The Third Pillar: How Markets and the State Leave the Community Behind

by Raghuram G. Rajan

A Fareed Zakaria GPS Book of the Week

From one of the most important economic thinkers of our time, a brilliant and far-seeing analysis of the current populist backlash against globalization.

Raghuram Rajan, distinguished University of Chicago professor, former IMF chief economist, head of India's central bank, and 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 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.

Genres: Economics, Nonfiction, Politics, Business, Finance, History, Society

464 pages, Hardcover

First published January 1, 2019

About the author

Raghuram Govind Rajan is a world-class Indian economist who has also served as the twenty-third Governor of the Reserve Bank of India. He also serves as Eric J. Gleacher Distinguished Service Professor of Finance at the Booth School of Business at the University of Chicago. Rajan is also a visiting professor for the World Bank, Federal Reserve Board, and Swedish Parliamentary Commission. He formerly served as the president of the American Finance Association and was the chief economist of the International Monetary Fund (IMF).

In 1985, he graduated from the IIT, Delhi with a bachelor's degree in electrical engineering, and he completed his MBA at the IIM, Ahmedabad in 1987. He received a PhD in management from the Massachusetts Institute of Technology (MIT) in 1991 for his thesis titled "Essays on Banking".

Reviews

[Henk · Rating 3 out of 5]

A though provoking reflection on the historic and current interaction between markets and the state, with interestingly enough quite little clear focus on community and how it can have a separate role versus both
A market dominated by few is unlikely to offer the best outcomes for the many

This book reminded me a lot of Pickety his Capital in the Twenty-First CenturyCapital in the Twenty-First Century. By examining history Raghuram G. Rajan looks into the interaction between the state, the markets and the community. He argues that the misbalance between the three is the reason for many of the societal tensions we see today.
From a professor at the University of Chicago, home of Milton Friedman, and a former central banker, this embarking on more holistic approach to economy is certainly exciting.

I am normally quite a structured note take while reading but the book is rather fuzzy on its definition of community and the analysis of historic trends and the currents state of affairs in the West is much more strong in my view than the reflections on emerging economies and the potential solutions. A kind of regionalism and more autonomy for communities is seen as a method to make people feel heard, to foster a sense of belonging. But this being both dependent on overall state recognition and devolvement of nation state power to community and protection from anti-competitive and platform effects of the market. I do not see that societal disgruntlement would change the course of both the leviathan of the state or the behemoth of the markets in such a direction, not to speak of the more intense international cooperation needed for such a solution to work, in our current fractured and contentious geopolitical times. Still an interesting book to make one think on the major forces shaping our societies.

Central premise
In The Third Pillar: How Markets and the State Leave the Community Behind the author starts of with the observation that moderately educated white male deaths in the US since 1999 have starkly increased and are near the rate of ten Vietnam wars. Society and markets seem to have left behind many, leading to a disenfranchisement and rise of populist movements.

State, markets and community are at the heart of this contends the author.
A social group in a specific locality is the way a community is defined.
Markets and state encroachment on what the community used to do in frontier communities is seen as one of the reasons why many people feel adrift and stranded in the broader national reporting of increasing GDP.
Rajan posits the the community is the counterweight to the tyranny of the majority, and that it can help cater the needs of specific individuals.
Favors, gifts and hospitality act as a kind of informal banking system in communities. Granular aid can be given based on need, known by proximity, hence leading to better support to the needy. Gossip and ostracism by the community serves as a deterrent and can be used to punish freeloaders.

The author notes that communities in this manner can not just supplement the state but also the market. Small young firms for instance pay more interest in areas deprived of (local) banks than in more competitive banking environments, with community banks having more opportunities to recoup potential losses in the future when the firm is successful.
Everyone has a stake in the wellbeing and succes of the community.

Historic view on markets and state development
After these case studies the author takes the long view, focussing on the windy history of property rights in Western Europe and how these developments shaped capitalism today.
More distributed property led to more security of property rights. Expropriation of monasteries in England to the gentry led to a strengthening of market powers, which could not easily be addressed by the monarch since there was not one family that easily could have been subdued.

Refreshing that markets and businesses (who strive for cartels and dampening of competition) are not deemed necessarily the same. Guilds are only one example the author notes.
Royal charters as a way of taxing societies through monopolies, in a concealed manner and bypassing parlement.

Institutions rest on a bedrock of underlying power and being overthrown or subverted when they lose this power.
The behemoth of business and the leviathan of the state hence balance each other out and this competition of power theoretically keeps people safe from excesses from either.
Peoples perceive legitimacy of business and property rights through fair competition, hence strengthening these rights versus interference or expropriation by the state.
There is a minimum common demand of fairness of markets by the public, for them to keep on supporting the legal and societal framework that protects the markets.

More diverse countries redistribute less than more homogeneous. Harvard research shows that even today US states with higher black population are less generous in their welfare payments on average.
Imperial Germany and Bismarck having the first social security system due to pressure from populist demands and communist rise.

Second industrial revolution and post war rebuild as a growth driver
In the 1970’s 1/8 of West Germany and France’s workforce being guest laborers from Spain, Greece, Morocco and Turkey.
Peace dividend from Bretton Woods system fostering growth of Europe.
Increase in female participants in the workforce being another boon.

Polarised job markets, with low skilled and high skilled jobs increasing and the middle class jobs collapsing. The premium in wages of master students in the USA being the highest in the OECD bar Chile, potentially signalling that employers find high school education just not good enough and college degrees being a proxy of basic skill levels that actually should have been guaranteed by a high school degree.
Superstar effect on income of the top 1% by better communication methods being available and globalization.

Market critique - lack of competition &
Self fulfilling prophecies - We have moved to a hereditary meritocracy
Both the leftwing and the rightwing populist are right in their diagnosis: the elite have betrayed the trust of the people in the past.
New business creation stalling in the US since 1970’s due to increased market concentration. With exits and buy-outs being rather stable during this overal period. The average US firm in 2018 is 3 times as large as a decade before. Anti trust cases dropping from 16 per year in the US in the period 1970-1999 compared to an average of 3 in the new millennium .

Self fulfilling prophecy of market monopolies being awarded a share price premium by the market, leading to those companies having currency to buy out other competitive firms.

Evergreen patents hit the diffusing of knowledge, with cooperations sitting on troves of patents to keep other firms out of their market and increase entry barriers, helped by non-competition clauses in employee contracts.
Complex regulations even further making market entry hard.

Occupational licensees raising wages by 18%, and 24% in the top quartile (including doctors and lawyers).

European economies protecting incumbent workers and not extending protection to flex workers, new enterers to the labour market and immigrants
Agglomeration economics drawing skilled labour to “superstar” cities across the world.
Interesting in the current times that the author indicates that debt fueled house price growth leads to complacency about stalling wage growth (with the Great Recession of 2008 as a result).

The ratrace to get the best start position for children, leading to even more gentrification and premiums for top institutions and neighborhoods in a self reinforcing circle

Residential wage segregation increasing rapidly from 1970’s. Only 40% of people in US still living on middle class neighborhoods.
The “liberal” north east region of the USA being the most economically segregated in this regard.

Parents genuinely care for their community, but its just that it is a community of people all like them.

Some weaker international analysis and potential solutions
Nations are the last of the guilds
Control (of the market) is not free - About the CCP control of state enterprises and how any market failure becomes the issue of the party.

What is community in the 21st century? Many of the descriptions focus on the interactions of markets and the state, but community is a fuzzy topic in a book focused on the topic.

Singapore programs of bringing top performers into their schools and transferring their values upon them. Tyranny of the majority - an interesting rephrasing of populist agendas

How do you create communities sufficiently unique, autonomous and economically viable that they mean something but don’t rip apart the nation state? The answer of the author is hardly more than a direction and makes me think of the 2400's Hive system from Ada Palmer her excellent science fiction books.
But community in the direction the author sketches seems to substantially only exists under the aegis of state recognition, and what does it add as compared to the municipality and the state/province level?

The believe in WTO governing global trade effectively is hardly realistic with the US not appointing judges for a decade already

Race to the bottom effects between countries seen as non-existent is hardly convincing with tax havens flourishing in the world

Property rights are social constructs
Society will go from protecting the rights of the few to ensuring the opportunities of the many

[Nilesh Jasani · Rating 3 out of 5]

The Third Pillar is a well-written book that makes you think. Yet, its framework is relatively weak and the solutions are impractical. I think the book’s thesis will be repeatedly quoted in the academic circles for coming decades. With Dr Rajan as the champion, the theory could even turn mainstream in economic classes in the best case. That said, let me focus on the issues I have with the book, the framework and their conclusions.

Dr Rajan is a celebrity economist, a renowned central bank governor, a powerful speaker and a great writer. This highly respected scholar, and a likely future Nobel Laureate, creates a framework to explain many of today’s economic ills, which is simple in its structure and highly attractive on the first read. There is a lot of literature discussing the friction or balance between the powers of the state versus those of the markets. Dr Rajan’s three-pronged framework pitting the state versus markets versus the community creates unique viewpoints for many problems afflicting modern societies. 

This viewer’s first level problems are with the way the book is written. The author spends enormous amounts of time describing economic events from past centuries and a handful of today’s economies. These fast-moving sections form more than half of the book. The selected episodes are not only random and disjointed, but most of the descriptions are far from the state versus the markets versus the community theory. The author would try to explain those economic successes and failures through the lens of the pillars now and then but rarely throw any new lights. Rather, most times, the analysis would reveal the author’s preformed views and biases (most exemplified in the discussions of the states of the US, China and India economies at present) rather than anything radically different.

Equally weak are the final five chapters on “solutions”. The main argument is that technology, economic and political forces have caused one of the three pillars, the community, to become excessively weak compared to markets and the State in recent decades in many developed economies. To reduce the widespread angst pervading these societies, Dr Rajan wants everyone to work towards strengthening the community. Dr Rajan’s assertion - based on highly broad-based examples from past and present - is that many of today’s ills are automatically mitigated, if not cured, if markets are weakened, and also the State powers are diminished along with the rising powers with the community. Beyond the definitive conclusions, the author would skip from one topic to the next, issuing highly specific directives and corrective actions in dozens to the entire world on whatever problems that catch the attention while occasionally trying to fit the discussions at hand in the Pillars framework. The directives could be on topics as specialized as the teaching methods in schools to the raison d’être of corporate existence. In one paragraph, the author could be talking about the length of IP protection in the US while soon the discussion could be about immigration or AI or healthcare.  

This leads me to the main problem of the book: the framework or the theory. The author plays fast and loose with the definition of the community right from the start. And, as a result, the problem only compounds when he tries to use it for anything practical.

A. What is Community? 

The book begins with a strong point that every society, or nation-state, should allow its members to belong to whatever communities they prefer. If I am a citizen of one country, and a resident of another, I should not be stopped - as per the author - to identify myself in the place where I live with a community of my countrymen or another of my religion, and that of my ethnicity, or profession or gender or age group, etc. The author feels that all these communities are legit and should be given more powers as a lot that would truly enrich my life is because of the interactions with these fellow community members.

However, as the book progresses, the author’s Community becomes a highly specific proximity based entity. The author’s arguments in the second half are almost only about enhancing the power of the local governments (next point for problems on this). The author misses the point that a large part of the world, and particularly the aspirationally mobile younger generations, see themselves far stronger members of other communities than the one based on where they live.
 
B. Why three pillars? 

Three forces pitted against each other are better than two in a theoretical construct, but there is a far stronger case of a four-pillar framework including the families if not a five-pillared one also including the global community. Between the demands of the communities one is a part of, the powers of the state and the uncontrollable massive economic/market realities, the individual identity is perhaps most enfeebled, which some other theoretician may use as the sixth pillar! 

Facetious arguments aside, where does one draw lines on proximity-based communities in our fast-changing world? One is never clear whether the author is talking about a neighbourhood society, a city council, a provincial government or larger regional state machineries while talking about proximity-based communities. In fact, at different times, he ends up talking about almost each one. Proximity-based communities of the modern world differ greatly from administration setups designed decades ago when maps were different. 

C. Conflicts?

Through repeated assertions of various kinds, the author finds escape routes to completely avoid any discussions on conflicts between a strengthened community and enfeebled other forces. The author would acknowledge that problems would arise, but would immediately find something else to discuss rather than address the most critical of subjects.

As explained above, there is a multitude of communities of all kind in the modern age. Even proximity-based communities come in many embedded forms, like the Russian Dolls. It is likely that a weakened State with strong communities could rupture like many unsuccessful nation states in so many parts of the world, rather than solve any major economic issues. There could be equally large issues of inter-community strifes as well if community powers are massively enhanced and communities compete for similar goals/resources. If Three Pillar becomes a successful theory, expect dozens of books on the perils of strong communities for any nation-state.

This reviewer’s last big problem is the way the author offers solutions in the last part of the book. Effectively, the author wishes a world with a different set of rules, regulations, processes etc. The statements are almost of the form that my next statement assumes: “I want a world where everyone should have the same opportunities, income, wealth, happiness, longevity etc etc”. Rather than providing any practical guidelines on how one should strengthen the community, however ill-defined, the author draws his Utopia. 

In conclusion, the framework is unique. Dr Rajan’s insights will spark new debates. The book is an easy read with many great examples and ideas. This reviewer has problems as discussed above, but the same discussions are also a result of what the author made him think.

[Marks54 · Rating 5 out of 5]

I was pleasantly surprised by this book. I had read his earlier work - Fault Lines - and while I enjoyed it I also thought it could have had a clearer voice and been easier to read and follow. This book is superb - interesting, thoughtful, and clear.

There is an entire literature on what might be called global political economy that covers the current state of macroeconomics, current political messes (such as the US elections, etc.), global trends in the state of work and employment, trends and technology and the big tech (FAANG) firms, chaos in the EU, Brexit, Russia, etc. You get the idea. There are many fine books in these areas - indeed recent global crises have proved a real boon to the production of really good and informative general and specific accounts, complete with policy implications.

The Third Pillar is a recent addition to this literature by Raghuram Rajan, who is a distinguished Finance Professor at the Booth School at the UofC, a former Governor of the Bank of India, and the Chief Economist and Director of Research at the IMF. While this is an outstanding background by any metric, the mix of academic/theoretical and policy/applied roles Rajan has served in makes him uniquely qualified to share his thoughts on the state of global political economy.

These are immensely complex areas but I can suggest that Rajan provides a strong argument for the needs of balance in searching for policy responses to current crises.


What sort of balance? Rajan sets out of framework of three pillars: markets, state, and community. In recent decades, the well-chronicled developments in politics and economics have together greatly weakened the role of community as a balancing factor in most crises. These distinctions, of course, are not new, but the articulation here is clear and convincing and very suggestive for policy and practical recommendations.

I will not attempt to summarize but will note the wonderful historical tour Rajan provides in setting up his perspective on current crises. It is also worth noting that Rajan assumes a global perspective on problems and argues that many of the problems/issues troubling the US have strong and very understandable counterparts elsewhere. The historical perspective is especially good, and the book clearly shows how current economic issues have been gestating for a long time and that the consequences of the 2008 global financial crisis and the “Great Recession” that followed remain with us and will continue for quite some time. Rajan does a fine job at painting pictures of global flows and interconnectedness into which more specific problem accounts can be nested.

This perspective is not new to me and I am a sympathetic reader. I can also appreciate a carefully crafted and well reasoned work when I encounter one and really liked this book.

[Ganapathy · Rating 5 out of 5]

It was literally a dissertation! Making the state (politics and governing), markets (economy and industries), and community (We the people) as three pillars, RR goes through an exhaustive analysis of the past and present impacts of these three pillars on one another. In particular, he provides historical context with examples from the long past such as Arthashastra, and how markets, community, and states have been functioning. He also provides context in terms of research findings from a wide spectrum of studies—from anthropology to economics. It was fascinating to learn about how the UK monarchy turned into a governing body that we see today with ministers and bureaucrats.

Globalism coupled with the financial crisis created a stage for demagogues and hostilities towards immigrants, RR argues. Surprisingly, he took a measured approach in analyzing these trends (looking at the issues from both sides) and provided implementable solutions to solve the problem of disconnect between the three pillars. He provides an example of a town in Illinois that sprang back into life after structural changes by local government and with the help from its residents.

The problems that the author points out are well-known: bad schools and dysfunctional communities because of economic segregation, job losses due to global trade and automation, crony capitalism, migrant crisis, etc. He also provides interesting, implementable, and somewhat obvious solutions to those issues such as regulations, training the kids for future jobs, cutting red tape, better leaders etc. For me, the interesting solutions were inclusive localism (inviting new industries and immigrants) and civic nationalism (stand by the constitution, not by a race or a group). I was hoping to learn more about Indian economy when he was the governor of RBI. But he just gave a glimpse of his tenure. Overall, the book was very informative and actually makes you feel that these problems can be solvable even with erratic human psyche and the communities they live in.

[Katie Lumsden · Rating 4 out of 5]

A really interesting read.

[Richard]

The author was interviewed on the Freakonomics podcast on 6-Feb-2019 in an episode titled This Economist Predicted the Last Crisis. What’s the Next One? and made a case that aligns intriguingly with Patrick Deneen's Why Liberalism Failed, along with other thoughts I'd been having since reading starting Putnam's Bowling Alone: The Collapse and Revival of American Community.

Update, January 2020 —

The Economist cites the author in their article, Free exchange Economists grapple with rising American mortality. They note Rajan provides a plausible reason for these “deaths of despair” as the result of intellectual oversight:

❝Economists and policymakers, [Rajan] argues, have focused excessively on the respective roles of the market and the state, while ignoring policies’ effects on cities and neighbourhoods. But these provide practical and social support to their members, helping them manage setbacks and shaping their identities. As economists failed to take seriously the localised harms caused by trade and technological change, weakened communities fell into a cycle of economic and social regression, and became vulnerable to pathologies such as addiction and suicide.❞

The citation to this book is in a broader context, which argues the problem isn’t simple, and unlikely to be purely economics. It also mentions the decline in civic and community connections documented in Robert Putnam’s Bowling Alone twenty years ago.

The flaw in economics — specifically, in ’Murican capitalism — is apparently being made in yet another book on the American malaise, due soon: Deaths of Despair and the Future of Capitalism.

Putnam also is coming out with another book. I found that exciting, but was dismayed when I saw the title: The Upswing: How America Came Together a Century Ago and How We Can Do It Again. I have trouble believing the implied optimism is anything other than wishful thinking.

[Slavisa · Rating 2 out of 5]

Rajan wasted a good thesis here. The book started off well, the introduction was great, he laid out an interesting (if not exactly novel) proposition, but then veered off in all directions. I persisted, hoping that everything would somehow connect at a later point, but it never happened.

There are several history chapters at the beginning that describe the origins of Western political systems. But every adult that picks up this book is already familiar with this history. Unless these chapters are essential to the thesis of the book there is no point subjecting readers to them: the Glorious Revolution, the Progressive Era, the Civil Rights Movement, it is all there without a good reason. Rajan is neither a historian nor a political scientist, so it is hard for a reader even moderately familiar with these topics to get anything new or interesting in his retelling of them.

Digressions continue throughout. There is a chapter on China and a chapter on India, both about economic reforms and growth in these countries. That is fine, but how is it related to the main point the book set out to make? There are some interesting bits and pieces of evidence about the community in the US, the "third pillar" from the title, but not much depth.

The final several chapters contain policy recommendations. They are, again, often disconnected from the rest of the book. Out of the blue, Rajan declares that in a trade-off between community and inclusion, inclusion must take precedence. This is not explained and developed but simply taken as a moral imperative. Then, in the book written to argue that the community should have more sway than the market and the state, he proposes (state? federal?) policies encouraging people to move to other communities to improve the average educational achievement. It is all very confusing. The idea to write this kind of book was good. But as it is, the book is too long, too disjointed, and not well thought out.

[Haaris Mateen · Rating 3 out of 5]

Around the time of independence, Gandhiji and Babasaheb Ambedkar clashed over the kind of structure the new nation of India would possess. Gandhiji believed in what would today be called a version of localism as he wanted most of the powers of the state to be vested with villages with the federal government having minimal interference. Ambedkar, having lived a life full of discrimination and social exclusion, did not agree. He saw villages and local communities as regressive centers of oppressive customs and traditions, with a hierarchy meant to subjugate those at the bottom, and which would not give all Indians the freedom that they should deserve.

Fast forward to today. Raghuram Rajan writes a book that is part of the many, many...many books out there at the moment on (i) the ills plaguing (predominantly) the developed world; (ii) an analysis of the conflicts therein; finally, (iii) offering a set of solutions. As is unfortunately the case with all these books, written by very smart people, the analysis is often highly informative and enlightening but the solutions are impractical or hopelessly naive.

What comes out is a book that has an intriguing thesis - that there is a third oft ignored pillar of the community that can bolster the support systems that individuals need in a time of great turbulence, and which can more efficiently take decisions for the people living in their communities.

There is much to agree with the thesis. Rajan is a nuanced person. He does not think in terms of ideological manifestos. He does not, at least for the developed world, think Ambedkar was right, but he doesn't want us to push out the state and the market to the extent that Gandhiji would have wanted.

The book itself, though, leaves a lot to be desired. In a topic as complex as the one Rajan has picked - of analyzing the community's role and empowering it in specific ways - the big flaw that comes out, and I can't believe I am saying this, is that he chooses to look at most of these problems purely as an economist. Not always, I hasten to add, but almost everywhere of note. Therefore, the analysis (historical and current) is often based on incentives. Give the right incentive and communities will not be overly insular or discriminatory, even in subtle ways. This line of thinking is not persuasive not least because there exists a history of regressive community structures and bad equilibria where the community chooses to live in a manner that is hostile to all kinds of outsiders as well as interruptions to their way of life. Despite these decisions affecting those communities economically. Despite the state trying to interfere.

In addition, the solutions miss an important aspect of so much of populist anger in the world today (something that Rajan himself mentions earlier in the book). People are not convinced the world is fair. That there is justice out there. People will not feel better by rising in their local community boards or church groups as compensation for feeling excluded from those who are far wealthier than they can imagine themselves to be. The number of roles that the community is ostensibly supposed to support is huge. One cannot see how all these roles can be smoothly and uniformly fulfilled. If people feel that they cannot live in the same elite circles as the elite, or have their children study in the same public schools, or see a way up if they work hard enough, the communities will not be able to compensate for this kind of distrust and disgruntlement.

I think the book would have done better if it had a more practical view of how changes can be implemented. Who is going to make the change? How do you engender this change endogenously? Or at the very least, what's the sequencing of the many tweaks and modifications (admirably) analyzed and recommended. One would expect that changes to how fair the system is perceived has to come first, for example.

Finally, the book is far too long for what it wants to present. Part I has a hurried jaunt through history and is neither insightful nor coherent; there are far too many digressions. The point of the argument struggles to come across. Part II is the analysis of the current situation. This is where Rajan's immense scholarship in the field of finance, contract theory, policy making etc comes to the forefront. I learnt a lot from this section. Part III is the solutions part. Interestingly, I found the author's analysis of solutions for the market and the state to be highly thought provoking; the solutions for the community are vague and seem to be a rather long laundry list of possible steps that can be taken.

All in all, the thesis is interesting. Some parts are very good. And to be fair, it is probably the start of a debate on this topic. This is not Rajan's best book but then, we hold him to the highest standards of expectation.

[Harsha Varma · Rating 3 out of 5]

This has been an engaging book to read. The gist is simple: Technological revolution has been largely disruptive. Wage premiums for those with better (read technical) capabilities increased significantly with the best employed by superstar firms in winner take most markets that dominate a number of industries. Concentration leads to a greater distribution of wealth to a select few, widening disparity in wealth. This has put pressure on upper middle-class parents to secede from economically mixed communities and move their children to schools in richer, healthier communities. The poorer working class are kept from following by the high cost of housing. Their communities deteriorate because of the secession of the successful, uprooting the idea of local communities which typically act as strong support systems. An imagined community like the nation, which gives them an ideology and a sense of purpose, now fulfils the need for belonging that the neighbourhood can no longer meet. This has led to nationalist movements across the globe. Young migrant populations in developing countries and middle-aged/ old populations in rural and semi-urban areas in developed countries are ideal raw material for the populist nationalists' vision of a cohesive national community.

Solutions: Inclusive localism which strengthens the local communities and decentralizes decisions to recreate that sense of belonging at the micro level is required. This enables people to have a sense of belonging at the community level rather than looking for answers through a strong man (most nationalist leaders tend to be"strong men" rather than women, with due apologies to Madame Le Pen) at the national level. This could be achieved by devolvement in powers from the federal government through the regional government to the community, thereby enhancing local infrastructure to broaden and equalise opportunities. Further, barriers to competition and entry need to be removed so that opportunity is available to all.

It felt like Mr. Rajan wanted to give an overview of the current diagnosis of the rise of populism according to most mainstream liberals without delving deeper into any of the causes or solutions to the problem. Hopefully, this book is a starting point and the dialogue continues in both the political and economic spheres.

[Arun Pandiyan · Rating 5 out of 5]

Dr. Raghuram Rajan is a person I deeply admire, not only for his intellect and significant contributions during his tenure as the governor of the Reserve Bank of India (RBI) but also for his unwavering commitment to certain ideals. While those on the Left dismiss him as a bourgeoisie sympathizer and those on the Right view him as a status quoist, he remained steadfast in his alignment with the values of liberal democracy and the free market. When I first read his book "Saving Capitalism From The Capitalists," I was profoundly influenced by his ideas about the importance of private property, the value of credit, and the reforms needed to address the information asymmetry that plagues the Indian economic landscape today. Likewise, in his work "I Do What I Do," he shed light on the challenges faced by Indian banks with sticky loans and non-performing assets and discussed the actions he had taken during his tenure. In this book "The Third Pillar", he delved into the threats posed by populists and Marxists against globalism.

Based on the Protestant Ethics by Max Weber, the book starts by exploring the origins of capitalism and detailing the events that solidified the boundaries of the modern nation-state. The period after World War II witnessed the rise of globalization and open borders, which resulted in significant economic progress, lifting billions of people out of poverty and enhancing the overall standard of living. Nevertheless, Dr. Rajan contends that globalization faces challenges from two fronts: populists and communists. Populists tend to advocate for confined economic boundaries, often emphasizing ethnic nationalism in their politics, while communists view the escalating inequality as a major concern, prioritizing wealth redistribution over wealth creation.

In this book, Dr. Rajan puts forth the argument that democracy facilitates the devolution of power, leading to significantly greater wealth creation and redistribution, especially when globalization is embraced by countries. He introduces the concept of "proximate communities," suggesting that people within these communities are more invested in their own interests and issues compared to those in distant regions. This partly explains why the people of Uttar Pradesh or Bihar may have different priorities compared to those in Tamil Nadu or Punjab. In a democratic system, centralized and planned decision-making tends to intensify political differences, as it often becomes a zero-sum game, where one party's victory comes at the expense of the other's loss.

The concept of proximate communities holds immense significance in a diverse and heterogeneous country like India, where different groups have varying political and economic interests. Rajan provides two examples to illustrate this point: post-liberalization China, where decentralizing power to the village level resulted in substantial benefits, and Chicago, where devolving power to the lowest communities proved advantageous. While the free market and open trade operate in accordance with Adam Smith's notion of the "invisible hand," democracy empowers communities to exercise self-determination.

The book also delves into another crucial theme, which is the escalating issue of populism in today's society, particularly when it takes on ethnic dimensions, leading to the marginalization of minorities. Rajan supports this argument by citing various studies that demonstrate how gated or closed communities can negatively impact a country's economic progress. To strike a balance, Rajan proposes that the state should play a role in promoting diversity without undermining private property and trade. While economists with a libertarian inclination prioritize individualism, Dr. Rajan places the state-market-community triad at the forefront of economic development.
According to Dr. Palanivel Thiagarajan, the former finance minister of Tamil Nadu, he found inspiration for the "Illam Thedi Kalvi" program from the work of Dr. Raghuram Rajan. This program is a community-based initiative aimed at ensuring the holistic academic development of primary-level students in the state. In his book, Dr. Rajan further elaborates on how public schooling and decentralization of powers promote diversity and foster a sense of belonging within communities.

The problems with ethnic and right-wing nationalism based on singular identity often come at the expense of the deterioration of democracy, leading to conflicts and thereby inhibiting progress. In summary, Dr. Rajan advocates a community model of development where people with multiple identities within a proximate community exercise their freedom to further the community's interests, with the market propelling the economy on a larger scale. The devolution of power ensures the free flow of information and the non-exclusion of other communities, and that's where the state must confine its tentacles to.

[Laurent Franckx · Rating 3 out of 5]

In Europe, the name of Raghuram Rajan probably doesn't ring a bell to many people, but this Chicago economist (and former governor of the Reserve Bank of India) became relatively famous in the US when, in 2005, he pointed to the systemic risks that were building up in the financial system. Not only did this prove very prescient (even if nobody took him seriously), but this book is actually building on one the arguments he made back then: that governments were actively promoting risky mortgages to low income people to pursue distributive objectives that they no longer want to achieve through reforms in the tax system. In other words, macroeconomic imbalances were created to avoid dealing with fundamental questions about the role of the state in the creation and distribution of wealth.

This book is one example of attempts by economists to cope with the populist uprising of recent years (another one is "The populist temptation" by Barry Eichengreen, which I have just started reading). In Rajan's own words, "I see an increasingly polarized world that risks turning its back on 70 years of widespread peace and prosperity. It threatens to forget what worked, even while ignoring what needs to change".

Rajan argues that one of the reasons why this discontent has not been properly anticipated is that economists have ignored the role of "the third pillar" (the community) besides the pillars that are central in economic analysis (the market and the state): "a central concern in this book is about the passions that are unleashed when an imagined community like the nation fulfills the need to belonging... The nation, in a sense, is like a medieval guild, bringing prestige, protection and some rents to those who belong to a powerful one. For some lone adrift individuals, it may be the only social group they feel any belonging to"

The first part of the book is a sweeping analysis of how we have moved to a community based system (feodalism) to a centralised state to a society dominated by markets during the industrial revolution. This part of the book is really very broad. It includes for instance discussions on how the Church's attitude to usury changed as the result of changing circumstances, such as the expansion of trade during the creation of nation states or the changed bargaining power of the poor after the Plague. At the same time, this historical overview is not very balanced in (the discussion on the origins of the American public school system is disproportionately long compared to other topics, for instance).

The book is at its most interesting in the discussion on the cutting policy issues and on the rise of populism. One point that I found really insightful was on the impact of technological change and globalisation on the labour market. In economic analysis, they are often treated as being more or less identical (after all, trade is a way to use a foreign technology mix) but the geographical impacts of globalisation are much more concentrated than those of technology - and have thus a much bigger impact on "the third pillar". There is now indeed a lot of empirical work that has shown how openness to Chinese imports had led to the lasting devastation of communities in ways that technological change hasn't.

It is finally in the recommendations that the book does not live up to the expectations it has created. Sure, Rajan's discussion of the necessity to promote competition are interesting (if not surprising for someone who has followed the policy discussion on that topic), but he is extremely vague about the specific topic that he claims to be the original contribution of the book: devolving power from the state to the community, and reforming international institutions.

The final result is a book that is certainly interesting, but that overshoots his target.

[Mitesh · Rating 3 out of 5]

This book establishes a great context to how a balanced society is the outcome of three pillars - the 'state', the 'market' and the 'community'. At various points of time in history, while the community was of relevance, it has given way to a more powerful state and market in recent times leading to a weakened community. While the historical evolution of these pillars across geographies is presented very well, along with many fresh insights into how to think about the globalized future of nations, communities, and markets, this book offers precious little in terms of the realignment of politics and policies for the revitalization of the 'community'. What I mean to say is that there is no dearth of content, just that it isn't convincing in some parts or disconnected from the view of causality between implementation and derivation of actual benefit. The book sparks a lot of insights, but I hope further thought is put into this and a seemingly connected idea of 'decentralization' in governance, states and even organizations.

[Ashutosh Dwivedi · Rating 5 out of 5]

Rajan does a great job of trying to explain the rise of populism in the world by delving into the history of the rise of the markets, states and communities. Starting right from Stuart England where feudalism started to see its end till the modern era, he documents quite like a thesis how all these 3 systems interplayed and evolved.

In the 2nd part, he deals with the current wave of populist nationalism and talks of why it has become popular and its dangers while oft citing from multiple studies to make strong arguments for his hypothesis. He even does talk about how these 3 systems evolved in China and India apart from the many examples he provides for the US and UK.

Finally, in the 3rd part he provides a blueprint towards reaching a new equilibrium in a world dominated by ICT and automation without resorting to blatant populism.

Quite an interesting read!

[Shary · Rating 3 out of 5]

Although the Professor claims this is not a textbook, it reads like one to someone who is decades away from reading them. I appreciated the history of how state/market/community has evolved in different situations. His prescriptions for the future are less convincing. Some of them make me wonder if he truly is an economist.

[Lada · Rating 4 out of 5]

The book presents a coherent historical and present day analysis of markets and state, while leaving "community" as a hand-wavy notion. Sometimes community just seems to represent "local", local markets for goods and services, or local government.

[Sean Finn · Rating 2 out of 5]

Exhausting reading

[Manasvi Karanam · Rating 3 out of 5]

Pros:
* Well researched book. Neatly explains the three pillars - state, market and communities. Gives a good history of how they emerged and how historically the society took measures to restore balance amongst them.

* Book has been sprinkled with anecdotes which explain how the empowering the communities have resulted in keeping the state and markets at check. The examples are simple and easy to understand and illustrate Rajan's point well

* The book spends fair amount of time trying to explain why there is raise in populistic nationalism - especially in the western countries. Rajan argues that globalization and technology have rendered certain kind of workers out of jobs and as a result they have lost a sense of community belonging. The RW politicians exploit this to further their nationalistic/majortarian agenda.

* Rajan also does a good job in explaining the current challenges faced by US and European countries.

Cons:
* The book is written as a thesis and is not an easy read - especially the first part of the book where authors gives historical context.

* The author suggests "Inclusive localism" as a solution to restoring the balance. These are proximate communities, which ideally, have the freedom to assert their community/cultural identity while keeping their "walls" relatively low so that free movement of people is allowed. These communities are empowered enough to take decisions like whether they would allow pop-up style stores or big retailers. While he acknowledges that this might also lead to racist communities, the mitigation strategies provided sounded idealistic. His argument seems to be that globalization has forced diversity at a rate faster than people have had time to adjust to this change. Inclusive localism provides people a way for people to have an identity feeling in growing diversity.

* While this sounds well in theory, he does little to address apprehension of those who feel the benefits of "asserting identity" might do more harm than good and would deepen the social divide further.

* Overall, the framework of solutions provided sound too idealistic.

[Ester · Rating 3 out of 5]

I’m feeling rather ambivalent towards ‘The Third Pillar’ after reading it... Stylistically well written; however, I miss a discussion about the other side of the coin. Some paragraphs are academic, while others are building on weak arguments, making the book a bit dull for some readers.. Additionally, it's problematic that such an uncritical view is presented about the role of the US, IMF and other institutions.

[Cary Giese · Rating 5 out of 5]

First, the author never in his book refers to anonymous persons as he, throughout the book his reference is to she! Impressive and thoughtful of him!

The book attempts to describe the evolution of the three pillars of world order. The nation state, the markets and the community (people)!

Traditionally community and markets were close and coexisted with tributes paid to governments. The community relationships were symbiotic and interdependent and well defined, now comes changes in property ownership and with it political power, now comes trade and mercantilism, then political unrest, now comes mobility, then democracy then technical advancements, then capitalism, then WWI/WWII, then changing world order, then global relations, then globalism and another new world order, but communities were left out, then, in reaction, populism rises on the left and the right!

So how does the current world order deal with global trade rules, global finance and global problems like climate, technology transfer, etc. and still focus on the local?

That is the summary of what the book attempts, both to explain and then suggest ideas for solution!

The author suggest that focus on community is the next imperative! He notes the ITC (information communication technology) revolution risks exacerbating the problems and exasperating the potential solutions more since many communities will be left out and be further estranged!

I think he describes the problem well! Dealing with the problem is critical to future societal stability and a rational world order!

His solutions, however, are tentative and speculative.

He emphasizes education forecasting that the economic bifurcation of society will worsen as the educated will gain more relative to the less well educated. He advocates focus on common problems and policies that involve all in the welfare-of-all such as with mandatory national service. The more the “others” get to know each “other” at the human level the better, and he explains that it is best done in community!

He believes that local schools are the keys, and advocates schools integrated not just by race and religion but also by economic strata. All do better academically and the community in that situation,... he believes!

And he makes a strong argument that access to high speed broadband for all can be an equalizer. Those left out will fear the rest and will become insular and angry, destabilizing our political and ability to solve common problems!

This is an important book full of breakthrough thinking, I recommend it!

[Alok · Rating 3 out of 5]

Dr. Rajan deconstructs the modern socio-political life along three pillars - State, Markets and Community and goes on to explain how a 'power-balance' between the three is a necessity for a stable system.

He goes on to explain and demonstrate how the central pillars of our society are out of balance today. Rising inequalities and growing class resentment are undermining communities around the world. This is fertile ground for populist insurgents. But their ideal of state-backed nationalism doesn’t hold the answers to the complex problems posed by globalization and technological innovation.

If we want to avoid being led up the garden path, we need to come up with a solution that balances the three pillars of social life – the state, markets and communities. The best option we have of aligning those three pillars is Inclusive Localism, the flagship idea of this book.

If you give it some thought, what he proposes is not something novel or extraordinary. Decentralisation of powers, political and financial in particular, to local communities has long been a favourite among the participatory democrats like Rousseau, Gandhi and Arendt. And frankly, countries which have successfully done that, like Switzerland or many of those Scandinavian countries, show far lesser inequalities consequentially leading to higher political stability and better lives for their citizens.

What remains to be seen is whether that can work in a geographically large and politico-culturally diverse country like India.

[Sandeep Bhat · Rating 5 out of 5]

The Third Pillar talks about Communities as a pillar for running the economy with equal, if kot more importance than the other two pillars of Market and the State. First four chapters is a very detailed history of the evolution of these pillars and their interaction since the feudal lords time till the modern world. These chapters can be skipped though a person who doesn't study history tends to repeat it's mistakes. Rajan then talks about the ICT revolution, the Populism movement and the growth of emerging markets especially India and China. Arguing for a strong case to control trade by China, Rajan advocates for a planned journey to include China actively in multilateral international institutions. Rajan concludes my advising methods to reform the system by inclusive localism and market reformation, more coordination of the two pillars with the third pillar and responsible sovereignty. Rajan tends to describe correlations backed by solid research references wherever necessary. A must read book for people interested in public policy, role of markets and community impact.

[Ankur Mishra · Rating 4 out of 5]

The Book is built upon the premise of exploring the inter relatedness of the Community, Markets and the State in modern economies. The chronic issues of inequality, unemployment and growth slowdown as well as issues such as climate change and community displacement are analyzed from the standpoint of 'Inclusive Localism'. Simply put, Inclusive Localism is postulated to be a self-correcting postulate that is more sensitive and keenly attuned to the blind spots of the traditional capitalistic economies. It advocates for a economic vision that synchronizes all three elements to amplify and fine-tune the intended costs and consequences. The book offers a novel perspective not just on eminently economic issues but also on issues that have a strong underlying economic rationale (Immigration and World Trade Order and developing countries etc.).

[Warren Mcpherson · Rating 4 out of 5]

A thought-provoking review of the relationship between community, markets and the state. The author skims through some familiar history giving a compelling perspective. There are many disparate ideas that are explored. They are probably not all necessary and a better job of editing would likely have improved the book in some ways. But each little niggle was carefully considered. For instance, the author makes a good case for the proposition that international regulations tend to be quite undemocratic. That may not really be central to the book but it was a well-made argument that I found memorable. Maybe it was the main point. The one weakness of the book is synthesis. There is no pattern the pulls everything together in a convincing and satisfying way. At least it doesn't feel like you are being sold something. There are a great number of interesting ideas that are turned over.

[Nikhil Kumar · Rating 4 out of 5]

This book presents a historical perspective into the dynamics of flux between the pillars of society - community, state and markets. It analyses the balance of power between them in the context of changing technology and advocates for revival of the 'community' which has suffered neglect at the hands of the market and the state. While the book presents many fresh insights into how to think about the globalized future of nations, communities and markets, it offers precious little in terms of realignment of politics for revitalization of the 'community'.

[Richard Marney · Rating 5 out of 5]

A brilliant book.

The state, the market and the community, Rajan’s three pillars, three essential “legs” to stable, just, prosperous nations and the world in which we live. The first two have subsumed the third in the author’s view. “Inclusive Localism”, rebalancing the state and the community, and responsible sovereignty are amongst the elements of the suggested recipe for a better tomorrow.

Please read.

[Sunil Kumar · Rating 4 out of 5]

A must read for all the students of politics, economics or public policy or anyone curious enough.

[Sajith Kumar · Rating 2 out of 5]

After a decade since the economic recession of 2007-08, the world economy is worried by trade wars and the prospect of slowdown in leading developing economies. A wholesome analysis of the development and future path of the world economy is hence warranted by circumstances. And there is nobody better suited to do it than Raghuram Rajan who is a financial bigwig serving the IMF and US academia. This engineer-turned-economist attempt a survey of human societies by identifying the three pillars on which every modern society rests. These are state, markets and community. All three have equal importance and the intricate balance between them is to be preserved if the society is to stave off breakdown. Of these, the community, which is the third pillar stands neglected in the larger scheme of things today. This huge book is Rajan’s diagnosis of what is wrong and his prescriptions for turning around.

Rajan presents a delightfully condensed version of the development of the three pillars of society. With the advent of the dark ages in Europe, trade diminished and centralised authority degenerated into numerous feudal manors and weak monarchs who linked them. As trade collapsed, exchange of money on a regular basis was no longer required and the church tightened the scriptural prohibition of usury. Centuries went by in this stagnant way. By the fourteenth century, trade picked up again with new routes opened up by the crusades. Moreover, the Black Death eliminated up to a third of the population. This in fact improved the fate of the survivors when real wages surged because of the manpower shortage. Money was essential for trade and the church liberalized usury restrictions or turned itself into a moneylender. Development of gunpowder and military technology made it economically unviable for small states to wage wars. This limitation forced them to consolidate by merger and acquisition of feudal units. Kings became powerful who kept the feudal lords under a tight leash. In principle, kings had unlimited power for taxing and appropriation of resources from his subjects. This was the pinnacle of state power. However, the monarchs found that some restrictions on their despotic power would be better in the long run. Parliaments came into being and taxation was slapped on the people only if accepted by the parliament which represented them. This limited monarchy assured the people of protection of their wealth and property if taxes were paid regularly and without arrears. This obviated the need for private militias and the monopoly of violence came to be rested on the state. By the late-eighteenth century, states assumed the fundamental characteristics we see in them today.

The development of the second pillar – markets – is a little more recent as the book suggests. Trade was a part of the lives of kingdoms and feudal lords, but the ideas of free competition and laissez faire appeared only in the eighteenth century. Capitalism and socialism saw markets as a tool to pave the way to their own ideological paradises. The socialist movement in Europe produced its communist offspring in 1917 in the Soviet Union. The markets were firmly under state control, and to be more precise, under party control. The great depression of 1929 was the greatest threat to capitalist order while Communism was still alive. The stock market crash and the recession which followed wiped away the livelihood and prosperity of millions in the Western world. The liberal governments had to reluctantly put in place measures to restrain competition in the market to ensure more equitable distribution of wealth. The theoretical background of the socialist tendencies of newly independent countries in the 1940s, especially India, is thus the 1929 recession. The post-World War boom helped mask the rising inefficiency of the system.

Rajan identifies many reasons for the definite shift away from state control of markets in the 1980s. After three decades of impressive performance, growth slowed in the 1970s. The oil embargo put in place by Arab states in protest against the pro-Israel stand of the West crippled economies in many quarters of the globe. A semblance of welfare state was standard fare in many countries that assumed a steady economic growth for the sustenance of the program. When growth withered, widespread social unrest followed. Clever politicians like China's Deng Xiaoping correctly identified that the time had come to free markets once again. Barriers to trade and procedural obstacles to entry of new businesses were scrapped in many parts of the world. India followed suit in 1991, twelve years after China made a start and it elicits no wonder to note that the size of China's economy at present is five times that of India. Capitalism had a sturdy road ahead through which its bandwagon rolled steadily forward. The essence of modern capitalism is the continued accumulation of wealth, not because of the pleasures it can by, or the material needs it can satisfy, but for its own sake. It was John Calvin who first provided moral legitimacy to capitalism in a world where avarice was a sin.

Almost half of the book is dedicated to define the third pillar, that is, community and to elucidate the ways to revive failing ones. Community contributes to our sense of who we are. A richer range of transactions can be undertaken within the community than would be possible if everything had to be contractual and strictly enforced by the law. The unfettered globalisation of the 1980s upset rural communities in the developed world. As companies crossed borders in search of cheap labour, production shifted to developing countries. Many semi-urban localities in the US witnessed closure of production facilities that couldn't withstand price competition with products coming from Asian countries. Civic infrastructure and cultural facilities broke down in those communities. The US maintained its lead in high technology and services which were very high up in the value chain. Members of the failed communities were not able to take up opportunities in this sector as their educational credentials were lower. Cheap foreign labour again cut them down in the form of highly qualified immigrants. This led to the growth of popular nationalism and the author levels some prescient warnings and arguments for not going down the way pointed out by the populists.

The latter half of the book is full of monotonous homilies on the way markets, state and community shall interact and exert mutual influence. The discussion is addressed towards the contemporary issues faced by developed economies. A few paragraphs that handle the hurdles on the forward path of India and China is surprisingly uninspiring irrespective of the author’s service as the Governor of India's Central Bank for three years and as an economic advisor to its finance minister. Rajan proposes inclusive localism as a panacea for all the problems faced by a developed country. This is essentially an inclusive nation that decentralizes many decisions to the local, physically proximate community. This concept has a strong correlation to the concept of Gandhiji’s Gram Swaraj (rule by village councils), though the book takes special care not to introduce Gandhi or other advocates of devolution of power even remotely. The book is structured in a textbook style with lots of headings and subheadings arranged in a hierarchical way.

Much of the book concerns with the idea of assigning a more prominent role for communities. Some are just musings or can even be intelligent speculation and nothing more. Many ideas flow out from sheer common sense and some others are mere platitudes such as statements like ‘the problem with too much easy money is that it tends to get wasted’ (p.346). It provides a very good description of American schooling which can be excelled only by pedagogical publications. Educators would find it very appealing. The sad part is the apathy shown to India and her growing concerns on the economic front. The fact that Rajan has mentally gone back to his American life is evident from his self-introduction in which he claims himself to be a professor of the University of Chicago, chief economist and head of research at IMF and adds as if an afterthought his stint as the administrator of India's Central Bank.

Population diversity is what Rajan prophesizes for developed economies as their populations age and prefers to reduce fertility rates. Many of the jobs will have to be undertaken by immigrants from developing countries. The population of the rich countries have no option other than prepare timely for the cultural shock of large scale immigration especially in culturally homogenous countries such as Japan. However, the treatment sometimes hints that it is the developed countries’ untransmutable destiny with an ominous ‘or else’ hovering in the air. The author’s suggestion that keeping out migrants might create a wider security problem if stateless youths, with little to lose, may take up arms and vent their anger against the unsympathetic world (p. 294) is plain blackmail. Moreover, he keeps silent on the jihadi proclivities of Asian immigrants which is the prime reason why local communities despise the entire immigrants.

The book is recommended.

[Sudharshan Viswanathan · Rating 4 out of 5]

This book is a good read for anyone with little prior understanding of how economies came to be, and what is to be made of the subject Economics. Suffice to say, while the study of the subject itself is around 200 years old - even the notions that are embedded within the subject are significantly more recent and only less than a 1000 years old.
The book does a good job of laying the story of how capitalism evolved, mostly woven around the British empires of the previous millennium. The concepts of competition, governments as holders of credit, interest rates as applicable to them and the "commons" being powerful holders who could influence both law as well as credit.
This kind of analyses changes to how capitalism evolved in the Americas post Civil War in the gilded age, and the amount of legislation that happened to regulate capitalism around these times to ensure fairness. It was interesting to trace the birth of anti-trust regulations to the capitalism of those times and compare it to the dominance of tech in the current times.
Following this was the great depression, and the wars followed by the benevolent capitalism of the United States that allowed for growth not only in the US but elsewhere too. The book traces in detail, the impacts of the 1st and 2nd industrial revolutions and points to studies on how productivity gains arising from technological advancements sustain lifestyle improvements for generations - and how the current era is yet to see the true gains from the Technological revolution in a manner similar to the previous revolutions. I found it to be super interesting to note that the "neo-liberal" market views espoused by Thatcher-Reagan was a response to a large presence of government in the markets, and a very high amount of inflation following from it. Reagan portrayed by left leaning sources tend to demonize him a bit, but it looks like the ideas of "lesser regulation" and "more market" at his time was the need of the hour.
The book goes on to talk about the growth and also political setup of China and India, as well as the impacts of globalization and immigration on the population of the western world.
Till this (parts 1 and 2 I think), the book reads incredibly well as it sets up a very good base and historical context for our current systems, and the recent swings worldwide to vote in nationalists to power, which according to the book isn't definitely a successful recipe.

In the subsequent part, the book goes on to detail how all the different economies (developed and developing) can treat the issues. The book in trying to acknowledge all the different variables - things like democracies, laws, immigration, access to education, credit, impact of technology, automation, globalization - and also trying to learn from the examples of European Union etc... attempts to provide the recipe for success. And as with any vague recipe - the right amount of salt seems to be "not too much nor not too less, but just the right amount" - is the suggestion. I would sort of expect such a solution, since it can be easy to trace the history of something as complex as our modern world, but then in a multi-dimension problem proposing a solution that doesn't affect any particular variable while improving all others seems a hard problem to solve.

I wish that there could be a more rigorous mathematical framework around the topics discussed, and a model to build on top of - even if it might be rather too simple but illustrative. It would be good to play out some simulations of such ideas and evaluate their effectiveness.
On the whole, I found this book to be extremely educational in content. At times, it could be repetitive and the final part is borderline gospel because it's mostly the author's theory on improving the situation in the world.

[John · Rating 3 out of 5]

The British vote to leave the European Union and the election of US President Donald Trump in 2016 were shocks which many have yet to recover from. Some continue to fight against both. Only now are we starting to grope, seriously, towards an understanding of why these events occurred. The Third Pillar by the University of Chicago’s Raghuram Rajan is one of the better attempts.

The three pillars Rajan refers to are, broadly, the state, the market, and the community. More or less, these refer to what you would expect. The first part of the book outlines how each pillar evolved – community, state, then market – and how they have fluctuated in relative importance over time. So, the emerging power of the market following the Industrial Revolution is succeeded in the twentieth century by the increasing power of the state, in the form of increased social spending and a responsibility for macroeconomic management. This was replaced, from the 1970s onwards, by a renewed dominance of the market, exemplified by the reigns of Thatcher and Reagan and the collapse of communism, which was the practice of untrammelled state power.

This is a deft bit of triangulation. The hollowing out of the community by the state echoes Marvin Olasky’s in The Tragedy of American Compassion (2008) and the triumph of market over community that of Michael Sandel in What Money Can’t Buy (2012). Overall, there is a large debt owed to Dani Rodrik.

The loser in this three‐way tussle has been the community. First, the state assumed responsibility for things such as education and welfare which had, previously, been provided by the community via such vehicles as friendly societies and local schools. These were replaced by the welfare state, social security, comprehensive schools, and the Department of Education. Then the resurgent market saw manufacturing jobs offshored. Finally, large‐scale immigration has eroded social bonds, particularly at the bottom of the socio‐economic ladder. The effect, Rajan argues, has been to leave adrift a large portion of the old working class. This has become susceptible to ‘populist nationalism’ as purveyed by Donald Trump and, presumably, by Nigel Farage, leader of the UK’s Brexit Party.

Rajan deserves credit for tackling this last point. He notes the importance of relatively homogeneous populations for the development and maintenance of social capital. This will, no doubt, invite all sorts of charges, and Rajan is braver than most writers in acknowledging the issue.

While there is much to stimulate here, both agreement and disagreement, the book is on much weaker ground when it moves to offering solutions.

Rajan’s proposed alternative to populist nationalism is something called ‘inclusive localism’. This seems to amount to a strengthening of local government, even an extension of federalism. In each county or canton, people will be free to adopt policies which suit them, allowing them to satisfy policy preferences which might get nowhere if they needed to be enacted at a national, or even a supranational, level. So “If some in the majority genuinely fear being swamped culturally, inclusive localism gives them a way to maintain their culture through monocultural communities …” (p. 286).

The obvious problem here is, as Rajan acknowledges, that the country might end up “dotted with segregated communities, each with its own race, national origin, and cultural traditions, and totally barred to outsiders” (p. 299). Viewing this as undesirable, Rajan goes on:

We must make sure that this is not the default outcome, not by forcing people to mix, but by emphasizing – if necessary, through laws – that in a nation, all communities are open to flows of people, goods, services, capital, and ideas, both in and out. (p. 299)

If, under inclusive localism, “all communities are open to flows of people, goods, services, capital, and ideas, both in and out”, how can it also give these same communities “a way to maintain their culture through monocultural communities”?

Practically, it isn’t clear how this will do much to lance the boil of populist nationalism. As an example of a community competency, Rajan offers retail zoning, saying “Communities should have the power to determine the nature of local production (such as the production of retail services through big‐box or small mom‐and‐pop stores) … (p. 306). In fact, many communities already have this power. Neither is it clear that the surge in populist nationalism is driven to any great extent by dissatisfaction with retail zoning laws.

But the community shouldn’t have control over residential zoning laws. That, Rajan argues, would exacerbate the kind of economic sorting which has left the old working class behind. The book smashes against this rock. There is a tension between ‘inclusiveness’ and ‘localism’ as Rajan defines each term. He makes it clear that when these clash ‘inclusiveness’ will win: “… in the trade‐off between inclusion and localism, inclusion should be given more weight” (p. 308).

So, to fight populist nationalism, we devolve power to communities to allow the people there to express policy preferences which might not pass at a higher level, but if these policy preferences deviate too much from what prevails at the higher level, they will be overridden. A lot of verbiage is expended attempting to set out rules for this ‘trade‐off’, but not to any great effect. Too often, Rajan descends into waffle, reading like the first draft of one of the more vacuous speeches of Tony Blair, the UK’s former prime minister. It is hard to see how this offers any protection against populist nationalism beyond what we have now. It is just lip service.

The book’s diagnosis contains much that is worthwhile and provocative. Its prescriptions read all too much as the consensus rebadged. Having concluded that this consensus is responsible for much of the populist nationalist ailment he seeks to cure, it is disappointing that Rajan’s remedy is barely there. The book is a good starting point for a discussion of our social ills, but much more work needs to be done.

[Radhika Ayalur · Rating 3 out of 5]

Why has a wave of populism overtaken countries across the world? How should government handle the grievances against globalisation and immigration? How do we prepare for a world where jobs as we know them will undergo a significant shift?

Raghuram Rajan is known for spotting fault lines that are 'invisible' in plain sight. After his acclaimed books on capitalism and the cracks within, he now turns to a new area of focus: flashpoints in society wrought by the shifts in people, markets, technology and the role of the State. The world is now in a state where the concerns of 'populists' can no longer be ignored, but have to be understood in terms of the legitimate underlying issues that need to be addressed with care.

This book does a deep dive into how the three pillars of markets, government and society have evolved and interacted over the centuries and the need for rebalancing of the dominance equations by devolving more power to local communities. Rajan writes primarily from the perspective of the USA, with a smattering of examples from elsewhere, but many of the lessons carry well across countries.

Through a rich variety of examples, he analyses means to provide incentives to make people more accepting of the changing order, while also considering their best interests. Two of my key takeaways: 1, Solutions will work only if those who design them understand the complex web of interactions among people, their value systems, markets and the State. 2, We would do well to let communities decide how they want to organize themselves and engage with the larger government and business, rather than force-fitting uniform solutions.

This book could have been a few hundred pages shorter, with greater focus on proposals rather than exposition of the issues. I got the sense that after making a grand beginning and historical review, the book hurtled to its conclusion without developing the contours of the proposed solutions to a more deeper and meaningful level. Some of the suggestions offered are too simplistic, or vague at best. For instance, Rajan presents the concept of 'Inclusive Localism', where he says the 'centripetal forces of the local community' can counteract the 'centrifugal forces of globalisation'. This sounds like a grand idea, but I don't see how this would come to pass practically.

Overall, a good read to get the right perspective on how the world ended up at this precipitous point, and how we can start thinking about moving closer to a state of equilibrium.