The UNICOR Dinosaur
by DCDave

Now that the Soviet bloc has collapsed we are beginning to learn just how spectacularly mismanaged and inefficient were the hosts of government corporations that underpinned the socialist economy. But this country still has in its midst a big, politically powerful government corporation that is going stronger than ever. It surpassed a half billion dollars in gross income for the first time in 1996. From 1986 to 1996 its sales went up by 98 percent (38.5% in real terms) while inmate employment increased by 34 percent, up to a total of over 17,000 imprisoned industrial laborers.

Ideally, in a free enterprise economy, the forces of competition cause the pursuit of wealth by individuals and groups to redound to the benefit of the larger society:

...he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

The quote is probably the most famous and recognized passage from Adam Smith's 1776 classic, An Inquiry into the Nature and Causes of the Wealth of Nations. Less famous, but hardly less insightful, is the passage that immediately follows:

I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

What Smith calls an uncommon affectation among merchants is, alas, all too common in the government arena. Such rhetoric is its very life's blood. The Soviet system, in which the government ran everything, was founded and sustained on nothing but lofty goals, on noble intentions, after all.

When Federal Prison Industries (FPI or UNICOR) was founded in 1934 this country was in the throes of the Great Depression, and there was a great deal of misguided and misinformed admiration for what the totalitarian countries were doing, even among our governing elite. It should come as no surprise, then, that the UNICOR mission statement, which leads off its annual report, should ring with a concern for the "public good" that rivals that of the men who gave us "from each according to his ability, to each according to his need."

It is the mission of Federal Prison Industries to employ and provide skills training to the greatest practicable number of inmates in Federal correctional facilities necessary to ensure the safe and secure operation of such institutions, and in doing so, to produce market priced, quality goods in a self-sustaining manner that minimizes potential impact on private business and labor.

These are high-sounding, but fundamentally ambiguous and contradictory goals. We needn't tax ourselves too much wondering how UNICOR reconciles the contradictions, though. All experience teaches us that it will behave like all organizations, public or private, do. It will look out for the organization first.

"We're not in the business of making money. We're in the business of employing inmates." The words are those of former UNICOR director J. Michael Quinlan, but he might well have spoken for every director UNICOR has had. What it means is that UNICOR is really in the business of making money. Why wouldn't it be? Doesn't that serve the organization best? The more money it makes the bigger and stronger is the organization.

Employing inmates, on the other hand, really doesn't do all that much for the organization. If it did, we'd see a lot more than 17% of federal prisoners working for UNICOR. For now that seems to be quite enough to keep Congress off its back. Congress is still on its back, but not for employing too few prisoners. The percentage could doubtless go a lot lower before it ever became a cause for Congressional concern. All UNICOR has to do is employ a respectable total number of inmates, and that's not hard to do as a by-product of the money-making.

But what about the other, oft-repeated claim, echoed in the mission statement, that keeping inmates occupied in industrial labor makes the task of controlling them easier?

If it were all that important to discipline, there wouldn't be 83% of federal inmates not employed by UNICOR.

There are innumerable other ways of keeping prisoners occupied, and at no greater expense, contrary to the recent Congressional testimony of current director, Steve Schwalb. A 1996 California audit of its prison industries system found educational and vocational training expenses identical in prisons with or without prison industries, to take one example.

There are also innumerable carrot-like incentives to keep prisoners in line other than holding out the promise to work for UNICOR, which, considering the low pay and the dead-end drudgery of most of the UNICOR labor, is not all that juicy a carrot anyway. If its incentive function were really all that important, they'd pay more than $.23 to $1.15 per hour.

Even UNICOR founder, James V. Bennett, said that prison riots--the worst case of out-of-line prisoners--result from bad food, poor management, and brutality. I happen to believe that they result from a powerful sense of outrage and aggrievement, tinged with desperation, but whatever the case, the presence or absence of a UNICOR factory on the premises is utterly immaterial.

When it comes down to a choice between occupying inmates and making money, we can expect UNICOR, as a typical self-serving organization, to choose the latter. But why is money-making so important? They don't get to keep it, do they? Actually, they do, although it would have to be one of the cleverest and most audacious frauds in history if, in reality, UNICOR were a private company whose stock is owned by key lawmakers, law-enforcement officials, and judges instead of its being a government corporation under the U.S Department of Justice as the law says (That it is really privately owned and outrageously lucrative for those fortunate private owners seems to be widely believed among federal prisoners and their families, which is hardly a good thing for prison discipline, I would say.).

UNICOR's profits are forbidden by law to be used by its primary benefactor, the Bureau of Prisons, for regular prison functions, nor does UNICOR give the taxpayers a break by putting its profits back into the general fund. UNICOR's profits are only to be used by UNICOR. This man Bennett, who dreamed up the concept and was UNICOR's first director and director of the Bureau of Prisons for almost three decades beginning in 1937, was a very clever fellow.

In her 1973 book, Kind and Usual Punishment, the Prison Business, Jessica Mitford described Federal Prison Industries as far and away the most profitable line of business in the country. Profits to sales in 1970, she said, were 17 percent. Either that year was an aberration or things have changed recently. From 1980 through 1996 profits to sales averaged only slightly more than 4 percent. Perhaps rapid expansion along with the prison workforce has put strains upon UNICOR's profitability, or its directors have realized that an outrageously high profit-to-sales ratio could attract as much bad Congressional attention as a very low inmate employment ratio.

If aggrandizement of the organization is the important thing, revenues or gross receipts are what really matter, anyway. UNICOR only needs enough profit to plow back into the business for machinery and equipment, wages and salaries, and materials, maintenance and operations, and should it run a little short for those purposes it gets to borrow from the U.S. Treasury on very favorable terms. The taxpayer gets to take care of almost all its real estate needs (factory buildings and land) through the Bureau of Prisons. The greater the gross revenue the more gravy there is to spread around through the organization. Promotion can come faster, job security is increased, and the civilian employment rolls can be expanded. As many as are the numerous competitive advantages, compulsory purchases by federal agencies (which Bennett insisted upon), far below minimum wages, no social security taxes or any other taxes for that matter, no fringe benefits, and freedom from the countless government regulations which drive competitors to distraction and entail great expense, it would seem that there would be a lot of gravy to use up.

I received a letter from a particularly astute inmate who, based upon what he had calculated to be an average of $.69 per hour wage, and given the average number of workers, the daily output, and the price charged for that output, had estimated that for each one dollar's worth of product sold the UNICOR factory where he works incurs a labor expense of less than one cent (.87 cents to be exact). Nationally, the production worker cost of that item is 10.7 cents per dollar of final product. With real estate costs assumed by the taxpayer, no taxes, and no regulatory costs he couldn't see how UNICOR could not be rolling in dough.

One way to eat up the dough, or the gravy, is through civilian employment and wages. Since 1991 total wages and salaries at UNICOR have gone up by 47% in real terms while sales have increased by only 15% and inmate employment has increased by 19% (The people at UNICOR aren't saying how much civilian employment has increased.). Another is through overpaying favored suppliers, general waste and inefficiency, or even graft. We're talking about a corporation of the U.S. Department of Justice, after all. Who's to prosecute? The economic wisdom of Adam Smith was not all that was ignored when UNICOR was created. So, too, was the political wisdom of the founding fathers. One can't help wondering what they would think about a half billion dollar a year company using unfree labor owned by the highest law enforcement body in the land. To me it looks like a blueprint for corruption. More than one author I have run across in my prison researches has said that Lord Acton must have had prison administrators in mind when he said, "Power corrupts and absolute power corrupts absolutely," and they weren't even taking into account the prison-industries side of the equation.

If the organization, as we should expect, comes first, there are some other predictable UNICOR actions contrary to their stated purpose of providing usable training and skills, maximizing inmate employment, and making the prisons run smoothly, and contrary to the public interest in reducing recidivism.

A preference for workers with long sentences, with many years left to go, will be exhibited. This reduces turnover and makes for higher output per worker. Society, on the other hand, should prefer to see the work experience concentrated in those who will soon rejoin civilian society. That expected length of stay for federal drug offenders has increased from 23.1 months in 1985 to 69.3 months in 1995 is truly welcome news to UNICOR, not to mention that drug offenders have gone from 34.3% to 60.8% of all federal prisoners over the same period.

UNICOR will have no compunction against employing illegal aliens even though they will, if the law is adhered to, be deported upon their release from prison.

UNICOR will concentrate on manufacturing those things in which their low labor costs will make them competitive, not on industries where inmates are most likely to find jobs. Experience at such labor is increasingly worthless in the U.S. free labor market.

Arrangements will be made with UNICOR suppliers, in many instances, in which UNICOR will simply do little more than lend its name to the product which is primarily manufactured by the supplier. This, surprisingly, is not illegal. The law contains no minimum UNICOR content requirement. The losers in this instance are the federal agencies who are forced to take products which are only nominally made by prisoners instead of the products of those private-sector providers that they would prefer. This example also points up the potentially huge hidden taxpayer cost of UNICOR. When the company is kept afloat, and then some, through the sales of products which are, in effect, shoved down the throats of federal agencies, it is nothing but verbal trickery to say that it is operating in a "self-sustaining manner."

Alternatives to UNICOR work within the prisons will be made less attractive so that inmates will be more desperate to work for UNICOR and prison employers can be more selective. Those already holding UNICOR jobs will tend to be more tractable considering the bleak alternatives. Society's interests, on the other hand, would be to have all inmates as trained and educated as possible (Though society, too, is not without internal conflicts over what it wants out of prisoners. We want felons severely punished for their crimes, but if they are brutalized by the experience they will certainly be made more vicious and dangerous and a bigger threat to society upon their release.)

No system of referrals or job recommendations for outstanding UNICOR workers leaving the prison should be expected. Their prison employers had just as soon see them back at their old prison jobs.

UNICOR will cling to the current arrangement with its captive government market even though it is not giving its workers the real, free-market type experience of producing quality products that satisfy customers. The existing arrangement better prepares them for working in one of the old communist bloc factories.

As a final note, one might argue that I have been too harsh in this brief appraisal of Federal Prison Industries. Doesn't research evidence show that former inmates who have worked in prison industries have a lower recidivism rate and better job records than those who haven't? No, it doesn't.

First, an objective university study of the New York state prison industry program in 1988 found essentially no difference in the recidivism rate of those who had worked at a prison industries job and those who hadn't.

Second, a recent in-house study by two UNICOR researchers (the PREP study, for Post-Release Employment Project), made the title claim that they had linked "UNICOR Work Experience With Successful Post-Release Outcome." The careful reader will see that all they have really done is to reveal that federal prisoners get very little vocational training, whether they work for UNICOR or not. The comparison they made was between a putative UNICOR-alumni group and a non-UNICOR group. But they tell us that they included among their alumni group not only those who had, in addition to the UNICOR experience, vocational training (19% of the putative U-alum group), which, in itself, would have biased the findings, but for good measure they threw into the UNICOR-alumni group former prisoners (24% of the nominal U-alum group) who only had vocational training and no UNICOR experience at all. What they have very likely ended up really measuring here is more the effect of the limited vocational training (Given to only one quarter of the UNICOR workers and to 18% of all the prisoners studied) than the UNICOR experience.

In the final analysis, the much-ballyhooed PREP study is but little more than another example of the yawning chasm between a big government corporation's words and its deeds.

David Martin

Presented to a session of the national convention of Citizens United for the Rehabilitation of Errants (CURE), June 9, 1997, Trinity College, Washington, DC.