prison privatization

Accounting and the Public Interest American Accounting Association Volume 10, 2010 DOI: 10.2308/api.2010.10.1.122 Pages 122–137

Prison Privatization: The „Ir…Relevance of Accounting

Jane Andrew

ABSTRACT: In 2008, the New South Wales �NSW� Government announced its inten- tion to privatize two of the State’s prisons. This was a significant change in policy, a move that was justified publicly on the grounds that it would produce significant cost savings. This paper explores the way costs have been referenced within the public discussion on prison privatization in NSW to provide a basis for the decision. Little externally verifiable evidence could be found to support the government’s claim that the proposed privatization would save tax-payer funds; instead, this work shows how justifications based on costs became self referential, taking on a life of their own. Given that there is little “real” evidence to argue the government’s policy was rational on cost grounds, this paper explores how references to costs in public debate can be used to justify and reinforce privatization decisions without significant critique.

Social democracy’s continuing philosophical claim to political legitimacy is its capacity to balance the private and the public, profit and wages, the market and the state.

—Prime Minister Kevin Rudd �2009�

INTRODUCTION Policies informed by some variation of neoliberalism have defined the public sector for the last

30 years. During this period, privatizations, new styles of public management, and the reconfigu- ration of the state, capital, and the community have been publicly articulated as universally ben- eficial. However, there is mounting disquiet and concern about the actual benefits that have emerged from this form of capitalism �Andrew 2007; Heron 2008; Jupe 2009b�. Neoliberal policies have defined much of our expectations and experiences of public life and we have become less sure of the legitimate roles of government, corporations, and the community �Funnell et al. 2009�. Our everyday activities are affected by public policies that have transformed the transport we catch, the mail we receive, the schools we attend, and the hospitals we experience. The list is almost endless. Government functions that were once the exclusive territory of the state have also been subject to neoliberal policies that have seen them outsourced and privatized �Andrew 2007; Funnell et al. 2009�.

Much has been written about the newly configured public sector and its management and there is a significant body of literature that engages with the many and various forms of privati- zation that have occurred within the public sector over the last 30 years �Lawrence 1999; Ursell 2000; Crompton and Jupe 2003; Andrew 2007�. The public sector has undoubtedly been trans-

Jane Andrew is a Senior Lecturer at The University of Sydney.

I thank Dr. Damien Cahill and my colleagues at the University of Wollongong for comments made on earlier versions of the paper.

Published Online: 4 November 2010

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formed, but there is still considerable debate about the benefits of such transformation and the role that accounting has played within the process �Carnegie and West 2005; Watkins and Arrington 2007; Benito et al. 2008; Jupe 2009b�. This paper is positioned within this broader literature, and the processes described are understood within the context of neoliberalism �Campbell and Pedersen 2001; Harvey 2005�. Navigating what constitutes the private and the public, the relationship between profit and sufficient wages, and the appropriate roles of the state, and the market, as described by the Australian Prime Minister of Australia, Kevin Rudd, in the opening quote, requires considerable justification. Accounting plays a significant strategic role in this navigation. In this context, it is argued that accounting has helped to orient thinking toward the language of the market and has sensitized the community to its significance in policy decisions.

The paper also deals directly with the role of accounting information in the justification of prison privatization and the transformation of our collective expectations of the role of the state and the corporation. The technical accuracy of the accounting data used to support policy shifts is questioned, and is shown to provide little rational foundation for the policy. Instead, the policy shift may be better understood as part of a process that seeks to ensure capitalism’s ongoing viability, while reconfiguring the role of the state as an “organizer, coordinator, and legitimizer” �Sikka 2001, 207�. It is important the process of public sector reform is explored within different and specific contexts because, as Clark �2002, 772� said, there is “no single model of public service reform associated with neoliberal ideological realignment,” and we still do not know nearly enough about it.

ACCOUNTING AND NEOLIBERALISM Neoliberalism is in the first instance a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial free- doms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade. �Harvey 2005, 2�

Neoliberalism

Neoliberal theory frames political intervention in the economy and markets as inherently negative. The theory proposes that markets will always be suboptimal if they are influenced by politics and government. Where freedom is impaired by any form of regulatory interference, the theory argues that socioeconomic optimization becomes impossible. In practice, neoliberalism relies heavily on an institutional commitment to free markets and trade. This is a commitment that requires the active intervention of the state �Harvey 2005�. On one hand we are to believe that big governments are interventionist and therefore the antithesis of freedom, yet, on the other, governments are instrumental in maintaining and policing the kind of free markets that neoliberals believe to be optimal. The paradox is notable and many political economists who engage in critique of the process of neoliberalization have come to describe neoliberalism as a form of managed capitalism �Cahill 2009� quite different to the Keynesian model that has gone before it. In fact, contrary to neoliberal theory, neoliberal practices have led to a redefined state, not the destruction of it �Harvey 2005�.

According to Harvey �2005�, in order to advance the neoliberal project, the processes of neoliberalization needed to be associated with a conceptual apparatus that is so embedded in common sense that it is taken for granted and not open to question. Accordingly, the Washington

Consensus associated individual freedom and human dignity with expanding free markets and

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regulatory minimization. Heron �2008, 85� has argued that the process inflates the social significance of the market and mystifies human relations. Even so, proponents of neoliberalism argue that

�t�he social good will be maximized by maximizing the reach and frequency of market transactions, and it seeks to bring all human action into the domain of the market. �Harvey 2005, 3�

According to Cahill �2009� and Harvey �2005�, the free market is more aptly described as a managed market, wherein the government institutionalizes certain rights that support and enable the market. From this perspective, the state institutionalizes the critical legal and regulatory archi- tecture that enables further neoliberalization. In fact, the state is central to the neoliberal project creating a significant disparity between neoliberal theory and practice. Cahill �2009� has argued that the state has played an active, indeed activist, role in the introduction, implementation, and reproduction of neoliberalism �Cahill 2009�. For example:

The engagement of private sector agents to deliver social services, for example, has often entailed the socialization of risk—whereby the state underwrites the profitability of firms either through some form of subsidy or by accepting liability for corporate failure or loss of revenue. Extra cost responsibilities for the state also arise due to new layers of bureau- cracy created to facilitate deregulated markets. �Cahill 2009�

In Australia, neoliberal policies have been adopted by both the Labor and Liberal Party since the 1980s, introduced because excessive regulation was claimed to be threatening to destroy Australian prosperity. At a Federal level, previous Labor governments oversaw the privatization of the Commonwealth Bank, Qantas, Australian National Rail, the Snowy Mountain Engineering Corporation, and more recently, the previous Liberal government-privatized Telstra, re-engineered employment services to include the private sector, and they have subsided private health insurers to encourage a move away from Medicare �the national health care scheme�. State Liberal and Labor governments have also encouraged similar privatizations within their jurisdictions, private schools now educate a considerable proportion of the community, many infrastructure projects are the result of public private partnerships, significant elements of the public transport services pro- vided have been put out to competitive tendering. Overall public services in Australia have been overhauled and the experience has not been isolated to the Left or Right of politics.

In light of recent global events, it has been argued that neoliberalism has failed spectacularly. Since the middle of 2008, we have seen significant public funds being directed toward banks, the building and construction sector, and manufacturing. In such a context, it would appear difficult to sustain the view that public services are better run by the private sector when so many are now being propped up by public funds �McMenemy 2009�. However, as Cahill �2009� has argued, the core arrangements that have enabled the rise of neoliberal capitalism have not been challenged by the crisis.

The dominant regulatory solution to the current crisis has been the injection of liquidity into financial markets. Bailouts have been preferred to significant restrictions on the freedom gained by financial capital during the neoliberal era. �Cahill 2009�

Accounting and Neoliberalism

This has also been noted within the accounting literature as Catchpowle et al. �2004, 1050�

argued:

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Contrary to the myths of laissez faire, capitalism is a society that requires not less but a great deal more state interference and action towards society and its reproduction. The market needs a political, legal, and social infrastructure much more complicated and ex- tensive and intrusive than any pre-modern economy �as Polanyi �1968� saw�.

Accounting information is critical to the production and institutionalization of neoliberalism. According to Sikka �2001, 207� the language of accounting has enabled core elements of the state to be “appropriated by private organizations predominantly concerned with the welfare of capital whilst the state’s participation in many social arenas is reduced to that of an organizer, coordinator, and a legitimizer.” As we know, accounting information can imbue any decision with a legitimacy that is reinforced by the perception that it is a neutral technology �Morgan 1988; Dillard 1991; Carnegie and West 2005�. Even though much of the critical accounting project has de- bunked this myth, it has been difficult to popularize this perspective �Sikka and Willmott 1997; Sikka 2001�. As a result, references to cost data as the driver for policy decisions have continued to be popular and, in political terms, are still very successful. According to Catchpowle et al. �2004, 1051� it is “an agent of the deepening of commodification and the shift to the rule of money providing new means of ensuring the control and commodification of labour; the facilitation of wealth transfers from the state to capital and the mystification of these.”

Understanding accounting as part of the institutions of managed capitalism allows an under- standing of a policy process as one that may not be technically rational or justifiable, but it is rational as part of a broader understanding of neoliberalism in practice �Edwards and Shaoul 2003; Harvey 2005; Cahill 2009�. Even though we may argue about what the market “is” from a neoliberal perspective, it is essential that it is treated as “natural” rather than a construct, and accounting plays a vital role in this representation �Harvey 2005�. It is important that researchers continue to explore how accounting information is being used to position policy in public discus- sions. This is occurring to some extent with the work of Cronin �2008� exploring the role of accounting in the “neoliberalization” of New Zealand’s public sector during its period of economic restructuring, the work of Ravenscroft and Williams’ �2009� focus on SFAS No. 123R to explore how the purpose of accounting has changed within neoliberalism, and Cooper and Catchpowle �2009� have examined the impact the audit process can have after the Iraq war and the impact this had on institutionalization of neoliberal policies. As evidenced by this prior research, adopting a theoretical lens that sees the role of accounting as constitutive rather than reflective helps to understand and explore the purpose of public policy more meaningfully.

In particular, this paper is concerned with the role accounting information has played in the prison privatization debate in New South Wales �NSW�, a debate that has taken place in the context of a global financial crisis and a State fiscal crisis. As the following discussion will show, the presence of accounting information was critical to the positioning of the policy, but the tech- nical accuracy of the accounting information and public availability of the information that may enable public accountability was almost entirely absent. This is a situation that has also been noted in the work of Froud et al. �1998� who explored the role of accounting in the introduction of private sector style financial frameworks into the National Health Service �NHS� in the U.K. Of this, they wrote:

Still more striking is the near complete lack of evidence, especially in the form of numbers … The neglect of numbers as evidence is in some ways contradictory and peculiar be- cause the prescribed solution rests on a faith in the capacity of the numbers generated by private-sector accounting practice to represent the world. �Froud et al. 1998, 106�

Logically, this would suggest that the policy shift has some other purpose. Although this pur-

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pose is not likely to have an all-encompassing explanation, within the context of neoliberalism it can be understood as part of an active construction of markets, the construction of the conditions for their existence, and the opening up of fields for capital accumulation in areas previously considered off limits �Taylor and Cooper 2008�. In fact, Funnell et al. �2009, 260� have argued that the “expeditions of private capital into areas that have been off limits, such as prisons, are indica- tive of the crises that face the expansionist imperative of capitalism in economies that are no longer industrially oriented.” Given that this work has largely to do with the use of costings within the public discussion of the privatization of two NSW prisons, the next section will consider the relationship between accounting and privatization, drawing on significant aspects of the extant literature.

ACCOUNTING AND PRIVATIZATION

A measure of the “power of accounting” is the extent to which it can challenge the ration- ales for privatizations in the light of their subsequent effects �Shaoul 1997a, 384�.

The last 30 years has seen a transformation in governments across the globe. The core functions of government are no longer clear, and many services that we may have thought were the exclusive terrain of governments have been put out to tender. In fact, much of Europe and the U.S. have refashioned the state in the image of the market and have engaged the services and expertise of the private sector to perform much of their functions �Funnell et al. 2009�. According to Jupe �2009a�, economic and efficiency arguments have been used to promote privatization as the most responsible way to run services that the public relies upon. These arguments have rested on the idea that market discipline ensures the private sector is efficient �Ogden 1997� and that a smaller public sector minimizes the debt risks and costs associated with public services �Ogden 1997�. In this context, privatization has been presented as a cost effective and efficient way to provide the many public services such as electricity, water, defense, prisons, postage, and public transport.

These economic and efficiency arguments have been presented to the public as though they are an unbiased assessment of the “correct” role of the government and the private sector. Although much effort has been mounted to ensure that this view appears natural and self evident �with market testing, performance management, public audits, and assessments of risk, see Craig and Amernic �2004��, there is now considerable disquiet over its underlying purpose and privati- zations’ more vested intent �Shaoul 1997a; Edwards and Shaoul 2003; Froud 2003; Cahill 2009; Jupe 2009a�. It is also important to note that the notion of efficiency itself has appeared uncon- troversial, but is in fact ambiguous and ill defined �Shaoul 1997b; Andrew and Cahill 2009�.

According to Shaoul �1997a�, accounting researchers have contributed little to the analysis of privatization as a policy choice. She argued that their “contribution has been concerned largely with the reporting changes resulting from privatization … and regulatory issues” �Shaoul 1997a, 383�. To some extent researchers have explored this gap over the last ten years, but there is still little known about the role of accounting within decisions to privatize, the quality of the data that is used to justify the decision, and the way accounting information is used between parties �the government, private organizations, and citizens� in the development of public policy �such as Edwards and Shaoul 2003; Funnell et al. 2009; Jupe 2009a�.

Many of these challenge the core claims made by the proponents of neoliberal theory through an exploration of the “realities” that emerged �Edwards and Shaoul 2003; Harvey 2005�. The claim

that private ownership leads to the efficient allocation of resources was explored extensively by

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Martin and Parker �1997� when they studied 11 newly privatized companies1 in the U.K. to con- clude that the evidence was mixed as would be expected—certainly their research indicated that the reality was far less clear than the theory. In particular, Funnell et al. �2009� analyzed the privatization of British Gas and British Telecommunications, exposing the inefficiencies that re- sulted from this decision. Jupe �2009b� also explored the privatization of British Rail. In his work he has exposed how the process led to a fragmented and fractured rail system that was not only inefficient, but had catastrophic consequences. Between 1997 and 2002 there were four fatal rail accidents in Britain that could be attributed to corporate decisions that had been pursued to increase efficiency, such as staffing cuts and minimal capital maintenance expenditures �Funnell et al. 2009�. Jupe �2009b, 717� also demonstrated that rail privatization led to a “very substantial increase in costs.”

A similar situation emerged with the decision by the Blair government to implement a public private partnership arrangement to operate the National Air Traffic Services in the U.K. Ultimately the scheme was a failure. With the predicted increase in air traffic that underpinned the viability of the scheme having not materialized, the government was forced to step in, providing additional loans and injecting a massive equity stake to prop up the failing venture �Funnell et al. 2009, 156�. Florio’s �2003� study of the long term performance of British Telecom �BT� over 40 years found that privatization itself had very little impact on firm’s performance and that although BT went through considerable change, the more profound impact on the firm arose because of changes to its financial arrangements, to liberalization, and changes to regulation—all of which could occur without privatization.

Political economists have argued that this kind of exploration must be understood within par- ticular contexts because neoliberalism “arrives differently in different places, combining with other processes to produce distinctive manifestations” �Barnett 2005, 8�. In pursuit of this, there have been studies conducted into the privatization of finance �Froud 2003�, water �Shaoul 1997b�, mail services �Shifrin 2009�, telecommunications �Florio 2003�, policing �Gilsinan et al. 2008�, defense services �Cardinali 2001�, and prisons �Andrew 2007� that have questioned the legitimacy of the decision in terms of functional objectives such as service quality, cost effectiveness, and the broader accountability and welfare obligations of democratically elected governments. The re- mainder of this paper will explore the proposed privatization of two prisons on NSW, Australia. This extends previous research, exploring the impact policy making founded on neoliberal theory has had outside of the U.S. and the U.K.

PRISON PRIVATIZATION IN NEW SOUTH WALES We simply have to be competitive. The benchmarking process shows that we are way outside of industry standards. The cost per inmate in the State run system is significantly higher than the cost per day of a comparable privately run facility. �NSW Department of Corrective Services 2004, 3�

For a number of years, the NSW Department of Corrective Services �DCS� claimed that private prisons were more cost effective than public prisons. The claim has been powerful as it has framed much of the subsequent discussions about prison providers in NSW. The introductory quote by the Commissioner to the NSW Department of Corrective Services was not substantiated within the source document and is demonstrative of a broadly accepted presumption that private prison providers are cheaper to run than those of the public sector. Although the position appears

1 These included British Airways, British Airports Authority, Britoil, British Gas, British Steel, British Aerospace, Jaguar, Rolls-

Royce, National Freight Corporation, Association British Ports, and British Telecom.

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uncontroversial, it is a position that the DCS has yet to support with reference to transparent and externally verifiable evidence �Andrew and Cahill 2009�. The Commissioner’s statement was made prior to the first proper inquiry into the effectiveness and cost of alternative prison models in NSW. The Parliamentary Inquiry into the Value for Money in NSW Correctional Centers was produced in 2005, and was heavily influenced by the framing and assumptions that had gone before it �Andrew and Cahill 2009�. Although it is well documented that the DCS has yet to develop methodologies that enable such cost comparisons to be made in any meaningful sense, the statement has been powerful �NSW Parliamentary Inquiry 2009a, 2009b, 2009c,2009d; NSW Department of Corrective Service 2004; Watson 2008�. It has influenced perceptions within the department, the government, and the community more broadly �Gardiner 2007; West 2008b�.

The 2005 assessment of NSW prisons in terms of value for money significantly influenced the parliament’s perception of what constituted an optimal model for the provision of prisons and related services �Andrew and Cahill 2009�. Although the findings of the report were contested �Andrew and Cahill 2009, the work of Cooper and Taylor 2005 also contests the costings in Scotland. The report has significantly framed the parliament’s understanding of cost and efficiency within the prison sector. The 2005 report appeared to indicate that the NSW government saw the Way Forward2 as the optimal model. It was promoted as a model that incorporated labor reforms within the public sector, but maintained public ownership and management of prisons. This was not to be the case. In August 2008, prison privatization was back on the agenda with the an- nouncement that prisons at Cessnock and Parklea would be placed under the management of a private contractor. The announcement sparked considerable public and parliamentary discussion because it seemed inconsistent with the message being sent by the Federal Labour Party about the role of government, markets, and communities within the context of a global financial crisis.3

Prison privatization is also notoriously unpopular, with a vast majority of citizens expressing con- cerns about the morality of such a decision �Public Service Association 2009�.

This research focuses on the public statements made by the government to convince the community that the direction of their policy was well founded and in their interest. The evidence presented to the NSW Parliamentary Inquiry �2009a� into prison privatizations is also a significant source. This was the first public inquiry into prison privatization in NSW, and as such, it provided significant insight into the arguments for and against the proposal. This reading of the mainstream media discussion and the transcripts of the Parliamentary Inquiry suggests that the government either had little evidence to substantiate its cost claim or chose not to make this transparent to the public. It also appears that the government has not developed their accounting methodologies to enable rigorous comparisons between providers, making their claims to know that private prisons cheaper appear unfounded. In effect, the technical accuracy of the government’s costings does not appear to be of any real concern to those proposing the privatization. Given that there is a lack of evidence to substantiate the policy choice, the story is positioned within the broader literature on neoliberalism to analyze the government’s reasons for promoting and pursuing this unpopular policy. According to Taylor and Cooper �2008, 7�:

2 The Way Forward was proposed in 2004 by the DCS to encourage labor reform within correctional centers. It is claimed that the main benefits of the model include reduced overtime, reduced sick leave and streamlining of operational functions. The strategic plan is to implement the “Way Forward” model in all NSW correctional centers and it was also claimed that is was currently being negotiated with the relevant stakeholders �Public Accounts Committee 2005, 15� indicating the DCS’s preference for this approach.

3 In February 2009, Prime Minister Kevin Rudd wrote an article on the global economic crisis writing that “�t�he intellectual challenge for social democrats is not just to repudiate the neo-liberal extremism that has landed us in this mess, but to advance the case that the social-democratic state offers the best guarantee of preserving the productive capacity of properly regulated competitive markets, while ensuring that government is the regulator, that government is the funder or provider of public goods

and that government offsets the inevitable inequalities of the market with a commitment to fairness for all.”

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The state is no mere cipher, no passive captive of corporate interests but rather, as many observe, is the initiator and driver of the wider capitalist project of neoliberalism, deregu- lation, and globalization. Within the reciprocal undertaking of privatization, it has its own set of interests.

Within the political-economy of capitalism, accounting has a very specific role, actively consti- tuting social and economic relations in particular and partial ways �Catchpowle et al. 2004�. This is a view supported by Craig and Amernic �2004, 55� when they argued that “accounting related rhetoric” can be “deployed as an instrument in the service of power elites.” Given that the priva- tization of prisons in NSW has been promoted as taxpayer focused, and it was publicly justified on the grounds of cost savings, the remainder of this paper explores these claims.

COSTS WITHOUT EVIDENCE The Government has embarked on these changes to Corrective Service because of a need to make the taxpayer dollar go further in these challenging financial times. �Robertson 2009�

To a large extent, the debate that has taken place in NSW over the privatization of Parklea and Cessnock Correctional Centers appears to have begun with the presumption that private prisons are always cheaper �NSW Parliamentary Inquiry 2009a, 2009b, 2009c�. This is a presumption that has found its way into privatization discussions more broadly, and many researchers have been far from unanimous in their assessment of the costs and benefits of privatization �Funnell et al. 2009�. Over the last 20 years, researchers have argued this point and there has been no definitive study that suggests that prison privatization is unquestionably cheaper if minimum service stan- dards are to be maintained �Cooper and Taylor 2005; Funnell et al. 2009; Andrew 2007�.

In 1993, the only privately built, owned, and operated prison in NSW at Junee began operating and it has been used as a benchmark within the sector since its inception �Public Accounts Committee 2005�. Even so, Junee has had a number of problems; ABC News 2008� and 15 years after it began operating, the government does not store any formal data that enables private and public prison costs and efficiencies to be compared �Public Accounts Committee 2005�. In fact, data that would enable basic comparisons within the sector are not collected by the DCS. For example, they do not calculate ratios of officers to inmates based on security classification, so figures are crude aggregates. This is still the case, yet the government consistently maintains that Junee performs well and is always more cost effective than state prisons �Public Accounts Com- mittee 2005; NSW Parliamentary Inquiry 2009a�.

Although the government claimed that privatization was in the interests of taxpayers, they resisted pressure to provide further details and evidence �Parliamentary Inquiry 2009a�. Having stated the cost superiority of the private model over a 15-year period, the public was well prepared for the assertion and demanded little in terms of evidence �Harding 1997�. For example, the NSW �2008–2009� mini-budget projected a saving of $44.2 million over four years, but it was unclear from the document how these savings would be made and what proportion could be attributed to the outsourcing of Parklea and Cessnock’s prison management. However, the claims remained unchallenged in the media and by the opposition party.

This ambiguity over savings was present at the outset. It was reported that the commissioner of Corrective Services, Ron Woodham, defended the move, saying services would be provided at five locations for what it cost to service three locations previously with publicly employed prison officers �Tadros 2008�. The statement was not only confusing, but also completely unsubstanti-

ated. Had the government had verifiable evidence to support such a claim, it is logical to assume

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they would have referred to it. In December 2008, it was reported that the Government believes privatizing the jails will save $16 million over three years, mainly in reduced overtime costs for prison officers. Last financial year, the total overtime budget for the whole prison system was about $40 million �West 2008a�.

In an apparent attempt to placate the mounting community pressure, the Minister, Mr. Robert- son said there would be no job losses, and taxpayers would save $63 million. He also denied there was any privatization, instead describing it as outsourcing �Strachan 2009�. Notably, this is $47 million more than the projected savings featured in NSW’s �2008–2009� mini-budget that had been presented previously. The public could be forgiven for being confused on the matter.

Looking at the Detail: Savings without Evidence

The NSW Parliamentary Inquiry into the privatization of prisons and prison related services conducted in early 2009 provided the perfect forum to investigate the claims made about the advantages of privatizing the management of Cessnock and Parklea. It is apparent from any reading of these transcripts that the government and the department were unable or unwilling to present any detailed evidence of their claims. In his opening statement to the inquiry, the Commissioner for the NSW DCS stated that he had:

�a� responsibility to operate a correctional system in an economical and efficient manner. �NSW Parliamentary Inquiry 2009a, 2�

And that based on independent advice from the NSW Treasury that he understood:

It would be cost effective to contract out the management and operation of Cessnock and Parklea correctional centers. �NSW Parliamentary Inquiry 2009d, 2�

There are two significant problems with these statements. The first is that the advice from the Treasury was never made publicly available so there is no way to scrutinize the assertion. Per- haps more significantly, the Commissioner’s comments focused on cost effectiveness alone, ei- ther presuming quality would be comparable, or alternatively, that this is a less significant policy parameter. When pushed on his vision for the sector, the Commissioner revealed that he believed having private operators lifts the game of the public sector �NSW Parliamentary Inquiry 2009a, 5�. This is a claim that has remained unsubstantiated but has been a significant policy driver.

Given that prior research challenges the data used by the government to promote the view that the private prison at Junee is undeniably cheaper to run, it has been argued previously that private prisons may be used to discipline the public sector labor force �Andrew and Cahill 2009�. In fact, the Commissioner said as much when pressed on the potential for industrial action. He stated that he was not concerned because, although workers at Cessnock and Parklea were not in discussions with the DCS, most of the prisons are starting to talk to us now about these reforms �NSW Parliamentary Inquiry 2009a, 6�.

During the inquiry, representatives from the DCS were pushed to discuss their cost accounting to some extent, but again the responses were limited and indicated that the DCS was still a long way from producing the kind of accounting information that would facilitate comparisons within the sector. For instance, they were asked about the development of activity based costing, to which they replied:

Within a correctional centre there are many different costs and there are different ways for attributing costs … there are many different ways of attributing overheads against the cost-drivers. �NSW Parliamentary Inquiry 2009a, 7�

In his attempt to reassure the Parliament that the DCS had developed sophisticated cost

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accounting methodologies, the DCS did the opposite. They identified the very issues that had been raised previously about cost comparisons within the sector and offered no explanation as to how they had addressed these issues �Andrew and Cahill 2009�. The DCS agreed to provide more information to take the question of cost allocation on notice and later submitted an updated answer, explaining the basic accounting process. Although on face value the methodology sounds well developed and logical, a number of questions remain about the allocation of overheads to prisons and more specifically to the cost of managing different types of prisoners in different types of prisons. For example, Junee was built in the mid ‘90s, while Parklea was originally constructed in the 1800s, creating significant cost biases that may have nothing to do with efficiency and everything to do with prison design. When questioned on the impact of prison design on opera- tional efficiency, Mr. Weir, Deputy Director of the South Australian Department of Correctional Services said:

�t�he design can have a significant effect on the ongoing costs of operation… yes, there is no doubt the design itself has a significant effect, as does the culture of a prison. �NSW Parliamentary Inquiry 2009a, 18�

The additional response to the question about cost was that the:

DCS calculates the cost per inmate per day. These costs are firstly calculated for all costs directly attributed to the centre �Direct costs�. In addition to this, overhead costs such as the cost of management and administration at the regional and corporate level as well as Health Costs incurred by Justice Health, are allocated to provide a Fully Absorbed cost…The costing methodology has been updated so that costs are attributed within the centre to the appropriate security classification, resulting in different costs per inmate per day for each classification within the one centre. At the same time overhead costs are allocated on the basis of relevant cost drivers rather than a generic set of assumptions. �

All cost accounting systems are open to interpretation �Doost 1997; Cooper and Taylor 2005�, and significant management accounting research suggests that the political nature of cost alloca- tions can take primacy over technical accuracy. However, as accounting is often seen as a benign device, these decisions can go largely unnoticed. With regard to activity based costing, an ac- countant or an administrator still needs to make decisions about what are the most significant cost drivers, but these decisions can also draw into view certain activities while obscuring others. Labor is obviously a significant cost driver, but less obvious is the physical design of a prison in the driving of costs and one may take precedence over the other. There are many things outside “pure efficiency” that may explain the difference. For example, the prisons are located in different geographical regions, not all medium security prisoners are the same, not all correctional centers offer the same educational and vocational programs, the staff/prisoner ratio may not be the same, the continuity of care may be different, the physical design of the center may facilitate cost advantages, and the prisons may run at different levels of capacity.

In fact, Junee has never been full, whereas most state prisons exceed capacity and GEO admits that they charge the government a fixed fee for full occupancy, whether they have this.4

When it was proposed that private operators have an incentive to keep prisoners rather than rehabilitate them, GEO stated that this is irrelevant because we are paid for 100 percent capacity �NSW Parliamentary Inquiry 2009b, 10�.

4 In the fixed element, whether we have 97 prisoners or 100 prisoners, we are going to need a staff requirement and a manage-

ment requirement �NSW Parliamentary Inquiry 2009b, 7�.

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Self-Referential Costing

These issues are not made visible when presenting these costings, yet the figures are powerful and have heavily influenced the policy debate. In fact, discussions of cost have been largely self-referential, building a sense of reality that has little empirical backing. Cooper and Taylor �2005, 517� refer to this in their work, stating that:

To reduce something to allegedly objective information and then treat that information as if it were an adequate description of the phenomenon at hand is to obscure the purpose behind the information.

For example, GEO �the private firm responsible for Junee� used the DCS’s costings in their oral testimony to the inquiry, stating that the figures are an irrefutable statement in the depart- ment’s submission �NSW Parliamentary Inquiry 2009b, 3�. This is reiterated in the evidence pro- vided to the NSW Parliamentary Inquiry by Brendan Lyon, the Executive Director of Infrastructure Partnerships Australia, who had argued private providers could deliver high-quality correctional centers. When questioned about the origin of his data he said “�t�he figures we have are the ones that have been delivered by the Department of Corrective Services” �NSW Parliamentary Inquiry 2009c, 79�. Although these figures are accepted within the mainstream support for privatization, they are not universally accepted �Andrew and Cahill 2009�, with representatives of the Public Services Association of NSW, stating:

We do not accept these figures are accurate as per our submission. We do not believe the 2007/2008 budget or the 2008/2009 budget represent an accurate picture of the cost of running Cessnock. �NSW Parliamentary Inquiry 2009d, 3�

When the Commissioner was pressed on the amount that they anticipated saving at Parklea and Cessnock, the evidence was suppressed by the Committee. We later learned the Commis- sioner estimated there would be $16.1 savings in total over three years.5 At no time was the Commissioner pressured to provide evidence of this estimate, and the inquiry did not press the issue or ask for more detail in regard to the claim. The cost projections reinforced those that had been made in press releases. Given the inquiry was an opportunity to substantiate these claims or provide convincing evidence of these projections, it is notable that the Commissioner did no such thing. Instead, he chose to repeat and reference the unsubstantiated claims that had been made previously, as though this imbued it with legitimacy. Although the argument to privatize these prisons is cost centered, based on the discussions that took place within the inquiry, the evidence required to back such claims was never rigorously pursued. In fact, the interrogation of costs was superficial in every forum.

Cost and Service?

As has been shown, discussions of costs were not subject to much critical appraisal. In addition, only limited connections were made between cost and service. As would be expected, the union representatives argued that the proposed cost savings were largely a result of workforce reductions and casualization—a position that was not denied by the Commissioner. The union

5 As the question was answered by the Commissioner and the hearing was open to the public, we were emailed by Keiller McDuff from Essential Media on the 27th of February to give us the details. The email reads:

NOT verbatim, but my notes say… He says: $15 million all up, that’s Cessnock and Parklea and court security. $7.4 at Parklea and $2.6 from Cessnock initially, then when the 250 bed unit opens another $1.1m which make $3.7m, plus $5m from Court Escort. A total of $16.1 million.

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pointed out the approach could not be adopted without incurring other costs, such as a loss of knowledge of the inmate population because of casualization, reduced access to education and employment training, diminished health care access, and so on. In every way, costs should not be decoupled from service.

Representatives from Justice Action, a prisoner advocacy organization, made this point to the inquiry, stating:

�t�o pay an adult institution $73,000 a year, and for those prisoners to be locked in their cells 18 hours a day, is just bad. We would expect at the very least that the money would be allocated for their correction and they should get some benefit from it. �NSW Parliamen- tary Inquiry 2009a, 44�

Significantly, the question of comparative service for comparative cost was barely raised within the inquiry, and when it was, the lack of data was very apparent. For example, the Hon. Roy Smith �2009� said:

We do not have a lot of data. Are you aware of any data that compares lock down times of private prisons to government-operated prisons?

To which Mr. Collins of Justice Action responded:

One has to ask why is it not there? �NSW Parliamentary Inquiry 2009a, 45�

The apparent lack of data and lack of transparency of the data that relates to cost is an ongoing source of researcher frustration. The commercial-in-confidence legislation in NSW has protected companies from disclosing significant financial information. In fact, GEO �a private prison operator� requested that their written submission to the inquiry be made confidential. When questioned about this, they eventually replied:

�i�n terms of our submission being confidential. We can maybe highlight the one or two paragraphs that are confidential. It really has to do with, as I indicated earlier, possibly more in the financial area than anything else. �NSW Parliamentary Inquiry 2009b, 22�

It is also apparent that cost minimization strategies by correctional centers may not be limited to efficiencies and innovations. In the case of prisoners held in Junee, it is possible that challeng- ing prisoners �in terms of behavior or health� are moved out of the center to another public prison to be treated, and also to keep costs down. This issue was raised in the NSW Parliamentary Inquiry:

It is very hard for us to understand whether the cost differential, as outlined by the Public Accounts Committee, is actually driven by innovation or whether it is because essentially if the prisoners have a serious health issue they are moved to another facility so they do not appear on within the books of GEO group. �NSW Parliamentary Inquiry 2009b, 72�

Contributing to the problem of cost comparison is the fact that the government will always carry significant responsibilities in terms of prisons that incur costs that cannot be outsourced. This issue was raised by Ms. Sylvia Hale when she stated:

You have the whole costs of the state bureaucracy, as it were, still having to be met by the state… You have employees or government officials within the prison, and you have the state still continuing to meet hospital and psychiatric services. It seems to me that so many other significant costs are still being picked up by the government. �NSW Parliamentary

Inquiry 2009c, 15�

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Although cost savings may provide a substantive public legitimation of privatizations such as this, the apparent lack of evidence draws into question its centrality as a policy driver. There is no substantive evidence to support the claim that prison privatization would save money. In fact, there is only evidence of a series of assertions that have taken on a broader discursive function, framing the debate within factual parameters that have little basis in reality. Contextualizing this within the processes of neoliberalism would suggest this is not accidental or irrational �Andrew and Cahill 2009�, but represents the government’s active role in neoliberalism as it really exists. As was argued at the beginning of this work, neoliberalism in practice has required the active intervention of the state to create a context in which privatization of public services appears to be the only rational solution to any apparent inefficiency.

CONCLUSION Neoliberalism works best when there is formal electoral democracy, but when the popula- tion is diverted from the information, access and public forums necessary for meaningful participation in decision making…Therefore it is best to restrict governments to the job of protecting private property and enforcing contracts, and to limit political debate to minor issues. �McChesney, 1998, 9�

When the rationale for public policy emphasizes the cost benefits to taxpayers, this has the potential to create a passive and compliant public, willing to judge decisions substantially in these terms �McChesney 1998�. Significant research has identified that this is no accident; instead it is a strategic element of the neoliberalization of our communities �Harvey 2005; Cahill 2009�. Ac- cording to Harvey �2005, 3�:

The process of neoliberalization has, however, entailed much “creative destruction,” not only of prior institutional frameworks and powers �even challenging traditional forms of state sovereignty� but also of divisions of labour, social relations, welfare provisions, tech- nological mixes, ways of life and thought, reproductive activities, attachments to the land and habits of the heart.

This is problematic because some decisions are costly, but desirable, or we may believe some activities should only be undertaken by governments to ensure a level of public accountability, or because the role is so significant it should not be open to the vagaries of the market. Govern- ments have undeniable responsibilities to govern with the inclusion of criteria that extend beyond a policy’s cost effectiveness. However:

In so far as neoliberalism values market exchange as “an ethic in itself, capable of acting as a guide to all human action, and substituting for all previously held ethical beliefs,” it emphasizes the significance of contractual relations in the marketplace. �Harvey 2005, 3�

Within this context, it is not surprising that the NSW government tried to orient public attention to the cost benefits of prison privatization, thus making accounting very relevant. What is of more interest is the way cost information was used to construct the image of a rational decision with little evidence to substantiate the claim, thus making the �in�accuracies of accounting quite irrel- evant.

In other words, if cost alone were the justification for policy, this presents significant problems, but the problems are exacerbated when that cost information is inconclusive, partial, or unavail- able. If a government says conclusively that a private prison is cheaper to run than a public prison,

without substantial evidence, then that process needs to be understood within the broader theory

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and practice of neoliberalism—or, in other words, as part of a system of managed capitalism. It cannot be explained as irrational, it must be understood as strategic—even if the outcomes are imperfect and varied.

Although neoliberal theory promotes free markets through large-scale deregulation, in prac- tice, the process requires the active engagement of the state to create, manage, and sustain the conditions that allow for the economic freedom described. It is an economic freedom that is enjoyed unevenly, but is still considered sacrosanct. This paper has shown how the government of NSW managed to position its proposal to privatize two prisons as a response to a financial crisis and as a rational choice because of the cost savings that would result. Although on the face of it the arguments are persuasive, this research shows that the cost data the government has relied on to promote its policy was limited and inaccessible to the public. In fact, on numerous occasions the government admitted that it did not keep the kind of data required to make accurate cost comparisons that would enable such a claim. Even so, the government did not sway from its public line that private prisons are always cheaper and are therefore a logical solution to a gov- ernment trying to resource public infrastructure while weathering a financial crisis.

In this particular example, the technical accuracy of the data was in fact irrelevant and it did not drive the government’s policy. Instead, the proposal has to be understood as a well-timed oppor- tunity to push through neoliberal reforms that benefit both the corporations who seek access to public funds that have otherwise been off limits and to governments who can withdraw from full responsibility while ensuring their ongoing viability in their newly constituted role as contract managers. It could also be seen as part of a more systematic attempt to discipline labor, an issue that was not the focus of this work, but one that requires future research.

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