CNBC
Dozens of people gathered in New York City in May, 2011 to protest hedge funds investing in private prison companies like Corrections Corporation of America and The GEO Group.
By Scott Cohn Correspondent
CNBC
updated 10/18/2011 10:44:41 AM ET 2011-10-18T14:44:41

The biggest prison in the state of Idaho is also the toughest.

The Idaho Correctional Center—the ICC — was so violent that employees and inmates had a name for the place: Gladiator School.

“That was because of the assaults,” said Todd Goertzen, a former corrections counselor at the prison. “That's why they called it Gladiator School, because of that reason. If you're going to ICC, it's going to be fight or die, basically.”

This is the story of a dangerous business: the billions of dollars that flow into the American prison industry and the companies that profit from it.

No nation on the planet holds more of its people behind bars: 2.3 million prisoners—as many as China and Russia combined. The nation's prisons employ nearly 800,000 workers, more than the auto manufacturing industry.

Small towns are trying to get in on the boom, along with architects, health care providers and technology companies. They’re all after their piece of the billions behind bars.

For nearly half a century, America has waged a war on crime. But to lock up all those criminals, you need prisons. After decades of tough laws and stiff sentences, America’s prisons are bursting at the seams.

“We are on a prison binge: We're addicted to incarceration in this country,” said Martin Horn, who has made a career in the prison industry. ”As a nation, we lack imagination about how to respond to crime.”

Horn ran the corrections departments in Pennsylvania and New York City, and today he’s a  lecturer at the John Jay College of Criminal Justice in New York. He says America’s prison boom has gotten out of hand.

“If the only tool in your belt is a hammer, every problem looks like a nail,” he said. “If the only tool in our tool belt of crime responses is imprisonment, then every solution to crime looks like imprisonment.”

California’s prisons are so overcrowded, the state is under a court order to reduce its inmate population. California already outsources its inmates as far away as Mississippi. Hawaii houses 1,700 male inmates in an Arizona prison — 3,000 miles away.

A multi-billion-dollar opportunity
But a problem for some is an opportunity for others.

Private prison companies are picking up the slack. The more inmates or detainees they house, the more money they make.

Private companies hold about 130,000 people, or 8 percent of American inmates. That’s nearly double the number from 10 years ago.

Private prisons are the future of the American penal system, according to Richard Harbison, an executive vice president at LCS Corrections.

“Private operators can design, build and operate a prison cheaper than the government, be it state or the federal government,” he said. “They operate more efficiently. Lack of bureaucracy, if you will.”

Harbison said the growth of privately managed prisons comes down to a matter of dollars and cents.

“If the public can get the same services for less money, those are less taxes that you and I pay,” he said. “So yeah, they should be concerned that they're getting what they're paying for. Keeping an inmate secure, keeping the public secure.”

Like much about this industry, the numbers are fraught with controversy, and estimates as to how much money privatization saves — if any — vary widely.

LCS is one of the smaller private prison companies with eight facilities throughout the Gulf States and 6,000 beds.

Other prisons are owned and operated by huge corporations. Unlike their public counterparts, they’re accountable not just to the taxpayers but to shareholders, investors and hedge funds.

The two biggest prison companies, the GEO Group and the Corrections Corporation of America, bring in more than $3 billion a year between them. CCA, the largest, manages 80,000 inmates and detainees in 66 facilities.

“I think that the private prison industry did not create the prison boom in this country: They responded to the market,” said Horn. “States couldn't build space fast enough. And so they had to turn to the private sector."

But private prisons have attracted legions of critics — some from organized labor, since most private prisons, unlike their public counterparts, are non-union. Others oppose the very idea of private prisons, perhaps no one more vocally than Alex Friedmann, a writer and an editor of Prison Legal News, which has been covering corrections for more than 20 years.

“Literally, you can put a dollar figure on each inmate that is held at a private prison,” he said. “They are treated as commodities. And that's very dangerous and troubling when a company sees the people it incarcerates as nothing more than a money stream.”

Dangerous situations
Friedmann, who has testified at public hearings, knows prisons — inside and out. He served 10 years for armed robbery, more than half his sentence in a CCA prison.

“In the private prison, you would have fewer guards, for example,” he said. “You would have guards that are less experienced, who are paid less, who get fewer benefits. We constantly had new trainees coming through because their staff turnover rate was very high, which leads to more dangerous situations."

One of those dangerous situations was caught on a security camera at the Idaho Correctional Center, a private prison operated by CCA.

In November 2010, inmate Hanni Elabed was beaten to within an inch of his life. The assailant even had time to take a breather before launching into his attack again. Eight minutes went by before guards intervened.

The incident left Elabed permanently brain-damaged. He sued CCA, alleging among other things inadequate staffing, a charge CCA has a denied. The case was eventually settled, but the terms weren’t disclosed.

Goertzen, the former corrections counselor, was not involved in the Elabed incident. But Goertzen said he witnessed dozens like it during his two years at the prison. He and several other CCA employees CNBC spoke to said inadequate staffing was one of the problems at the Idaho prison.

“I constantly asked, all the time, ‘Do we have any extra staff?’" he said. “It was terrible. You could do the job. But you couldn't do it safely.”

The American Civil Liberties Union sued CCA in 2010, claiming violence at the Idaho prison was “epidemic.” That year the Idaho Correctional Center had more assaults than the state’s eight other prisons combined.

Goertzen was fired from the ICC for missing too many days of work, the result of what he acknowledges was a drinking problem. He gave a deposition in the ACLU lawsuit. In a sworn statement, Goertzen said: “It is clear to me that ICC was more interested in making a profit than reducing prisoner violence, in finding out which officers were breaking the rules, or in protecting the safety of the staff and prisoners.”

“It was about the money,” he told CNBC. “I mean, whatever they could do to keep those beds filled. Because if the beds were empty, you're not making any money. And it costs so much money to hire a staff member.”

CCA eventually settled the ACLU lawsuit. Without admitting wrongdoing, the company agreed to hire more staff, meet state training standards and investigate every assault.

Critics say the Idaho case illustrates widespread problems with private prisons. They point to national studies from the Justice Department and federal Bureau of Prisons from 2001 that found private prisons had assault rates 65 percent higher than public ones and “systemic problems” maintaining security. But conclusive, current evidence is hard to come by.

“Prison is supposed to be tough,” said Goertzen. “But also it's a place for (inmates) to be rehabilitated, too, because they're going to be put back on the streets.”

As the nation’s largest private prison company, CCA is the most frequent target of criticism. We repeatedly asked the company to address those critics and speak with us on camera, but CCA declined.

Instead, in a letter, a spokesman denied CCA puts profits ahead of safety, saying, “Our top priority is security in our facilities and safety in our communities.”

“We meet and exceed industry standards” on staffing, the company said.

“There are good public prisons and there are awful public prisons,” said Horn. “By the same token, there are good private prisons and there are awful private prisons that I wouldn’t want to be associated with.”

With more than 5,000 jails and prisons in the United States, public and private, Horn says that big number points to a much bigger issue.

“At the end of the day, the answer is to have fewer people in prison,” he said. “(We’re) a country that is addicted to imprisonment.”

© 2012 CNBC, Inc. All Rights Reserved

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