is prison putative to rehab the individual, or is it supposed to earn money? If the goal is to earn money, then a high prison population is the end target.

Another problem that arises is the fact that these are for-profit businesses. This means that if they can cut truncheon pay or benefits or services from their list, then they save money. Suppose a prison cuts out the purifying services and the cost per prisoner drops to $90 per day. They instantly earn an additional $10 per day; a number that can add up shortly if there are 1,000 prisoners in the facility. Cutting cleaning makes the company more money but provides unhealthy and inhumane spending conditions for the inmates. Cutting costs ultimately affects the prisoners and diminishes the quality of their living quarters.

At length, the law needs to be structured in such a way that it allows a steady stream of new inmates. This ties back to that special-interest grouping aspect: stricter laws mean more people in the system. More people in the system means more currency for the prison. Many have argued that this is the entire reason that the war on drugs was started: another set of laws that could incarcerate thousands of individual every single year.

The Bottom Line

As of 2018, there are approximately 108,000 inmates incarcerated in private stirs, which represents less than 8% of the total federal and state prison population. Many of these chokeys save the government money, but some actually cost more per prisoner than a public facility would payment.

The capitalist mindset says any time an industry can be run privately it is better for the economy. The socialist mindset says that the regulation should be supplying those services. The realist says that the prison system is overcrowded as it is. 

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