Putting the history back into economics: good new book from the FT’s Alan Beattie

June 3, 2009

     By Duncan Green     

False Economy: A Surprising Economic History of the World’, by Alan Beattie, the world trade editor at the Financial Times is published tomorrow in the UK and is already doing well in the US. It explores the historical backstory to current economic debates on trade, corruption, the ‘curse of wealth’ in oil and mineral producing nations, the rise of Russia, China and India etc.

In my favourite chapter, he revisits the global trade system through the concept of ‘embedded water’. A large part of agricultural trade in particular is really a transfer from wet places to dry ones of ‘virtual water’ (a concept developed by academic Tony Allan) embodied in food and other products. Alan muses that this trade is one reason why the oft-heralded ‘water wars’ have failed to materialize – countries have traded water, rather than fought over it.

The book points out that producing a ton of vegetables needs 1,000 cubic metres of water, compared to 42,500 for a ton of beef. What with that and cattle’s contribution to climate change, I really am going to have to become a ‘political vegetarian’ at some point.

One of the craziest things that emerges from water accounting is that Australia, the second-driest continent on earth after Antarctica, is the world’s largest net exporter of virtual water. There has been good coverage on this in the Economist recently – although Australia has a relatively sophisticated water trading system, it restricts farmers ability to sell water rights to industry and the cities, so they keep growing water-thirsty crops like rice and cotton and exporting them, while Australians suffer from severe water restrictions.

Alan writes about history with real relish (he studied history before he went onto economics) and a particular fascination with the East India Company that launched Britain’s imperial conquest of India. He also presents a nice version of the ‘why did the US flourish and Argentina collapse?’ story, contrasting the economic paths of two countries that started from relatively similar points (big countries, settled from Europe with destruction of native societies, lot of agricultural potential etc) but diverged massively since the early 20th century.

He’s a bit more of an orthodox free trader than Ha-Joon Chang, whose Bad Samaritans covers some similar ground (I would love to see them go head to head on import substitution, which Alan thinks is a dead end, but Ha-Joon sees as an essential part of almost all successful economic take offs).

Overall, it’s stronger on historical explanation than policy prescription (the summary of the book’s ‘so whats’ is pretty standard stuff), but it’s a good corrective to the ‘all you need is the right policy ideas’ tendency in development circles, and pacily written – all in all, a good candidate for policy wonk summer reading.

June 3, 2009
Duncan Green