Michigan State Industries (MSI) is a government program modeled on a federal program called Federal Prison Industries (FPI). Both programs employ inexpensive prison labor in the production of goods made for government bureaucracies. Federal prisoners make clothing, vehicle parts, and dozens of other products, and sometimes compete directly-and unfairly-with private, for-profit businesses. MSI makes products as varied as dairy products and shoes. Both FPI and MSI make furniture in competition with Michigan private industry. Both federal and state governments should privatize these programs, either in part or completely.

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	Prisoners must earn the right to work in the Michigan State Industries program. One state official described the inmates, who volunteer for this program, as a "warden's best friend," because they are so well behaved. The prisoner shown here is a part of this program.

Federal Prison Industries alone has over 22,000 inmates at its disposal in more than 100 prisons. Prisoners in the FPI system constitute a captive labor force and are sometimes paid as little as 25 cents per hour. At the federal level, agencies are required to buy goods from FPI. Private suppliers are locked out of the bidding process. The result is that FPI can charge government agencies higher prices than would be charged by private vendors for the same goods-and they do, almost 50 percent of the time. This is according to a General Accounting Office analysis of FPI product prices on 20 representative goods.

As of 2000, MSI operated 29 factories in 18 prisons. It pays prisoners an average of $7.00 per hour. The good news is that MSI must compete on a more open and level field than Federal Prison Industries. If a state agency finds a bid for furniture from Haworth Inc., for example, to be more competitive than one from MSI, the agency can award Haworth the contract.

Convict labor serves good and useful purposes. The value of goods and services produced by inmate labor can reduce the net social cost of incarceration; in the absence of prison industries, the forgone product of inmate labor would represent an unnecessary economic loss. In addition, as a result of prison-industry employment, many inmates do leave prison with employable skills and work discipline they lacked upon arrival. Thus, prison industries may well contribute to the prisoners’ reintegration into society and reduce recidivism.

How should we change the system to preserve the social good of voluntary prison labor, while placing the goods it produces on an equitable footing with the markets they serve?

A bill recently introduced in Congress by Rep. Peter Hoekstra, R-Mich., would allow private companies to compete with FPI based on open and fair competition in the sale of goods to government agencies and prohibit FPI from selling its goods to non-government entities.

These ideas would result in a more equitable system. But another way to deal with the problem would be for federal and state governments to allow private firms to competitively bid for the right to use prison labor. In other words, the solution is simply to create a “free market” for prison labor by allowing businesses to contract for state prison labor.

Under such a system, contingent upon their meeting state security mandates, any firm could offer employment to prisoners and would be free to sell the products of prison labor on the open market. Employers would determine wage offers and other applicable conditions of employment.

The costs of security services-for those inmates allowed to work outside the prison-would be borne by the employer, while other incarceration costs (mainly health care and housing) would be borne by the state. Two factors could make up for the extra expense of providing security services: a) wages for such labor will inevitably be lower than for comparable labor on the outside; and b) the state could levy a special payroll tax on prisoner earnings.

Once this, or some similar system, put the economics of prison labor on an even footing with the rest of the labor market, the same thing would happen to this sector that happens with the others: It would eventually find its optimal niche in the labor economy. In other words, removing the unfair advantage prison labor currently holds would, over time, reveal which industries and manufacturers are best able to make use of this unique sector of the labor force. As the system currently operates, this information is prevented from coming to light.

Congressman Pete Hoekstra disagrees with the idea of bidding on prison labor itself, saying “the devil is in the details.” He fears that such proposals would scrap safeguards against unfair competition enshrined in today’s Prison Industry Enhancement program, which allows for the selling of products made by prison labor in the commercial market under special circumstances. For instance, once a program is certified, prison labor may only be used on projects that would not cause the “displacement of employed workers or be applied in skills, crafts, or trades in which there is a surplus of available gainful labor in the locality, or impair existing contracts for services” among other criteria.

Government should not be able to take unfair advantage of a captive labor force to the disadvantage of hard-working, law-abiding citizens who happen to produce the same kinds of products produced by prison labor. Federal and state prison industries should be reformed to maximize their value to the economy, and to ensure fairness both to prisoners and to law-abiding workers.

Dr. Stephen Dresch is a Ph.D. economist and a former state legislator who resides in Hancock, Michigan. Michael LaFaive is an economist and senior managing editor of Michigan Privatization Report.