Panopticism and the Panopticon itself show up in Michel Foucault's Discipline and Punish Part III, Chapter 3. He invokes Jeremy Bentham's model of the Panoptic prison as a jumping off point for showing how this model of power relations is actually at work in society at large.

Bentham's Panopticon is the architectural figure of this composition. We know the principle on which it was based: at the periphery, an annular building; at the centre, a tower,; this tower is pierced with wide windows that open onto the inner side of the ring; the peripheric building is divided into cells, each of which extends the whole width of the building; they have two windows, one on the inside, corresponding to the windows of the tower; the other, on the outside, allows the light to cross the cell from one end to the other. (Michel Foucault, Discipline and Punish, 200)

The panoptic model possesess certain characteristics. First of all, its most prominent feature is that it engages in micro-relations of power. It operates at street level, so to speak; the gathering and ordering of specific information is a primary function. Knowledge can be applied in much the same way as a result of this access to detailed information about the behaviours, habits, relationships and physical traits of individuals. Its second important characteristic is that it is all-seeing, pervasive, inescapable. Thirdly, it is economical. Its ability to gather information and develop a complete profile of an individual, coupled with the fact that it is everywhere at once (it is important to note that whether by way of being an inmate in the panoptic institution , or by submitting to the social contract of one's society, individuals are aware of this presence) ensures that individuals will regulate their behaviour. This takes the hand of the state further out of the equation than ever before: only a modicum of energy and resources needs to be spent controlling the objects of this mechanism when the mechanism causes them to control themselves.

In its relation to those who become objects of this machine, the panoptic mechanism displays and operates on several paradoxical principles:

  1. It is focused, yet diffuse
  2. It is separate, yet all-pervasive
  3. It is unknowable, yet certain

These three paradoxes add up to a method of discontinuity and disruption which has a permanent and continuous effect. An example:

Each individual, in his place, is securely confined to a cell from which he is seen from the front by the supervisor; but the side walls prevent him from coming into contact with his companions. He is seen, but he does not see; he is the object of information, never a subject in communication. The arrangement of his room, opposite the central tower, imposes on him an axial visibility; but the divisions of the ring, those separated cells, imply a lateral invisibility. And this invisibility is a guarantee of order (Foucault, 200)
And another:
It is an important mechanism, for it automatizes and disindividualizes power. Power has its principle not so much in a person as in a certain concerted distribution of bodies, surfaces, lights, gazes; in an arrangement whose internal mechanisms produce the relation in which individuals are caught up. The ceremonies, the rituals, the marks by which the sovereign's surplus power was manifested are useless. There is a machinery that assures dissymmetry, disequilibrium, difference. (Foucault, 202)

The panoptic structure prevents individuals from knowing when they are being watched and by whom, and even whether or not they are being watched at all. They are aware, however, that the mechanism is in place (again, they cannot be sure as to how it really works, but that has no bearing on the effect), and this produces certain behaviours - again, the self-regulation and self-discipline of someone wishing to avoid punishment (or having information about himself he would rather keep secret found out). The awareness is permanent while the method and those in control are veiled and discontinuous.

Hence the major effect of the Panopticon: to induce in the inmate a state of conscious and permanent visibility that assures the automatic functioning of power. So to arrange things that the surveillance is permanent in its effects, even if it is discontinuous in its action; that the perfection of power should tend to render its actual exercise unnecessary; that this architectural apparatus should be a machine for creating and sustaining a power relation independent of the person who exercises it; in short, that the inmates should be caught up in a power situation of which they are themselves the bearers (Foucault, 201)

This leads us to another important (and Foucault stresses this) attribute of the panopticon: it is physical, and it is spatial. In the panoptic prison, inmates are segmented. They become separated into quasi-monadic units that consist entirely of themselves and their observed characteristics. Inmates are intensely aware of their spatial situation, especially in relation to the ever present observer. Indeed, the segmentation and segregation is based in this ability and desire to observe individuals.

Foucault wants to stress that this is not just theory. He points out shifts in disciplinary practices that arose with the panoptic schema. This is crucial, for with these shifts we move out of the panoptic prison and into the broader world of societal relations. Of these shifts, the first and foremost is a "functional inversion of the disciplines" (Foucault, 210). This is the move from disciplinary power simply acting as a neutralizing force to acting as a productive one. It produces its own increased efficiency, as well as "the possible utility of individuals" (Foucault, 210). The more deeply entrenched the machine is in the minds of those subject to it (and objectified by it), the less it needs to be enforced. In fact, one could imagine filling the watch tower with concrete, tinting its windows, sending everyone home with a nice severance package, and still having the panopticon function in an entirely efficient manner. Foucault writes:

The discipline of the workshop, while remaining a way of enforcing respect for the regulations and authorities, of preventing thefts or losses, tends to increase aptitudes, speeds, output, and therefore profits; it still exerts a moral influence over behaviour, but more and more it treats actions in terms of their results, introduces bodies into a machinery, forces into an economy (Foucault, 210)
Here we are struck by Benthamite notions: economy, profit, checks and balances, utility, production. This is the move away from discipline concerning itself with morality, retribution, and justice. These terms begin to hang back - lingering, yet little more than window dressing. The focus is now control, efficiency and modification of behaviours in the interest of control and efficiency.

The second shift which Foucault pinpoints is "The swarming of disciplinary mechanisms" (Foucault, 211). This is the further diffusion of the panoptic mechanism(and all the micro-processes and -relations involved).

While, on the one hand, the disciplinary establishments increase, their mechanisms have a certain tendency to beoome 'de-institutionalized', to emerge from the closed fortresses in which they once functioned and to circulate in a 'free' state; the massive, compact disciplines are broken down into flexible methods of control, which may be transferred and adapted (Foucault, 211)
What are these new, "flexible" methods? They are techniques of gathering information about individuals and of thus creating a profile about them. They are mandatory drug tests at workplaces; they are (Foucault uses this example in Discipline and Punish) "concerned" schools looking for underlying reasons for a student's poor behaviour by inquiring about his family life (talking to neighbours, friends, etc.); they are "neighbourhood watch" programs, which keep a benevolent eye on citizens and their activities. In short, they are all around us.

Finally, the third shift is "The state-control of the mechanisms of discipline" (Foucault, 213). This is the disappearance of the sovereign and the advent of social contract authoritarianism. One more passage from Foucault:

Police power must bear 'over everything': it is not however the totality of the state nor of the kingdom as visible and invisible body of the monarch; it is the dust of events, actions, behaviour, opinions - 'everything that happens'; the police are concerned with 'those things of every moment', those 'unimportant things', of which Catherine II spoke in her Great Instruction (Supplement to the Instruction for the drawing up of a new code, 1769, article 535) (Foucault, 213)
What has happened here? What is happening here? The sovereign has diminished and dissipated; social contract rule has it that we all play a role in societal management. Police and military authority are made up of and run by people who are also citizens. As citizens, we are encouraged to exercise good conscience by censuring illicit activity. Furthermore, criminal activity is to be reported to the appropriate authority. We are aware of this, and we are aware that we are being observed in the same way that we are expected to observe others. We have become nodes in the panoptic framework. We transmit and receive information about ourselves and others; however, we are merely conduits for the machine and are not privy to its knowledges and powers.

We remain segmented, as are the inmates of Bentham's imagined prison; yet, we are not physically separated from our fellow prisoners. We move around in society and interact with each other, apparently with no impositions placed upon us (save for cases of obvious violations of the law). We still, however, carry with us our own cell: that of mistrust, modified/concealed behaviours, and the awareness that we are embodied in the gaze of others as objects of information as well as observation towers focused upon them. Minute social interactions create profiles of us and constitute us as individualswithin a much larger, almost inconceivably complex network from which we cannot escape (lest we resign from the social contract of our community and move into the wilderness as hermits). We are the panoptic mechanism; yet, we do not control it. We enable it, yet it does not truly control us. It is at this point so diffuse and disparate, yet deeply embedded in our societal discourses that it cannot be comprehensively be run by any one person or group of people in order to "keep us down". The panoptic model causes us to control ourselves, and it runs without our conscious manipulation. It is this society in which we are living.