SHORTLISTED FOR THE FINANCIAL TIMES AND MCKINSEY BUSINESS BOOK OF THE YEAR AWARD 2019From 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.
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Raghuram Rajan. The Third Pillar
COPYRIGHT
PRAISE FOR THE THIRD PILLAR
CONTENTS
PREFACE
INTRODUCTION. THE THIRD PILLAR
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
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
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
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‘A strikingly insightful analysis of the penalties of neglecting the critically important role of community, by concentrating too much on the perceived efficacy of the markets and the state. Rajan brings out loudly and clearly why this imbalance needs urgent correction’
AMARTYA SEN, Professor at Harvard University,
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Large banks, of which a growing number have now set up in the community, are not well equipped to understand community practices. This hampers their lending. In Pilsen, a working woman’s mother will often cook for her and babysit her children, so the worker’s salary goes a much longer way because she does not pay for these services. Similarly, family members may lend each other money, making it possible for someone to keep up loan payments even if their income is volatile. Typically, such practices are hard for a loan officer from a large bank to substantiate or document, which is why he has to go primarily on the explicit record of income.8 Community-based financial institutions, where decisions are made locally based on their better understanding of the community, know the worker is more creditworthy than her salary slip might suggest. Being free from the tyranny of requiring hard documentation, they are more willing to lend locally than large banks.
Recognizing the importance of local institutions, in 2013 the Resurrection Project helped rescue a failing community bank, Second Federal. At that time, 29 percent of the bank’s mortgages were delinquent, and many local borrowers would have faced eviction if the bank had been closed or sold outside the community. Vacancies would have depressed house prices and brought back crime. Second Federal’s delinquencies are now down to 4 percent of its mortgage portfolio, because it worked with its borrowers and nursed the loans back to health. People continue to use its branch as a community center, meeting there to chat with neighbors, or bringing their mail to have it translated by tellers.
