"The Third Pillar"

On the final day of my posting to India as a Fulbright Research Scholar I was invited to address the Chair and professional staff of the Insolvency and Bankruptcy Board of India. As a gift of appreciation Chairman Dr. M.S. Sahoo presented me with "The Third Pillar: How Markets and the State Leave the Community Behind" (HarperCollins 2019). While it's taken me some time to read The Third Pillar it has been time well spent. Author Raghuram Rajan is on faculty at the University of Chicago Booth School of Business, and has served with the World Bank and as Governor of the Reserve Bank of India. And he addresses concerns close to the heart of an early-modern liberal.

Indian Dust Cover

Dr. Raghuram begins The Third Pillar with several prescient observations:

We are surrounded by plenty. Humanity has never been richer ... It is not just the developed countries that have grown wealthier; billions across the developing world have moved from stressful poverty to a comfortable middle-class existence in the span of a generation. Income is more evenly spread across the world than at any other time in our lives.

Yet even though the world has achieved economic success ... some of the seemingly most privileged workers in developed countries are literally worried to death. Half a million more middle-aged non-Hispanic white American died between 1999 and 2013 than if their death rates had followed the trend of other ethnic groups ... largely due to drugs, alcohol and suicide. ... The anxieties of the moderately educated middle-aged whites in the United States are mirrored in other rich developed countries in the West ... .

The primary source of worry seems to be that moderately educated workers are rapidly losing, or are at risk of losing, good 'middle-class' employment, and this has grievous effects on them, their families, and the communities they live in. (Emphasis added.)

Just what is the purpose of the community for which Raghuram expresses concern?

The community anchors the individual in real human networks and gives them a sense of identity; our presence in the world is verified by our impact on people around us. ... [O]ur community gives us a sense of self-determination, a sense of direct control over our lives, even while making local public services work better for us.. Importantly ... the goodness of neighbours is still useful in filling gaps [in government programs and commercial insurance].

Are communities anything more than bastions of local prejudice and intrusive social control? Can communities be shown to have a positive impact on the lives of their members? Consider the following excerpts from two lengthy paragraphs:

Economists Ray Chetty and Nathaniel Hendren attempt to quantify the economic impact of growing up in a better community. ... Correcting for parental income, the average incomes of children of longtime residents when they become adults is one percentile higher in the national income distribution in neighbourhood Better than it is in neighborhood Worse. Chetty and Hendren [however, go on to] find that a child whose parents move from neighborhood Worse to Better will have an adult income that is, on average, 0.04 percentile points higher for every childhood year it spends in Better. ... Perhaps more than any outside influence other than the parents we are born to, the community we grow up in influences our economic prospects. ... There are other virtues to a healthy community. Local community government acts as a shield against the policies of the federal government, thus protecting minorities against a possible tyranny of the majority ... .

Raghuram provides an abbreviated account of the social and economic development in the West from the late Medieval period to modernity. A number of gaps and a somewhat one-sided economic focus cloud his historical account but these are of minor importance when Raghuram reaches the series of "revolutions" that have brought us to our contemporary state of affairs. The effects of the most recent of these--the Information Communications Technology (ICT) revolution--occupies a large part of his book. Its pervasive and imbalanced impact on individuals and communities, and what can be done about it, occupy its balance. 

Much of this ground has been trod by others. Yet Raghuram's most significant contribution is his secular account of the importance of the community as the buffer between the the forces of the impersonal, relation-dissolving market and the equally impersonal, Leviathan state. Emphasis on the importance of mediating institutions is nothing new (some of my musings here and here) but Raghuram's analysis, grounded in social science in economic research, renders undeniable the value of community. 

Raghuram has many good policy prescriptions for how the state can devolve power to communities without losing the benefits of internal free trade or giving up the civil and religious freedoms found in modern liberalism. I am not sanguine, however, that we can expect any contemporary centralized state--whose powers are deployed by one elite or another in service of turning individual autonomy (sexual or economic) into power or profit--to surrender any of those powers except on the tightest of leashes.

Skipping to the end of The Third Pillar, Raghuram has a number of specific suggestions for how to balance the leveling effects of the interests of multi-national enterprises (and their internationalist forums) with the varying stages of development of nations across the globe. His discussion of bank capitalization, worker rights, and intellectual property rights allows him to deploy his strong banking expertise to best effect.

Raghuram offers many more valuable insights than I've mentioned here, and I urge anyone interested in political economy to read his book. (Or, at least, read his short piece from the New York Times here.) For myself, I was especially gratified to see someone who is neither a neo-Kuyperian, neo-Anabaptist, nor a Catholic integralist foreground the importance of community, clearly identify the encroaching threats from the market and the state, and prescribe solutions that are consistent with the early liberal tradition. While many argue that liberalism is on its last legs, I see nothing better in the offing and thus hope that Raghuram's insights and suggestions have a wide impact.