NONFICTION - Dec. 29, 1991

ADJUSTING TO REALITY: Beyond “State Versus Market” in Economic Development by Robert Klitgaard (International Center for Economic Growth: $22.95; $11.95, paper; 303 pp.). If you think the poor are in a sorry state in Southern California, check out Bolivia, the nation on which international economist Robert Klitgaard focuses in these pages. While Bolivia’s indigenous peoples make up 70% of its population, they hold virtually none of its political offices, receive but a tiny fraction of its wealth and remain shut out of its educational system (of every thousand who start elementary school, only 11 finish secondary school).

“Tropical Gangsters,” Klitgaard’s 1990 study of his struggle to help modernize the backwater economy of Equatorial Guinea, won great popular acclaim because it evoked the warmly compelling human emotions that swirl beneath cold and confusing fiscal policies. Here, though, Klitgaard is cautious and guarded rather than frank and convivial, no doubt because the U.S. leaders he advises are far more responsible for Bolivia’s problems than they were in Equatorial Guinea. (Since the 1950s the United States has held great sway over the Bolivian oligarchy.)

Some readers, noting that Klitgaard now teaches economics at an elite university in South Africa, will call him racist for arguing that “ethnic groups differ . . . in some characteristics and behavior relevant to economic and educational performance.” But Klitgaard’s case examples are difficult to refute: Indian agriculture is only one-fourth as productive as Western methods, for example, and their productivity falls well behind the First World’s because they lack a system of economic rewards. What can be disputed, nevertheless, is Klitgaard’s assumption that economic efficiency is more important than living communally and comfortably on the land.