It's long been recognized that reducing fraud, waste, abuse and corruption in government is an essential component of economic-development strategy for developing nations. In 2003, the United Nations declared that "corruption is a key element in economic underperformance and a major obstacle to poverty alleviation and development."
Yet in the United States, corruption prevention and the related need for governance reform are rarely seen as a key component for urban turnaround efforts. While the federal government has a robust corruption-prevention effort, including a $2 billion-a-year inspector-general system, most cities and counties -- even some of the largest of them -- lack an IG and make only modest investments in auditors and local legislative oversight.
Economically challenged cities instead tend to focus on the economic-development "flavor of the month," from minor-league baseball stadiums to convention centers to efforts to attract a creative class. But most of these initiatives -- no matter how worthy -- are unlikely to succeed in the absence of local-government capacity or in the face of local corruption.
Detroit is a casebook example of the link between corruption and an ailing economy. The corruption case against former mayor Kwame Kilpatrick raised issues that went to the heart of the city's descent into bankruptcy: During his time in office, Kilpatrick solicited and accepted payments from people seeking pension business with the city. The federal government's sentencing memorandum noted that Kilpatrick "did it all in a city where poverty, crime and lack of basic services made it one of the most vulnerable metropolitan areas in the nation," adding that "the impact on the region was devastating."
While forces ranging from suburbanization to globalization sent Detroit and other cities down a path of economic decline, changing that trajectory is almost impossible without an efficient, effective and fundamentally honest local government. Some local governments have recognized that governance reform and corruption prevention are essential to recovery.
In Cuyahoga County, Ohio, a massive corruption scandal led to creation of a county home rule charter and a specific mandate to identify savings for reinvestment in economic development. The new charter not only eliminated the existing county commission and created a new county executive and county council but also led to the appointment of an independent audit director and the county's first-ever inspector general.
In New Orleans, reform efforts have included creation of an inspector general's office and a monitor for the police department, along with adoption of an outcomes-based budgeting approach and creation of an Office of Performance and Accountability.
Perhaps the best example of the link between governance reform and economic revival is New York City 's comeback from decades that included a near-bankruptcy, population loss, a crime epidemic and a major municipal corruption scandal. The city's return to prosperity coincided with fundamental reforms in government structure and budgeting, and it occurred as new laws governing ethics, lobbying and campaign finance were being adopted.
While new jobs and economic activity in the nation's cities and metropolitan areas have fueled much of the national recovery, in many cities housing markets are still depressed and commercial and industrial activity have been slow to return. For the nation's most economically challenged cities, the basics -- governance reform and corruption prevention -- are an essential component of recovery.