Contracting Out vs Privatizing

Moneybox
A blog about business and economics.
June 22 2012 8:21 AM

Contracting Out vs Privatizing

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AUCKLAND, NEW ZEALAND - JUNE 22: Prisoners occupy an observation tower at the maximum security Paremoremo prison on June 22, 2012 in Auckland, New Zealand. The two inmates scaled an interior prison wall to occupy an unused observation tower, but have yet to make any demands

Photo by Phil Walter/Getty Images

Reading Paul Krugman today on prison privatization in New Jersey reminds me again that I'd love to reclaim the word "privatization" for a scenario in which the government actually privatizes something.

City governments, for example, often find themselves owning vacant properties whose owners haven't paid taxes on them. The city could take advantage of its ownership of said properties by operating them as publicly owned rental housing. But a more common solution is to privatize city-owned housing stock by selling it in the marketplace. By the same token, the British government used to own British Airlines but privatized it by selling the company in the marketplace. The French state, by contrast, continues to own a very large share of the European Aerospace Defense Company but could in the future choose to privatize its stake in EADS. In this view, the way you would privatize a government-owned prison is you close the prison and sell the land to private party.

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"The one thing the companies that make up the prison-industrial complex—companies like Community Education or the private-prison giant Corrections Corporation of America—are definitely not doing is competing in a free market," Krugman says. "They are, instead, living off government contracts."

That's exactly right, and the difference is that nothing has been privatized in "prison privatization." The government's just handed out a contract. What you do with the contracting is that instead of handing money over to unionized public sector workers who hand some of the money back to Democratic Party politicians, you hand the money over to a contracting firm that hands some of the money back to Republican Party politicians. From the perspective of partisan politics, these are very different scenarios. From the perspective of prison management, both contract prison operators and prison guard unions lobby for mass incarceration policies. Unions—as membership organizations of middle class people—will also do some lobbying for Social Security while contract prison operators, run by rich businessmen, will also do some lobbying for income tax cuts. But there's no private marketplace in prison management and there never will be.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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