A. Corporate Profiteering

The foundational tenet in U.S. corporate law is that a corporation exists to maximize the profits of its shareholders. Leaders of a corporation who fail to effectively enrich its shareholders can be held to violate management duties and responsibilities, and they may be court-ordered to increase profit payout to stakeholders.

A corporation is viewed as a fictional person under the law and as such, has the right to sue and be sued . . . . Of course, as a fictional person, the corporation cannot function without human management, so corporate law provides a management mechanism of shareholder ownership of a corporation with voting rights, an elected Board of Directors oversight regime where shareholders elect board members, and day-to-day business management by executives selected by the overseeing board. The CEO is the primary leader of the corporation and is tasked with managing the daily operations and also typically sits on the Board of Directors.

The Board of Directors, along with the day-to-day executives of the corporation, is responsible for achieving the corporation's ultimate objective--maximizing shareholder profit. With this basic principle in mind, it is critical to acknowledge that what was once a purely public responsibility, the incarceration of criminals in the United States, has given way to the corporatization and privatization trend of the U.S. prison regime. Privatizing imprisonment has proven to be enormously problematic in several under-the-radar ways.

First, the Board of Directors of a prison-building corporation is duty-bound to seek ways to increase its profit streams. One of the ways that a prison construction company can increase its profits is to win government contracts to build more and more prisons. Increasing incarceration rates in the United States have therefore become a corporate profit objective through the privatization of the prison system. In a recent annual filing, a publicly traded prison company, the Corrections Corporation of America (CCA) unabashedly described the climate and outlook for prison business going forward and provided a blueprint for increasing shareholder profit:

The significant expansion of the prison population in the United States has led to overcrowding in the federal and state prison systems, providing us with opportunities for growth . . . . We believe the long-term growth opportunities of our business remain very attractive as insufficient bed development by our customers should result in a return to the supply and demand imbalance that has been benefiting the private prison industry.

This CCA forward-looking projection came from management, who filed the annual statement with the Securities and Exchange Commission and then delivered it to shareholders. Seeing forward-looking profit statements in annual reports to shareholders from public companies that manufacture products or provide consumer services is a straightforward proposition. However, reading profit statements to shareholders from private prison construction and management companies like the one above, which must necessarily base their entire potential profit regime on a steady stream of clients (i.e., U.S. citizens sentenced to hard prison time), is an altogether different construction. The law requires private prison company management to maximize profits for shareholders, and a private prison corporation's most direct way to increase shareholder profit is to ensure that demand for its services (prison beds) increases. To expand profit, corporate management of private prison companies must hope for, even work for, an increase in the number of human beings incarcerated in the United States. Indeed, this work has been handsomely rewarded in recent years; reports issued in 2011 indicate that the two largest private prison companies, CCA and GEO Group (formerly Wackenhunt Corrections Corporation), together profited more than $2.9 billion in 2010. The question then becomes, how exactly do private prison corporations work for an increase in the number of persons incarcerated in the United States?

To increase profits at the rate indicated, private prison corporations hire lobbyists to increase prison populations and prison construction. The thought that the boards of directors of prison companies are hiring lobbying firms to assist them in privatizing public prisons and increasing prisoner populations is a terribly disturbing conceptualization. Lobbying to increase the stream of prisoners and lobbying for untethered, harsher sentencing regimes is not just unseemly, but inhumane, which leads to another hidden problem of prison privatization. Second, for the CEO who heads a private prison company, one seemingly appropriate action to increase profit for shareholders is to lobby state and federal legislatures to increase prison construction and, by implication, increase the flow of clients--prisoners--into the prison system. The amount of private prison company money spent on lobbying efforts has become dizzying. CCA spent more than $3 million on federal lobbying in 2005. The largest U.S. private prison companies together have spent dozens of millions of dollars lobbying both state and federal legislators since the origin of the U.S. private prison corporation.

Private prison lobbyists advocate on behalf of harsh legislative initiatives that would increase the number of individuals sentenced to prison. Because private prisons make money from putting people behind bars, their lobbying efforts focus on bills that affect incarceration and law enforcement, such as appropriations for corrections and detention. In addition, prison lobbyists battle for greater appropriations in expenditures in law enforcement and Homeland Security (border patrol), stricter immigration laws, and increased immigration detention. They also peddle influence with lawmakers who will implement draconian incarceration policies like the recent Arizona immigration legislation, titled The Support Our Law Enforcement and Safe Neighborhoods Act (SB 1070). Emerging reports indicate that private prison lobbyists literally drafted the legislation that became SB 1070, as the legislation introduced into the Arizona legislature was identical to the proposed bill language that emerged from prison lobby meetings with Arizona elected representatives.

Further, private corporations are free to make campaign contributions, and the private prison lobby contributes generously. In light of Citizens United v. Federal Election Commission, the private prison corporation's campaign contributions can now be made directly and in an unfettered manner, straight from the private prison company coffers into the hands of the federal and state legislators whom they hope to influence. The private prison companies allocate millions of dollars in campaign contributions to mostly incumbent politicians, seeking to garner influence in the legislative process, to continue privatizing the prison regime in the United States, and to receive favorable contracts for private prison construction.

Third, Wall Street banks and investors profit dramatically from the prison-industrial complex. Prison-construction bonds, often offered as revenue bonds, are one of the many sources of profitable investment for leading Wall Street financiers such as Merrill Lynch and Goldman Sachs. Tax-exempt bonds sold to underwrite new prison construction bring more than $2.3 billion in profit to Wall Street investment banks. Investment firms such as Morgan Stanley and Goldman Sachs form syndicates to buy the [prison] bonds at a discount, then resell them. Retailers market the bonds as safe long-term investments to consumers. Forbes magazine touts prison bonds as a smart and safe investment for investors looking for long-term financial security and excellent profit potential.

The corporatization of the prison system in the United States has perversely incentivized public corporations and Wall Street to work for mass incarceration and against prison reform and rehabilitation. The prison-industrial complex has simply become a cash cow for private prison corporations and Wall Street investment banks. Investors have a new stream of income opportunity through either purchasing public shares in a private prison company or purchasing bonds through Wall Street banks with little risk of default based on the funky lease-back strategy employed by states financing prison construction through prison bonds. Thirty years ago, investing in private prison companies was not an option. Additionally, Wall Street banks were not in a position to profit massively from prison construction. In the intervening decades, imprisoning U.S. citizens has morphed into a significant growth industry and profit stream.

Beyond the growth industry and profit stream, Professors Alexander, Richard Wilkinson, and Kate Pickett interrogate darker forces at work in the prison-industrial complex. The U.S. prison-industrial complex is reliant first and foremost on political decisions to address drug abuse from a criminal sanctions perspective rather than a health and addiction perspective. In order to control political and economic power, legislators turn drug use and abuse in the United States into an oligarchy of labor power wherein whites (corporate executives and shareholders) gain wealth while the system not only marginalizes minorities, but also indentures them as prison labor. As Alexander so deftly notes in The New Jim Crow, even when African-American and Latino inmates are released from prison, they are so far removed from the legitimate labor market that they are almost driven back into the drug markets or illegitimate labor markets and returned nearly inevitably to prison, through parole violations or new drug crimes. Our current prison regime in the United States therefore maintains political and economic control by keeping black and brown men powerless while simultaneously allowing prison corporations to maintain a steady client base and consequently to increase profit margins.