Privatization and the law and economics of political advocacy.

Author:Volokh, Alexander
 
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INTRODUCTION I. ADVOCACY AS A PUBLIC GOOD A. The Basic Model B. Industry Shares Versus "Real" Shares C. Does Privatization Always Reduce Advocacy in This Model? II. APPLYING THIS MODEL TO THE REAL WORLD A. Different Kinds of Lobbying in the Real World B. What Does the Model Predict About Prisons? C. Is This Realistic? D. Public Corrections Officers Unions E. Private Prison Firms F. Sometimes, No Smoke Means No Fire III. OF FIRMS, UNIONS, AND COOPERATION A. Why Focus on Public-Sector Unions and Private Firms? B. Who Cooperates with Whom? IV. COMPLICATING THE MODEL A. Allowing Money to Change Candidates' Positions B. Anti-Incarceration Advocacy C. Relaxing the Assumption of Fungible Money D. Strong and Weak Unions CONCLUSION INTRODUCTION

Over ninety years ago, opponents of World War I alleged that "munitions manufacturers frighten the popular mind with the fear of imaginary external enemies and inflame it with murderous patriotism." (1) According to a view attributed to Stefan Zweig, the war began only when "newspapers in the pay of the arms manufacturers began to whip up sentiment against Serbia." (2) After the war, that accusation morphed into the charge that arms makers were self-interestedly obstructing peace efforts. (3) Today, an opponent of U.S. military policy characterizes defense contractor CACI International, Inc., (4) whose chairman speaks publicly of the "heinous[ness]," "fanatical horror," and "barbarism" of terrorism, (5) as "one of the most unabashed corporate backers of Bush's foreign policy and a key supporter of the military campaigns in Iraq and Afghanistan." (6) Critics also charge that private military interests affect what weapons systems we rely on (7) and what alliances we enter into, (8) and that, in some countries, those interests may even take over the government. (9)

This theme--that private contractors use their influence to advocate not just more privatization but also, insidiously, changes in substantive policy--sweeps more broadly than just defense contractors. The following list gives a sense of the generality of the accusation; the last few items illustrate that the critique comes from "the right" as well as from "the left."

* Private prison firms are often accused of lobbying for incarceration because, like a hotel, they have "a strong economic incentive to book every available room and encourage every guest to stay as long as possible." (10)

* Business improvement districts--coalitions of business and property owners, many of which have their own private security forces--have lobbied municipalities for, among other things, aggressive panhandling ordinances. (11)

* A toll road developer in Colorado has lobbied for statutory changes to preempt county authority to set toll rates, (12) and a private road construction firm has been accused of contributing to Texas Supreme Court justices' campaign chests to influence a potential eminent domain suit related to a toll road in the state. (13)

* Private landfill companies have been accused of lobbying for weak environmental regulation of landfills (14) and opposing recycling initiatives. (15)

* Private water-supply owners have been accused of "lobbying to weaken water quality standards ... and pushing for [trade agreements] that hand over the U.S. water resources to foreign corporations," (16) and private water utilities have been accused of fighting conservation efforts. (17)

* Private redevelopment corporations, which have the power to condemn private property for purposes of "urban renewal," have opposed reform of eminent domain laws in the wake of the Supreme Court's decision in Kelo v. City of New London. (18)

* And "private attorneys general," for instance environmental groups (19) that benefit from fines available under environmental citizen suit provisions, (20) or members of the securities plaintiffs' bar (21) who benefit from the availability of securities fraud class actions, (22) fight for the continued vitality or even strengthening of the statutes under which they litigate. (23)

In this Article, I examine this "political influence" challenge to privatization using the case study of private prisons. I conclude that, in the prison context, there is at present no reason to credit the argument. At worst, the political influence argument is exactly backwards, by which I mean that privatization will in fact decrease prison providers' pro-incarceration influence; at best, the argument is dubious, by which I mean that its accuracy depends on facts that proponents of the argument have not developed.

Private prisons are a useful case study. First, they are a growth industry, having progressed from humble beginnings in the late seventies and early eighties to now house about one in sixteen prison inmates nationwide. (24) Second, the opponents of private prisons commonly make the political influence argument.

For example, in a recent Duke Law Journal article, Sharon Dolovich writes that "the legitimacy of punishment" is threatened "whenever parties with a financial interest in increased incarceration are in a position to exert influence over the nature and extent of criminal sentencing. If this concern is real" (25)--and she suggests that it may well be (26)--prisons should not be privatized because "the state ought not to foster yet another potentially influential industry that could seek to compromise further the possibility of legitimate punishment to promote that industry's own financial interests." (27)

David Shichor, a prominent contributor to the prison privatization literature, opposes prison privatization (28) in part because:

Through political lobbying, PACs, campaign contributions, and the provision of perks to politicians (as industrial and business corporations do), corporations are likely to continue to support and even accelerate incapacitation-oriented legislation and policies by which more people will spend longer periods of time in correctional institutions. Conversely, this trend may diminish the emphasis on alternative programs and will result in the pursuance of the "Hilton Inn mentality," that is, trying to maintain high occupancy rates for profit purposes. (29) And Brigette Sarabi and Edwin Bender's thesis is clear from the title of their report, The Prison Payoff" The Role of Politics and Private Prisons in the Incarceration Boom, in which they argue that prison privatization should be resisted in part because private prison firms have a "vested financial interest[] in increasing rates of imprisonment." (30) This is only a small sample of the literature. (31) For a sample of the art, see Figure 1. (32)

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. (33) This concern, however, fails to support the argument against privatization for several reasons.

[FIGURE 1 OMITTED]

First, self-interested pro-incarceration advocacy is already common in the public sector--chiefly from public-sector corrections officers unions. 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. (34) Private firms would thus enter, and partly displace some of the actors in, a heavily populated field. (35)

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 (36) 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.) (37) 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 less 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, since the public sector still provides the lion's share of prison services, and public-sector corrections officers benefit from wages significantly higher than their private-sector counterparts'. The smaller actor is the private prison industry, which not only has a smaller 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. (38) 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.

This is the simplest form of the story, but one can also tell more complicated versions in which privatization does not necessarily decrease total industry-expanding political advocacy. After presenting my main model, I introduce a few realistic complications. I...

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