di Andrew Hill

One of the few economists to see the financial crisis coming has won the Financial Times and Goldman Sachs Business Book of the Year award.

Raghuram Rajan collected the £30,000 ($47,000) prize for Fault Lines in New York on Wednesday.

The book identifies the flaws that helped cripple the world financial system, prescribes potential remedies, but also warns that unless policymakers push through painful reforms, the world could be plunged into renewed turmoil.

Lionel Barber, FT editor and chair of the judging panel, praised Fault Lines as a “serious and sober book” for a time when “sobriety is a virtue”.

The book, published by Princeton University Press, saw off stiff competition from five others on the shortlist, to be chosen as “the most compelling and enjoyable” business title of 2010. The final intense debate among the seven judges came down to a choice between Fault Lines and Too Big to Fail, Andrew Ross Sorkin’s acclaimed minute-by-minute analysis of the collapse of Lehman Brothers.

Prof Rajan was the International Monetary Fund’s chief economist when he warned the 2005 Jackson Hole conference of central bankers that the seeds of disaster were being sown in the financial sector. His presentation jarred with the self-congratulatory tone of the conference, Alan Greenspan’s last as chairman of the US Federal Reserve. Prof Rajan writes in the book that the critical reaction from other participants made him feel “like an early Christian who had wandered into a convention of half-starved lions”. But within three years, his analysis had been vindicated.

The judges praised Fault Lines because, unlike many backward-looking analyses of the crisis, it “helps us understand where we’re going from here”. It puts forward measures to avoid the next financial disaster by tackling social inequality and ending dependency on export-led growth.

The prize was presented by Mr Barber and Lloyd Blankfein, Goldman Sachs chief executive, at a dinner at The Pierre in New York. Mr Blankfein recused himself as a judge because of the number of books about the financial crisis that were in the running.

The other shortlisted titles were: The Art of Choosing by Sheena Iyengar; The Facebook Effect by David Kirkpatrick; The Big Short by Michael Lewis; More Money than God by Sebastian Mallaby; and Too Big to Fail.

This year’s judging panel also included: Jorma Ollila, chairman of Nokia and Royal Dutch Shell; Shriti Vadera, former UK government minister and adviser to South Korea’s G20 presidency; Helen Alexander, president of the CBI, the business association; Lynda Gratton, professor of management practice at London Business School; Mario Monti, the former European commissioner; and Liaquat Ahamed, whose Lords of Finance was named the 2009 Business Book of the Year.

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