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A Surprising Economic
H i s t o r j o f t h e Wor l d

ALA N BE ATTIE
 $26.95

Why do some economies and societies

crash and bum, while others are buffeted
by storms and yet still recover?
Can we anaiyze the fates of countfies in a way that
will help us analyze the fault lines and successes
that can make or break a civiliza- tion, a city, or a
culture? In False Economj, Alan Beattie weaves
together elements of eco- nomics, history, politics,
and human stories, revealing that govemments and
countries make concrete choices that determine
their destinies. He opens larger questions about the
choices countries make, why they make them or
are driven to make them, and what these choices
can mean for the future of our global economy as
we go forvvard into uncharted territory.
Economic historv involves forcing together
disciplines that fali naturally in different di-
rections, the universal explanation versus the
individual narrative. But Beattie has written a
lively and lucid book that engagingly and thought-
provokinglv marries the two disciplines and
reveals their interdependence. Along the way,
vou'll discover why Africa doesnt grow cocaine.
why our asparagus comes from Peru, why your
keyboard spells QWERTY, and why giant pandas
are living on boirowed time. ...
Beattie uses extraordinary stories of eco-
nomic triumph and disaster to explain how some
countries have gone wrong while others have gone
right, and why it's so difficult to change course
once youre on the path to ruin.
A I. \ IN B E ATT 11' graduated from Balliol
College, Oxford, with a degree in history. After
taking a masters degree in economics at Cam-
bridge, he worked as an economist at the Bank oi
England and then joined the Financial Times in
1998. Currentlv the papers world trade editor, he
writes about eeonomics, globalization, and
development.

Jacket deugn 2009 Keenan lhotograph of ih author Financial

Times/Charlic Bibhv

Visil our websile al: www,rivprbeadbook8.rom

a member of Penguin Group (USA) Ine. www.penguin.com
RIVERHEAD
BOOKS
In this fascinating and insightful book, Alan Beattie brilliantly illustrates how
countries choices determine and, in some cases, sadly undermine their prospects
for generations. This masterly global economic journey is a must read for ali
those keen to understand how todays surge in state activ- ism vv ill impael

national and International futures.

CEO of PIMCO and author of

Whrn Markets Collide

"Beatties analytics show facts can be a force for change. Give people the facts,
and they'll do the right thing."

lead singer of U2 and cofounder of the

antipoverty nrganization ONE

This is a wonderiullv liberating book. Alan Beattie flies in the face of one of the
most dearly held ideas in the social Sciences: that todays economic outcomes
which countries are rich, and which remain poorhave deep and largely
immutable roots in history, geographv, or culture. Beatties narrative shows that
there is p!enty of room for choices, and that history rewards those governments
that make the correct ones.

professor of intemational politieal economv, John F.

I S B N 978-1-59448-866-5

Kennedy Sehool of Government, Harvard Universitv

5 2 6 9 5

9 7 8 1 594 4 8 8 6 5
 FALSE
ECONO
MY
 FALSE
ECONO
MY
A SURPRISING

E C O N O M I C H I S T O RY

O F T H E Wo R L D
 ALAN BEATTIE

RIVERHEAD BOOKS

a member of Penguin Group (USA) Ine.

New York 2009
 R I V E R H E A D BO O KS
Published by the Penguin Group
Penguin Group (USA) Ine., 375 Hudson Street, New York, New York 10014, USA * Penguin Group (Canada),
90 Egiinton Avenue East, Suite 700, Toronto, Ontario M4P 2Y3, Canada (a division of Pearson Canada Ine.) *
Penguin Books Ltd, 80 Strand, London WC2R 0RL, England * Penguin Ireland, 25 St Stephens Green,
Dublin 2, Ireland (a division of Penguin Books Ltd) Penguin Group (Australia), 250 Camberwell Road,
Camberwell, Victoria 3124, Australia (a division of Pearson Australia Group Pty Ltd) Penguin Books
India Pvt Ltd, 11 Community Center, Panchsheel Park, New Delhi-110 017, India * Penguin Group (NZ),
67 Apollo Drive, Rosedale, North Shore 0632, New Zealand (a division of Pearson New Zealand Ltd) *
Penguin Books (South Africa) (Pty) Ltd, 24 Sturdee Avenue, Rosebank, Johannesburg 2196, South Affica

Penguin Books Ltd, Registered Offices: 80 Strand, London WC2R 0RL, England

Copyright 2009 by Alan Beattie

Ali rights reserved. No part of this book may be reproduced, scanned, or distributed in any
printed or electronic form without permission. Please do not participate in or encourage piracy
of copyrighted materials in violation of the authors rights. Purchase only authorized editions.
Pubhshed simultaneously in Canada
The lines from Tony Harrison s The Blasphemers Banquet are quoted ffom
Collected Film Poetry (Faber & Faber, 2007).

Library of Congress Cataloging-in-Publication Data

Beattie, Alan.
False economy / Alan Beattie.
p. cm.
Includes bibliographical references and index.
ISBN 978-1-59448-866-5
1. Economic history. 2. Economics. I. Title.
HC51.B377 2009 2009005885
330.9dc22

Printed in the United States of America

1 3 5 7 9 1 0
8 6 4 2

Book design by Meighan Cavanaugh

While the author has made every effort to provide accurate telephone numbers and Internet addresses
at the time of publication, neither the publisher nor the author assumes any responsibility for errors,
or for ehanges that occur after publication. Further, the publisher does not have any control over
and does not assume any responsibility for author or third-party websites or their content.
To my parents
 CONTENTS

Preface i

1. MAKING CHOICES : WHY DID ARGENTINA

SUCCEED AND THE UNITED STATES STALL? 5

2. CITIE S: WHY DIDNT WASHINGTON, D.C.,

GET THE VOTE? 43

3. TRADE: WHY DOES EGYPT IM PORT HALF

ITS STAPLE FOOD? 73

4. NATURAL RESOURCES : WHY ARE

OIL AND DIAMONDS MORE
TROUBLE THAN
THEY ARE WORTH? 101

5. RELIGION: WHY DONT ISLAMIC COUNTRIES

GET RICH? 127

6. POLITICS OF DEVELOP MENT: WHY DOES OUR

ASPARAGUS COME FROM 157
PERU?
 7.TRADE ROUTES AND SUPP LY CHAINS:
WHY DOESNT AFRICA GROW COCAINE? 191

8. CORRUPTION: WHY DID INDONESIA PROSP ER

UNDER A CROOKED RULER AND TANZANIA STAY
POOR UNDER AN HONEST ONE? 223

9. PATH DEPENDENCE: WHY ARE PANDAS

SO USEL ESS? 255

10. CONCLUSION: OUR REM EDIES OFT

IN OURSELVE S DO LIE 287

Acknowledgments 303

Selected Bibliographj and Notes 305

lndex 313
 Time, that gives and takes our fame and fate
and puts say, Shakespeares features on a plate
or a Persian poets name on a Tandoori
can ast aside ali we commemorate

and make Lot 86 or Lot 14

even out of Cardinal and Queen
and bring the holy and the high and mighty
to the falling gavel, or the guillotine.

TONY HARRISON

The Blasphemers Banquet

 FALSE
ECONO
MY
 PREFACE

F ranklin Delano Roosevelt, perhaps the greatest of ali of America s

presidents, loved stories about himself. One of his favorites went
like this: During the Great Depression of the 1930s, one Wall
Street commuter had a daily morning ritual. He would buy the newspaper
on the way into the train station. He would glance only at the front page
and then, without taking another look, hand it back to the newsboy and
board the train. Eventually, the boy got up the courage to ask him why he
read only the front page. The commuter explained that he bought it solely
for the obituaries. The newsboy pointed out that the obituaries were at the
back. Boy, the man said, the son of a bitch Im interested in will be on
page one.
At the time, Roosevelt was busy trying to save the U.S. economy in the
face of a colossal global dislocation. He was working to preserve the most
powerful engine for creating wealth in the history of the world. To do so,
he expanded radically the frontiers of American government. And a decade
later, at the end of his presidencyand his lifehe would help to create
the institutions that led a global economy shattered by war and by
misguided isolationism back on the road to openness and prosperity.
2 A L A N B E AT T I E

And yet he was vilified by some, like that New York commuter, who
would continue to benefit from the success that FDR helped to restore.
Roosevelt was trying to save capitalism from itself, and some of the
capitalists were resisting. Knowing the right thing to do to enrich your
nation and the world is hard enough. Bringing people with you to get it
done is even harder.
The financial crisis that started in 2007 and exploded around the world
in 2008 was a reminder of how fragile and reversible is the history of
human progress. But it should also remind us that our future is in our own
hands. We created this mess and we can get ourselves out of it.
To do so involves confronting a false economy of thoughtnamely,
that our economic future is predestined and that we are helplessly borne
along by huge, uncontrollable, impersonal forces. To explain the vast
complexity of the economic history of the world, there is a rich variety of
fataHstic myths on hand: that some economies (the United States, Western
Europe) were always going to get rich and that others (Africa) were always
going to stay poor; that certain religions are intrinsically bad for growth;
that market forces are unstoppable; that the strutting van- guard of
globalization cannot be routed and driven into retreat.
The aim of this book is to explain how and why countries and so-
cieties and economies got to where they are todaywhat made cities the
way they are; why corruption destroyed some nations but not others; why
the economy that fed the Roman empire is now the world s biggest
importer of grain. But it will reject the idea that the present State of those
economies, countries, and continents was predetermined. Countries have
choices, and those choices have substantially determined whether they
succeeded or failed.
Economic history is a challenging thing to explain, and to read, for two
reasons. First, it involves forcing together disciplines that naturally fali out
in different directions. History, in its most traditional form, lives on
specifics and particularitieswhat the historian Arnold Toynbee
(disapprovingly) called the study of one damned thing after another. It
stresses the importance of narrative in the way that countries develop, the
 FA L S E E C O N O M Y 3

role played by chance and circumstance, and the influence of im- portant
characters and events. Economics, by contrast, seeks to extract universal
rules from the mess of data that the world providesproviding reliable and
testable predictions that economies run in a particular fash- ion, or that
starting off from a particular point, they will end up a particular way. Both
approaches have risks. If history can become the undisciplined
accumulation of a random heap of facts, economics risks descending into
the pseudoscientific compression of a complex reality into a simplistic set
of fixed categorical molds.
Second, economic history is vulnerable to fatalism. Any study that
takes as its endpoint the present day is always vulnerable to arguing
backward from the conclusion. History is so rich in scope and detail that it
is always possible to pick a particular constellation out of the galaxy of
facts to explain clearly and precisely why things are as they are. Yet such
reasoning is frequently proven wrong by subsequent history. Or it
completely fails to explain why other, similar, countries and economies
ame to a different end.
If we are going to learn from history rather than just record it, we need
to stop explanations from becoming excuses. Drill too far down into
explanations of how things turned out the way they did and you risk hitting
a bedrock of deterministu. There are plenty of reasons why countries have
made mistakes. Often their decisions are driven by a particular interest
group, or a coalition of them, whose short-term gains tand at odds with the
nations long-term interests. But such interests can be overcome. Similar
countries facing similar pressures can take meaningfully different
decisions. Most nations that discover oil and dia- monds in their ground
sufler as a consequence, but not ali do. Some interest groups have captured
countries and dragged them down; some have been resisted. Islamic beliefs
have proved a drag on certain economies at certain times, but they do not
have to. Some economies have managed to capture great benefits from the
globalization of markets in goods and Services; some have missed out.
History is not determined by fate, or by religion, or geology, or hy-
drology, or national culture. It is determined by people. This book is not a
4 A L A N B E AT T I E

whimsical set of disconnected stories. It is an explanation of how human

beings have shaped their own destiny. It also shows how deci- sions being
taken now are determining our future.
Nothing can call back the finger of history to cancel even half a line of
what has been written. But still we can compose the script for the
remainder of our lives, and beyond.