Correctional Institutions

Marissa Oudt
May 5, 2017
Correctional institutions have existed in the United States from the beginning and have evolved
over hundreds of years. Facilities are run by the government as well as private corporations who
comply with federal laws and regulations. These facilities range from low to maximum security
and hold a wide range of criminals. This document provides a more in depth look at the
correctional institution Industry in the private and public sectors beginning with an overview and
continuing on with major players, services, target markets, market drivers, industry challenges,
financial performance, international markets, industry threats, and trends.

Overview

History
While punitive imprisonment dates back to ancient Rome, Egypt, and Babylon, it was not until
much later that more modern forms of correctional institutions were established (Correctional,
2016). During the Prohibition era, crime rates rose to new heights and it became clear the United
States needed a stronger and more well established system, this lead to the creation of the Bureau
of Prisons in 1930 (Correctional, 2016). The federal prison system was now under their
jurisdiction.

Industry Evolution
Imprisonment has always been about punishment, but it wasn't until the second half of the
twentieth century that rehabilitation became a focus. It became important to help these
individuals learn from their mistakes and leave the facility in hopes that they will have a positive
impact on the world and not return to the system. Supporters of the rehabilitation concept argue,
given the proper treatment and social services, including educational, vocational, and
psychiatric care, the criminal can be remolded into a well-adjusted and productive member of
society (Correctional, 2016). Institutions must give prisoners the opportunity to improve and
grow as people. As time went on, for-profit/ private institutions came into play (Bryant, 2015).
Given the United States extremely high incarceration rate, these private facilities were helpful
alternatives when overcrowding became an issue in public prisons. Today, private and pubic
institutions work with the government to maintain and better the correctional institution industry.

Major players

Private
There are two major companies in the private sector, the GEO Group and Corrections
Corporation of America. According to Cohen (2016), these two privatized corporations made a
combined $361 million in profits during 2015. In addition to managing their own correctional
facilities, these private corporations also have the ability to buy out publicly owned facilities,
targeting those who are experiencing financial hardships. The private sector works with the
government under contracts to make profits and run their institutions.

The GEO Group

Established in 1984, the GEO Groups headquarters can be found in its original location of Boca
Raton, Florida (OHollaren, 2016). The private entity has 19,370 employees and approximately
624 shareholders; they provide services such as counseling, education, and treatment for inmates
who struggle with drug and alcohol abuse (GEO, 2016). While this is a very particular industry,
it is extremely large because of Americas high incarceration rate. The programs provided in
these institutions have grown and improved over the years to provide inmates with a greater
chance of rehabilitation. The GEO Group controls many domestic markets, such as Australia,
South Africa, and Canada; in addition they have leading shares of privatized correctional and
detention facilities management services market for the states of California, Florida and Texas
(OHollaren, 2016). It is evident that this private institution holds a large sum of power in this
industry.

Corrections Corporation of America

The CCA was founded in 1983 in Nashville, Tennessee (OHollaren, 2016). As shown in Figure
1, this company controls 34.9% of the private sector, making it the largest player. The CCA was
the first private corporation to buy out a state owned prison. The purchase of Lake Erie
Correctional Facility in Ohio came with a 20 year contract agreeing that the prison would be kept
at 90 percent; this transaction allowed Ohio to save $3 million a year in prison operating costs. In
addition, $72.7 million from the sale was used to patch a budget hole (Elbow, 2012). In addition
to acquiring public facilities, the corporation also provides private prisoner transportation for
government agencies (OHollaren, 2016). They offer several rehabilitation programs that focus
on general education and training simulations for future employment. Inmates are able to get
their GED while incarcerated, increasing their likelihood of having a normal life after being
released. Although these individuals are being punished for their wrongdoings, it is fortunate that
internal programs make an effort to put prisoners on a positive track.

Figure 1

Public
The public prison system is composed of four levels: federal, state, county, and city. Federal
prisons include minimum, low, medium, and high security facilities. On the other hand, state
prisons are designed to fit the needs of their area. City and county jails are local and used to hold
individuals who have been arrested and are waiting for their trial. In addition, those who have
been convicted of a minor crime and have a sentence of a year or less are often held in jails
rather than prisons (Correctional, 2016). Because both the private and public sector work directly
with the government, they share many similarities.

Market Elements

Products and Facilities

The different types of housing include a range of minimum to maximum-security facilities and
community correctional facilities, also referred to as halfway houses. Medium security prisons
are the most prevalent and have the highest demand as well. Halfway housing, used to transition
recently released prisoners back into the real world, are the second most expensive type of
facility to maintain and run. The largest federal customers for the industry are the Federal
Bureau of Prisons, the United States Marshals Service and the Bureau of Immigration and
Customs Enforcement; the figure below shows the size of the markets that buy the industrys
products or use its services (OHollaren, 2016). Measured in terms of revenue contributed to the
industry, state and local governments are the largest markets in this category.

Figure 2

Market drivers
There are several market drivers including the incarceration rate, crime rate, and government
consumption the impact the prison industry. As the incarceration rate rises, prisons become
overcrowded and federal and state governments are more likely to employ industry services
(O'Hollaren, 2016). The same concept applies to the crime rate; as crime increases, the number
of arrests will follow the trend upward, meaning there will be a larger need for prisons. Because
private correctional institutions depend on contracts with federal and state government to earn
revenue, they are reliant on government consumption and investments; the graph below shows an
optimistic prediction for the privatization sector (O'Hollaren, 2016). These market drivers are
sensitive and subject to change based on current events and fluctuations in the economy.

Figure 3
Financials
The two sectors of the industry differ when it comes to financials. Public prisons are non-profit
institutions and private prisons, run by corporations, are motivated by profits. Target markets
include government agencies as well as stockholders and politicians. Private institutions have
contracts with the government to receive stipends based off of the number of prisoners they
house or in some cases a fixed monthly or yearly amount (Bryant, 2015). For example, the
government may agree to pay $150 per inmate a day, even though it may only cost $100 per day
to house one prisoner; a contract like this occurs when the agreed dollar amount is less expensive
than the cost of housing an inmate in a public prison (Bryant, 2015). In this case, the private
facility would make $50 in profit per inmate everyday. In order to make the largest margins,
price cuts are made in every department when the opportunity presents itself. Private
corporations also make profits by becoming publicly traded, lobbying politicians to pass harsher
laws, and encouraging the strict enforcement of laws to ensure a constant influx of prisoners. On
the opposite side, public prisons often have higher operating expenses and only receive
government money to cover unavoidable expenses.

Figure 4

Source: IBISWorld

Challenges and Threats

Isolation of Inmates
Many people accuse private correctional corporations of abusing their power. Privatization in an
industry vulnerable to criticism can be a tricky operation. In order to fill empty beds, private
facilities form contracts with the states to move incarcerated individuals further away from their
homes, causing many to lose contact with their families (Research, 2016). In addition, prison
telephone companies charge unreasonably high rates making it extremely difficult for many
prisoners to afford calls and video messages (Research, 2016). It seem as if the private sector is
making an effort to further isolate inmates by adding obstacles that cut them off from society.
There are concerns that limiting their contact to outside parties further could hinder rehabilitation
efforts.
Lawsuits
The public tends to associate negative feelings with the correctional institution industry. Taking
this into consideration and the nature of their business, it is no surprise lawsuits are a major
issue. The majority of lawsuits filed concern the quality of healthcare and education provided to
inmates. In many incarceration centers, these programs do not meet government standards.
Considering the entire industry works closely with the government, this should not be an issue.
Societys harsh view of prisons and jails increase the possibility of lawsuits being filed over
technicalities and seemingly unimportant complications. Things that would most likely be
overlooked in other industries are magnified and nitpicked, making it extremely important for
companies and employees to do things by the book in order to avoid litigations.

Private Vs. Public

While the two sectors are in competition, the ties between private and public incarceration
centers suggest that they rely on one another. If the government stomped out private
corporations, public facilities would technically have a monopoly over the profits. However,
when overcrowding becomes an issue, these public institutions would have no other choice but
to bring back the private sector to compensate for the issue at hand. Government cuts in public
prisons over the next five years will increase the need for private corporations to take in
prisoners (United States, 2014). Rising incarceration rates and a lack of funding forces these two
sectors to cooperate with one another in order to find viable solutions to the challenges
presented.

International Markets

The Nordic Model

These prisons focus on the recovery and growth of inmates through various features within the
system. While their common areas include activities, such as table tennis, pool tables, steel darts
and aquariums which are rarely found in incarceration centers, perhaps the most noteworthy
distinction is the way their staff acts towards the inmates (Aleem, 2015). Nordic prisons have the
reputation of treating prisoners like people, rather than dehumanizing them. Not only are their
staff members the guards and security, they also double as contact officers. Every inmate has an
officer who helps insure that after their release, they will be successful in the real world and stay
out of the system (Aleem, 2015). Having a one on one relationship with someone genuinely
looking out for your best interest is a rare thing to have in prison. While this is very different
from traditional prisons, the results reflect that this change may be a more effective way to run
correctional institutions.

Open Prisons
This version of incarceration is exactly what it sounds like. Open prison refers to an institution
that bares more resemblance to college dormitories or small apartments as opposed to jails.
Inmates have access to televisions and sound systems and are able to commute to a job and visit
families while electronically monitored (Aleem, 2015). These individuals work closely with the
staff and are not required to wear certain attire. These facilities grant prisoners more freedom in
hopes to rehabilitate them and place them on a path to success. This progressive environment is
unique because inmates do not resent the system they have been placed into; instead, they are
appreciative of the help it has provided to get them back on their feet.
Swedens Success
Prisons in Sweden have taken a different approach to the way inmates are treated, focusing on
rehabilitation rather than incarceration. After taking advantage these techniques, such as the
Nordic Model and open prisons, Swedens incarceration rate has dropped significantly, going
from 5,722 prisoners to 4,500 out of a population of 9.5 million (Aleem, 2015). In addition, the
percentage of prisoners that do not return to the system after their release is much higher than
that of the United States.

Trends

Outsourcing
The problem of overcrowding in US prisons and correctional facilities has become a major issue
over the years. California prisons were operating at 144% capacity, forcing them to come up
with alternate solutions for where to place prisoners (O'Hollaren, 2016). Releasing inmates that
had minor charges against them helped to compensate the overflow, but it wasnt enough. There
was also a trend in turning to private detention centers for assistance. Private corporations are
becoming more of a necessity to the industry. Our incarceration rate is rising at a rate we cannot
keep up with, forcing the US to accept more expensive alternatives.

Immigrant Detention
Recently there has been a great deal of attention on immigration policy, specifically in relation to
Trumps presidency and privatized prisons. Since 9/11, Corrections Corporation of America and
the GEO group have focused their efforts on immigrant detention and predicted large revenues
specifically from Immigration and Customs Enforcement (Elbow, 2012). Privatized corporations
have made contracts with the government to increase the detainment of immigrants into their
facilities. While CCA has lost a great deal of support from activists and religious groups, it does
not appear that this trend is dying down. Since Trump has been elected into office, the
detainment of immigrants has skyrocketed and so has the stock of private prisons. With every
memo, executive order, speech, or tweet from President Trump about the crackdown on
immigration, stock prices of Core Civic and GEO group climb, reaching increases of up to 120
percent (Sommer, 2017). This political transition into the Trump presidency has been highly
beneficial for the private sector of the industry.

Conclusion

Correctional Institutions are evolving in America and around the world. This system has been in
place far before our civilization came about. Positive improvements, such as rehabilitation
efforts, provide a positive vision for the future. It is often forgotten that these institutions are
businesses and operate based on the same principles as any other corporation. Private and public,
this complex industry has many moving parts that work together in order to operate effectively.
Americas increasing incarceration rate is causing both sectors to expand and play a larger role in
our society and economy.
 References

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