Monday, March 18, 2019

The Third Pillar (Raghuram Rajan)

Raghuram Rajan's The Third Pillar offers a scholarly look at the three-legged stool of communities, states (government) and markets, as well as how the latter two have left many communities behind. This, Rajan argues, has fueled the rise of populism throughout Europe and the United States.

The author spends a fair amount of time articulating a history of the balance between market, state, and community going back to the Middle Ages. He demonstrates how the role of each of these three legs grew in strength or weakened based on numerous factors and how the most balanced time period was largely just after World War II. This coincided with strong economic growth and general balance in personal income. However, due to numerous factors, the balance of these three has grown further and further out askew.  The result has been growing economic inequality, insecurity, and a rise of nationalism.

Rajan offers several suggestions of balanced management of growth, regulatory reform, a basic social safety net for national citizens, and greater corporate competition amongst companies to limit influence in politics. Most of his approaches are tactical in scope and focus on broad-based, reasonably moderate (by global standards) fixes to adjust to a landscape where more and more individuals feel left behind.

The underlying belief that Rajan puts forth is that power is strongly concentrated in nations and companies at too high a level to allow individuals to feel that their lives and economic outcomes can matter. The Third Pillar can come across as a wonky, technical read, but it offers a host of solutions without being overly preachy. It could benefit from adding more data and research in a few areas to show where some of the suggestions would yield greater benefits, specifically around education and around skills training. Otherwise, it’s a solid work of economic research.