Raghuram Rajan's 'The Third Pillar'

While the monotony of life under lockdown continues, Raguram Rajan’s latest book, the 400 page ‘The Third Pillar’ will be guaranteed to keep you occupied for at least a while. 

The book is largely an attempt at finding solutions to the political agitation and despair from stagnant and left behind communities that have been drawn to populists on both the left and the right in recent years. More than this though, he argues that reinvigorating communities is not simply a matter of paying a small price to help bring about political stability, but that a healthy ‘third pillar’ prevents imbalances and indeeds makes the other two pillars: the market and the state, perform better as well. 

He begins by giving his explanation of how the state and the market grew out of the medieval feudal system which was focused around the village and manor. Commerce and finance grew alongside a centralised state that relied upon money for funding armies rather than a reliance upon feudal retainers. Further on he argues that under capitalism, community action such as the Progressive and Populist movement in the USA helped prevent the collaboration between big corporations and government through measures such as anti-trust laws, thus helping to protect the other pillars of the democratic nation-state and competitive markets. 

Rajan attributes the ability for grassroots activism as one of the community pillars’ main advantages. 

Additionally, there are also significant economic benefits of strong communities. One example given is cattle rangers in Shasta county California. Often cattle will wander onto neighboring ranches, with the owners taking weeks to pick it up while the neighbours incur the cost of feeding the animal. However, no monetary recompense is made and if any other damage is done it is preferable to fix it yourself than give ‘cold hard cash.’ More complex unwritten codes such as these, reliant upon community trust, are remarkably more efficient than legal transactions.

Yet Rajan remarks how fragile this spontaneous order can be from influences of the market pillar but more often than not, crowding out by the state pillar. The example given, Edward Banfield’s study of a poor village in Southern Italy in the 1950s, is a brilliant case in point. Most decisions of public services, from schools to ‘even buying an ashtray’, were taken far away in the larger regional town or provincial capital. Lack of local decision making drained any community democratic spirit. Furthermore: “the state, despite being recognizably apathetic, distant, and nonfunctional itself, nevertheless dampened initiative in Montegrano. The faint hope that the government will dig a latrine, pave a road, or discipline school teachers can prevent the local population from doing so.” The result is apathy or even mistrust towards neighbours as a result of the hardship and the little incentive for collective action.  

The policy proposals Rajan gives is mainly devolution of decision making downwards. However, this does not necessarily mean a shift of powers from central government to local government. With local authorities covering populations of many hundreds of thousands with unelected bureaucrats of their own, it is important to remember the community is not the same as local government. For example, devolving decision making in education would be better going to teachers and governors than the local authority. 

This however may be where technology and innovation could help play a part. Not only have studies shown that technology helps existing communities and decreases the time of integration, but maybe increased transparency and new apps that allow time-strapped people to engage more with local government could wrest control of it away from idle grievance-mongers.  

Rajan sees declining communities resulting in many looking towards the imagined community and an exclusionary nationalism. To counter this he proposes ‘inclusive localism’ where he proposes a civic nationalism with giving more power to communities. Meanwhile, the market and the state can serve to undermine isolationist tendencies in communities, making them more inclusive by allowing movement of people and goods while the state can prevent zoning (building restrictions) that help contribute to areas of homogenous affluence and locking entrants out.  

Although written before the Covid-19 crisis, Rajan’s work is especially useful in the age of Corona. The virus has seen a revival in community volunteering and activism through local associations and groups of households. It would be a huge loss to society if these groups were crowded out by the dead overreaching hand of the state during reconstruction. Shifting too many responsibilities from communities to local and central governments will only ensure that this resurgent community spirit is once again replaced by individual apathy.