The Justice Department’s Unjust Monopoly

by | Nov 11, 2001

If nothing else, the Microsoft case showed how ferocious federal prosecutors can be in fighting “monopolistic predators.” Let a company try to stifle competition, let it be accused of obstructing the market or blocking other companies’ access to customers, and odds are the Justice Department will come after it hammer and tongs. Unless, of course, […]

If nothing else, the Microsoft case showed how ferocious federal prosecutors can be in fighting “monopolistic predators.” Let a company try to stifle competition, let it be accused of obstructing the market or blocking other companies’ access to customers, and odds are the Justice Department will come after it hammer and tongs.

Unless, of course, the monopolistic predator in question is a wholly-owned subsidiary of the Justice Department.

Meet Federal Prison Industries, Inc., the US government’s very own market-blocking, competition-suppressing, restraint-of-trade monopolist. FPI has a setup even the Mafia would envy. Both of them make offers their “customers” can’t refuse. But when FPI does it, it’s legal.

Federal Prison Industries — which also does business under the trade name Unicor — is a US-chartered corporation within the Justice Department’s Bureau of Prisons. It was created by statute in 1934; its purpose was to promote work for federal prison inmates by guaranteeing a market for the goods they produced.

Today, some 100 prison factories run by FPI manufacture products in more than 150 categories. Among its largest product lines are office furniture, clothing, and textiles, but the FPI catalog spans an enormous range — from coffee mugs, cleaning supplies, and circuit boards to printing services, pillowcases, and plumbing fixtures. Its sales totaled nearly $550 million last year; of the 100 biggest federal contractors, it ranks 36th.

All of which would make FPI a formidable competitor in the marketplace. Except that FPI doesn’t compete.

Under its 67-year-old authorizing statute, federal agencies and military installations must buy the products FPI sells. They are not permitted to turn to commercial vendors or even to solicit private-sector bids unless they first get FPI’s assent. It is the prison-industries corporation — not the agency making the purchase — that gets to decide whether its products are what the buyer needs, whether its price is reasonable, and whether it can deliver the goods on time. If FPI refuses to grant a waiver, FPI gets the sale. And to add insult to injury, waiver applications are judged by FPI’s sales division.

Moreover, it is FPI, not the agency, that determines whether its performance of the contract was satisfactory. By law, disputes between FPI and its federal agency customers are to be resolved by a high-level arbitration board. But the board hasn’t met since the 1930s, which means that any complaint about FPI’s performance is judged by — FPI.

This is monopoly power at its most brazen. Still, it might be defensible if FPI’s products were great values — i.e., if they saved the taxpayers money. But often they aren’t and they don’t. “FPI generally did not offer federal agencies the lowest prices for products that they purchased,” the General Accounting Office found in 1998. “Speaking frankly,” the Navy’s master chief petty officer testified two years earlier, “the [prison industries] product is inferior, costs more, and takes longer to procure.”

If it were only a question of wasted federal dollars, FPI could look forward to another 67 years of milking the government. Taxpayers don’t usually get worked up over government procurement policies. But companies that are prevented from selling their products to willing federal agencies do get worked up. The office furniture industry alone estimates that FPI’s stranglehold on federal contracts is costing it $400 million in annual sales. And with FPI aggressively expanding its product lines, the number of private-sector companies losing business — and workers losing jobs — keeps climbing.

“Both small business and organized labor feel assailed by it,” says US Rep. Barney Frank, one of two lead sponsors of a bipartisan bill to overhaul and reform FPI. Frank is a liberal Democrat; the other sponsor, Michigan’s Peter Hoekstra, is a conservative Republican. But this is an issue that unites them; they both want to strip the prison-industries conglomerate of its monopoly and force it to compete. Their bill is backed by 114 co-sponsors and by dozens of organizations representing business, labor, and government administrators — proof, Frank says, that outrage at FPI’s heavy-handed tactics “runs across all lines.”

Clearly, something is askew when foreign imports produced by prison labor are barred by law, yet federal agencies here at home are *required* to use the products of prison labor. Nor is it right for jobs to be denied to thousands of law-abiding Americans so that criminals can be employed. Everyone supports prisoner rehabilitation, and everyone wants inmates to learn useful skills. But not at the expense of small businesses and their employees.

When Congress created FPI 67 years ago, prison industries accounted for a tiny sliver of the market and it was hard to see how it could do much harm. But even tiny monopolies are rapacious, and like monopolies everywhere, they crave market share. At half a billion dollars a year, FPI is no longer small, and the harm it causes is considerable. It’s time for Congress to fix the law.

Jeff Jacoby is a columnist for The Boston Globe. This is an excerpt from his weekly newsletter, Arguable, and is reprinted with permission. To subscribe to Arguable at no charge, click here.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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