It was fine when the prisoners themselves were the only ones using the things they produced. The problem comes when the fruits of this labor are sold on the market. Then all of the perverse incentives rear their ugly heads.
Whenever you have a captive consumer or producer of marketable materials, you have a perverse incentive to exploit, because the other party has no choice in the matter and must take whatever you offer (if anything). Every dystopian movie makes heavy use of these kinds of story elements.
In the case of prison labor, you essentially have slaves, and can therefore leverage that slave labor to undercut your competitors in the open market. The slaves, meanwhile, suffer the indignity of their forced labor and exploitation for someone else's benefit, which is why we outlawed slavery in the civilised parts of the world.
In the case of captive markets (food, commissary, communications systems, etc), price gouging is commonplace. Food quality is so low that malnutrition is common. Quality is shit but it doesn't matter because the consumers of these products are not empowered to decide, while everyone else involved benefits from their exploitation and therefore has no incentive to fix it.
This is then further exacerbated by trade groups that influence laws to increase incarceration durations and incidence in order to preserve and even expand their supply of captives for further exploitation and profit.
I suggest you look into how Western European countries handle their prison populations for comparison.