Monday 19 March 2012

Prison economic illiteracy

There are good arguments against privatizing prisons. Labour's Charles Chauvel doesn't use them here:
Labour's justice spokesman Charles Chauvel said Wiri was expected to cost the taxpayer about $1 billion over 25 years but its "indirect" costs were becoming clear and were "disturbing".
"National seems to have made a decision that, rather than refurbish many regional state-owned institutions, it will simply close them. Prison closures will be a big blow to regional economies. Job losses will be significant."
The proposal made "little economic or social sense".
The National-led Government should invest the $1 billion in improving existing state assets instead of boosting the bottom line of a private company, he said.
 A few of the problems:

  • Prison guard jobs are a cost, not a benefit; if we could guard them for free, that would be better.
  • Closing old prisons and opening a newer one will mostly mean job transfers, not job losses. 
  • Viewing prisons as an economic development initiative is a quick route to bad outcomes; imprisonment becomes a good rather than a bad.
While Shleifer raised some really good points against prison privatization, those are mostly arguments about making really sure to get the incentive contracts right. Private prisons can too easily chisel on margins that reduce costs but brutalize prisoners and increase re-offending. But that doesn't seem to be the case here. 

The private manager of the prison facilities is subject to a re-offending target, according to the Press article:
Serco is expected reduce reoffending by more than 10 per cent and will face financial penalties if it fails to meet the target. 
And, Serco is the company that manages Mt Eden prison, where they found it cheaper to treat prisoners kindly and thereby save on guard costs

I have no view on whether total costs are reduced by closing the old prisons and building a new one; I've not looked at the numbers. But Labour's not making a particularly good case against the move.


  1. "Prison closures will be a big blow to regional economies. Job losses will be significant."

    I guess that falling crime is also a cost to the economy then. In difficult economic times, what we really need is more people sent to prison. The optimal situation would be half the population in prison and the other half guarding them, then the economy would really be booming.

    150 years after Bastiat explained the broken window fallacy, the message is still not getting through.

    1. You can imagine arguments where job losses matter more in small towns than in big cities. But you can also make arguments that small towns that survive via inefficient placement of prisons probably ought to be allowed to downsize.

  2. Hard costs for whole of life maintenance of the old prisons was significantly higher when considered on a like for like basis against a newly designed purpose built facility. In addition the deferred liability rate cripple the business cases for extending the life of the existing facilities.

    1. I'm more than prepared to believe it; I'm also not particularly a fan of how Chauvel rolls up 25 years of costs into one number for the new prison but gives no comparable long-term cost for refurbishing the current facilities.