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Corporate-Run Prisons a 'Growth Industry' : Some Businessmen Claim They Can Do the Job Cheaper . . . and Better

March 29, 1985|DAVID JOHNSTON | Times Staff Writer

Businessmen are starting to go to prison--for profit.

Privately run prisons have become part of the '80s trend toward government hiring entrepreneurs to do the public's work.

Only a handful of the nation's 830 prisons and several thousand jails and juvenile halls are run by businesses. (In California, one prison and several less-secure holding facilities are privately operated.) But Donaldson, Lufkin & Jenrette, the Wall Street brokerage house, calls corporate-run jails "a new growth industry."

Various published estimates indicate that taxpayers will spend $6 billion to $7 billion in the next decade to build more cells--and tens of billions of dollars more to operate them.

That kind of growth means big money for the private firms that contract to design and build prisons, as well as for the financiers who arrange prison bond sales and the investors who collect the income tax-exempt interest on them.

Now some businessmen, including a number of retired prison officials, want to run prisons. They want to inject private ownership into prisons just as investors have done to the hospital business, which for years was almost solely the province of government and nonprofit organizations. And these businessmen claim they can do the job cheaper and, maybe, better.

The idea appeals to some government officials because they can simply pay operating costs. The businessmen must come up with the initial capital to build facilities, which, if the payment rates are high enough, can be done quickly. The thinking is that private industry will bypass the years of government studies and in many cases approval by voters of prison bond issues to finance construction.

The few businessmen who are already running prisons, jails and juvenile halls are also saying what social critics, some law enforcement and corrections officials and blue-ribbon study panels have been saying for years: The American way of imprisonment doesn't work.

"Right now we are on the damnedest punishment kick you ever saw--and it isn't going to work," said Ted Nissen, a former San Quentin guard and co-owner of Behavioral Systems Southwest in Pomona, which operates 10 detention facilities and halfway houses.

"It costs $50,000 to $75,000 to build a single prison cell," Nissen added. "This is ridiculous. There is a better way to house human beings, but status in the corrections system goes to those who run the highest-security prisons, so the whole system promotes classifying people as more of a security risk than they are.

"We have built a prison industry based on concrete walls, guard towers and the overclassification of inmates," he said.

50% Failure Rate

"And the prisons, instead of being run so that people are in better shape to live in society when they get out, are run so that we have a 50% failure (recidivism) rate within five years."

Nissen and other entrepreneurs maintain that these and other problems create an opportunity to build a better prison and make a buck in the process.

California judges have sent so many felons to prison that the state now has about 38,000 inmates, up 74% from 1980.

In economically troubled Illinois "where the inmate population has more than doubled in a decade, officials call corrections the state's major growth industry," U. S. News & World Report has reported.

Nationwide, the number of people in jails and prisons has nearly doubled since 1975. Today nearly as many Americans are behind bars (663,000) as live in San Francisco (678,000).

Among industrialized nations, only the Soviet Union and South Africa have a larger share of their people behind bars.

Gil Geis, a UC Irvine professor of social ecology and past president of the American Society of Criminology, is among those experts on crime and justice who favor innovation in running prisons.

'Worth Trying'

"I think privately run prisons are worth trying--with very, very careful scrutiny," Geis said. "But it has to be watched very carefully because with a profit motive the tendency is to put in as few resources as possible to maximize your profit."

Paul Felton, vice president for corporate finance at Sutro & Co. in San Francisco, has been studying the investment potential in corporate jails and believes opportunities abound.

"The public criminal justice system has had a corner on the market for 150 years, but now we are seeing all kinds of competition.

"Whenever you have a large industry that has been substantially impacted or run by government and all of a sudden you introduce market economics into it you are going to have a very large change . . . and that is where investment opportunities often lie.

"It is inevitable that private prisons will attract venture capital because a lot of money is being spent on a system that no one is happy with, that everyone agrees is inefficient, unproductive and self-perpetuating and that will have $7 billion spent on new prisons in the next 10 years."

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