Privatization and the Law and Economics of Political Advocacy, Part 2:

In my previous post, I introduced my forthcoming Stanford Law Review article, Privatization and the Law and Economics of Political Advocacy. (Again, for those who are interested in a more technical exposition, you can also check out my related economics paper.) I explained the nature of the political-influence argument against privatization, and quoted from recent writers who have applied this critique to prison privatization. This post gives a brief outline of my argument, which I will develop further in later posts.

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I assume, for purposes of this Article, that the concern underlying this critique is reasonable—that is, that economically self-interested pro-incarceration advocacy is undesirable. (Though in fact, this is not at all clear; I'll return to this point later.) This concern, however, fails to support the argument against privatization for several reasons.

First, the public sector—chiefly public corrections officers’ unions—is already a major self-interested pro-incarceration political force. For instance, the most active corrections officers’ union, the California Correctional Peace Officers Association, has contributed massively in support of tough-on-crime positions on voter initiatives and has given money to crime victims’ groups, and public corrections officers’ unions in other states have endorsed candidates for their tough-on-crime positions. Private firms would thus enter, and partly displace some of the actors in, a heavily populated field.

Second, there is little reason to believe that increasing privatization would increase the amount of self-interested pro-incarceration advocacy. In fact, it is even possible that increasing privatization would reduce such advocacy. The intuition for this perhaps surprising result comes from the economic theory of public goods and collective action.

The political benefits that flow from prison providers’ pro-incarceration advocacy are what economists call a “public good,” because any prison provider’s advocacy, to the extent it is effective, helps every other prison provider. (We call it a public good even if it is bad for the public: The relevant “public” here is the universe of prison providers.) When individual actors capture less of the benefit of their expenditures on a public good, they spend less on that good; and the “smaller” actors, who benefit the least from the public good, free-ride off the expenditures of the “largest” actor.

In today’s world, the largest actor—that is, the actor that profits the most from the system—tends to be the public-sector union, which still provides the lion’s share of prison services and whose members benefit from wages significantly higher than those of their private-sector counterparts; the smaller actor is the private prison industry, which not only has a small proportion of the industry but also does not make particularly high profits.

By breaking up the government’s monopoly of prison provision and awarding part of the industry to private firms, therefore, privatization can reduce the industry’s advocacy by introducing a collective action problem. The public-sector unions will spend less because under privatization they experience less of the benefit of their advocacy, while the private firms will tend to free-ride off the public sector’s advocacy. This collective action problem is fortunate for the critics of pro-incarceration advocacy—a happy, usually unintended side effect of privatization. One might even say that prison providers under privatization are led by an invisible hand to promote an end which was no part of their intention.