Introduction

The growing number of prisoners and prisons is a contentious issue. Proposed ideas of solving this issue include decriminalizing certain crimes, building more government prisons, building private prisons, and building both private and government prisons. Privatization is “the process of transferring property from public ownership to private ownership or transferring the management of a service or activity from the government to the private sector” (Varner, 2006, p.i). The definition of a truly private organization is “characterized by competition in a free marketplace. A private organization does not enjoy any monopoly powers conferred by the state. Nor are the taxpayers forced to pay for the services of any private organization through their tax dollars” (Hunter, 2016, Para. 2). This paper will focus on three primary areas of privatization: competition between public and private prisons, privatization’s positive effect in daily life, and the inefficiency of the government.

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In Washington State, the state-ran prisons are at an average of 141% design capacity for prisoners, which is more than 4,800 than originally planned (Montague, 2001). City and county jails in Washington State are at 110% of design capacity (Montague, 2001). In Texas, after implementing a privatization program, they found that the average cost of private prisons per inmate was $ 35.25 per day (Montague, 2001). In a state-operated prison, it was $42.47 (Montague, 2001). The Washington State Legislative Budget Committee compared the cost of private prisons in Louisiana and Tennessee to a proposed state-operated prison in Washington (Montague, 2001). They found that private prisons achieved savings from 15 to 46% per inmate, even after accounting for the cost of living and facility design (Montague, 2001). This finding shows that through competition, prices to operate private prisons are lower than government prisons. In Louisiana, two privately operated prisons saved the state 11 to 13% when compared to a government prison (Montague, 2001). These private prisons also outperformed the government prisons in safety, discipline, and community placement (Montague, 2001). The State of New Mexico evaluated a state, federal, and private women’s facility using eight different categories of performance (Montague, 2001). The private prison outperformed the state and federal prisons in six of the eight categories (Montague, 2001). These studies demonstrate that private jails provide better service. However, according to Hunter (2016), a private organization does not have monopoly powers conferred by the state. Also, taxpayers are forced to pay for the services of any private company through their taxes (Hunter, 2016). Private prisons used in the current United States correctional system are not private because they earn revenue from taxpayers.

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Areas of Life Affected by Privatization

Many other aspects of daily life have been affected by privatization and the innovation that comes with it. The package shipping sector has been transformed by two private companies. In 1970, FedEx launched its tracking number system (Baldwin, 2013). The tracking number is the greatest contribution from FedEx; it allows one to enter a set of numbers and letters into FedEx.com and find exactly where the package is (Baldwin, 2013). In 1980, FedEx began purchasing the 800MHz spectrum in North America to create towers and a nationwide wireless data and communications network tied into FedEx’s mainframe (Baldwin, 2013). FedEx drivers could share tracking information from their trucks long before mobile carriers offered any sort of cellular data(Baldwin, 2013). In a free market, FedEx developed breakthrough technologies. In six markets, the business Kozmo.com claimed to deliver anything consumers purchased in an hour or less. Customers were paying less for the items than the delivery price, therefore they were losing money. They tried to create a delivery fee, but the customers revolted and caused the company to fail (Pumphrey, 2015). In 2009, Amazon tested same-day delivery by slowly offering the service to seven cities and charging a $6 delivery fee for Prime members and $15 for non-members(Pumphrey, 2015). By 2014, customers ordered 10 times as many items as they did in 2013(Pumphrey, 2015). This led to Amazon creating the free option for 14 cities in May of 2015(Pumphrey, 2015). Amazon is now experimenting with Prime Now, which could shorten delivery times to only an hour (Pumphrey, 2015). Prime Now is only available in Manhattan, Brooklyn, Miami, and Baltimore (Pumphrey, 2015). Amazon is waiting for approval for Prime Air, which is proposed to deliver packages in 30 minutes or less by using drones (Pumphrey,2015). FedEx and Amazon revolutionized the package delivery sector, demonstrating that privatization works. Prior to FedEx and Amazon, packages got there when it got there, customers hoped. Other areas of privatization that have been successful include toll roads, bridges, tunnels, utilities, lotteries, and airports. The State of Texas entered into an agreement with Cintra Zachry to design, build, and operate a 316-mile toll road (Varner, 2006). This road stretches from Dallas to San Antonio and is part of the Trans-Texas Corridor system (Varner, 2006). The ChicagoSkyway and the Indiana Toll Road were leased to a consortium led by Cintra de Infraestructuras de Transporte and Macquarie Infrastructure Group” (Varner, 2006, p. 10). The Chicago Skyway, which runs for 7.8 miles, “was leased for 99 years in exchange for an upfront payment of $1.83billion” (Varner, 2006, p. 10). “The Indiana Toll Road, which is 157 miles long and runs along Indiana’s northern border, was leased for 75 years at a cost of $3.85 billion” (Varner, 2006, p. 10). These amounts have led to 40 times revenues and 60 times operating profits (Varner, 2006). The State of Illinois also utilized the privatization of toll roads:

Illinois has approximately 274 miles of toll roads located primarily in the suburbs of Chicago. These roads are operated and maintained by the Illinois State Toll Highway Authority. Roads included in the Illinois Tollway system are the Northwest Tollway (I90 and I-39), the North-South Tollway (I-355), the Ronald Reagan Memorial Tollway (I-88), and the Tri-State Tollway (I-80, I-294, and I-94) (Varner, 2006, p. 10)

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“The Illinois Tollway System is currently in the middle of a 10-year, $5.3 Congestion Relief Program that began in 2005” (Varner, 2006, p. 10). There will be lanes will be added to 117 miles of the existing roadways in Illinois (Varner, 2006, p. 10). In addition, a “12.5-mile extension will be added to the North-South Tollway from I-55 to I-80” (Varner, 2006, p.10). The state of Illinois, by using toll roads, achieved millions of dollars in revenue. In 2005, the Illinois Tollway System had revenues of approximately $625 million. Of this$625 million, $600 came from tolls and toll evasion recovery, $4 million was brought from concessions, and the final $21 million stemmed from investment income. These revenues were offset by $205 million in maintenance and operational expenses and $99 million in debt service. This left approximately $320 million for renewal, replacement, and improvement of the tollway system (Varner, 2006, p. 10)

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Bridges and tunnels, which collect tolls, have been privatized throughout the U.S. In Illinois, there are plans to build a bridge connecting St. Louis, Missouri, with East St. Louis, Illinois (Varner,2006). Some politicians in Missouri have been vocal about supporting the financing of this public-private partnership in which a private company would finance and operate the bridge (Varner, 2006). The company would collect the tolls to repay the cost of construction and to make a profit. In the privatization of utilities, three utilities that have been privatized are electric, natural gas, water, and sewer. Eight investor-owned public utilities provide electric service to residential customers in Illinois. These companies are under the regulation of the Commission (ICC). These companies are AmerenCILCO, AmerenCIPS, AmerenIP, Commonwealth Edison Company, Interstate Power and Light Company, MidAmerican EnergyCompany, Mt. Carmel Public Utility Company, and South Beloit Water, Gas, and ElectricCompany (Varner, 2006). The State of Illinois successfully achieved a state of open competition in the retail sector for electricity. Through the Illinois Electric Service Customer Choice and RateRelief Act of 1997, customers were given greater choice in who supplies their electric power services (Varner, 2006). By the end of 2000, all non-residential customers had the option to choose their electric supplier (Varner, 2006). Suppliers that are able to provide service include a customer’s current electric utility, another Illinois electric utility, or an alternative retail electric supplier certified by the ICC (Varner, 2006). Thirteen investor-owned public utilities provide gas services to residential customers in Illinois, which are also under the regulation of the ICC (Varner, 2006).

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These companies were utilized for natural gas: AmerenCILCO, AmerenCIPS, AmerenIP, Atmos Energy Corporation Consumers Gas Company, Illinois Gas Company, Interstate Power and Light Company, MidAmericanEnergy Company, Mt. Carmel Public Utility Company, Nicor Gas Company, North Shore Gas Company, People Gas Light and Coke Company, and South Beloit Water, Gas, and Electric Company (Varner, 2006, p. 12-13).

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In Illinois, 31 water, 4 sewer, and 13 combined water and sewer utilities are investor-owned(Varner, 2006). These privately owned utilities provide water for approximately 1.2 million people and sewer service to 127,000 people, mainly concentrated in the Chicago metropolitan area(Varner, 2006). The privatization of lotteries in Illinois has been successful for those private companies that took advantage of an opportunity: In May of 2006, Governor Rod Blagojevich proposed the sale or lease of the State’s lottery to fund improvements in the State’s educational funding. In July of 2006, the Illinois Office of Management and Budget put out a request for proposals from firms interested in advising the state on the proposed privatization of its lottery. The proposal was based on an up-front purchase fee of approximately $10 billion which was valued by an initial proposal by Goldman, Sachs & Co. In FY 2006, the lottery had revenues of $1.985 billion and transferred$670.5 million to the general revenue fund. This would indicate a revenue-to-purchase price multiple of 5.0 times and a profit-to-purchase price multiple of 14.9 times (Varner,2006, p. 15)In the 1990s, there were difficulties when trying to find bidders (Varner, 2006). Now, there are many companies that are qualified, including “GTECH, Lottomatica S.p.A, Camelot Group, Tattersall Limited, Scientific Games Corp., and International Game Technology” (Varner, 2006,p. 15-16). Airports have been successfully privatized in Australia, Great Britain, Canada, Mexico,and The Netherlands (Varner, 2006). A survey by the General Accounting Office found that 90%of the employees in the biggest 69 airports in the U.S. were employed by private companies(Varner, 2006). These employees conducted services such as ticketing, baggage handling, cleaning, concessions, and ground transportation (Varner, 2006). The 10% of the workers employed by the government were usually local and state government personnel performing administrative and public safety duties (Varner, 2006). In New York, there have been multiple successful cases of privatizing airports.

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The Stewart Airport in New York is operated under a 30-year lease by the National Express bus company of Great Britain. The Port Authority of New York and New Jersey contracted with a private group to finance, build, and operate the International Arrivals Building at Kennedy Airport. BAA plc entered into an agreement with the Indianapolis Airport Authority to operate all of the airports under their supervision including Indianapolis International Airport (Varner, 2006, p. 17). These are only a few examples of the many parts of daily life that have become privatized.

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Affects of Privatization on Business Performance

Privatization also has positive effects on many different aspects of business performance, such as economic performance, productivity, prices, use of goods, and consumption of goods. Regarding economic performance, an OECD report reviewed research on the effects of privatization and found “overwhelming support for the notion that privatization brings about significant increase in the profitability, real output and efficiency of privatized companies”(Edwards, 2017, p. 96). Also, a review of dozens of academic studies in the Journal of Economic Literature concluded that privatization “appears to improve performance measured in man ways, in many different countries” (Edwards, 2017, p. 96). An analysis of 825 companies listed on the Shanghai Stock Exchange found that private enterprises perform better than mixed ownership firms, with 513 mixed-ownership firms and 312 private firms (Megginson & Netter,2001). Another study looked at the economic performance of the top 500 non-US industrial companies in 1983. It showed that state-owned and mixed (state and private) ownership enterprises are much less profitable and productive than privately held firms using four profitability ratios and two measures of X-efficiency (Megginson & Netter, 2001). They also discovered that mixed firms are no more profitable than SOEs (state-owned enterprises), implying that full private control, rather than partial ownership, is required to boost performance(Megginson & Netter, 2001).

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More than 50 Canadian industries were privatized in the 1980s and1990s, according to 2012 research, including an airline, a railroad, manufacturers, and energy and telecommunications companies. It discovered that the overall effects have been mostly good, and in many cases, overwhelmingly so (Boarding & Vining, 2012). Capital expenditures, dividends, tax revenues, and sales per employee all tended to rise (Boarding & Vining, 2012). Using representative panel data from 1,701 Bulgarian and 2,047 Romanian manufacturing enterprises, it was found that higher price-cost margins are connected with privatization (Konings, Cayseele,& Warzynski, 2005). This effect is stronger in highly competitive sectors, implying that privatization and the formation of competitive markets are complementary (Konings, Cayseele,& Warzynski, 2005). It also implies that privatized enterprises cut costs rather than raise prices, because firms in highly competitive marketplaces are more inclined to price take (Konings, Cayseele, & Warzynski, 2005). In industries with high product-margin concentration, import penetration is related to reduced price-cost margins, but this effect is reversed in more co (Konings, Cayseele, & Warzynski, 2005).

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Productivity is increased by privatization. According to Edwards (2017), in the decade following privatization, labor productivity in the electricity and gas industries nearly doubled. In the long run, shifting from total state ownership to private ownership would boost productivity growth by 1.6 to 2% each year (Megginson &Netter, 2001). Claessens and Djankov (2002) investigated 6000 companies and discovered that privatization is linked to considerable increases in sales revenues and labor productivity, as well as fewer job losses to a lesser extent. As the time since privatization passes, the positive effect of privatization grows in economic magnitude and statistical significance (Claessens & Djankov,2002). In the absence of state-owned enterprises in Vietnam, productivity gains from trade could have been 66 percent higher five years after WTO entrance (Baccini, Impullitti, Malesky, 2019). Edwards (2017) concluded that the effect of privatization on prices benefited British customers since privatization and competition decreased prices and enhanced service quality. After a decade of privatization, real prices for telecommunications, industrial gas, and residential gas fell by 50%,50%, and 25%, respectively, according to a Treasury analysis (Edwards, 2017). Real prices were down more than 25% a decade after electricity privatization (Edwards, 2017). The environment also benefited from the electrical reform because the privatized industry moved quickly to replace coal with natural gas as a fuel source (Edwards, 2017). Cost savings of 20% to 50% were reported in over 100 independent studies as a result of privatization and, more crucially, greater competition (Hike, 1993). In the long run, switching from total state control to private own reduce costs by 1.7 to 1.9 percent per year (Megginson & Netter, 2001). On the effects of use and consumption, Edwards (2017) reported that the share of British Telecom service calls completed within eight days soared from 59 percent to 97 percent in the decade after privatization. Before privatization, it had taken months and sometimes a bribe to get a new telephone line(Edwards, 2017). Under Margaret Thatcher's privatizations, the share of British citizens owning equities soared from 7 percent to 25 percent (Edwards, 2017). According to Fang, Lerner, and Wu (2017), after state-owned firms are privatized, innovation increases. According to Shirley(1992), research demonstrates that privatization almost invariably results in an increase in investment and innovation.

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According to an analysis of two household surveys conducted in the 1990s, there is a positive premium for working in the private sector over the state and privatized stat enterprises, and this premium is reduced but not eliminated when differences in firm and workers characteristics and hours worked across sectors are controlled (Brainerd, 2000). Unlike state ownership, private ownership allows profit and loss to be used. Customers that are satisfied continue to patronize businesses that have provided them with excellent service. Entrepreneurs who fail to please their customers, on the other hand, are quickly driven out of business. Similarly, private road owners will have every motivation to reduce accidents, whether through techno, improved laws of the road, enhanced techniques of identifying inebriated and other undesirable drivers, and so on. If they fail or do poorly compared to their peers, they will be demoted from their position of authority. According to Austrian economist Walter Block's (2009)research, it costs two dollars to create a mile of road through the public sector for every $1 spent by a private company. As a result of our state's road management, 40,000 people die on them each year (Block, 2009). According to the same study, switching to a totally privatized road system would save an estimated 25,000 deaths every year (Block, 2009). After reviewing research from many disciplines, it is clear that privatization has a positive effect when used. It is fair to determine that the privatization of prisons would follow this pattern.

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Comparing the government and private companies, theoretically, private companies would be more efficient. The federal government can have cost overruns, make bad decisions, and misallocate investments with very few mechanisms created to prevent this. When there are guaranteed taxpayer funds that are funding one’s activities, they would have no incentive to create a profit. Private companies have a built-in mechanism to prevent these problems. The mechanism is bankruptcy and the profit incentive, which is what drives every private company to become successful and create innovations. If a company does make bad decisions, has cost overruns, and misallocates investments; it would lose money or go bankrupt. The companies have to make good decisions, or they will suffer the consequences. The government does not have this mechanism to keep it in line. People tend not to spend other people’s money as carefully as their own, which explains how the government spends its funding. For lawmakers, the source of funding can seem distant. Private companies must weigh the costs and benefits before spending their own money. Poorly performing government agencies are not subject to takeover bids or bankruptcy like private companies are. Around 10% of U.S. companies go out of business every year (Edwards, 2014). Governmental managers have no profit incentive, no incentive to reduce waste, and cut costs. Without profits to worry about, lawmakers often favor budget increases without thinking if the expansion will add net value to society above the taxpayer costs. Also, without the profit incentive, there is no motivation to produce innovations and there is less motivation to produce better services with higher quality. There has been researching that shows that “cost overruns are more frequent on government projects than on private-sector projects” (Edwards, 2014, Para. 10). Also, due to the frequent change of political parties controlling government, many agencies experience continuous changes in the mission of their agency. For example, the Customs and Border Protection Agency (CBP) has had its policies change from zero-tolerance policies under President Donald Trump from 2017-2021 to more relaxed policies under President Joe Biden in 2021 (A. Bielawski, Personal Communication, April 1, 2021. Under Biden’s policy, the chief of the U.S. Border Patrol Rodney Scott was forced out of the CBP (Spagat, 2021). The incentives in government policies are inherently negative, if they were positive, it would cause all of those who are carrying out the work to be unemployed. For example, those vested in ending the War on Poverty actually had an interest in losing it because they would lose their jobs if they won the War on Poverty. Another example of how this works is that the “employment in the Department of Agriculture went up 47% (78,000 to 115,000) from 1952 and 1972, while the number of farms dropped 45% (5.2 million to 2.9 million) in the same time frame” (Brownfield, 1977, Para. 5). Theoretically and practically, the government has been found to be less efficient than private companies.

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Opponents of privatizing prisons claim that private prisons are a result of failed privatization attempts. These people could not be further from the truth. Private prisons, as they attempt to debunk or oppose, are not really private because they act as agents of the state. The problem is not that it is private; the problem is that the government has a monopoly on prisons and creates contracts with private companies (Calton, 2019). These contracts are funded through taxpayer money(Calton, 2019). Due to this, the prisons are not private. These prisons are wholly dependent on the government, how can a private company be reliant on forced taxpayer payments be considered private? These prisons are simply an extension of the government, where funds come from forced taxpayer money. The “private prisons” have been criticized for having prisoner abuse, poor living conditions, and contaminated food (Hunter, 2016). This problem exists because the government is responsible for creating these facilities and the demand for more prisoners. The government created the demand for more prisoners in the “tough on crime” era in the 1970s and 1980s and the War on Drugs. Policies, such as mandatory minimum sentences, were created in the War on Drugs (Hunter,2016). The government was unable to keep up with the number of prisoners, so they decided to turn to private companies, rather than reforming their policies. As of 2014, roughly 50 percent of prisoners in federal prisons were serving time for drug-related offenses (Hunter, 2016). Without the drug wars, there would only be a fraction of the number of prisoners. These prisons are not private, blaming these problems on privatization is wrong and a logical fallacy.

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Rather than keep the current model of prisons, the government-run and private prisons, we should attempt to create a truly private prison free from the monopoly the government has. True private prisons are free-market prisons, which would be significantly better than "private" and government prisons. Free-market prisons would allow prisoners to improve their skills, education, and work experience. This would incentivize productivity and peace. Prisoners would be allowed to make money while in prison, pay the prison, and pay the victim's family. Their income could be allocated as such: 25% to the prison; which would prevent taxpayers from having to pay for prisons; 25% to the prisoner to incentivize him to work, and 50% to the victim (or victim's family)for restitution. This model could be modified by judges depending on different crimes. Prisoners wishing to improve their skills through training and education will have the opportunity to do so because it will increase profits for the company. This will also incentivize the prevention of violence because they will be punished if they do not work. For drug addicts, prisons could allow medical uses of drugs but ban recreational ones. This would allow the prisoners to make more money and will decrease the likelihood that they resume their drug habit upon release.

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Conclusion

Private prisons in effect now are arguably more efficient than the prisons run by the government. The government as a whole has no incentive to perform well. Also, privatization is historically effective. Based on the data, it is believable that private prisons would be more efficient than government-run prisons. In the era of evidence-based corrections, is it time to start the move toward privatization? The answer to that question is yes, private prisons are the solution to the prison crisis in the United States.