“The True Cost of Corruption”

Oh, the irony.

Here’s a great interview from the September 8, 2009, issue of the El Paso Inc. with an El Pasoan who says he’s really interested in eliminating corruption in local government.

Woody Hunt, chairman/CEO of Hunt Companies, Inc., says he has had a personal and intellectual interest in combating corruption here since 2007, when the scope of corruption in El Paso became clearer with the ongoing FBI investigation.

. . .

Q. What prompted you to start researching corruption?

My interest is really driven by economic development. In 1950, El Paso’s median family income was 14 percent higher than the state and was on par with the nation.

By 2000 the medium family income was 30 percent below the state and 35 percent below the country.

That long slide in our income indicated to me that we were not economically competitive and we are becoming less so.

So I began to ask, what can we do differently, first to stop the slide in income, then to turn things around and close the gap?

Q. How does reducing corruption help stop that slide?

Closing the income gap requires a multi-prong strategy, and trying to lower the levels of corruption is a part of it.

Scholarly work has shown that the higher the level of corruption the lower the growth rate, the lower the investment, the lower the gross city product. There is a very strong correlation there.

When I look at corruption, it is not the dollars that get exchanged that cause the economic damage those dollars are relatively small.

The true cost of corruption is the cost of a noncompetitive process, whether it is paying for goods you don’t need, paying more for goods that you do need, or failing to help create an environment that produces companies that can compete here and ultimately outside El Paso.

Q. How does corruption impact economic development?

If the procurement process is not driven by qualitative analysis of who is offering the most for the least, and it is based on relationships instead, then two things happen.

One, you reduce the level of competition. Those who are unwilling to compete on a relationship basis decide they are going to go somewhere else because, no matter how good they are, they are not going to be successful.

So the government entity is going to pay more for the product, which means the tax rates are going to be higher.

Two, where do you get high-skill, high-paying jobs? You find them in the headquarters of businesses that have become regionally, nationally and globally competitive.

And, if you want those kind of firms headquartered here, you have to have an environment that helps build them.

Becoming regionally, nationally and internationally competitive starts with being competitive in your own local market, which means you are producing the most for the best price.

If you have an environment where the procurement process is based on relationships, then the firms organize that way and, while they may have the ability to gain business within the local market, their ability to find business outside the local market is going to be impaired.

You also have a misallocation of resources. Corruption will cause government to spend in ways it would otherwise not.

In other words, they will find areas where the potential for corruption is higher, so they will buy goods and services that might have low value to the taxpayers but mean a transfer of compensation for them.

Read the whole interview, and then try to decide at which point in our recent history the worm turned.

“Beware that, when fighting monsters, you yourself do not become a monster… for when you gaze long into the abyss. The abyss gazes also into you.” — Friedrich Nietzsche