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Galveston Economic Report
David Stanowski
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The Blog


in a Small Town

by David Stanowski
11 September 2009

To some degree, every city government is incompetent and corrupt. In order to enjoy a measure of prosperity, this must be offset by a large dose of meritocracy. However, a meritocracy is difficult to establish, if the corridors of power are primarily open to members of a local caste system. There are many BOIs, and members of the Founding Families, who are honorable, successful and talented people; but others maintain their positions of rank and privilege solely by divine right. This greatly impairs a city’s economic growth.

Part one of this series presented some metrics which demonstrated that our city government is plagued by poor performance. This article will raise the question that no one wants to talk about; how much of this is due to corruption?

Corruption in its simplest form is the common practice where some members of a city staff use their positions to maximize their power, income, and perks, while the general welfare of the city becomes a secondary consideration.

The next level of corruption is favoritism, cronyism, and nepotism. Elected officials and city staff appoint friends, associates, and relatives to boards and committees knowing that they are not qualified, and/or they have conflicts of interest. Often, the officials don’t expect anything in return for the favor, but the harm to the city can be dramatic.

Acting based on relationships, rather than merit, also takes its toll when city contracts are awarded based not on what’s best for the city, but rather on favoritism. Special assistance is given to some projects over others. Cooperation is offered to a few, but not in general. Some get TIRZs, while most do not.

Texas law does not consider these practices illegal, because it does not define what constitutes a “relationship”, and favoritism shown to friends and associates is “acceptable”, as long as the government official does not profit from the special treatment given to others.

The most extreme form of corruption occurs when government officials perform favors in return for a payoff. This can be accomplished with cash, a silent partnership in a favored project, the keys to a condo in a distant development, the “gift” of a first-class vacation, and in many other ways.  

Corruption acts as a drag on the economy in two ways. It funnels many transactions into inefficient exchanges done between cronies where the economic gain is not maximized, and it demoralizes those who are aware of the inefficiency and unfairness going on around them, so they are less inclined to take risks, and to maximize their efforts. Why should they; when the fix is in! Corruption atrophies the human spirit. These factors combine to produce an economy that is coasting rather than accelerating. 

The level of corruption in this city can not be easily measured and compared to other cities, but many measures of economic wealth and activity can. The World Bank recently came to the conclusion that economic prosperity is inversely correlated to the level of corruption. 

Does this allow us to draw any conclusions?


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