Robert Klitgaard Analysis

The shift from a state-controlled economy to free market requires “adjusting to the reality” found in developing countries wherein markets are flawed and the governments are ineffective; therefore, economic development is hindered by conditions such as poverty, inequalities, corruption, and discrimination that can be remedied through the strong performance and participation of both the state and the market.
Robert Klitgaard provides an analysis of economic development as an aftermath of the free-market revolution adopted by developing countries from an informational perspective. Prior to 1950s, countries were heavily interventionists; however, a state-controlled economy has been considered as a failure and thus, a neoclassical idea has been
The state may decrease its participation in the economy but it is still needed for efforts towards free markets to work. This serves as another example of how Klitgaard utilizes Structuralists’ critiques against the presumption of the Neoclassical Economists that government interventions may render the market inefficient. Unlike neoclassical economists, Klitgaard recognizes that both markets and government have the tendency to fail in developing countries. He talks about how the government can be ineffective in a way that it can be hindered by poor information, adverse incentives, rampant corruption, and over centralization which are the specific conditions that strategies for economic development must adjust into. He, then, emphasizes that the debate should not be concentrated on whether the market or the state should control, which the argument is being pushed through by the Neoclassical Economists in favor of the market; instead, it needs to be directed towards how to make the state and market work
It can be seen that Klitgaard utilizes structuralist ideas in the sense that he does not only recognize the possibility of both market and state failures but also indicates that prescriptions vary from one country to another depending on factors, such as race, ethnicity, religion, and poverty. For example, markets and the government do not effectively reach indigenous people in Bolivia for they remain uneducated and oppressed Simply put, the performance of market and state “depends” on how the countries address its underlying conditions. Furthermore, the notion of “adjusting to reality” presented by Klitgaard is not limited to the participation of the market and state but also the need for institutional reforms that provide opportunities for both market and government to become more effective and