MR. SCHWALB PUTS HIS INMATES TO WORK FOR THE PRIVATE SECTOR
By RODNEY HO Staff Reporter of THE WALL STREET JOURNAL
FORT WORTH, Texas -- If it weren't for the drab green and gray uniforms worn by the clerks, this office would look much like many in Corporate America.
A hundred women, some listening to Walkmans, clack away on computer keyboards, entering used-vehicle sales data for CCC Information Services Group Inc., a Chicago insurance-claims processing company. Beyond the uniforms, however, there's a less obvious difference: no telephones. The convicted felons at work here aren't allowed to have them.
The data-entry operation at this 90-acre prison enclave called Carswell is a controversial experiment by Federal Prison Industries, a self-supporting arm of the Justice Department. FPI, which employs about 20,000 prisoners, makes clothing, furniture and other goods for the federal government. But it believes its future lies in selling services -- and not just to the government.
FPI is counting on the robust service economy to remedy its biggest headache: The nation's prison population is growing faster than wardens can find work for it. If FPI can't meet its goal of employing at least 20% of the eligible federal inmates, there will be more idle prisoners and more potential for turmoil behind bars. To cope with the influx, FPI hopes to tap the commercial market for such services as coupon sorting, packaging and data processing.
Wide Range of Foes
Its new strategy and the growth of FPI's traditional businesses infuriates an eclectic mix of politicians, unions and business leaders. They say FPI is stealing jobs from the private sector and is able to compete only because it pays much less than the minimum wage. Their anger is fueling a campaign to strip FPI of its most valuable asset -- its right of first refusal on federal contracts for hundreds of goods, ranging from swim trunks to -- ironically -- steel security doors.
At the center of the storm is Steve Schwalb, 48 years old, FPI's chief operating officer. "What we have here is one damn complex political issue," says Mr. Schwalb, a 26-year veteran of prison management. "It shouldn't be personal," he adds. "If I've done something wrong, shame on me."
Like his private-sector counterparts, Mr. Schwalb, who is based in Washington, huddles with his chief financial officer and frets about inventories; he also is managing an overhaul of his corporation's computer systems. But though he is responsible for keeping FPI financially solvent, his mandate doesn't allow him to focus solely on the bottom line.
Because FPI is required to employ as many prisoners as possible, it deliberately tackles labor-intensive jobs in the most labor-intensive ways. At its Marianna, Fla., furniture factory, for example, tasks that could be done by machine, such as sanding and planing, are done by hand. Since many of its employees have few skills and have never held a regular job, there is a quality-control manager for every eight inmates, a ratio far greater than in private industry.
Indeed, FPI's inmate workers are only about a fourth as productive as their private-sector peers, and at least 25 of its 100 factories are unprofitable. Mr. Schwalb says he tries to stick with businesses that are moneymakers and pull the plug on the money losers, as he did with mattress recycling. However, his hands are often tied because he can't control the size of his work force.
"I'm not really enamored with more inmates, but these are the cards I'm dealt," says Mr. Schwalb, who expects the number of inmates under his supervision to increase 50% to 30,000 by 2006.
The case of 39-year-old Cynthia Tamlin shows why. Stricter parole and sentencing guidelines and mandatory prison terms enacted as part of a federal crackdown on crime in the late 1980s meant a 30-year sentence for Ms. Tamlin, a Fort Worth resident who was convicted in 1993 of helping a boyfriend deal cocaine at a nightclub she co-owned. Under the old parole rules, she might have gotten out as early as 2003. Instead, even with perfect behavior, she won't be freed until 2017. Meanwhile, for $1.25 an hour, she orders supplies and tracks other inmates' work hours at the Carswell data-processing office. The job, Ms. Tamlin says, "makes me feel like I'm part of the outside."
But business and labor groups see another side to the equation. "FPI is like a social cost, a tax, on individual industries that never asked for it," says Rick Cippele, president of closely held American Apparel Inc. of Selma, Ala., who says he has lost jobs making uniforms to FPI. The apparel industry alone estimates it has lost more than 8,000 jobs to federal prisoners.
Other industries may soon be facing a similar plight. That's because most federal agencies that are FPI customers are shrinking, not growing. "We're running out of new things to make that the government wants to buy," says Mr. Schwalb.
He says he considers the data-entry operation at Carswell a win-win proposition. Since the work his inmates are doing for CCC Information Services was previously done in the Philippines, the shift didn't jeopardize any American jobs. The company, which approached FPI about the job, says it expects to get more-accurate data more quickly and at a slightly lower cost. "It's a no-brainer," says Mr. Schwalb, chewing hard on a stick of gum.
However, his critics fear that not every case will be so clear-cut. They worry that FPI will inevitably tread on domestic industries. "Whenever FPI gets authority to do anything, they treat it like a blank check," says Rep. Peter Hoekstra, a Michigan Republican who is one of FPI's most vocal critics.
FPI is governed by rules that date back 65 years to the Great Depression. At the time, the young federal Bureau of Prisons was beset by a rash of inmate disturbances, which it attributed to a lack of meaningful work programs. One idea was to establish prison factories to produce goods for the federal government, but the American Federation of Labor immediately protested against the plan. At a meeting in the Oval Office in 1934, President Franklin D. Roosevelt persuaded the AFL to withdraw its opposition, in part by promising labor a seat on FPI's board; that seat is now held by the AFL-CIO, which opposes FPI's expansion plans.
Bricks and Brooms
In its early years, FPI manufactured such products as clothing, mattresses, bricks and brooms. It made parachutes and munitions during World War II and dipped into key-punch operations for the government after the war, while scaling back its foundry operations and needlework. By 1980, it had a labor force of 6,300 inmates and $117 million in sales.
Amid the prison-population boom that started in the 1980s, FPI expanded into modular furniture, which now represents 20% of its $530 million in annual revenue, as well as thermoplastics and printed circuits. Mr. Schwalb, who took the helm in 1993, continued to search for new ideas. Some proved too politically sensitive. For example, he vetoed a plan for his prisoners to make burial flags for presentation to the widows of servicemen.
Then, during a 1997 meeting with state-prison representatives, he learned that prisons in states such as Florida, South Carolina and Kentucky were experimenting with providing services to the private sector. Intrigued, he had his counsel check with the Justice Department to determine whether FPI's charter, which bars its products from the private sector, would allow FPI to enter the commercial market for services. In the meantime, FPI moved aggressively to offer services to the government. It now employs about 2,500 workers in service jobs that range from doing laundry for Eglin Air Force Base in Florida to repairing mail satchels for the U.S. Postal Service in Atlanta.
Pursuing 'Repatriation'
This past October, with the Justice Department's blessing, FPI announced it would begin selling services to the private sector, focusing its efforts on winning back jobs that had gone overseas in pursuit of cheap labor. "Repatriation" became Mr. Schwalb's favorite buzzword.
But Mr. Schwalb was caught off-guard by the white-hot reaction from industry and labor. "I think it stinks," says Gary Engebretson of the Contract Services Association of America, a Washington-based trade group. "They don't have to comply with all sorts of labor-practice requirements our members do," such as minimum wages and job-safety rules.
Unions and business groups began to join forces to oppose FPI's expansion efforts. As its services strategy took shape this past spring, Andrew Fortin, the U.S. Chamber of Commerce's manager for privatization policy, invited several labor and business representatives to the chamber's Washington, D.C., headquarters.
'In Complete Agreement'
There, for the first time, he met lobbyist Tom Trotter of the machinist's union. "I was impressed that he felt this was an issue important enough to him that he'd come into 'enemy' territory," Mr. Fortin says. "We were in complete agreement on this issue."
Now, the combined labor-business axis is pressuring Congress to rein in FPI. In May, Sen. Carl Levin, a Michigan Democrat, inserted a proposal into an appropriations bill to make it easier for the Department of Defense to use private companies instead of FPI for smaller purchases; the proposal fell two votes short of passage. On Monday, Rep. Hoekstra introduced a bill with 53 House co-sponsors that would force FPI to compete with the private sector for all federal contracts, except those specifically designated by the attorney general as exempt.
"Clearly the momentum is going our way," says Steve Lamar, head of the American Apparel Manufacturers Association, which is based in Arlington, Va. Floating a Proposal
Under pressure, Mr. Schwalb has told critics in recent months that he is willing to relinquish FPI's first dibs on federal contracts. But in exchange, he is pressing for legislation such as that introduced Tuesday by Rep. Bill McCollum, (R., Fla.), authorizing FPI to go full bore into commercial markets. For example, he sees FPI expanding into making products such as toys and sneakers, almost all of which now are made abroad.
These days, from his office, which features a prison-made desk with a mahogany finish, Mr. Schwalb frets as he minds the clock. He already is authorized to open a total of 13 new factories in 2001 and 2002. So, he is watching the Carswell experiment closely. If it works, the two-year contract should add between $650,000 and $750,000 a year to FPI's revenue.
At Carswell, a world away from the political battleground, Maria Vidro, a 33-year-old former gang leader imprisoned for life for racketeering and aiding and abetting a drug conspiracy, types away intently. She is trying to boost her production to 700 records a day.
"I'm really enjoying this job," says Ms. Vidro, who is working overtime while the operation ramps up. "This is my little world."