The Federal Prison Industries (commonly referred to as FPI or UNICOR) was established in 1934 by Franklin D. Roosevelt to employ federal inmates for production of goods needed in the government. In World War II it produced a good deal of war goods and has since then been a large supplier of military goods. It was created with "mandatory source" status, which meant that if a government agency (usually the Department of Defense) was looking for goods to buy then they would need to purchase them from FPI regardless if another company was selling similar goods. With the passage of the FY 2003 Defense Authorization Bill, the DoD is required to perform market research about the product they want to buy. If the FPI produces a product that is not comparable to products "available from the private sector that best meet the Department's needs in terms of price, quality, and time of delivery," the DoD may purchase a product from the commercial market.

The FPI makes over 150 products and services for the United States government. Major product groups include textiles and military supplies.

Currently, the FPI employs 21,778 workers at 23 cents to $1.15 an hour. It is the government's 39th largest contractor, boasting 111 factories at at 71 locations. The FPI receives no appropriated funds and sustains itself through the revenues it generates.

The FPI's role in prisons is controversial. These programs reduce the burden on prison guards by allowing inmates to be more easily watched over. They also give prisoners more technical skills than they would acquire breaking rocks. This is also only one of the few ways to make money while incarcerated, so it's popular among certain inmates. However, there is less incentive to provide prisoners with literacy programs, drug counseling or psychological treatment. In California, where FPI programs are growing and the state budget is in the red, vocational and educational programs in prisons have been cut by nearly 20%.

There is also controversy in the commercial sector, where private, domestic business is competing with FPI workers and foreign imports. There have been propositions to fix this by only doing work that would normally only be done in overseas sweatshops or prison factories (China frequently uses prison labor). Unfortunately this would not provide skills for inmates, as most labor shipped overseas is low-skill work.

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