Michael Hicks is the George and Frances Ball Distinguished Professor of Economics and the director of the Center for Business and Economic Research at Ball State University. His column appears in Indiana newspaper.
The past few weeks have contained more reports of newspaper downsizing at metro daily papers in Indiana. This news involved some of our state’s largest daily print publications, but it is a familiar story affecting papers large and small in the age of the internet.
Last week Muncie saw the first sentencing in a broad federal investigation of local government corruption. If reports are to be believed, this investigation has already touched nearly every arm of local government, the city’s largest institutions and has peeked into nearly every local public project. The local paper reported all of this to taxpayers, serving its primary goal as a watchdog of the public sector.
With local newspapers threatened, it is useful to evaluate the connection between newspapers and the corrupting influence of power in local government. One of the better studies of this is by Dr. Pengjie Gao of Notre Dame and two colleagues from Chicago. In this very carefully crafted study, Dr. Gao finds that the closure of a local newspaper leads to higher costs of local government borrowing. He attributes this to loss of monitoring of local government leading to higher inefficiencies in several areas.
These effects Dr. Gao reports are fairly large. Applying just the borrowing cost to, say, Muncie’s current debt means the difference of more than $3.5 million over the cost of a 20-year government bond. To put it in context, that is enough to repave 33 miles of two-lane highway.
Dr. Gao’s work is very interesting, both because it is technically so convincing and because it focuses on the newspaper’s role in monitoring the public sector. Other studies find similar costs of corruption, either directly or through its influence on household and business location. Several studies find that public corruption leads to lower in-migration, lower school enrollment, higher costs of capital investment, worse public health, lower public participation, higher levels of nepotism and much lower GDP growth.
To put this in context everyone can understand, I’ll go back to Muncie’s budget for schools and city governance. Using a common research finding that corruption leads to 5.0 percent higher costs of both public education and general budgets, I calculate that over 20 years this corruption costs Muncie citizens more than $100 million.
In terms everyone can understand, this excess burden of corruption could have been spent on 100 miles of repaved two-lane roads, full repairs to Muncie Schools’ Fieldhouse, a new 10-lane enclosed public pool, and provided two full years of early childhood education for every child in poverty, for each of the past 20 years. That still would have left the city enough money to bulldoze 2,500 abandoned homes and left us with $12 million left over for a Rainy Day fund.
These are conservative estimates and don’t include the costs of special funds, like the redevelopment commission or the sanitary district. They also do not include the effects of businesses and people who avoid the community due to corruption or the negative GDP growth that has plagued Muncie throughout this century. It is safe to say that corruption alone is sufficient to explain why Muncie has the worst performing economy in the Midwest.
These are not pretty things to say, but they are truthful. Muncie’s paper helped uncover corruption and continues to report vigilantly this news despite threats of legal action by city officials. It makes me wonder just how bad things would be if there was no local paper, no local reporters and no one to expose the corruption that started its long trail through federal court last week.
Finally, that brings me to this point. Many in our communities criticize local papers for publishing too much bad news. I am guilty of the same thoughts from time to time. I have even heard some folks claim that all the bad news hurts the local community and keeps businesses out. Well, as it turns out, that is pure nonsense, refuted by reams of studies and frankly a good dose of common sense. What hurts a community is not bad news, but the absence of a newspaper that reports honestly the troubled actions in government, business and our communities. It’d be good to remember that next time you open a local newspaper or wonder why your city isn’t doing as well as it should be.