Kevin Williamson has an outstanding article on the negative effects of pervasive corruption/incompetence in government: A Deeper Naginism

Go to NRO and read the whole thing.  I had trouble excerpting this article because there's so much of substance, but a few excerpts are below (emphasis mine):

The damages of Ray Nagin’s crimes may not amount to very much, but the damages inflicted by Naginism are staggering.

Combined federal, state, and local spending in the United States is about the same as it is in Canada, so it is not as if we were starving our public sector to death. The problem is that our institutions are not full of Canadian budgeters, Finnish school administrators, and Swiss train conductors. They are full of Ray Nagins. 

Many of the most important factors driving economic growth are beyond direct political control.

But there is a critical variable that is at least partly within the direct control of government: the quality of government. The quality of government — its honesty, competence, reliability, and predictability — has an effect on most of the important economic variables. And not just government itself, but other institutions with the power to shape public life, such as unions and large firms. Quality is something outside of and different from policy specifics, which is why similar policies often produce wildly different outcomes in different polities: Single-payer health care in Bahrain turns out to be very different from single-payer health care in Canada. A high level of government-enforced union involvement has been catastrophic for the U.S. automotive industry but not for the German automotive industry, which is a lot less of a mystery than it seems when you account for the fact that the UAW is not IG Metall, GM is not Audi, and the U.S. government is not the German government.

There is no way to put a happy face on this fact: Critical American institutions are of shockingly low quality. Corruption is a part of that: At No. 19 on the Transparency International rankings, the United States is tied with Uruguay. Its transparency score of 73 is far behind where you want to be, among such category leaders as Denmark, New Zealand, Sweden, and Finland (91, 91, 89, and 89, respectively). We lag well behind our Canadian neighbors and such important international competitors as Germany. Our overall standing is not terrible, but it does not place us among global leaders, either. Moderation in the pursuit of honesty is no virtue.