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I co-founded the Prison Policy Initiative to put the problem of mass incarceration — and the perverse incentives that fuel it — on the national agenda. Over the last 16 years, our campaigns have protected our democracy from the prison system and protected the poorest families in this country from the predatory prison telephone industry. Our reports untangle the statistics and recruit new allies.

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When is a customer not a customer? (In prison.)

by Leah Sakala, August 20, 2013

A fascinating “It’s the Economy” column by Adam Davidson in this week’s New York Times Magazine, ‘Orange’ Is the New Green, takes a good, hard look at some serious market failures in the U.S. prison system. Along the way, the article provides great first-hand reporting about how the prison commissary system works, and it explains the economic theory in a way that may be helpful to our allies working to bring justice to the prison and jail telephone industry.

(As a refresher on what’s wrong with the prison phone industry, state prison systems and local jails grant exclusive monopoly contracts to telephone corporations. In exchange, the corporations charge sky-high bills to the families of incarcerated people and kick back the lion’s share of the profit to the prisons and jails.)

In our reports, we explain that the prison and jail telephone industry is so broken because the customers, which is to say the people who are actually using the provided service and footing the bills, aren’t actually the customers in the eyes of the corporations.

The New York Times article makes it clear that the prison phone industry is unfortunately not unique in this regard. The prison commissary industry, too, operates in what Davidson calls a “third-party-decider economy.”

Davidson found that allowing prison systems to be the “third party” in these industry transactions actually means that the corporations that are less responsive to the needs of incarcerated people are more successful in the marketplace. As he explains:

How can that possibly be? Because the people choosing the company aren’t the ones using the products.

This immediately looked familiar to us. In our most recent report, we found that some companies in the prison phone industry actually profit by providing bad service, such as forcing customers through convoluted refund processes or dropping calls.

But to add to Davidson’s argument, it’s important to remember that the people choosing the companies are also not the ones paying for the products or service, which is how you end up with the families of incarcerated people paying an outrageous $17 for a single 15-minute phone call from a loved one. From a corporation’s perspective, the literally captive market in prisons and jails is a boon for the bottom line.

Fortunately it looks like some relief for families is in sight, at least in the prison phone industry. The FCC has voted to rein in charges for the most expensive interstate calls, and may take more action in the future. But there’s lots more work to be done. The uniquely American project of mass incarceration has created many markets rife with perverse economic incentives to line the pockets of prison systems and corporations by dunning poor families. And corporations are not about to pass that up.

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