Thursday, I posted the first part of my book chapter on privatization and political advocacy (with particular application to prisons); I posted part 2 on Friday. Those who are interested in the fuller argument should consult my 2008 Stanford Law Review article, Privatization and the Law and Economics of Political Advocacy. A technical version of the paper is available in the International Review of Law and Economics.
I presented a simple economic model in which, when several actors can give money for industry-expanding political advocacy and only the total amount of money in the pot matters, only the “largest” actor gives and all the others free-ride off him. Thus, within the model, splitting up a 100% public monopoly in which the public-sector union lobbies will reduce, not increase, industry-expanding political advocacy, and increasing the share of the private sector will continue to do so up to the “advocacy-minimizing split”, which depends on the precise magnitudes of the “benefits” being maximized by the various parties. I then talked about how this compares with what we know about the pro-incarceration lobbying by the public and private sectors.
This time, I’ll talk about how the simple model can be complicated in various ways for greater realism.
Complicating the Model
The theoretical model presented earlier was highly simplified. It’s therefore not surprising that its central prediction—that smaller actors would do no advocacy at all, and that privatization (up to the advocacy-minimizing level) would unambiguously decrease the level of industry-expanding advocacy—was also simple. Here, I complicate the model in various ways.
First, there are complications that, although realistic, don’t change the result of the model significantly. First, I drop the assumption that money only buys victory for a given reform or candidate and introduce the possibility that money can also change the substance of the reform or the candidate’s position. This doesn’t significantly alter the conclusion. Next, I drop the assumption that anti-incarceration political advocacy is fixed. I find that pro-incarceration advocacy still falls with privatization, though the effect of privatization on anti-incarceration advocacy is ambiguous.
Afterward, I show how privatization may have an ambiguous effect on pro-incarceration advocacy. First, I relax the assumption that money is fungible and that only the total amount in the pot matters. If public-sector and private-sector money have different effects, privatization has an ambiguous effect on total pro-incarceration advocacy: private advocacy rises, but public advocacy falls. Next, I introduce the possibility that the pattern of privatization, as we observe it today, is already the result of a political process where strong unions have successfully opposed privatization while weak unions haven’t. I find that exogenously increasing privatization in such an environment would likewise have an ambiguous effect on pro-incarceration advocacy; the effect depends on the correlation between actors’ influence in privatization politics and their influence in incarceration politics.
The bottom line is that, if one wants to argue that privatization will increase pro-incarceration advocacy, one must argue either, from outside the model, that the model is wrong, or, from inside the model, why privatization would increase private-sector advocacy more than it would decrease public-sector advocacy.
Allowing Money to Change Candidates’ Positions
So far, I’ve taken the political agenda as a given: I didn’t explain the source of the proposed reform. Thus, I’ve assumed that money is important only because it buys victory. But money can also change the substance of the agenda. It turns out, though, that the analysis in this case is similar.
A monetary contribution to a candidate or cause, when money can affect the substance of the proposed reform, has the following effects (Ball 1999; Grossman and Helpman 1996):
- Electoral influence.
- As before, the contribution pays for persuasion, directly increasing the probability that the initiative prevails.
- But the contribution also moves the initiative in a more pro-incarceration direction.
- Substantive influence. Finally, the contributor benefits if the initiative prevails, because the policy is better for the contributor than it would have been without the contribution.
A prison provider considering how much to contribute still follows the same framework as before: it contributes until the benefit of an extra dollar falls to $1. The benefit of an extra dollar is more complicated than it was in the earlier model because it now includes all three effects listed here, rather than just the first. The basic idea, however, remains the same. And the effect of privatization also remains the same as in the simpler model.
This model focused only on pro-incarceration advocacy, taking anti-incarceration advocacy as a given. But it’s plausible that pro- and anti-incarceration forces respond strategically to each other’s expenditures. This suggests two questions.
First, does anti-incarceration advocacy change the basic conclusion about the effect of privatization on pro-incarceration advocacy? No: privatization still makes pro-incarceration advocacy decrease.
Second, how does privatization change anti-incarceration advocacy? After all, some anti-incarceration advocacy is as plausibly self-interested as prison providers’ pro-incarceration advocacy. Proposition 66, which would have limited California’s three-strikes law, was partly funded by “Sacramento businessman Jerry Keenan whose son Richard is serving time for manslaughter after crashing his car while driving drunk and killing two passengers” (Institute of Governmental Studies 2004). Proposition 36, California’s drug treatment diversion initiative, was supported by dozens of drug treatment providers and 17 medical and public health organizations (National Families in Action 2000). And, as mentioned earlier, state departments of corrections generally advocate against incarceration. Perhaps those who are concerned about self-interest coloring people’s positions on criminal justice should be concerned about this self-interested anti-incarceration advocacy as well.
It turns out that the privatization-induced decrease in pro-incarceration advocacy has an indirect effect on anti-incarceration advocacy. Unfortunately, we can’t say anything a priori about the direction of this effect. On the one hand, pro-incarceration advocacy decreases the effectiveness of anti-incarceration advocacy by counteracting it. A decrease in pro-incarceration advocacy, therefore, makes anti-incarceration advocacy more effective, which would tend to increase it. On the other hand, a decrease in pro-incarceration advocacy also makes anti-incarceration advocacy less necessary, which would tend to decrease it. There’s no theoretical way to know how these conflicting effects would balance out.
What this means normatively depends on one’s attitude toward anti-incarceration advocacy. If one opposes pro-incarceration advocacy because there’s already too much incarceration, then there’s nothing wrong with advocacy the other way. But if one opposes pro-incarceration advocacy because it’s assumed to be self-interested and because self-interested arguments are illegitimate in penal policy, then perhaps anti-incarceration advocacy is just as bad if it comes from boot camps, halfway houses, drug treatment providers, and other presumptively self-interested parties. Because there’s no clear theoretical effect of privatization on total advocacy, privatization is thus normatively ambiguous on this dimension.
Relaxing the Assumption of Fungible Money
In the main model, free riding was total, because all dollars were equal; all that mattered was the total amount of money in the pot. A dollar from a public actor had the same effect as a dollar from a private firm. This can be plausible—for instance, dollars are fungible in buying advertising, or a politician may adopt the view of whatever policy-position supporter contributed the most to his or her war chest. But some alternative assumptions may also be plausible. For example, one group might be attractive only to Democrats, while another might be attractive only to Republicans. More generally, perhaps politicians are just sensitive to the variety of voices in a coalition, believing (rightly or wrongly) that having a wide variety of groups shows that a policy has wide support. Then neither group’s contributions totally crowd out the other’s. Your 500,001st dollar still has less benefit than your 500,000th dollar—there are still decreasing marginal returns—but (unlike in the previous model) it doesn’t have the same benefit as your first dollar added on to your competitor’s 500,000th. Therefore, the total free-riding effect from the simple model no longer occurs. There are many ways in which private and public spending could interact. For instance, the effect of a public dollar could be the same regardless of the level of private spending, and vice versa. Or, alternatively, public and private spending could be complementary if politicians are eager to endorse a policy supported by actors from both the public and private sectors. This is an empirical question to be answered by future research.
In this context, privatization may have two opposing effects. First, it increases the private-sector share, so private-sector advocacy goes up. Second, it decreases the share of the public sector, so public-sector advocacy goes down. We can’t say anything a priori about whether the first effect outweighs the second. Because the empirical effect of privatization is ambiguous, the normative effect of privatization is also ambiguous if one opposes pro-incarceration advocacy.
Strong and Weak Unions
Recall that an industry’s effectiveness at advocacy is relevant to its real share for purposes of this analysis. For instance, if your competitor, with a 10 percent share, is twice as slick a lobbyist as you, meaning that his marginal dollars produce twice the benefit of yours, he will act as though his share is 20 percent. Which way this cuts isn’t clear, as we don’t know which sector is more effective at lobbying in favor of incarceration. The CCPOA, as we have seen, is highly effective, but corrections officers’ unions are much less active outside California, and perhaps this is because they are less effective. It’s hard to say how effective private prison firms are at lobbying in favor of incarceration, because, as we have seen, there’s little evidence that they do this at all, and if they do it secretly, it’s likewise hard to gauge how effective they are.
But suppose that one’s effectiveness at lobbying for incarceration is correlated with one’s effectiveness at lobbying for (or against) privatization. For simplicity’s sake, let’s suppose that they’re perfectly correlated. Consider the states with high levels of privatization. We may conclude that those states have high privatization because their corrections officers’ unions weren’t effective at opposing privatization; the private industry was just too strong for them. When that relatively weak public sector was partly displaced by a relatively strong private sector, a weak pro-incarceration voice was similarly displaced by a strong pro-incarceration voice. Pro-incarceration advocacy, then, may plausibly have increased.
Similarly, consider the states with low levels of prison privatization or no privatization at all, like California, New York, or Rhode Island. The unions in those states, on this view, must have been stronger than the industry, or else we would see privatization there now. If privatization were introduced, total pro-incarceration advocacy would go down, but privatization is unlikely to be introduced there, so we will not see that happen.
This is a story where—contrary to my implicit assumption so far—privatization is endogenous: the states where privatization has gained a foothold aren’t randomly chosen; rather, privatization emerges where corrections officers’ unions are weak and fails to emerge where the unions are strong. Thus, past privatization may have, on balance, increased pro-incarceration advocacy. If one could somehow eliminate prison privatization (despite the confluence of powerful political forces that established it to begin with), one would reestablish the rule of the ineffective corrections officers’ unions in those states where they were ineffective—to the benefit of those who oppose pro-incarceration advocacy. By a similar logic, one should introduce privatization where it’s currently absent: if it’s currently absent, it’s because it was not a powerful enough political force to win on its own, which means it will also be an ineffective political force in fighting for incarceration.
In fact, the assumption here—that the effectiveness of pro-incarceration advocacy is perfectly correlated with the effectiveness of pro- or anti-privatization advocacy—implies that pro-incarceration advocacy is already as high as it can get, because the slick advocates, who were already slick enough to establish themselves in the industry, are now plying their slickness in the incarceration policy field. Adding a thumb to the privatization scales in either direction would tend to support the victory of the less persuasive party and would therefore reduce the total amount of pro-incarceration advocacy.
This story may be plausible, but it requires more fleshing out. For one thing, the assumption may not be right. Low-privatization states need not be high-union-strength states. Although antipathy to privatization and the strength of public-sector unions are probably correlated, a very Democratic state may plausibly oppose privatization even if, for whatever reason, its corrections officers’ union is weak.
Moreover, actors in the prison industry may not be similarly effective in the privatization debate as in the incarceration debate. Although one’s effectiveness at advocacy probably depends on one’s general characteristics, like goodwill, persuasiveness, and slickness, the specific subject matter of the advocacy also plays a big role. The incarceration debate is peopled by different interest groups than the privatization debate. For instance, prosecutors, police officers, victims’ rights groups, and rural communities are interested in incarceration policy but not so much in privatization policy. Conversely, prison privatization is a matter of interest even to interest groups without a direct interest in prisons, such as, on one side, generalized public employee unions, and, on the other side, small-government advocates, who assume (probably sensibly enough) that a victory for privatization in any field is a victory for the general privatization movement. Moreover, the appeal of incarceration arguments, which connect to fears of drugs and crime and concerns over civil liberties, seems to have a very different source than the appeal of privatization arguments, which relate to taxes, spending, and the effectiveness of government services.
We are back, then, to a general state-by-state analysis. In the first set of models—where the effectiveness of advocacy only depended on the total amount of money in the pot—everything was driven by the dominant actor, where the term “dominant” also takes effectiveness into account. I’ve given arguments as to why the private sector is currently probably the smaller actor. The slickness adjustment described here might change that in some places, but it’s an empirical question. As is by now familiar, privatization increases the private-sector share but decreases the public-sector share. This slickness adjustment may change the de facto shares of the different sectors, but it doesn’t change the qualitative result. The effect of privatization is theoretically ambiguous.
The current formulation of the political influence challenge to privatization is inadequate. Privatization may not worsen any political influence problem, and might even alleviate it. The model here was simplified, so my specific conclusions here are tentative. My discussion here is meant to stimulate and discipline further debate, not end it.
But what isn’t tentative is that this sort of analysis is necessary if one is to make the political influence argument properly, whether in the prison context or more generally. As Mancur Olson (somewhat hyperbolically) observed, “the customary view that groups of individuals with common interests tend to further those common interests appears to have little if any merit” (Olson 1965). Critics of privatization who have charged that privatization increases industry-expanding advocacy haven’t explained what it is about the lobbying world that would make this happen. Either they’re unambiguously wrong, or they’re only right under a particular set of empirical assumptions that they must spell out.
The surprising moral of this story shouldn’t be that surprising. Indeed, the central insight here was also an important argument in favor of the antitrust laws. Discussing the conditions that preceded the enactment of those laws, William Howard Taft (1914) wrote that “business methods and plans . . . directed to . . . suppressing competition . . . had resulted in the building of great and powerful corporations which had, many of them, intervened in politics and through use of corrupt machines and bosses threatened us with a plutocracy.” The argument is plausible, and it’s likewise plausible that privatization, by fragmenting an industry into at least two chunks (and more if private firms don’t cooperate on advocacy), may similarly reduce that industry’s political power.
In a roundabout way, then, privatization is a form of antitrust, and antitrust is a form of campaign finance regulation. It may not be worthwhile to privatize industries—or break up large corporations—merely to reduce their political advocacy, but at the very least this may count as an unintended—and possibly happy—side effect of privatization that, if real, should be taken into account in future analysis.