- 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)
