The transactional business model and corruption

This article on The Urbanophile reminds me of the question nature or nurture? asked of a child who “suddenly” commits a violent act. Thoughts on corruption follows a similar line of thought. One explanation centers on local economics as the author makes a case for how globalization changes the composition of business firms the effect being a reorientation of doing business which in turn opens the system to corrupt practices.

With banking and utility deregulation, we saw large numbers of hometown banks merged out of existence. Industry after industry has been subjected to national or international level roll-ups as changes in the economy and regulatory environment gave increasing returns to scale.

Why is it that “real estate interests” dominate in a local economy like Cleveland? Because, to a great extent, they are among the only ones left. Consider the local industries that have not been as subject to roll-ups. Principal among these are real estate development, construction, and law (though we are starting to see rollups in these industries too).

Where then is the source of transactions these firms can turn to in order to sustain their business? The public sector, of course.

I would hypothesize that many local transactionally oriented services companies have seen the public sector take on a greater share of billings than in the past. With the old school bankers and industrialists mostly out of the picture, the leadership in our communities consists increasingly of the political class and a business community dominated by transactional interests.

When you look at the composition of this group, it should come as no surprise that the publicly subsidized real estate development is the preferred civic strategy. Politicians get to cut ribbons. Cranes always look good on the skyline. Local architects, engineers, developers, and construction companies love it. And there is plenty of legal work to go around.

This is not to say these people are necessarily acting nefariously. And nor were old school bankers and industrialists always acting purely altruistically. But there’s a very different world view between people steeped in operational businesses and those in transactionally oriented one.

– Aaron M. Renn, The City As a Decline Machine, or How the Loss of Hometown Banks Paved the Way For Corruption

What’s happening in Cleveland is happening in Philippine cities here, the difference being that the impacts and effects of transactional interests cut deeper here given that the physical and socio-political environment in which these occur is third world-ish.  Disregard of people and their say in what affects them is observable from all fronts, even in business.

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