SMALL BUSINESS : Captive Work Force Filling Labor Gaps

Allen Smith loves his work. Plucking a partially assembled T-shirt off a large pile, he deftly guides it through the bobbing needle of an electric sewing machine, twisting and turning the garment to reinforce the collar and shoulder.

“I can do 1,800 or even 2,000 of them a day,” said Smith, an intense, mustachioed man with a dragon tattoo snaking down his left arm and a Viking and peacock decorating his right one. “I’m a professional sewer. It doesn’t get much better than this.”

Like Smith, the dozens of men making T-shirts for CMT Blues, near San Diego, are model employees. They show up to work on time, rarely complain and feel lucky to have jobs.

They are also behind bars.

Smith and his co-workers, all warily eyed by armed guards, are convicted felons.

Even so, a growing number of small companies in California and nationwide are putting men like Smith, who was convicted of robbery, to work. With the state’s jobless rate at a decade low of 5.1%, firms are turning to prisons in search of people willing to work for low wages, in most cases the minimum wage--$5.75 an hour in California--making T-shirts, raising pigs and assembling printed circuit boards, among other things.

Under a state program, 14 companies in 11 prisons employ 288 inmates, a 30% increase in the prison work force since last year. Although some businesses have encountered difficulties, two new firms are expected to set up shop in state penitentiaries by the beginning of next year.

“The economy is booming, and companies are having a hard time finding workers,” said Susan Jacobson of the state Department of Corrections Joint Venture Program. “We provide a stable, reliable work force, a captive audience if you will. These are employees who will show up every day without hangovers, carpool or baby-sitting problems.”

The inmates, who normally would earn 13 to 90 cents an hour on such prison chores as clerical work or kitchen detail, are lining up for jobs with private employers.

They keep 20% of their net pay. The rest is divided equally among an interest-bearing savings account, a designated family member, the state (for room and board) and a victim compensation fund.

The program was created in 1990, when voters passed the Prison Inmate Work Initiative, or Proposition 139, which was championed by then-Gov. George Deukmejian. It struggled initially because of California’s recession and the relatively low demand for labor.

Similar programs have been launched in 34 states, according to the Correctional Industries Assn. in Baltimore, a nonprofit organization of public- and private-sector professionals involved in prison-based businesses. Four states have added programs since 1997.

At CMT’s headquarters in the Richard J. Donovan Correctional Facility in Otay Mesa, rows of inmates working in assembly lines transform sheets of fabric into T-shirts. The din of sewing machines and voices fills the cavernous space. A 14-foot fence topped with coiled razor wire encloses the workshop. Three more fences, one electrified, surround the entire prison.

Despite the grim conditions, Pierre Sleiman, CMT’s owner, cannot help but smile as he surveys his 70-employee work force.

By hiring prisoners, he keeps labor costs low enough to manufacture in the U.S. instead of offshore in Mexico or Honduras. That enables him to slap coveted “Made in USA” tags on his clothing and charge a slight premium. Firms employing inmates don’t have to pay for medical benefits, pensions, state disability insurance, federal unemployment taxes or vacation time.

“I’d say our guys have reached a level where they are competitive with any company on the outside,” Sleiman said, adding that CMT sales should double this year to several million dollars. He would not provide specific figures.

The company’s customers share his enthusiasm. “From the fabric to the cutting to the sewing, the quality is good all around,” said Kim Miska, an executive at sportswear wholesaler International News in Kent, Wash., which buys CMT T-shirts and sells them to specialty and department stores.

About a quarter-mile away from CMT’s facility, Quantum Group Inc. has opened a 10,000-square-foot recycling plant in Donovan, its first American manufacturing facility.

The Tustin-based company, which grinds up used tires and transforms them into tiles for playgrounds and basketball courts, turned to the prison population after attempts to recruit workers for a planned Orange County facility went nowhere.

Quantum expects to hire about 40 inmates by February and anticipates saving up to $1 million once the plant is fully operational. Rent is $500 a month, or 5 cents a square foot. By contrast, manufacturing space in Orange County goes for at least 50 cents a square foot.

Quantum has received 335 applications for 40 positions. Of the five prisoners it has hired so far, one is a machinist with 25 years experience and another is an electrical apprentice. “Prisoners are lining up to work for us,” Quantum Chief Executive Ehrenfried Liebich said. “They are highly motivated and extremely qualified.”

The state admits about one in three companies that apply to the program, and requires firms to submit business plans and extensive financial information for consideration. The finite amount of prison space means that competition for inmate labor should become even more acute.

Inmate interest goes beyond earning money and the chance to learn marketable skills.

“We have something to prove--that not all prisoners are bad, that many of us deserve a second chance,” said Terry Wright, 36, who is serving a sentence at Donovan for drug dealing and who works as an administrative assistant for Pub Brewing Co., a beer and wine vat manufacturer.

Prisoners learn about job openings through notices posted throughout the correctional facility. If they have had no disciplinary problems for at least six months, they can apply for a job. Companies interview candidates and make the final decision on all hires.

Inmate workers, like traditional employees, generally put in 40-hour weeks and receive overtime pay for anything beyond that. They are entitled to a 30-to-45-minute lunch break and two 15-minute breaks.

A few California businesses say they have had bad experiences in the program. Brian Maloney, former vice president of Southport Machine, a manufacturer of machine parts, said he was unable to find enough competent inmate machinists to make his business a success.

During the company’s four years in Donovan, Maloney said, he had to turn away work worth several hundred thousand dollars, which hammered Southport’s bottom line. In 1998, the state booted Southport out of the Joint Venture Program after the company violated its contract by failing to employ a total of 10 inmates.

“He didn’t live up to his contractual obligations,” Joint Venture Program’s Jacobson said.

Southport went out of business earlier this year.

“The state was supposed to supply me with people with an aptitude to become machinists, but instead I got hard-core criminals,” Maloney said. “I’m very, very angry. I was misled.”

CMT’s Sleiman has had his share of difficulties too. In 1997, a San Diego television station, allegedly tipped off by two inmate employees who had been fired, showed up at the company’s Donovan facility and reported that CMT workers had taken materials imported from Honduras and put “Made in USA” labels on them. Although a 10-month investigation by several state and federal agencies exonerated Sleiman, he said the bad publicity frightened away customers and nearly put the firm out of business.

After the station ran the piece, the prisoners were placed in solitary confinement and later transferred to another prison. Now the two inmates, who were both convicted of murder, are suing Sleiman and the state, alleging that their civil rights were violated.

The program also has raised ethical questions. It is morally questionable whether U.S. industry should be in the business of hiring inmates, said David I. Levine, an economist at UC Berkeley and former senior economist at the Council of Economic Advisors in the Clinton administration. “At a basic PR level, it looks pretty bad attacking China for its prison labor when we have it here,” Levine said.

Allowing private companies into prison might discriminate against some American workers, said William B. Gartner, professor of entrepreneurship at USC’s Marshall School of Business. “If prisoners are taking jobs away from participating citizens in our society, I have a problem with that.”

But the program has worked well for Ronald Sherman, president of On Display Inc., a $5-million San Diego company that manufactures merchandising fixtures. The company used to subcontract work in Mexico but says it left because of slipshod quality and rampant corruption.

In 1996, Sherman moved the bulk of his operations to Calipatria State Prison, a maximum-security facility about 70 miles south of Palm Springs. Today, 55 of the company’s 62 employees are prisoners. Sherman says the spot welders, tool makers and other inmates have done such a good job that he hopes to hire more in the future.

“If our experience is any example,” he said, “I would advise other entrepreneurs to consider this.”