Economy

In Germany, Using Prison Labor To Undercut Cheap Chinese Manpower

A prisoner at JVA Heilbronn prison
A prisoner at JVA Heilbronn prison
Flora Wisdorff

RAVENSBURG - Otto Oberländer calls out a friendly "Hello!" as he enters the production hall where a dozen men work at a long table putting garden sprinklers together. The men, who all wear blue boiler suits, give a friendly acknowledgement of the boss’s greeting and then get back to work. The fact that the door to the hall is locked doesn’t strike, one way or the other. It’s only when Oberländer refers to his “rogues” instead of workers that we remember this isn’t any old medium-sized enterprise: it’s the JVA Ravensburg prison just outside the city of Ravensburg in the German state of Baden-Württemberg.

Inmates don’t just build sprinklers: among other things, they make furniture, switching circuits - “we make everything except lukewarm ice cubes,” says Oberländer, and that includes a recent a shipment of dildos fabricated out of high-grade steel.

Ninety-five percent of the 415 prisoners in the Ravensburg facility leave their cells for 7.4 hours a day to work. The remaining 5 percent are either not fit to work or off sick. While some of the inmates work for the prison itself, in the kitchen or cleaning, 45 percent of them work for the lucrative business of producing goods ordered by clients. This prison manufacture is considered a model of its kind in Germany.

A competitive business

The business of prison work was for a long time a fairly low-key affair, and there wasn’t a lot of competition. But then around the millennium clients started giving their business to firms in Eastern Europe, and prison enterprises like the one in Baden-Württemberg, but also in Nordrhein-Westfalen and Bavaria, saw their order books emptying fast.

Since then, they’ve become competitive. In any case, "the days when prisoners just sat in their cells are over," says Volker Herrling, managing director of the Vollzugliches Arbeits Wesens Baden-Württemberg, a state facility founded 12 years ago to modernize the sector. It also sells items made by inmates on its website.

As part of the trend, Düsseldorf built a new prison with 5,000 square meters (53,820 square feet) dedicated to production and storage.

While the economic crisis in 2009 also affected the prison manufactures, things are now looking up, says Herrling, not only because of an improved economic situation but because the prisons are modernizing. "We’ve been seeing a major boom in orders since 2010," he says, and this pertains to Bavaria and Nordrhein-Westfalen as well: the Baden-Württemberg facilities turned over 30 million euros in 2011, and in Bavaria turn over in the same year was 43.6 million.

With labor costs rising in Eastern Europe, and the additional cost of transportation for goods manufactured there, the choice for many firms now is “German prison-produced or China” says Herrling – with "Made in Germany" the preferred option of many.

Giving prisoners something to do

Otto Oberländer believes that even if they didn’t have to work, 80 percent of prison inmates would voluntarily show up for work. It’s a way of breaking up what would otherwise be 23 hours a day in their cell and one hour outdoors in the prison yard. Prisoner Heiner Müller (not his real name) agrees. Incarcerated at Ravensburg for breaking into a cash machine, the quiet 27-year-old former computer science student says that working brings order into the day, providing something to do “so you don’t lose your mind.”

Müller learned additional skills in prison, and since he is working on a project for a major automobile manufacturer he only has to go back to his cell at night.

In 2011 in Baden-Württemberg on average 5,000 out of 7,000 total prisoners worked, while in Bavaria over half of its 12,000 prisoners did so. The obligation for prisoners to work is under discussion in 10 German states, but Baden-Württemberg, Bavaria and Nordrhein-Westfalen believe firmly in the system.

“Chicken in handcuffs”

Prisoners have for a long time worked on their own in prisons, making furniture for state authorities or doing prison repair work. Today, prison brands like "Jailers," "Haftsache," and "Santa Fu" produce items like cookbooks (“Chicken in Handcuffs”), slippers, or honey, that are sold online.

Some brands operate out of Ravensburg as well, but Oberländer prefers his prisoners to work for clients, because working conditions tend to approximate what they will encounter when they leave the jail and find jobs on the outside.

In 2011, Ravensburg’s net profit on a turnover of three million euros was a very lucrative 500,000 euros. Prisoners earn at most 1.97 euros per hour, but their health insurance premiums and contributions to unemployment insurance are paid by the state, and there are no deductions made for their pension plans.

Oberländer says that motivating prisoners -- particularly well-educated ones -- to work for this kind of money can be an issue, particularly as only three sevenths of the money they earn is actually paid out. The rest is put in a savings account to help them when they are released from prison.

He says the work that prisoners do uses “perhaps up to 70 percent” of their potential.

Oberländer believes there are disadvantages to the system: for example, delivery trucks can’t leave the premises when the prisoners are out of their cells because of the risk of escape; older prisons may have trouble meeting space requirements for increased production; or prisoners themselves may take less than desirable initiatives like the time “Heil Hitler” messages were placed in an order for an Israeli customer.

But one thing he doesn’t worry about is losing business if there is another economic crisis. On the contrary: demographic developments, and the tendency of judges to incarcerate fewer offenders and have them wear ankle monitors instead, has him worrying that the numbers of prisoners will shrink to the point “that we won’t be able to keep up with orders.”

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Economy

Air Next: How A Crypto Scam Collapsed On A Single Spelling Mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money for a blockchain-powered e-commerce app. But the simplest of errors exposed the scam and limited the damage to investors. A cautionary tale for the crypto economy.

Sky is the crypto limit

Laurence Boisseau

PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.

Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.


Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.

Share capital of one billion 

The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).

The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.

Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.

While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.

screenshot of the typo that revealed the Air Next scam

The infamous typo that brought the Air Next scam down

compta online

Raising Initial Coin Offering 

Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.

For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."

What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".

Finding culprits 

Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.

Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.

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