Cronyism in the workplace - an ethical dilemna

Let's be under no misconceptions - cronyism is corruption. As I am employed in the state government; I see the effects of cronyism in the workplace more than I should after years working in private enterprise - not that corruption doesn't exist in the private sector. Since the state government is funded by taxpayer money, an onus exists to promote people based on competence. In private enterprise, you can promote whoever you want within the framework of employment laws.

Cronyism is the practice of appointing friends or colleagues to positions of authority in an organisation regardless of their qualifications and/or experience in a process lacking transparency. Even when a formal process is in place, the process is corrupted to benefit the pre-selected candidate disregarding the best and most appropriate person for the position. 

Generally cronyism exists when the person or people making the appointment and the beneficiary are in social contact; however, this also extends to appointments based on personal preferences such as age, sex, religious views or cultural issues. 

It is argued the person making the appointment has feelings of inadequately for their own position within the organisation. For this reason, the person with the authority surrounds themselves with people who will not weaken their position or express views contrary to their ideals. That's pretty much how I read the situation in my workplace; the question is, how do I deal with this moral and ethical dilemma?