Bribes, tribes, and markets that fail... These three go hand in hand in countries struggling to switch from a state-controlled economy to the free market, according to Robert Klitgaard. More than fifty countries in Eastern Europe, Africa, Asia, and Latin America are attempting that switch--so-called structural adjustment. It's nothing less than a worldwide economic revolution, and now the time has come for Adjusting to Reality.
In the developing world, corrupt governments, ethnic strife, and weak markets are the reality. And where markets are flawed, even economic reform does not automatically improve the lives of peasants, the urban poor, or oppressed ethnic and religious minorities. In fact, when countries attempt to decentralize, allow freer trade, and improve flows of information, some problems become more apparent, not less. So what does it take to liberate the magic of the marketplace? In this pathbreaking application of the economics of information, Klitgaard sheds new light on economic development and government's role in promoting it. Clearly, the foundations of efficient markets must be strengthened--for example, by establishing better information networks, market institutions, and property rights.
For free-market reforms to work, however, government institutions must also work. Even with cutbacks in the role of government, the state inevitably remains a major actor in macroeconomic policy making, infrastructure, and social programs. But because governmental effectiveness in most developing countries is undercut by low pay and pervasive corruption, governments themselves need institutional reforms that will raise productivity and wages, reduce corruption, and provide opportunities for marginal ethnic and religious groups. Reforms often fail because they overlook or ignore the obstacles facing markets and bureaucracies in poor countries. Adjusting to Reality tells how to make both markets and governments work better.
Many of Klitgaard's findings are gleaned from his own work with countries struggling to enter the modern marketplace. He provides new insights and fascinating case studies of Bolivia, Brazil, India, Indonesia, the Philippines, Peru, and several other countries. Together they create a basis for rethinking development policies in the aftermath of the free-market revolution.
