Spurred by an NYT article, Adam Serwer worries about the private prison business model:
Private prisons don't save money, but they create an obvious and counterproductive profit motive that leads to policies that increase the prison population. Private prisons need more prisoners. While the most effective way to reduce prison costs is to "reduce the headcount," that is, the number of incarcerated. Private prison companies have a financial interest in doing the opposite. So whatever cost-saving private prisons might offer in the short run is swamped by their interest in making sure America imprisons more people, because otherwise they'd go out of business.
Megan McArdle expands on the idea:
I'd be much more sanguine about the prospects for an agency in either the prison or welfare system that got paid only if their "clients" stayed employed, out of jail, and drug free for a year after leaving the system. But I doubt you could find many companies willing to take on such a contract, because who wants to bet on your ability to change the behavior of legal adults who have, as a group, a higher-than-normal propensity to be out of work and take drugs?
Yglesias adds to the chorus:
The genius of the real private economy is that firms that are really poorly run go out of business. It’s not that some magic private sector fairy dust makes the firms all be runs soundly. Lots of bad businesses are out there. But they tend to lose money and close. Meanwhile, well-run firms tend to earn profits and expand. The public sector doesn’t have this feature. Just because a public agency is inept is no guarantee that it will go out of business. Resources are allocating according to political clout rather than any criteria of merit. It’s a problem. But it’s not a problem that “privatizing” public services actually solves. There’s no magic private sector fairy dust.
The Dish 