Private Prisons Dancing to the Jailhouse Rock

The more children judges locked away, the more money owners of a for-profit juvenile detention center could make slamming the bars.

Federal prosecutors called it "Kids For Cash."

An owner of a private detention center, Robert Powell, was sentenced to 1 1/2 years in prison Friday for allegedly paying kickbacks to two county judges in Pennsylvania. Powell got off relatively easy after cooperating with prosecutors.

Luzerne County's former president judge Michael Conahan was sentenced to 17 1/2 years, and Judge Mark Ciavarella, a.k.a. "Mr. Zero Tolerance," was sentenced to 28 years, earlier this year.

The case is a testament to the effectiveness of economic incentives, getting county judges to incarcerate kids just for doing what kids sometimes do:

--A 10-year-old girl reportedly got a month in a detention center for accidentally setting her bedroom on fire.

--A 13-year-old boy reportedly got 48 days for throwing food at his mother's boyfriend during an argument.

--A 16-year-old girl reportedly got a month in a boot camp for creating a Web page making fun of the assistant principal of her high school.

--A 17-year-old boy reportedly got five months for drug paraphernalia--not drugs themselves--and it was his first offense.

The Supreme Court of Pennsylvania had to dismiss 4,000 juvenile cases because of the compromising kickbacks.

The American Civil Liberties Union cited the case in a report it released last week called "Banking on Bondage: Private Prisons and Mass Incarceration."

The ACLU argues that an industry with an economic incentive to lock people away is going to find all sorts of creative ways to do just that. It is one reason why the U.S. is home to 25% of the world's prisoners, even with only 5% of the world's population.

As a general business practice, the private-prison industry does not routinely bribe judges to throw more people in the pokey. But it does lobby Congress and state legislatures to stay tough on crime, the ACLU said.

Corrections Corporation of America (CXW), the industry leader based in Nashville, Tenn., with more than $1.7 billion in 2010 annual revenues and capacity for more than 90,000 prisoners, said a drop in tough criminal sentences means a drop in revenues. According to its 2010 annual report:

"Demand for our facilities and services could be adversely affected by the relaxation of enforcement efforts, leniency in conviction or parole standards and sentencing practices, or through the decriminalization of certain activities that are currently proscribed by our criminal laws."

States legalizing marijuana, cities providing safe havens for illegal immigrants, and governments running out of money for police are clearly a threat to this business.

"Any changes with respect to drugs and controlled substances or illegal immigration could affect the number of persons arrested, convicted, and sentenced, thereby potentially reducing demand for correctional facilities to house them," the company's annual report said.

Boca Raton, Fla.-based GEO Group Inc. (GEO), in the industry's No. 2 spot with nearly $1.3 billion in 2010 annual revenues and capacity for 81,000 prisoners, offers similar language in its 2010 annual report: "A decrease in our occupancy rates could cause a decrease in revenues and profitability."

About 2.3 million people in America are racking up federal, state and local tabs behind bars. Increasingly, cash-strapped governments are having conversations about whether they can afford this. Often, they turn to privatization as a short-term fix. But the ACLU argues that the industry isn't really saving governments any money once all external costs are tabulated.

Private prisons didn't emerge in modern times until the 1980s, but they now hold about 6% of state prisoners, 16% of federal prisoners, and nearly half of all immigrants detained by the federal government, according to the ACLU.

"As incarceration rates skyrocket, the private prison industry expands at exponential rates, holding ever more people in its prisons and jails, and generating massive profits," the ACLU report said.

At best, it is an ethically challenged business model that commoditizes people. At worst, it is an enterprise that should be building cells for some of its own executives.

Predictably, the ACLU documents all kinds of abuses from privateers trying to keep their costs low, from increased violence and sexual abuse to cells lined with feces. But who cares what happens once someone is locked away?

Ex-judges in the "Kids for Cash" scandal don't have to worry. They are serving their time in federal penitentiaries. Maybe the kids they put in private jails will write to tell them what hell is really like.

(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. The column is published each Tuesday and Thursday at 9 a.m. ET. Contact Al at al.lewis@dowjones.com or tellittoal.com)