During the mid-1960's and early 1970's, the Ontario government steadily expanded its range of functions, 'socializing' more and more capital costs while the social surplus continued to be appropriated by the private sector. By the mid-1970's, government expenditure was outstripping government revenue. The government then turned to the contract as the principal device for broadening its capacities. The contract purports to establish private agencies as partners, supplementing resource deficiencies and other service gaps. Because governmental fiscal restraint became paramount during the late 1970's, the Ministry of Correctional Services (MCS) program budget became a vehicle for centralizing administrative authority. Hence, as the government increases its reliance on private sector service provision, it will need to increase its capacity to control and manage this burgeoning private sector. It is alleged that common forms of control are repression, exploitation, cooptation (maintaining order), and paternalism. The author contends that these are all embodied in the MCS's fee-for-service contract program and maintains that as more private sector organizations enter into such contracts, they will become an amalgam of unconnected service units whose existence is defined solely by the State. Thus, the author argues the private sector's political power will be slowly eroded. This massive State intervention into social and economic life is characteristic of welfare capitalism. Rather than being a counterbalance, the private sector becomes an extension of the State. In corrections, it becomes an extension of the larger social control mechanism. As State control of the private sector increases, the author predicts that the nature and level of community services will be irrevocably altered. The private sector must devise a strategy to temper State intervention. Tables and chapter notes are included. A list of corrections contracts and about 50 references are appended.