I think that the advent of private prisons will absolutely lead to higher rates of incarceration; in fact, it already has. The increase of incarceration correlates with the increase in private prisons. I am not saying they are the cause of more crime, but they certainly haven't proven to decrease the rates at all, nor have they proven more financially efficient. Essentially, the more people incarcerated, the more money those prisons will make. The private prison system has also become so politically entangled that the danger of corruption and fraud is just as great (or greater) than government-run institutions. Take Arizona for example. Governor Jan Brewer's campaign chairman and policy advisor is also a lobbyist for Corrections Corporation of America, the largest private prison company in the nation. They also hold an exclusive contract with Immigration and Customs Enforcement, so any illegal immigrant arrested in Arizona is sent to one of their facilities. At the federal level, CCA has given more than $100,000 in soft money to the Republican Party since 1997 as well as political action committee contributions to individual members of key Congressional committees. With the recent uproar over illegal immigration (manufactured I think, to some extent- illegal immigration has actually dropped over the past decade), it seems that these kinds of corporations stand to make a great deal.
Also, private prisons generally have worse records in many areas than government prisons. For example, a study released on Corrections Corporation of America showed many violations, including
- failure to provide adequate medical care to prisoners;
- failure to control violence in its prisons;
- substandard conditions that have resulted in prisoner protests and uprisings;
- criminal activity on the part of some CCA employees, including the sale of illegal drugs to prisoners; and
- escapes, which in the case of at least two facilities include inadvertent releases of prisoners who were supposed to remain in custody.
Sidenote: the recent fugitive escapes in Arizona were also from a private prison. Yet because prisons are very labor intensive institutions, the only way a company like CCA can sell itself to government as a cheaper option than public prisons while still making a profit, is by using as few staff as possible, paying them as little as possible, and not spending much on training. For example, annual turnover rates at several CCA facilities in Tennessee have been more than 60 percent. We also see the opposition of public service unions to the spread of prison privatization. In addition, much of the hype about private prisons is produced by researchers who are funded by the industry. For example, Charles Thomas, director of the supposedly neutral Private Prison Project of the University of Florida who was widely quoted as an expert on prison privatization throughout the 90s, served on the board of CCA and received several millions of dollars in consulting fees from them.
Overall, I think privately-run prisons are not a better alternative than government-run institutions. You face all of the same issues of corruption, cutting corners, etc. that people normally cite as examples of the failures of government, yet you have the addition of a profit-driven culture. Unfortunately, these profits are driven by crime. Therefore, they have no stake in lowering the crime rates, and in fact, stand to profit the more people we incarcerate.