Size matters.

• Author: Shapiro, Robert J.

WHY ECONOMIES GROW: The Forces That Shape Prosperity and How We Can Get Them Working Again by Jeffrey Madrick Basic Books, $26.00

JEFFREY MADRICK'S Why Economies Grow is a short work with a big ambition: Debunk mainstream economics about the best way to promote faster economic growth. Most economists believe that the key to higher growth is more capital, better-trained workers and, most powerful of all, a steady stream of economic innovation. For Madrick, a country's economic development depends less on capital, labor, and new ideas than on how large its market is and how consolidated its industries are. Large and growing markets, he argues, produce economies of scale, and only when industries achieve such scale economies can more capital, labor, and new ideas produce faster growth. In the work's final analysis, the point of this novel thesis is not really to revise economic thinking, but to justify the return of big government spending that can pump up the market and promote those economies of scale.

"The American experience," he writes, "is the clearest example of the influence of large and growing markets on economic development" The book's strongest suit is a recounting of 19th and early 20th century economic history that reminds us that America's economic success is unimaginable without a vast and open domestic market that spurred business to develop new forms of production and distribution. The power of a large and growing market to drive economic progress is also useful to keep in mind when considering the rapid ongoing development of China and India.

Market size matters, but it hardly explains everything. Brazil and Russia with their vast domestic markets have repeatedly stumbled on the path of economic development, and nations with small internal markets flourished in Europe in the 18th and 19th centuries and in Southeast Asia in the late 20th century. So Madrick concedes that a strong economy needs capital, broad literacy and education, sound political and economic institutions, and much else. The point of focusing on the extent of a country's domestic market is to move his argument from an exposition on how economies develop to his own explanation for why economies grow.

The analysis of growth presented here is at once novel and nostalgic. As large markets drive economic development over decades, so strong market demand is said to drive growth year to year in a very particular way: by spurring firms to achieve vast economies of...