Private Prison Stocks Plummet But the Prison Industrial Complex Isn't Going Anywhere

Daniel Banas  |


If you’re going to reform a prison industrial complex, you’ve got to break a few eggs...or at least, torpedo a few stocks. That’s what we saw this week, as the Justice Department announced they’ll end the use of private prisons - which currently house more than 22,000 federal prisoners, making up 12% of the total federal prison population.

It’s a big victory for criminal justice reform advocates. However, for the prison reform advocates who also happen to be shareholders in companies that run these prisons like Corrections Corporation of America (CXW) and GEO Group (GEO), the celebrations were no doubt a bit muted. Shares in both companies immediately plummeted, with CCA down about 40% to around $17.50, and GEO down almost 35% to just under $22 since the news broke on August 17th.

Are The Days of Private Prisons Behind Us?

For anybody who’s been paying attention to the national dialogue over the past couple years, the action on private prisons shouldn’t come as a big surprise. The media and public have been increasingly critical of the severity of law enforcement, more cognizant of biases and the potential for wrongful prosecution, and more concern regarding the rights of prisoners. More importantly, these issues have become less bipartisan as more disturbing information has come to light.

All of this came to a head earlier this month, with the release of a DOJ Inspector General’s report that found that private prisons are, on average, less safe and secure than government-run prisons. “We found that, in most key areas, contract prisons incurred more safety and security incidents per capita than comparable BOP (Bureau of Prisons) institutions and that the BOP needs to improve how it monitors contract prisons in several areas.”

The report paints a visceral picture of unsafe and generally ugly conditions for prisoners, as contraband, incident reports, lockdowns, inmate discipline, telephone monitoring, grievances, drug testing and sexual misconduct are all listed among the areas that “need improvement.” So, considering the dire findings of the report, the changing public sentiment regarding criminal justice and the massive drop in stock value for companies like GEO Group and CCA, is this the end of private prisons housing federal inmates? Maybe...but probably not.

Private Prisons Are Locked Into the Federal Justice System

There are plenty of ethical reasons one might not want to be invested in the private prison industry. However, if the concern is that you won’t make money, history shows that’s not necessarily the case, for a number of reasons.

First of all, private prison lobbies have become increasingly powerful in Washington, with GEO and CCA, the two largest for-profit prison companies in the US, and their associates having funneled more than $10 million to candidates since 1989 and spent $25 million on lobbying. While that might not jibe with the DOJ’s action this week, experts say these companies are plenty savvy in evolving with public sentiment. “These companies know what they’re doing,” says Christopher Petrella, a lecturer at Bates College. “They’re agile, they follow market trends, and they know where the growth is.”

“Private providers were on the verge of bankruptcy” in the late 1990s, says Michele Deitch, senior lecturer in the Lyndon B. Johnson School of Public Affairs at the University of Texas, Austin. After a surge in privatization of public services in the late 1980s and 1990s, overbuilding led to a bit of a private prisons bubble. Back then, CCA’s stock price plummeted from over $70 at the start of 1998 to $1.15 a share three years later, while GEO Group (at the time Wackenhut Corrections Corporation) lost more than two-thirds of its value. Then, of course, 9/11 happened, the federal government began detaining massive numbers of undocumented immigrants, and the private prison industry flourished once again.

A Kindler, Gentler Corporate-run Prison

So where do private prisons go from here? GEO and CCA - the two biggest names in the industry - “have really pivoted to diversify their services away from traditional incarceration,” says Petrella. “They’ve both invested heavily in the past five or six years in prisoner rehabilitation services, mental health centers, residential reentry programs and monitoring technologies for supervised release.”

“They go where they see the writing on the wall. And now, with so much of the country shifting into more of a rehabilitative mode, and moving away from hard incarceration into more treatment-oriented programming, we’re seeing more privatization” in alternatives to traditional prisons.

And as the watchdog group In the Public Interest reports, private companies are already deeply embedded in a wide variety of carceral services, such as prison’s commissaries, healthcare and food services, transporting prisoners between institutions, providing financial services and phone and video calls, drug testing, substance-abuse therapy, and much more. So, private prison companies - and their stockholders - may yet see their day in the sun, while those hoping to see private money out of public incarceration will have to continue chipping away and biding their time, Andy Dufresne-style.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
GEO Geo Group Inc (The) REIT 17.00 0.00 0.00 73 Trade
CXW CoreCivic Inc. 16.26 0.00 0.00 10 Trade

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