Lecture 9: Privatizing Government II: Prisons and the Military

Lecture 9: Privatizing Government II: Prisons and the Military


– Today we’re going to continue
talking about Privitization of core government functions. And our central focus is
going to be on prisons and the military. I’m gonna start just by revisiting the basic outlook of
privatizing government that became so powerful in
the early post-Cold War years. We’ll then focus first on privatizing the military in general
and that’ll lead us into a discussion of
the Host Nation Trucking example in from Afghanistan
about which we put together that case that was on the syllabus. Then I’m gonna give some background on the U.S. prison industry
and that’ll lead us into a discussion of the
privatization of prisons and what we should be
thinking about more generally about privatization of
core government functions. Just to put my map back up on the screen, this is from last time. We distinguished
post-communist privatizations from what I was calling
Neoliberal Privatizations part of the small
government agenda at home and the Washington Consensus a broad. And distinguished previously public or public sector nationalized industries with things like railways and utilities from the wielding of public authority as we spend quite a bit
of time on eminent domain. And then we left for
today what I’m calling core government functions;
policing, prisons, the military, things that have to do with
people’s basic survival, the state’s monopoly on the
legitimate use of coercive force to use Max Weber definition
of state, policing, which we’re not gonna talk about though, I should perhaps have mentioned that one of the consequences
of the privatization of the provision of local
services in housing, the common interest
developments in many respects, they also have some
privatization of policing. There’s an old joke about what are the Yale police for by the way? And the answer is, was
to protect the students from the New Haven police
where they’ve kind of, one could make of that what one well. But I should have gone
a little bit further that in a sense these
common interest developments are gated communities, we tend
to think of gated communities as communities only for wealthy people. Gated communities around Cape Town where, or around actually any
of South Africa’s cities, where wealthy people live and they have their
private law enforcement but one of their interesting features of the common interest
developments in the U.S. is that 60 million people live in them and there are of many
different income categories, but they are essentially
a kind of gated community even if the gates are often invisible. So today we’re gonna go to
core government functions. And just to take us back to how people we’re thinking about
privatizing government, let’s go back to December 1994. – Our reinventing government initiative led by Vice President Gore, already has health of shrink bureaucracy and freeing up money
to pay down the deficit and invest in our people. All day we pass budgets to
reduce the federal government to its smallest size in 30 years and to cut the deficit by $700 billion, that’s over $10,000 for
every American family. In the next few days, we’ll
unveil more of our proposals. And I’ve instructed the Vice President to review every single
government department program for further reductions. I know some people just wanna
cut the government blindly and I know that’s popular
now but I won’t do it. I wanna linear not leaner government, we can sell off the entire operations the government no longer needs to run and turn dozens of programs
over the states and communities that know best how to
solve their own problems. My plan will save billions of dollars from the Energy Department, cut down the Transportation Department and shrink 60 programs into four at the Department of Housing
and Urban Development. A new government for the new economy creating flexible, high-quality,
low-cost, service-oriented just like our most
innovative private companies. – So he wasn’t talking
about shrinking government to the size when it could
be drowned in the bathtub as Grover Norquist would
subsequently argue, but it was very much, he went
on in that speech to say, “We propose to stop doing things that government doesn’t do very well and that don’t need to
be done by government.” So there’s a sense that
we should be looking everywhere we can to privatize
what government does. This really had started
in the 1980s with Reagan but it accelerates in the 90s with Bush I in the Clinton administration. And we will see particularly
under George W. Bush the privatization of
core government functions starts to really take off. In 1993, this is the national
performance review called that the Clinton administration conducted, they called for aggressive
outsourcing of government work. It led to the elimination of
almost half a million jobs in the federal civilian workforce. And interestingly, by 2001, this is the beginning of
the Bush administration, the Pentagon contract workforce outnumbers civilian Defense Department
employees for the first time. Those who can remember back that far, this is where in Donald Rumsfeld
was Secretary of Defense. And he made it his business,
this is before 9/11 happened, he made it his business to
rethink the whole structure of the military much more
on private sector principles and to slim it down. And so if you look at the at
the U.S. government workforce over the past two decades,
you can see that the size of the number of
employees working directly for the federal government
doesn’t really change that much and by some measures it decreased. This Purple Line is what
we call Grant employees. Most of that is grant money
given by the federal government in Grant programs to state
and local governments or for specific projects. And you can see that that
had continued to increase but after the financial
crisis, it tails off as well when government comes
under real fiscal stress. My guess is that this little peak at in the first couple of years
after the financial crisis was stimulus spending, things
like NIH spending and others which then tailed off. But the notable fact in the
beginning decade of the century is this massive increase in the number of contracted workers. This is contracting out of work. And a big chunk of that increase that you can see there in the blue line, also up through 2010, was
outsourcing in the military. This is courtesy of
Rumsfeld and his successes. But the idea that we would
rely much more heavily on the private sector
in all of the operations of the military’s a big part of that surge that you see up through 2010. And even then when it
falls, it goes nowhere near where it had been before. And I suspect for reasons
I will get to later that if you have these
numbers through 2019, this will increase. Okay, privatizing the military. So the idea that there
are private contractors involved in the conduct of war is not new. If you go back to the Revolutionary War, you can see that actually
in every single war, we have had private contractors
in military personnel involved all the way back
to the Revolutionary War. They are the yellow bars
rather than the blue bars who are irregular military. And you can see that they’ve
had a rather small presence in most of those wars, the
largest proportionately before the Iraq war being in the Civil War and in the Second World War. But the Iraq war is notable
because for the first time, you can see that we have
more or less the same number of private military contractors. This is by 2008 in Iraq. And you can see basically we
have more or less equal numbers of private military contractors
unlike the first Gulf War which we talked about in
the very first lecture where the coalition forces were
almost half a million people even though we didn’t
engage in regime change, we had a much more ambitious
agenda in the 2003 Iraq war even though we used many
few of our own troops and we relied much more on these private military contractors. The Afghanistan war takes
it to a whole new level, this again is 2008, you can see, this is, We were drawing down
troops in Iraq after that and this is the surge in
Afghanistan that starts at the end of the Bush
administration continues under Obama and the private
military contractors become less of a proportion of the total during that surge
although we will see later that in a decade since then, the picture is somewhat different. So you might be asking yourself, well, who are these private
military contractors and what do they actually do? Is this just a euphemism for mercenaries? Mercenaries, they’re as
old as the hills after all. And at least as they
are employed in the U.S. or by the U.S., they’re
strictly not supposed to engage in front-line
fighting, the offensive fighting, but they can do just
about any other function, and they do a huge variety of things. So just to give you some
sense just this as a flavor of some of these companies of their size and what they do. Here’s one called G4S, it
has about 625,000 employees mostly involving itself
in Iraq and Afghanistan. And it you can see it does
a whole gamut of things; routine security, banks,
airports and prisons but more heavily armed
security, mind clearance, military intelligence and training. Another one, Erinyes. Mostly in Africa, although
it’s had a lot to do in Iraq as well, it guards oil pipelines. It has about 16,000 guards, so it’s considerably smaller but working or it has worked almost everywhere in Iraq often protecting commercial ventures such as iron or oil and gas projects in the Republic of Congo, The Asia Security Group, a
smaller one about 600 guards but it’s been very active in Afghanistan particularly security for the
high government officials. It’s had millions of
dollars in U.S. contracts and protected supply
convoys in Afghanistan South about which I’ll say more
in a little while as well. DynCorp or DynCorp, not sure
how they pronounce themselves, pretty big sized one, 10,000 employees, 3.4 billion in revenue. Again operating in many
parts of the world; Iraq, Africa, Latin
America, Eastern Europe. It become involved in, you might think of, as policing missions,
anti drug interdictions, disarmament of fighters
in stalemated civil wars, a whole variety of activities. Triple Canopy, have interesting names, some of these companies. About 1,800 people, mostly
from Uganda and Peru. And they’re making contracts
worth about 1.5 a year. Involved as you can see
is countries as different as guarding the US Embassy in Haiti, protecting US personnel in
Israel and many other things. Aegis Defense Services, a very big one, 5,000 staff, UN missions,
peacekeeping missions sometimes and it’s been involved
in emergency response for governments risk
assessment activities, so the government gamut of activities. And so this is a particularly
notable military contractor, changed its names several times, it used to be called Blackwater and it was one of the
most notorious of these, particularly it had was famous for a very aggressive tactics, it’s big, it’s had some
20,000 people working for it at different times as you can
tell many parts of the world. They got notorious mainly because of Iraq in two different episodes in Iraq. One was that it precipitated
the first battle of Fallujah in 2004. The army had not intended to take Fallujah but four Blackwater security personnel got themselves killed and it
went viral, their bodies hang, their burned bodies hanging
from bridges in Fallujah basically forced the U.S.
to redirect its plans and go and take Fallujah which
they had not intended to do. And this is one of the ways
in which military contractors can actually affect the primary missions. But then several years
after that in Baghdad, Blackwater shot and killed 17 civilians including a nine-year-old child and much of this also went viral as had the Fallujah episode. And eventually four of them
were were convicted of murder and one got a life sentence,
the other two got very strong I think 30-year criminal sentences. So Blackwater became synonymous
with these freewheeling uncontrollable military contractors which actually had an effect in thinking about how they should be
restrained and governed. There was something adopted
called the Montreux document, the following year by 52
countries including the U.S. that listed a whole
series of good practices and said among other things that the government’s employing them would be accountable for what they did. Of course like many of
these kinds of protocols whether they can be
enforced is another matter. But so Blackwater then
has renamed itself twice; first to G services and now is
called Academy, or Academia, I don’t know how they like
to pronounce themselves, but most people who have heard
of any of these companies have heard of them. So that’s the kind of thing that they are, as I said they do, they’ll
do virtually anything, they will fight for any
government if the price is right and they will largely do
whatever they are asked to do. The personnel in them have changed a lot. For instance in the 1990s, a lot of them were former South African military after the settlement in South Africa. Those people now are
pretty long in the tooth, probably too old for
this kind of activity. And so they come from all over the world. But in certain situations
and particularly will see in Afghanistan, there’s
very heavy reliance on local populations as
a source of employees by these companies. So let’s talk a little bit about Host Nation Trucking in Afghanistan. These, the convoys, you can see that they were employed to guard. And it’s important to say little bit about why this came to be the case. So this is a map of Afghanistan. As you can see, first thing to notice is it’s a landlocked country, I haven’t got Kabul marked on it but Kabul is right there pretty much. And for reasons we’re gonna
talk about when we get into the the class about
the Global War on Terror, the U.S. went into
Afghanistan after the 2000, the 2001 attacks with
a very light footprint, we went with very few
troops on the ground. In fact, the way we fought
the war in Afghanistan was to get behind one side
in an existing Civil War. There had been an ongoing
civil war in Afghanistan between the ruling Taliban and a group called the Northern Alliance. And the Northern Alliance
was all but defeated in 2001. We wanted to do Afghanistan on the cheap for reasons I will talk about later and we made the judgment that the way to do Afghanistan on the cheap was to get behind the Northern Alliance. And the idea was to help
them win the civil war so that they would then
become a government that we could work with. And that is exactly what we did. But the thing we didn’t think about or certainly we didn’t
draw the right conclusions, if we did think about
it, is that if you get behind the losing side in a civil war, it’s probably gonna be the
case that that government is going to be having
a hard time governing because they’re probably reasons why it’s been the losing
side in a civil war. It might not have a lot
of support, for instance, among the population
or it might not be able to create on its own a Weberian monopoly of the use of legitimate power precisely because it doesn’t have that capacity. And so indeed we did help
the Northern Alliance when we defeated the Taliban
and we put them in power, we may have seen them as a
government we could work with but of course a government
that comes to power that way, it is inevitably gonna be seen as an American puppet
government on the ground which tended to be what happened. And so basically people,
you know, you’d read article after article and if you
would interview people, you would hear statements to the effect that the government in
Kabul for years didn’t… You know, you could once you’re
five miles outside Kandahar, really the government had no
real control of the country. And so this was the reality
in which this ongoing war was being prosecuted. And indeed as we will see
when we dig in the lecture on the global war on terror,
by 2003, many of the commanders on the ground in Afghanistan were advising up the chain of command
that the Bush administration should be trying to make
a deal with the Taliban perhaps to create a
government of national unity but the judgment on the ground was that there was no way that the
government we had put in place was ever going to, given the
resources we were spending and and so on, was ever
gonna become a legitimate and effective government. That argument was
systematically either ignored or rejected and where it’s now of course the longest war in American history and we are on the verge of doing a deal which will return the Taliban to power. So this was the world in
which we were operating for much of the first two decades, we were basically supporting a government that doesn’t control its own territory. And we had a very light footprint. And so the challenge
was how to move supplies around Afghanistan which
was essentially not secured in particular this Highway
I which you can see goes basically around the country. And we have to be able to move personnel and particularly equipment
through this hostile territory. And that was not gonna be easy to do and so you can see what
happened at the start into, not at the start, but in 2007, we had about 25,000 troops there and more or less equal number
of military contractors. You can trace these numbers
up through the surge but by, you know, six years later, we’d brought these troops from Iraq but then drawn them down somewhat. But reliance on military
contractors continued, so they vastly now in 2013
and this has continued since, we’ve drawn down troops further. So we’ve been heavily reliant
on these military contractors. And basically what we’ve done
is use them to guard convoys. The reason we wouldn’t… why wouldn’t we wanna use American troops to guard these convoys? Any, why would we wanna
contract out the guarding of these convoys? (man speaks off the microphone) Pardon? (man speaks off the microphone) What kind of cost? The financial cost, there’s
some financial, yeah? (background noise drowns other sounds) We don’t have a draft so
that again we have to use professional soldiers that
can be expensive, yeah. (background noise drowns other sounds) They understand that terrain
better than the U.S. troops. That’s also true but it comes
with the sting in the tail which we’ll talk about a
little in a few minutes. But the real reason goes
back to the lack of a draft that this is really hostile territory and if we had started using
a lot of American soldiers to guard these convoys,
we would have started having a lot of American casualties. And having a lot of American casualties would have made this war
much more difficult to fight because people would be
calling their Congress people, their senators, you know,
you don’t have to think that far back to see how this played out during the Vietnam War. It was when large numbers of
Americans were being killed that the support for fighting
the Vietnam War went away. So the idea was not to expose politicians to the political cost
to, not to expose them to the political cost of
having a lot of soldiers there. But the difficulty with relying on people who know the terrain a lot
better is that they also know how to take advantage of you, right. And so we had a lot of
contradictory imperatives because we were trying
to pacify the country, we were trying to help the government get control of the country. So for instance among other things, we put in place rules which said that private contractors
guarding millitary convoys couldn’t have weapons
more powerful than Ak-47s. The problem was that these
convoys were being attacked with rocket-propelled grenades. So how are you going to
actually protect the convoys if you don’t have the relevant firepower? Big challenge, what’s the answer? (man speaks off the microphone) Pardon? (man speaks off the microphone) And how do you do that? – Through the terrain. (audience laughing) The answer was money, right. The answer was money. You basically had to pay the people who might otherwise be attacking you not to attack you, right. So there were huge shakedowns. And these are from the case,
I put them on the slides, it’s not to read them out to you now but you can look peruse
them at your leisure, but they’re basically
whistle blowers and others reporting what the going
cost was to make sure that a convoy didn’t get attacked. And so the Taliban was
charging $500 per truck from Kandahar to Herat. And the different prices listed there. This is a slide from a presentation to a congressional committee
which basically said, in order for the Host
Nation Trucking contractors to be able to work in the Sharana region, they had to basically
pay $150,000 a month. So, and that this became scandalous because it turned out as you,
it shouldn’t take you too long to realize that we were
sawing off the branch we were sitting on in that
we were actually funding the guerrilla movements that we were supposed to be fighting. And the reason was that
we had to essentially pay in order to be able to prosecute this war with reduced cost, economic cost, that when you’re not sending professional well-paid U.S. military
in the hundred tens and hundreds of thousands and
avoiding the political cost that would have come with
doing it with our own troops. So that became a huge scandal and there were a lot of hearings about it. And some of the problems were fixed but it remains something
of an ongoing problem. But, well, the question
I want us to puzzle over is assuming that the
problems could be managed, and we’ll come back to
whether they really can be in a little while, but assuming
the problems can be managed and it really is more efficient
to fight wars this way, it really does save
money and it saves lives and you know, it’s a market solution, you’re letting people who
want to spend their lives taking these kinds of
risks take those risks. It means we could fight what would be otherwise unpopular wars. Is that a good thing? – [Student] No. – [Man] It’s anti-democratic. – Why is it anti-democratic? – [Man] Because the war is unpopular, it’s a war that could not (mumbles) – Well, let me be the devil’s
advocate there literally. He’s saying it’s anti-democratic because if the war is unpopular, we shouldn’t be fighting it. But when we fight the war this way, it’s not sufficient, it’s
not unpopular, right. We’re contracting out to
people who wanna fight the war and we’re getting to stay
home and not have to send us, ourselves or our sons
and daughters to die. So it would be an unpopular
war if we were sending them but we’re not sending them. We’re only sending small numbers
of professional soldiers. Yes sir? – [Man] (mumbles) perverse
incentives to fight more wars. – It creates a perverse
incentive to fight more wars. Yeah, if something is cheaper to do, you’re more likely to be able to do it. What’s so wrong, what’s so bad about that? – [Man] You create the for
(mumbles) specifically. – So there if you go back and
read the Federalist Papers, you find some of the same
sentiments as we’re hearing from the floor here. There was a great
nervousness, this huge debates about whether we should be
having standing armies at all because standing armies wanna fight wars. And maybe it should be really
difficult to fight wars, and we shouldn’t fight wars
unless there’s a lot of support for fighting the wars. Yeah? (man speaks off the microphone) You gotta yell or get a mic,
I forgot to get the mic. Yell, you just gotta yell. (background noise drowns other sounds) – [Man] And that army could even (mumbles) to carry out some of the missions that they carry out. – So you’re worried about
these armies going rogue and doing their own thing, yeah? Okay, yeah? – [Man] I would say that
the problem is not so much in the war in itself but
what is the oversight, so we’ve seen that in the
Iraq and Afghanistan wars rather than the Congress
declaring a war declaration that’s been done through giving power to the President to the war. So if there’s no oversight
of how the war is going on then we can have this broke armies that we’re talking about. So it’s sort of undemocratic because there are no checks
and balances on the war itself. – Okay, so we’ll come back
to the oversight issues but the argument of the Federalist Papers and the resistance to
having professional armies in the first place was
the idea that, you know, war is not a great thing
and we should only, I think part of the idea was, we should only be fighting wars that we really need to fight. And if you really need to fight a war, you’ll be able to mobilize the citizenry. And if you can’t mobilize the citizenry, maybe it’s a war that doesn’t
need to be fought at all. And we will consider later whether there was another option in Afghanistan after 9/11, a path not taken. But the other thing to think
about is there’s a literature in political science
and political philosophy that goes all the way
back to Immanuel Kant who first observed that what
he called Liberal Regimes of what we think of us today
is more democratic countries tend not to fight one another. They tend not to fight one another. And this turns out Bruce Russert who’s now an emeritus professor, he is very famous for having
studied this empirically at great length, Michael
Doyle at Columbia, a political theorist who’s
spend a lot of time on this, but many people have studied this so-called Democratic Peace. And it seems empirically to be the case that democracies tend
not to fight one another. And also at least until
recently that democracies tend only to fight wars
that they’re going to win which again depended upon the idea that it’s gonna get people,
it’s gonna be very difficult to get people to fight unless the war is really important to them in which case they’ll be motivated to win. And so if you start to make
it very cheap for politicians to wage wars as we have done
increasingly by reliance on first of professional military and now military contractors and increasingly we’re gonna be relying on things like drones
which can be also for without very many soldiers
and perhaps at very low cost. And we are funding these wars on debt, we’re not actually making
people who live and vote today to pay taxes to fight these wars. It’s gonna make us more warlike because politicians will not have the incentive to avoid war. And so the finding, the empirical finding in the Democratic peace
literature might start to go away. Let’s shift focus to prisons
and then we will come back and see what these two have in common. So some summary points about
prisons and the main big one is that we are a huge
outlier in the world. So here you can see incarceration rates 400,000 of population and the U.S. beats everybody, hands down. This was in 2012 but the picture doesn’t look substantially
different comparatively, we have over 700 per 100,000 citizens. And as you can see, the Czech Republic which comes in there has 200,000. If you look at the top 10
incarcerators in the world, you can see what kind of
company we’re in even though we dominate them all, Russia, Belarus, countries of that kind. South Africa comes in 10th
but we’re all, you know, we’re not quite double but we’re there. And if you wanna look at it over time, you can see that it’s
really has accelerated in the last four, since
the 1970s, it’s accelerated by a phenomenal rate
particularly for males and we’ll see particularly
males who are not white. Now some of this has
to do with developments in the criminal justice
system but not all of it. So just to provide some
larger context here, in the 1960s and early 70s,
there were big advances in the treatment of psychiatric disorders, so-called mood disorders,
things like depression, started to be treated
with drugs like lithium and it’s cognates and thought
disorders like schizophrenia started to be treated
with drugs like Thorazine and its derivatives. And that meant that people
who had previously spent their whole lives in mental hospitals started to be released. So if you go up to Connecticut
Valley Hospital in Middletown or Creedmoor Hospital, at
State Hospital in New York, the first thing that will
strike you is they’ll be, and it’s as true in State Hospital, after State Mental Hospital
around the country, there’ll be six or seven building, the majority of which are boarded up. And the reason is that these people will all be institutionalized
in very large numbers. People who might otherwise have
spent their lifetimes there. But it also happened to occur
during a massive fiscal crisis for a lot of state governments. And this is the dark side of what we sometimes
call fiscal federalism. And so as these state
governments were saving huge amounts of money
by de-institutionalizing mental patients, where were they going? They were going to in Connecticut, they were going to, you know,
to Hartford to New Haven to Bridgeport and the state governments we’re not giving those
resources to the cities ’cause they were so, the state
governments were so strapped. And a lot of those people wound up in the criminal population
and wound up in prisons. So I’m not saying it’s a causal argument or anything like that but
there are part of this, part of this population was
fed by the fiscal federalism and the fiscal crises of the states that led to an increase in the population that was likely to be very vulnerable to winding up in prison. So they went from one total
institution to another. But as you can see here
the numbers are staggering and that’s only a small
piece of the story. So here are the bigger pieces of it. What drove this to big developments? One was a war on drugs which begins in the Nixon administration in 1971. And then secondly in the
1980’s, the massive increase in mandatory sentencing which
shifts power from judges to prosecutors because the vast
majority of prison sentences are negotiated plea
agreements with prosecutors, and led to things like the three strikes and you’re out rule. So if you’re convicted of a third felony, you get a life sentence even… And they’re all these famous
cases of the third felony being a bounced cheque
or something of this sort might not be a violent crime at all. And so these two developments
were largely responsible for the much more punitive
turn in criminal sentencing and the massive expansion
of our prison population to over 200, over 2,000,000
where it is today. Big racial component to this, particularly in the war on drugs, the crimes that were more heavily
punished and criminalized, the drugs that were, the
drugs for which people were convicted at higher rates tended to be the drugs used by minorities but there were other reasons about which one could
teach an entire course about why minorities are
disproportionately locked up in the criminal justice system. You can see here, this is
2009, the percent of males, adult males, incarcerated
and the African-Americans and Hispanics are much
more widely represented. This of course has a political dimension because we have so-called
felon disenfranchisement laws. Many states have laws, again
you can peruse this slide at your leisure but the
reddest are the most punitive. So for instance in Kentucky and Virginia, you’re permanently disenfranchised if you’ve had a felony conviction. And then these other colors
them as they get lighter, it’s easier to get your voting rights back once you have served your time. And if you look at this contributes to the disenfranchisement
of minority populations because here the reddest
states are the ones in which African Americans are
most heavily disenfranchised as a result of felon
disenfranchisement laws. So we’ve become much more punitive mostly because of the war on drugs and the much more punitive
sentencing policies particularly the move to
strong mandatory sentencing. But the big paradox is violent crime has actually been falling. Violent crime has been falling. This is from 1993 to 2017 and this is breaking it, the first two graphs are breaking it down first by people and then by age and the second to property
crimes for 100,000 people or per 100,000 households. And you can see that the number, the proportion of
convictions for violent crime in all of these categories
has come down substantially. So we’re locking up more people. This is from 1990, the
red line shows the number, the prisoners per
population but violent crime is coming down. So why might that be? Why would we be locking up more people, why would be seeing locking up more people and violent crime coming down? – [Man] Drug crimes are
largely non-violent. – Pardon? – [Man] Drug crimes are
largely non-violent. – Okay, but we’re locking up… Okay, so we’re locking up
people for nonviolent crime, that could be one of the reasons. Why else might we be
locking up more people with violent crime is going down? Yep? (man speaks off the microphone) Pardon? (man speaks off the microphone) That criminals are in prison. So some would say, well, that’s
great the policy is working, right, we’re locking them up. That’s why the crimes going down. Some people would say that. Any other reason somebody
might come up with? Yes sir. – [Man] Contractual agreements
with private prisons. – Contractual agreements
with private prisons. We’ll talk about private prisons, they are significant but they
wouldn’t be significant enough to explain this development. And the private sector prison increase is a relatively recent. Yeah? – [Man] It could be the
Police Department are changing their tactics and (mumbles). – More community policing. Well, we’ve seen we have some
experts on community policing in this room but I
believe the short answer is we had a rise and fall
in community policing. Even though community
policing is more effective, it’s gone up and down. Maybe it’s having a comeback now. Among other reasons, one
is, one reason violent crime is going down is demography. The vast majority… One of the best predictors
of violent crime is males between the age of
18 and 24 in a population. And as the baby boom
bulge has moved through, we have fewer, we have relatively
fewer people of that age. So some of it is just demography. There’s a theory that has
been very controversial by the people who wrote Freakonomics which purports to show
that Roe versus Wade is responsible for the
decline in violent crime on the hypothesis that those
likely to commit violent crimes are not being born
because of being aborted. Very controversial, I think. The data was questioned, much criticized and in the last couple of years, they’ve done a whole series
of new empirical studies purporting to defend their hypothesis. But if you read Steven Pinker’s book, The Better Angels of Our Nature which traces the decline in
violence in Western countries over the last seven centuries. He puts a lot of stock in education and labor force participation of women and argue that as that goes
up, violent crime decreases. So the point of the slide
being why violent crime has decreased is not a subject about which this much consensus. And there are these and
you could probably put up a number of other possible
contributors to that. But more interestingly from
a political point of view is that even though violent
crime is going down, most people don’t know that. So the dark blue line is
percentage of people in polls who believe that violent
crime is increasing. As you can see, the light
blue line is the rate at which violent crime
is actually occurring. And you can see this
pretty big disjunction, an increasing disjunction,
between what people believe and what’s actually going on. And that’s quite remarkable. Various hypotheses about
that, a political scientist by the name of Stuart
Scheingold who’s worked on this, a book called Politics of Law and Order argues that it’s being tough on crime is cheap talk for politicians
because the politicians who can run and get elected on it are often not the politicians
who have to justify paying to lock up the felon to voters. So for instance people
running for federal office can run on being tough on
crime but the vast majority of prisoners are actually in state prisons that are paid for out of state budgets. So coming back to this slide, one thing I didn’t point out earlier is that you can see that
around the turn of the century, this all started to tail off. That in fact we started to see declines in incarceration rates
and part of that was cost, part of it was perhaps
recognizing the inefficiency of punitiveness rates but if you look at private sector prisons,
they are increasing. So you can see that they went
from being about 6.3 in 2000 to 8% of the population in 2009 and they’re well above 10% now, so perhaps even more than that. So the private sector prison industry is getting an increasing proportion of a declining population. And so that’s, you know,
violent crime is going down, the number of people
locked up are going down and yet we are seeing this
growth and flourishing of the private sector prison industry. – Last week there was a terrific article, The Financial Times, about how U.S. states are looking to privatize their prisons in order to close their
deeping budget deficit. It turns out sell your
prisoners to private contractors is a great way for cash-strapped States and even a federal gun to raise money. First off, there’s the money upfront. Private firms will pay as much as $10 to $30 million per prison. Last month Ohio sold
one for 73 million bucks and Arizona recently
finished a series of hearings on a play to add thousands of privately operated prison debts. But the real money comes from
the long term cost savings. Since private companies
cannot operate prisons at a much lower cost than
state governance, the reason, it’s not just the magic
of capitalism at work, it’s really because people
who work for private companies don’t have huge guaranteed benefits like many state employees. And that’s why numerous state governments looking to achieve some kind
of long-term fiscal sanity are thinking about
privatizing their prisons. In Florida, 29 state prisons
are said to be privatized by the end of the year. I’m hoping it can save the
state 22 million bucks a year. It’s good for the state, it’s
good for the prison operators and it might even be good for the inmates since public prisons are so overcrowded. And the worse the economy gets, the more desperate the states
would be to be raising money by selling their valuable
prison real estate. And that’s why private incarceration game works so well during recession. This industry is basically duopoly. It’s a duopoly between
Corrections Corporation of America and GEO group, yeah. Those are the two. For you home gamers, these
are the only two significant public (mumbles) firms. Well, companies have a lot
going for them right now but the thing I like most
is their track record during the Great Recession because if we give it
another series flutter, you know you can count on
these guys to profit from. Both of these companies have
consistently growing earnings every year since 2007. Neither one of them
sell, anything you feel and even recession,
nothing just didn’t do it. These stocks give new meaning
to the term recession proof. You can’t just bust people out of prison when your state runs out of money, they gotta keep paying for inmates. And of course about $25,000
for your inmate per year and of course the
national prison population is sadly one of the strongest
secular trends out there. You know kind of like a political but we’re not about
politicians here by right, we only care about the profits and there’s no doubt that this business is lucrative as all get-out. It’s only going to get better from here. Right now, only about 10%
of prisons in the U.S. are privatized but it’s clear the country is moving that direction. So there’s a lot of room
for both Corrections and GEO to keep on growing plus
the ability of governments to build new prisons is
simply not keeping pace with the need for more prison space. It’s simple supply and demand. The economic and situation
dictate that our new prisons will be private prisons, that
is good for both CXW and GEO. There’s no escape from the notion that this is a fantastic
business to be in. – So Jim Cramer knows
we’re off, he speaks. As you can see that the private
sector prison population through 2016 has increased
from under 100,000 to about 130,000. If you wanna get a
sense of where they are, the darker the blue
heading for deep deep blue is the heaviest concentration
of these prisons. And if you wanna compare
them by state and federal, you can see the federal line is red and the state line is green. Most of these prisoners are
in private, in state prisons and indeed you can see here,
the federal, this red line started going down basically because the Obama administration
decided to phase out private sector federal prisons. However, the Trump administration
has brought them back and particularly all the interdictions on the southern border. Almost all of that is massive business for private detective prisons. So I’m sure when we get
data for the next few years, this red line is gonna
take off to the northeast. While some of you might have
noticed a couple of weeks ago, the California State
Legislature just passed a bill. I don’t think that Gavin
Newsom has signed it, he was deterring about
signing it but facing him out in California which would be, I think, it’d take a significant, may
take a significant chunk away. So what do we think about
private sector prisons? Again, there’s plenty of room for abuse, we all know the stories about the judges who were bribed to send children to private juvenile facilities and so on. But assume they are more efficient. So assume by whatever metric you think prisons should be judged, recidivism rates or
conditions in the prison. Let’s just assume for the
purposes of discussion, the private sector prison is better. Who would still be against it? Why? – [Woman] I feel (mumbles)
and if we decided something that a person does is illegal then it’s our responsibility to directly hold them responsible for
their actions that (mumbles). – Okay, that might be one reason. Yeah? – [Man] The California
private prisons was lobbying to keep the (mumbles). So they are as well political groups to maintain the incarceration. – Okay, any other reasons
people might be against them? Assuming they are more efficient, what if they do have
lower recidivism rates, what if they had better conditions? A lot of them don’t but why
would you still be against them? Yes sir. – [Man] It doesn’t
really adjust the problem that if public prisons are overcrowded and private prisons
would have been better, why are public prisons (mumbles)? – Okay, so this goes to the
lobbying question perhaps, is that implicit in your
question or what you’re saying– – [Man] Yes, it just
doesn’t address the problem. – It doesn’t address… Yeah, so Jim Cramer says
the demand is there. You’re saying well, we don’t
know why the demand is there, violent crime is decreasing, most people seem not to know that, yeah. – [Man] The for profits logic will prevail over the good for the
prisoners in the long run. What about rehabilitation, private prisons want to keep them. – Well, you could say well, you know, just to be the devil’s
advocate, if you said, the metric by which
they’re gonna be judged is how well they rehabilitate prisoners. What if they rehabilitate
prisoners better? – [Man] The question is
rehabilitation of the prisoners that they don’t have. – Right, so let’s say, your
next renewal of your contract is gonna be conditioned
on the recidivism rates from your prison. – [Man] I just find it interesting that we’re little more bothered
by having private prisons and yet we don’t look to other sectors the government looks
like health or education, what may not seem to be
more prone to be okay with privatization of forth
profit behind these sectors– – I think that is a common response but I’m asking you, why? – [Man] Right, so I think
because the case of prisons you’re taking away someone’s liberties, it affects you at the core much more. And to think that you’re putting value to someone else’s enter to
a private probation hands, it doesn’t judge well with that idea of I’m restricting someone’s freedom and I’m giving it over to
private sector handling. – Yep, you’re really gonna have to yell. – [Man] It is (mumbles)
to compensation around why we have this social problems, the injustices and the
high incarceration rates. – Right, it doesn’t address that, it takes for granted,
Cramer takes for granted, there’s the demand and he
has nothing to say about why, you know, as we saw earlier,
maybe it’s the war on drugs, maybe it’s the structural
hostility to minorities built into a lot of the
differential sentencing and enforcement, maybe it’s the people who should be getting mental health care and not being locked up at all. So by focusing on this, we’re not addressing
the underlying issues. But I think coming back
to pull the two parts of the lecture together now, when I talked at the beginning about core state functions, I mentioned Webers definition of a state as having a monopoly on the legitimate use of force in a given territory, that’s how Weber defines a state. And the truth is that
neither of these activities, the military, privatizing the military or privatizing prisons is
really privatization, right. What it really is, is contracting
out a government monopoly. We’re not actually turning
this over into fully private, so that is the problem. And as I’ve put up on the slide, that creates what economists
call principal agent problems of a particularly difficult sort because the idea of a
principal agent problem is that the principle
contracts out to the agent to do things in this, either
the private military contractor or the private sector prison. But it rapidly becomes
the case that the agent has more information
that the principal needs to monitor the agent
then the principal has. And so that creates a lot
of difficult problems. So if you think about, you
know, in a schematic view of a democracy, we have the voter then we have the politician, the politician is the voters agent then we have the regulator
who’s the politicians agent and then we have the contractor. And so the chain from here to here has many many points at which… It’s like a series of nested
principal agent problems that have to be managed. And of course principal agent problems come up all over the place. You say well what is the solution to principal agent problems? One is to have competition. There’s not a lot of competition
in any of these industries. So as Cramer noted in that clip, basically the private prison industry is completely dominated
by two corporations. And this, by the way,
they’re now multinationals, they operate in Australia,
they operate in Europe, they operate in the UK, they
operate in lots of places. There’s a huge cost to entry into the private sector prison business. You’ve got to build a prison, you’ve got to commit yourself
for long periods of time, not very competitive industry. Military contractors
somewhat more competitive but again you develop,
a government’s develop relationships with these contractors, they’re not gonna suddenly switch to other contractors very easily, say, contractors who might have been
fighting for the other side. So it’s actually difficult to get a lot of competition in people, instead stick to their
relationships that they have. A second way of managing
principal-agent problems is to try a better align
the interests of the agent with the interests of the principal. Because if they have the same interests then you don’t have the agent going off and in a rogue fashion doing something that’s not in the
interest of the principal. The trouble in this area too, it’s very difficult to do that as people pointed out with
respect to the prisons, the industries themselves
have very different incentives from like reducing crime, you know, having more prisoners is the
business in which they traffic. And so indeed, what you
find in the prison industry is a lot of lobbying. It grew dramatically,
this is up through 2010. If I had a slide since 2010, that number would keep going up. And you can see here they
give to at the federal level to candidates from both parties. The light blue is Republican
and the dark blue is Democrats. See this is particularly when Democrats are in control of the federal government. As happened here, it’s gonna go up, they’re gonna give money to incumbents. So they give money to both sides. It won’t shock you to
know what they lobby for? More lockup quotas, stiffer penalties as somebody pointed out
and immigration enforcement because these are big industries. So if good public policy is to reduce the number of people in prison, it’s gonna be almost impossible
to align the incentives between the principal and the agent. Similarly, and we think
about fighting wars, these, you know, we might
say good public policies to have fewer wars and certainly
fewer unnecessary wars, the military contractors
have very different interest. So for them, if the war
in Afghanistan goes on for another 10 years,
it’s just more business. The final way in which
people try to manage principal-agent problems is monitoring. But that is very difficult in
these types of circumstance. Here’s the hearing. – So today we’re considering our oversight on the United States
government contracting on conflicts overseas. And we’re gonna ask the
important questions, who’s getting the United
States taxpayer money and how are they using those
funds once they get it? Last week, the subcommittee
held a hearing that examined Asia at the Host Nation Trucking
contract in Afghanistan. That investigation uncovered
distressing details about the United States taxpayer money is funding warlordism and
corruption in Afghanistan and how the contract is undermining United States counterinsurgency strategy. Equally troubling is to finding that the United States officials charged with overseeing this
contract had no visibility into the actual operations of the contractors or subcontractors. In most cases, official did not know who the subcontractors were
let alone who they employed, how they functioned and
where they spent their money. To give one example, seven of
the eight prime subcontractors from the Host Nation
Trucking contractor employed either directly or
indirectly, a man by the name of a commander Ruhullah,
and he provided security for the supply convoys. Commander Ruhullah claims to spend $1.5 million per month on the ammunition and has reportedly attacked convoys that do not use his security services. Still no United States military officials have ever met with commander Ruhullah. And despite the fact that he
receives billions of dollars of taxpayer money, there
have been no attempts to enforce the United States laws that govern his U.S. funded
contractual relationship. With $2.16 billion of
taxpayer funds at stake, it’s unconscionable that
the military does not have tide of control over Host
Nation Trucking subcontractors. But the Host Nation Trucking contract is not the only problem. This week’s Economist reports
that 570 natal contacts worth millions of dollars were issued in southern Afghanistan but
nobody is quite sure to whom? In January, the Special Inspector General for Iraq Reconstruction, one
of our witnesses here today, issued a report about the
State Department contract with DynCorp which
noted that, and I quote, “Over $2.5 billion in
U.S. funds were vulnerable to waste and fraud.” Close quote. In May, the Inspector General for the United States Agency
for International Development issued an audit of his
private security contractors in Afghanistan which
highlighted significant problems with USAID contracts. It found that USAID does
not have, and I quote again, “Reasonable assurance that
private security contractors are reporting all serious
security incidents are suitably qualified in their authorized to operate in Afghanistan.” Close quote. Audits from the Department of State, USAID and others have found problems
with subcontractor management that areas as diverse
as embassy construction, fuel delivery and educational
outreach programs. The Government Accountability Office, another of our witnesses here today has reported that the
agencies are not even able to accurately report
the number of contractor or subcontractor personnel working on United States contracts. And just yesterday,
The Wall Street Journal reported that over $3
billion dollars in cash has been flown out of Afghanistan
in the last three years. This $3 billion dollars of cash on a plane flying out of Afghanistan. Officials believe that at
least some of that money has been skimmed from the
United States contracts at these projects. – So, in this sort of
hearing you can find them, you know, dime-a-dozen on YouTube. And it’s extremely difficult if you think about the kind of combat
situations we’re discussing for the principles to have
the kind of information that they need to monitor the agents particularly problematic in Afghanistan even when there were only
14,000 security contractors. You can see unlike in Iraq, almost all of them were local Afghans for reasons we’ve already talked about which creates even bigger
information asymmetry because the agents have
so much better knowledge than do their principals. And so that the actual, this is, I took this out of the case
and you can work through it at your leisure but this is
just the Defense Department’s chain of monitoring in Afghanistan and down to the Host Nation Trucking. And you can see both the managing and the reviewing of the
contract has multiple steps. And then of course some of
these are controlled also by the State Department which had a whole different set as well. So suffice to say monitoring
is very difficult, very similar story in the prison industry that the information you need think, it’s all very well to say, well, we could use recidivism rates but they don’t show up for
very long periods of time. And you know when a prisoner
comes to a parole hearing and the parole officer says, has the prisoner have been behaving, if the guard who’s there knows
that if that prisoner leaves, the cell is gonna be empty
and it’s gonna affect the bottom line, very difficult to monitor that sort of problem. And so you could just multiply
those sorts of problems by a huge number and you
can see that monitoring is difficult in that area as well. But we’re out of time and we will talk in on Tuesday about money in politics. (bright music)

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