I was trying to understand recent trends in world affairs when I came across an interesting book: The Third Pillar: How the State and Markets Are Leaving Communities Behind, written by economist Raghuram Rajan. Throughout the book, Rajan introduces a variety of factors that directly destabilize modern societies. Rajan then goes on to offer possible ways in which we can battle against the dangerous factors that attack our modern democracies. Today, political debates almost always center around markets (the private sector) and the state (government). However, Rajan argues that we have completely ignored an important third pillar: the community. Rajan claims that this ignorance is at the center of a rising populism force, political polarization, economic inequality, and social conflicts around the world.

Rajan utilizes both historical and analytical lenses to examine the complex relationships between markets, the state, and the community. He uses the examination to explain how balancing these three pillars are essential for a healthy and functioning society.

Rajan’s argument divides society into three key institutions:

1. The Market. The sector of businesses, capital, and economic exchange.
2. The State. The institution of governance, responsible for law, order, public goods, and regulation.
3. The Community. The local social structures where people find identity, support, and purpose.

A stable society requires all three pillars to maintain its strength and provide for the people. However, Rajan claims that over the last several decades, the market and the state have grown considerably in both size and power. This occurs at the expense of the community. This growing disparity has directly fueled growing social fractures and has promoted resistance movements, especially in the form of populism.

Historical Evidence

Rajan offers a number of historical examples as to how these three pillars have evolved over time. In the feudal era, community dominated life, with the state and market playing more limited roles. However, the Industrial Revolution drastically changed this. Markets rapidly expanded and individual states subsequently grew to regulate them. As a result, communities were weakened due to increasing pressures of urbanization, labor migration, and technological changes.

The 20th century introduced periods of balance, especially in the era following World War 2 in which the welfare state and local institutions were able to support general prosperity in the West. But this would quickly change by the 1980s. Neoliberal economic policies of financial deregulation, coupled with a growing trend of globalization, greatly shifted power directly towards the market. Governments consolidated more power, often skipping past local institutions. As a result, communities, already hurt by growing automation in industries, were destroyed. Their voices were forcefully shut.

Globalization and Growth of Technology

Rajan especially emphasizes the idea that globalization and technological innovation have directly hurt local communities. Manufacturing jobs and other middle class sectors quickly disappeared due to increased automation and technology in the workplace. This left behind economic decline and a loss of community.

At the same time, policy making became much more centralized. As a result, the people most affected by the economic and social changes felt increasingly powerless. This powerlessness would fuel hopelessness, depression, and crime in the local communities. Traditional institutions such as churches, schools, and local organizations also lost influence due to the consolidation of policy making power.

Rajan argues that these developments have directly forged a clear path for the rise of political populism. As a result of people feeling unheard and hopeless, they are more likely to support strong leaders who promise to bring about widespread change that will benefit the community, restoring past identity and norms. This widespread change, however, often comes with actions that go against traditional democratic expectations and practices.

What is the Next Step?

Instead of simply advocating for a decrease in globalization or limitation of markets, Rajan promotes a rebalancing of the three pillars by the direct empowerment of local communities.

His points of advocacy are based around political decentralization.

• Local Governance. Rajan argues for an increased political role of local governments. He claims they must be able to make decisions that reflect the needs and values of their communities.
• Education Reform. We must introduce educational reforms that directly suit the characteristics of each community, accepting local conditions and provide practical skills.
• Economic Development. Rajan believes that we must encourage local entrepreneurship and investment to rebuild the economy of each local community.
• Social Cohesion. We must support institutions, both locally and nationally, that promote community and social trust.

However, Rajan acknowledges that these changes don’t mean that we have to turn away from national or global institutions. Instead, it is imperative that we recognize the many limitations of top-down solutions. Rajan serves a stark warning that without prospering local communities, both the market and the state become much less effective and legitimate.

Why Does The Third Pillar Matter?

The Third Pillar is a direct call for social action and advocacy. Rajan is extremely concerned about both the social and psychological costs of economic hardships and the destruction of local community. Rajan views the rebuilding of the third pillar as vital for the future of the world’s democracy, economic stability, and social prosperity.

Unlike many critics of globalization, Rajan does not promote a return to isolationism. Rather, he advocates for a realistic approach that accepts our global interdependence while simultaneously acknowledging that policies must account for the individual communities and empower the local populations.

Rajan then goes on to challenge both the political left and right. He suggests that the political left puts far too much emphasis on the national government to fix social issues, while the political right tends to put far too much emphasis on the free market. Rajan argues that both points of view fail to acknowledge the important role that communities play as a barrier of corruption and a promoter of social liberties.

Final Thoughts

In a world that is growing increasingly more divided by economic inequality and political tensions, The Third Pillar offers a unique message. Rajan constantly reminds us that human beings have always sought social connections and that we prosper through our local communities. If we want to protect our already faltering democracy, we must stop ignoring the pillar that supports our sense of belonging and purpose.

Taking restorative actions will be difficult, but possible. We must begin by rebuilding from the ground up. By restoring the third pillar.

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