The Third Pillar: How Markets and the State are Leaving Communities Behind

The Third Pillar: How Markets and the State are Leaving Communities Behind
Raghuram Rajan

From one of the most important economic thinkers of our time, a brilliant and far-seeing analysis of the current populist backlash against globalization and how revitalising community can save liberal market democracy. Raghuram Rajan, author of the 2010 FT & Goldman-Sachs Book of the Year Fault Lines, has an unparalleled vantage point onto the social and economic consequences of globalization and their ultimate effect on politics and society. In The Third Pillar he offers up a magnificent big-picture framework for understanding how three key forces – the economy, society, and the state – interact, why things begin to break down, and how we can find our way back to a more secure and stable plane.The ‘third pillar’ of the title is society. Economists all too often understand their field as the relationship between the market and government, and leave social issues for other people. That's not just myopic, Rajan argues; it's dangerous. All economics is actually socioeconomics – all markets are embedded in a web of human relations, values and norms. As he shows, throughout history, technological innovations have ripped the market out of old webs and led to violent backlashes, and to what we now call populism. Eventually, a new equilibrium is reached, but it can be ugly and messy, especially if done wrong. Right now, we're doing it wrong. As markets scale up, government scales up with it, concentrating economic and political power in flourishing central hubs and leaving the periphery to decompose, figuratively and even literally. Instead, Rajan offers a way to rethink the relationship between the market and civil society and argues for a return to strengthening and empowering local communities as an antidote to growing despair and unrest. The Third Pillar is a masterpiece of explication, a book that will be a classic of its kind for its offering of a wise, authoritative and humane explanation of the forces that have wrought such a sea change in our lives. His ultimate argument that decision-making has to be watered at the grass roots or our democracy will continue to wither is sure to be both provocative and agenda-setting across the world.

Copyright (#u3ad20f02-6ae2-53da-928a-bbae20540b96)

William Collins

An imprint of HarperCollinsPublishers 1 London Bridge Street London SE1 9GF WilliamCollinsBooks.com (http://WilliamCollinsBooks.com) This eBook first published in Great Britain by William Collins in 2019 Copyright © 2019 by Raghuram Rajan Cover design by Jack Smyth Raghuram Rajan asserts the moral right to be identified as the author of this work A catalogue record for this book is available from the British Library All rights reserved under International and Pan-American Copyright Conventions. By payment of the required fees, you have been granted the non-exclusive, non-transferable right to access and read the text of this e-Book on-screen. No part of this text may be reproduced, transmitted, downloaded, decompiled, reverse engineered, or stored in or introduced into any information storage and retrieval system, in any form or by any means, whether electronic or mechanical, now known or hereinafter invented, without the express written permission of HarperCollins Publishers. Source ISBN: 9780008276263 Ebook Edition © February 2019 ISBN: 9780008276294 Version: 2019-02-06

To Radhika

CONTENTS

Cover (#ud04f7a7f-1c5e-5772-bf46-f0115f3ba98b)

Title Page (#uace864eb-ad52-541b-a26e-42684ec67e13)

Copyright

Dedication (#uc6f84c22-e43f-55bb-ad3e-f44592564b9e)

Also by Raghuram Rajan (#u200238db-f8b1-513c-bcf5-a2b5d7b0a17d)

Preface

Introduction: The Third Pillar

PART I

HOW THE PILLARS EMERGED (#u05422827-3548-5601-81db-13326efbfa99)

1. Tolerating Avarice

2. The Rise of the Strong but Limited State

3. Freeing the Market … Then Defending It

4. The Community in the Balance

PART II

IMBALANCE (#litres_trial_promo)

5. The Pressure to Promise

6. The ICT Revolution Cometh

7. The Reemergence of Populism in the Industrial West

8. The Other Half of the World

PART III

RESTORING THE BALANCE (#litres_trial_promo)

9. Society and Inclusive Localism

10. Rebalancing the State and the Community

11. Reinvigorating the Third Pillar

12. Responsible Sovereignty

13. Reforming Markets

Epilogue

Acknowledgments

Notes

Index

About the Author

About the Publisher

ALSO BY RAGHURAM RAJAN

I Do What I Do

Fault Lines

Saving Capitalism from the Capitalists

(with Luigi Zingales)

PREFACE (#u3ad20f02-6ae2-53da-928a-bbae20540b96)

We are surrounded by plenty. Humanity has never been richer as technologies of production have improved steadily over the last two hundred and fifty years. It is not just the developed countries that have grown wealthier; billions across the developing world have moved from stressful poverty to a comfortable middle-class existence in the span of a generation. Income is more evenly spread across the world than at any other time in our lives. For the first time in history, we have it in our power to eradicate hunger and starvation everywhere.

Yet even though the world has achieved economic success that would have been unimaginable even a few decades ago, some of the seemingly most privileged workers in developed countries are literally worried to death. Half a million more middle-aged non-Hispanic white American males died between 1999 and 2013 than if their death rates had followed the trend of other ethnic groups.1 (#litres_trial_promo) The additional deaths were concentrated among those with a high school degree or less, and largely due to drugs, alcohol, and suicide. To put these deaths in perspective, it is as if ten Vietnam wars were simultaneously taking place, not in some faraway land, but in homes in small-town and rural America. In an era of seeming plenty, a group that once epitomised the American dream seems to have lost hope.

The anxieties of the moderately educated middle-aged white male in the United States are mirrored in other rich developed countries in the West, though perhaps with less tragic effects. The primary source of worry seems to be that moderately educated workers are rapidly losing, or are at risk of losing, good ‘middle-class’ employment, and this has grievous effects on them, their families, and the communities they live in. It is widely understood that job losses stem from both global trade and the technological automation of old jobs. Less well understood is that technological progress has been the more important cause. Nevertheless, as public anxiety turns to anger, radical politicians see more value in attacking imports and immigrants. They propose to protect manufacturing jobs by overturning the liberal rules-based postwar economic order, the system that has facilitated the flow of goods, capital, and people across borders.

There is both promise and peril in our future. The promise comes from new technologies that can help us solve our most worrisome problems like poverty and climate change. Fulfilling it requires keeping borders open so that these innovations can be taken to the most underdeveloped parts of the world, even while attracting people from foreign lands to support aging rich country populations. The peril lies not just in influential communities not being able to adapt and instead impeding progress but also in the kind of society that might emerge if our values and institutions do not change as technology disproportionately empowers and enriches some.

DISRUPTIVE TECHNOLOGICAL CHANGE