UNICOR I
by DCDave

See also "The UNICOR Dinosaur."

This anonymous letter appearing on the Internet₁ deals with a subject that is totally unfamiliar to most Americans, and it makes serious charges that deserve to be addressed seriously. With its reference to high "commissary prices" and getting email and letters "out" it, like so much of the information and opinion I have drawn upon for this paper, appears to be the work of a particularly perspicacious federal prisoner. The sharpest, most redoubtable prison-insider critic of all had been a federal prisoner for a quarter of a century when the organization in question was started, he was to remain a federal prisoner for another 29 years, and, as we shall see later in the paper, his life and work remains to this day the strongest rebuke we may ever see to the very concept of UNICOR.

UNICOR is the completely made-up acronym-like trade name for Federal Prison Industries (FPI) that was first used in 1977. FPI, with $495.4 million in sales in federal fiscal year 1996 and 17,379 inmate employees is by far the largest prison industrial program in the nation although California and Texas hold more prisoners in their systems.₂ So, it is, indeed, a multi-million-dollar company, albeit a government corporation created in 1934 under the U.S. Department of Justice and entwined with the Justice Department's Bureau of Prisons (BOP).

You did read correctly. The most powerful law-enforcement agency in the land, seated at the right hand of the President, also owns outright a manufacturing conglomerate which had almost a half billion dollars worth of sales this past year. Its relationship with the Bureau of Prisons is cozy and enviable, and sometimes infuriating to those who have to compete with it. The BOP, that is to say, the federal taxpayer, assumes all the basic expense of food, lodging, health care, education, recreation, and discipline and control of its work force. None of UNICOR's profits, which were $12.1 million this past year, are used to pay any of the BOP's expenses, rather, the profits all go into UNICOR's own fund for its own expenses ("Funds available to the corporation may be used for the lease, purchase, other acquisition, repair, alteration, erection, or maintenance of facilities only to the extent such facilities are necessary for the industrial operations under this chapter [18 USCS 4121 et seq.]. Such funds may not be used for the construction or acquisition of penal or correctional institutions, including camps described in section 4125.") [18 USCS 4126].

On top of that, the BOP furnishes all the land for FPI facilities, rent-free, as well as its buildings, plus free power and water. FPI pays only for its machinery and equipment. "In this regard, BOP, on behalf of FPI, is planning to invest approximately $25,900,000 during the next three years for the construction of buildings and improvements. In addition, during the next three years, FPI is planning to invest approximately $31,000,000 for the purchase of machinery and equipment, and for the continued implementation of a new computer system."₃

At this point we must pause for a little editorializing. Polls have shown that the public overwhelmingly favors the idea of putting prisoners to work at productive labor. One of the reasons they do so, no doubt, is that they think the expense of incarceration is thereby, at least in part, defrayed, and the burden on the taxpayer is consequently lessened. That is not the case with UNICOR. What we see from this example, taken from the 1996 UNICOR Annual Report, is that over the next three years the taxpayers will have to shell out through the Bureau of Prisons an additional $25.9 million because of the existence of UNICOR. UNICOR, from 1992 through 1996, reported net income of $66.8 million.₄ The letter writer is quite correct that none of that money went back into the tax base or was used to cut down prison commissary prices. It didn't even go into the construction of UNICOR's own facilities. For that the taxpayer paid.

UNICOR's advantages do not stop with the BOP taking care of real estate and worker fringe benefit costs. It pays its workers from $.23 to $1.15 per hour (a portion of these wages go to the Inmate Responsibility Program to pay court-ordered fines, victim restitution, and other court-assessed obligations). It pays no social security tax nor does it pay for unemployment insurance or workers compensation. It carries no insurance for property damage, product liability, or other customary business loss exposure. Such losses come out of current operating expense or, if they are caused by factors related to FPI's relationship with the prison system, may be reimbursed by BOP. It is exempt from all federal and state income taxes, gross receipts tax, and property taxes. As an added bonus, "Any department or agency of the Department of Defense may, without exchange of funds, transfer to Federal Prison Industries any property or equipment suitable for use in performing the functions and duties covered by agreement entered into under paragraph (1) of this subsection." (Paragraph [1] refers to the basic inmate-employment function for court-martialed military prisoners.).₅

FPI also operates free of the considerable expense that competitors in the private sector must face. It doesn't have to deal with federal and state regulations of such things as occupational safety and health, pollution, employment discrimination, and the hiring of illegal aliens. So the anonymous letter writer is correct that UNICOR is essentially free of "government interference," but he is not quite right to suggest that it competes in the "free enterprise" system, that is, not as long as it conforms to the law.₆

The primary restriction placed upon UNICOR is that it can sell only to agencies of the federal government. The lion's share of its sales, in fact, go to the Department of Defense (61.6% in 1996. The next highest agency was the General Services Administration with 10.4%.)₇

Its other restrictions are spelled out somewhat redundantly and imprecisely in the law, which reads, in part, as follows:

The primary political concern of the framers of this legislation is apparent from the repetition. They feared the outcry of the companies and the workers likely to be hurt by competition with prison labor so they took steps to at least make it appear that they heeded the competitors' concerns. The provisions were enough to get the legislation passed, and the essential framework has remained intact to the present day, but the competitors' outcry has not been dampened.

In recent years the outcry against UNICOR has grown louder, and it is centered around a competitive advantage which surpasses all the others so far detailed, an advantage of which not even the anonymous letter writer seemed to be aware. The legislative language sounds innocuous enough, "The several Federal departments and agencies and all other Government institutions of the United States shall purchase at not to exceed current market prices, such products of the industries authorized by this chapter as meet their requirements and may be available."₉ What that means is that if UNICOR makes it, the feds have to buy it as long as the price is anywhere within the market ballpark. UNICOR's products don't have to be the cheapest and/or the best. They might be the most expensive and/or the worst and still the market will be there.

This so-called "super preference" for products of FPI was the bedrock upon which the enterprise was founded. FPI's first director and the man who came up with the concept, James V. Bennett (also director of the Federal Bureau of Prisons for almost three decades beginning in 1937), knew it would be controversial, so he sugar-coated this bitter pill for free labor, private competitors, and government agencies with liberal, reformist rhetoric:

Thus a political coalition was crafted which, like so much in politics, was built more upon perception than reality. Conservatives, who might be expected to defend the free market against such a Soviet-style, command-economy provision, were attracted to the idea of making felons pay for their crimes with labor while mistakenly believing that it would save money. To liberals it was presented as the enlightened alternative to the simple "warehousing" of idle inmates. To both groups it was sold as a means of training prisoners for jobs that they would need upon release and as a way of keeping prisoners in line, both by keeping them busy and by offering them a modest wage which they might earn with good behavior and lose with bad behavior. With prison industries depicted as virtually the be-all and end-all of effective prison management, the mandatory-purchases pill simply had to be swallowed as the necessary price to pay. Bennett and his successors insisted that they could not be assured of a market for their prison-made goods without it, and lawmakers were afraid to gamble that they were wrong.

Prison industries as the ultimate weapon against prisoner idleness and unrest has been a refrain that has been picked up by Bennett's successors and imitators in the state systems and used as the virtual trump card against periodic attempts at least to weaken the mandatory purchase statutes.

On Prison Industries:

On the mandatory purchases requirement:

This, in a nutshell, is the argument that has carried the day with the Congress up to the present time. It is being made by the men who have been placed on the prison front lines, after all. These are the penology experts, and if they say this provision is essential for performing their difficult, thankless job, who is to second guess them?

Now, these are all no doubt honorable men, and they might even believe every word that they say, but Bennett, when he set up Federal Prison Industries, put them in a very awkward position. The director of the Bureau of Prisons is the chief executive officer of FPI and the chief operating officer of FPI is assistant director of the BOP. It is essentially one organization, and we have already seen how the BOP assumes many of the costs of FPI (FPI does have a six-person board of directors appointed by the President which is supposed to represent the interests of retailers and consumers, agriculture, industry, labor, the Attorney General, and the Department of Defense. They are unpaid and, in reality, they mainly perform the role of passing judgment on expansions into new product lines according to the procedures laid out in the law.). What these men have to say about how essential the mandatory purchase provision is might even be true, but, unfortunately, there is no reason to believe it is true simply upon their say-so.

The way things are set up these men have the most fundamental conflict of interest. To the extent that FPI brings in the money everyone's life in the organization is made better. The organization can expand. Promotions can come faster. Favored people can be given jobs. Favored suppliers can be given contracts. Whatever the law might say, natural self-interest says that the organization is best served by actions which bring in the money. Bringing in the money is made next to automatic by the virtual monopoly on federal government sales granted to FPI by the mandatory-purchase provision. Of course directors of FPI and BOP alike are going to defend it with every rhetorical arrow in their quiver. They would be derelict in their responsibilities to the organization if they did not. And if Prison Industries are not really the fundamental tool for running a good prison, its managers have been given every incentive to make it so.

The "conflicting restraints and mandates" upon UNICOR serve not so much as a hindrance to the organization as it does a cloak, concealing its fundamental nature as a virtually unregulated monopoly that, compared to either private or public organizations, is uniquely unaccountable. Private companies are regulated by the forces of the market, by competition. There is no confusion over their goals. They are in business to make a profit. Should they make exceptionally large profits competitors will be attracted to the business and their profits will be tempered. At the labor side of their market they face competition with other employers, so they must pay sufficient wages to attract and retain their workers and many also face labor unions. Through the years, almost all since 1934, the year of UNICOR's founding, governments have promulgated a number of regulations which augment the forces of the market in constraining private businesses as they pursue profit. As we observed earlier, none of these constraints apply to UNICOR so its advantages over its private competitors have grown enormously. UNICOR's biggest freedom, vis-a- vis private industry, however, is from the market constraint. It does not beg for customers; customers must beg UNICOR for a waiver if they want to purchase elsewhere, and it is entirely up to UNICOR if the waiver is granted.

By dint of its being "self-supporting," UNICOR is also privileged compared to a typical government organization which usually has a rather clearly-defined goal for which it receives appropriations. It is answerable to the executive-branch office above it which doles out the funds which is, in turn, answerable to the legislature which votes on the appropriation. UNICOR is accountable neither to an executive branch office directly above it nor to Congressional funders. Its funding sources are diffused among the various agencies which are its captive customers. Rather than taking from the taxpayer in one big annual bite, it inflicts the wound of a thousand cuts by causing thousands of customers ultimately supported by taxpayers to receive less value and/or to pay more than they would if they were free to buy from whomever they chose.₁₅

For those who would argue that this is not true, that the agency customers do get comparable value and do pay a comparable price when they buy from UNICOR, there is this answer: Give the agencies a choice, and then we shall see. Those who would argue that at least it is not all dead loss, that the extra money siphoned out of the various agencies takes the place of what would have to be a sizeable direct appropriation are forgetting lesson one in UNICOR economics. UNICOR income doesn't defray BOP expenses, it defrays UNICOR expenses only, and it costs additional money to BOP in the form of real estate, power, and water expense.

This is as good a place as any to address the argument that UNICOR saves money that, in its absence, would have to be appropriated for the roles that it performs of occupying and training prisoners. Director Schwalb, in recent Congressional testimony, put the case succinctly as follows:

In a recent analysis of its prison industries program, which is modeled after the federal program, right down to the mandatory purchases, Ernst and Young, working for the California State Auditor, came to a radically different conclusion. PIA (Prison Industry Authority) is the equivalent of FPI and CDC (California Department of Corrections) is California's BOP:

Of course, this analysis was made of a different prison system, and no such analysis has been made in the BOP. The findings, however, ought to engender a certain skepticism with respect to bald declarations by FPI or BOP directors. Remember, the continuation of FPI's uniquely privileged position depends not upon true market success but on its continued success in selling itself to Congress.

Recent developments, which were alluded to by the anonymous letter writer, have made that selling job increasingly difficult. The federal prison population, owing not so much to rising crime but to changes in the laws, primarily those that lengthen sentences and take sentencing discretion away from judges, particularly for drug offenses, has been going through the roof.₁₈ Here is how Director Schwalb describes the consequences for UNICOR:

An inmate commentator, on the other hand, interprets cause and effect somewhat differently:

Between 1960 and 1980 the federal prison population remained relatively stable, varying between 20,000 and 30,000 inmates. The following table outlines the shocking growth of incarceration in federal prisons since 1980 and its effect upon UNICOR's employment and sales:

Note that Director Schwalb is wrong to say that the percentage of inmates employed has "steadily declined." It rather steadily increased from 1982 to the peak year of 1987 and has almost uniformly declined since then, but there is no doubt that as long as the Bureau of Prisons is determined to regard FPI as not just one of, but its "most important correctional program" the extraordinary run-up in the federal prison population has produced great pressure (or a great excuse) for UNICOR expansion.

Only a cursory look at the broad production and employment numbers for UNICOR will show why competitors are howling in outrage at how UNICOR has chosen to respond to its "pressure to expand":

If we focus upon the sales table we can see that the furniture industry was already bearing the brunt of the competition from UNICOR in 1992, and that is the industry which has expanded the most in UNICOR since 1992. By these figures, furniture accounted for 37.4% of total sales in 1992, versus the nearest competitor, clothing and textiles with 21.8%. In 1996, furniture had risen to 40.9% of sales versus 22.5% in clothing and textiles. The imbalance of the competitive burden upon furniture is even more pronounced if one refers to the six-month sales figures for FY 1996 provided by UNICOR to the House Committee on Small Business for their 1996 hearing. Aggregating all the items that appear to belong in the furniture category yields a figure of $120.8 million in furniture sales, which is 48.6% of total sales.₂₁

David Martin