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Alan Beattie's False Economy finds that countries' choices, not the luck of the draw, largely determine their fates

False Economy:

A Surprising Economic History of the World

By Alan Beattie

Riverhead Books; 321 pp.; $26.95

The U.S. is the world's largest economy while Argentina is a serial debt defaulter with a history of dictatorship. Things could have gone the other way. Both countries had ample land, natural resources, and a flood of immigrants, Alan Beattie argues in False Economy: A Surprising Economic History of the World. But Argentina was cursed with huge landholdings bestowed on Spanish colonizers. Instead of entrepreneurial farmers, Argentina's estates bred an indolent ruling class with little interest in taking the sorts of risks that modernize an economy.

Beattie, world trade editor for the Financial Times, aims to confront the idea that "our economic future is predestined and that we are helplessly borne along by huge, uncontrollable, impersonal forces." The way countries develop is as much a function of the choices made by ruling elites as it is of markets or natural resources, he says.

Beattie, who studied history at Oxford University and economics at Cambridge, draws on both disciplines to overturn assumptions about the evolution of the global economy. For example, the data do not support the belief that Islamic societies inherently perform worse than other nations, or for that matter that there is any correlation between religion and growth. Malaysia has both a strong Islamic identity and a modern economy. Religion is an obstacle only when development is blocked in God's name, often in self-defense by those who hold power, Beattie argues.

And corruption isn't necessarily a barrier to growth, in Beattie's eyes. The late Indonesian strongman Suharto oversaw rapid development even as he and his cronies grew rich on bribes and preferential deals. China's growth has taken place amid pervasive corruption. As long as the officials taking bribes can deliver what they promise, "it simply becomes a tax."

Beattie avoids writing like an economist, despite a stint at the Bank of England and the book's subject matter. He wants to entertain and provoke, sounding only half-facetious when he calls giant pandas "incompetent, inefficient, piebald buffoons" that should be allowed to "die out." Giant pandas evolved to depend exclusively on marginally nutritious bamboo. In economic terms, they're "path dependent"—locked into a situation that limits them. Beattie admires cats, who gave up their free-roaming ways to carve out a niche hunting rats and snuggling with humans.

Beattie himself roams freely through the corridors of history and economic theory. Pandas lead him to India, where he sees path dependence in the nation's stubborn caste system. The benefits of India's info tech success mostly go to those who already have access to education, he says. China, where a person is more likely to rise on merit, has better economic prospects.

Thomas Friedman, author of the best-seller The World Is Flat, isn't mentioned by name, but where Friedman saw blossoming globalization in a connected world, Beattie sees huge distortions caused by misguided trade pacts and greedy interest groups. Thus, Peruvian asparagus farmers can undercut their California rivals because of policies intended to discourage cocaine cultivation. Beattie reserves special wrath for the U.S. cotton industry, which he blames for derailing international trade talks last year that would have benefited billions of people. U.S. negotiators were under the sway of 10 cotton-state senators, and they made unacceptable demands, Beattie asserts. "The future of the global trading system was held ransom by a sector that produces less than 1% of the country's national income."

False Economy is full of insightful nuggets, such as Beattie's account of how the profligate ways of the Portuguese in India opened the door for the British. But it's not always clear how these digressions fit into his central argument; sometimes they even punch holes in it. We can be masters of our own fate, he seems to say, except when we're prisoners of history. Beattie sees Russia stuck in a tradition of authoritarianism and state property ownership that dates to the Mongolian conquest in the 13th century—and he has little faith that it can ever break free.

Toward the end, Beattie quotes Shakespeare: "Our remedies oft in ourselves do lie, which we ascribe to heaven: the fated sky." So the Bard and Beattie agree. But is the idea that we can determine our economic destinies really such a surprise to the rest of us? Maybe that notion would have raised eyebrows a year ago, before the ripples from decisions made in financial circles swamped so many nations.

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Golden Oldies

On the off chance you can't name the major players in Britain's Bullionist Controversy or hold forth on the influential School of Salamanca, a visit to the New School's History of Economic Thought Web site can set you straight. More than 300 capsule biographies of economists dating back to the 16th century, plus oodles of links, make this a great jumping-off point.

Find the page at http://bx.businessweek.com/economic-analysis/reference/

Ewing is BusinessWeek's European regional editor.

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