by Raghuram Rajan
- The Third Pillar; How Markets and the State Leave the Community Behind (2019)
- Saving Capitalism from the Capitalists; Unleashing the Power of Financial Markets to Create Wealth & Spread Opportunity (2003)
Raghuram Rajan, distinguished University of Chicago professor, former IMF chief economist, and head of India's central bank has an unparalleled vantage point onto the social and economic consequences of globalization and their ultimate effect on our politics. In The Third Pillar he offers up a magnificent big-picture framework for understanding how these three forces--the state, markets, and our communities--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 the community we live in. Economists all too often understand their field as the relationship between markets and the state, and they leave squishy 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 phase shifts have ripped the market out of those 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, the state 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. Rajan is not a doctrinaire conservative, so his ultimate argument that decision-making has to be devolved to the grass roots or our democracy will continue to wither, is sure to be provocative. But even setting aside its solutions, 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.
Five short videos (2-5 minutes each) with Rajan introducing his book:
Edward Glaeser on The Wall Street Journal wrote:
"His outlook is broadly pro-market, as one might expect, given his academic position at the University of Chicago, spiritual home of free-market economic orthodoxy. But he has also won a reputation as a teller of uncomfortable economic truths. [...] An eclectic thinker, Rajan has often strayed outside the realms of economics; indeed, it was his willingness to talk about the importance of social tolerance that got him into trouble in India. Even so, The Third Pillar represents a new departure into grand social history, which in its breadth often echoes big-picture theorists such as Barrington Moore and Francis Fukuyama and their attempts to tease apart the long-term tensions between capitalism and democracy. [...] Given the severity of the trends he describes, Rajan’s prescriptions, which he dubs 'inclusive localism', can seem modest [...] Rajan’s pro-competitive instincts and balanced, cautious localism are therefore unlikely to excite the passions of progressives such as Ocasio-Cortez. That said, he does offer some more radical ideas, especially when he discusses how to rein in the problem of what he dubs 'corporate gigantism' with much more forceful antitrust policies."
Anonymous on The Economist wrote:
"In his insightful and impressive book The Third Pillar, the University of Chicago economist Raghuram Rajan calls for 'bringing back the largely self-governing community as the locus of self-determination, identity and cohesiveness.' Mr. Rajan, a former Governor of the Reserve Bank of India, is a high priest of financial economics and central banking. His decision to champion county craft fairs and garbage collection is all the more compelling because it is unexpected. [...] His alternative to the new populisms is an 'inclusive localism.' In putting forth his proposals, Mr. Rajan is more concrete than many writers, from Charles Murray to Yuval Levin, who also extol strong communities, because he focuses on empowering local governments. [...] Local governments function well partially because they concentrate on clear deliverables, like safety and clean streets. Expanding their range of responsibilities endangers that clarity of mission. But since local governments are functioning much better than Washington, Mr. Rajan may be right that Washington should shrink back and let them do more. Certainly, we should try the experiment. And as local governments get to work, they could certainly use the help of more thinkers of Mr. Rajan’s caliber."
Ed Conway on The London Times wrote:
"In a compelling new book, The Third Pillar, he argues that communities are not so much a source of friction inhibiting the smooth operation of the global economy, as an indispensable part of a healthy society. Mr. Rajan believes in markets but has often made himself the bearer of awkward economic news. [...] That community matters might seem a banal observation to non-economists. But it sits inconveniently alongside many aspects of an economist’s worldview. Economic progress has often meant the replacement of personal, community interactions with efficient but more impersonal ones. The less sentimental people are about where they live or who they work for, the more readily they can move in response to market pressures, boosting productivity and limiting the damage from creative destruction. [...] Mr Rajan acknowledges the negative effect of tight-knit communities. The book provides a short history of the evolution of community, state and market in Europe, which begins in the stifling world of the feudal manor. [...] As the world became more interconnected, states and markets assumed roles once played by the community—from insuring against hardship to funding investment. [...] Promising solutions are hard to come by. Still, Mr Rajan offers reasonable recommendations."
"His overarching point: 'Many of the economic and politicalconcerns today across the world, including the rise of populist nationalism and radical movements of the left, can be traced to the diminution of the community. The state and markets have expanded their powers and reach in tandem, and left the community relatively powerless to face the full and uneven brunt of technological change.' It is a grand, sweeping argument, and much of the book is given over to the history of how we got here and a mini guide to capitalism. Rajan, a critic trying to save capitalism from itself, makes his point inaccessible, clear prose. [...] Aside from handing back power to communities, maybe even allowing them to decide their own welfare policy, Rajan has a few other remedies. He encourages countries to increase immigration, but also to improve how they integrate immigrants. Untrammelled financial globalisation, he says, should be limited and mega-mergers should be discouraged. All interesting suggestions, although in the face of such an enormous problem they seem rather underwhelming."
Interviews & Lectures on The Third Pillar
Alternatively, watch a lecture by Rajan about the book + subsequent panel discussion at the American Enterprise Institute, or a lecture + subsequent interview at the Brookings Institute.
- "Why Capitalism Needs Populism" - oped by Rajan on Project Syndicate, 6 May 2019
- "Value Workers as Much as Shareholders" - oped by Rajan on Bloomberg Opinion, 1 May 2019
- "Investment alone cannot save distressed communities" - oped by Rajan in the Financial Times, 29 April 2019
- "Raghuram Rajan book explores how communities can save capitalist democracies" - interview with Rajan at the website of the university of Chicago, 28 February 2019
More articles can be found on author's website on the book.
Table of Contents of The Third Pillar
Part I - How the Pillars Emerged
- Tolerating Avarice
- The Rise of the Strong but Limited State
- Freeing the Market... Then Defending It
- The Community in Balance
Part II - Imbalance
- The Pressure to Promise
- The ICT Revolution Cometh
- The Reemergence of Populism in the Industrial World
- The Other Half of the World
Part III- Restoring the Balance
- Society and Inclusive Localism
- Rebalancing the State and the Community
- Reinvigorating the Third Pillar
- Responsible Sovereignty
- Reforming Markets
About Raghuram Rajan
Raghuram Rajan is the Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business. He was the 23rd Governor of the Reserve Bank of India between September 2013 and September 2016. Euromoney magazine named him Central Banker of the Year in 2014. Between 2003 and 2006, Dr. Rajan was the Chief Economist at the International Monetary Fund. He co-authored Saving Capitalism from the Capitalists with Luigi Zingales in 2003. He then wrote Fault Lines: How Hidden Fractures Still Threaten the World Economy, for which he was awarded the Financial Times-Goldman Sachs prize for best business book in 2010.