- Hardcover: 464 pages
- Publisher: HarperCollins - GB (18 February 2019)
- Language: English
- ISBN-10: 0008276269
- ISBN-13: 978-0008276263
- Product Dimensions: 15.9 x 4.1 x 24 cm
- Boxed-product Weight: 662 g
- Average Customer Review: Be the first to review this item
- Amazon Bestsellers Rank: 17,827 in Books (See Top 100 in Books)
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The Third Pillar: The Revival of Community in a Polarized World Hardcover – 18 Feb 2019
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‘Insightful and impressive … As local governments get to work, they could certainly use the help of more thinkers of Mr. Rajan’s calibre.’ Wall Street Journal
‘Skilfully unpicks the tensions between capitalism, democracy and community … An important and timely new book’ Financial Times
‘An important contribution to understanding why, a decade after the crisis, the world’s politics and economics remain so brittle’ Times
‘Rajan’s account of corporate misbehavior is very well told’ Project Syndicate
‘Fresh, insightful and engaging. Offers a brilliant reckoning with one of today’s most important and potentially crippling challenges … [His] clear and compelling case goes well beyond protecting the vulnerable. It’s also, critically, about enhancing the whole’ Mohamed El-Erian, author of When Markets Collide and The Only Game in Town
‘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, Nobel Prize winner in Economic Sciences
‘My parents lived through the Great Depression, the rise of Fascism, and World War II. I thought I was brought up in a world organized in a fundamentally different way. I was wrong. We all need to start thinking about this issue right now and this book is a place to begin’ James A. Robinson, co-author of Why Nations Fail
About the Author
Dr. Rajan was the President of the American Finance Association in 2011 and is a member of the American Academy of Arts and Sciences and the Group of Thirty. In 2003, the American Finance Association awarded Dr. Rajan the inaugural Fischer Black Prize for the best finance researcher under the age of 40. The other awards he has received include the Deutsche Bank Prize for Financial Economics in 2013, Euromoney magazine's Central Banker of the Year Award 2014 and The Banker magazine's Global Central Banker of the Year award in 2016. In that year, Time magazine chose Dr. Rajan as one of the 100 most influential people in the world.
Dr. Rajan is the co-author with Luigi Zingales of Saving Capitalism from the Capitalists (2003), and the author of Fault Lines: How Hidden Fractures Still Threaten the World Economy, for which he was awarded the Financial Times Goldman Sachs prize for best business book in 2010.
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When I read Raghuram Rajan’s latest book “The Third Pillar: How Markets and the State Leave the Community Behind”, in some ways I got to appreciate the tremendous depth of the thesis postulated by the Austrian economists. The book explains convincingly, in a scholarly manner as well with much humane touch, that when policy control in economies becomes unbalanced towards the center, efficient properties of markets end up being compromised too, either by few large incumbents extracting rents via markets or by ill-informed distortions through central planning; even more devastatingly, features that bind local communities together – such as informal lending, small and medium-sized enterprises, medical support for elderly and those at risk – get eroded, leading to much social discontent and an affinity for populist leaders regardless of the suitability of their long-run plans to address the underlying distortions. In turn, the global economic and social order might end up at even greater risk under such misguided populism, the book contends.
I have been a big fan of Raghuram Rajan’s earlier book, “Fault Lines,” that was released post the global financial crisis. It had the novel insight that few commentators then had – that the global financial crisis might have had its roots in the displacement of manufacturing jobs in the developed economies; the pursuit of sustained global imbalances by export-oriented economies; the offering of subsidized housing credit and fueling of asset-price bubbles by banks, government-owned enterprises and central banks in the developed economies; and, the spectacular collapse of the resulting house of debt like a heap of cards during 2007-08. The book had presciently highlighted that if short-term fixes are adopted to addressing the root cause, there could be grave implications for the next decade.
“The Third Pillar” reinforces and recognizes the playing out of this concern over the past decade, with what I find a highly unusual but significant extension of the thinking of the Austrian economists – that imbalance towards centralization via the state and the markets has hit at the core of what glues our communities together and made these institutions distant from whom they were designed to serve in the first place. The book gives a historical perspective on evolution of each of the three pillars – the state, the markets, and the community; lays out the disturbing recent trends; and, proposes several thoughtful solutions to restore normalcy.
As the key point of the book is that the state and the markets are necessary for healthy and sustained economic growth, but need to maintain balance with the community at a local level rather than disenfranchising it, the solutions also apply to all three pillars – ceding of certain powers by the state, reorientation of the markets and corporations to a broader stakeholder view, and empowerment of the community. It is possible that in steady state, not all of these need to be undertaken together; for example, ceding of powers by the state could help keep markets straight and narrow on what they do best such as efficient allocation of resources in the economy and creative destruction that leads to innovative growth, and by so doing, the community need not get marginalized by a few large players in the economy. Nevertheless, given that we need to transition to the steady state, the book’s solutions need to all be given serious consideration, in my view.
In “Fault Lines” too, Raghuram Rajan paid much attention to the role of information technology in propelling our standards of living but simultaneously displacing jobs; there too, he stressed that the most robust long-term solution might be education and skilling since these have the potential to equalize opportunity and that keeps democracy and capitalism both strong as well as balanced. “The Third Pillar” covers much more breadth, helping the reader relate to deserted or dismantling townships that were thriving just a few decades back but are now saddled with crime, drugs, and unemployment; to the re-emergence of nationalism with the familiar themes of immigration and trade staging a comeback as convenient villains; and, to the risk that Hayek called “the road to serfdom” from treading down the path of imbalance towards greater and greater centralized or state control.
In the end, sound normative economic theory of the state implies that it should focus on the dispensation of public goods that markets cannot provide so as to enable individuals and the community to grow and thrive; the state should at the same time allow markets to remain competitive and efficient in their provision of private or non-public goods. To me, this comes through as a core message of the book, along with the necessity for community champions to arise and to be celebrated as a decentralized form of leadership that can propel the global growth engine sustainably forward.
“The Third Pillar” is beautifully crafted; it reflects the many moods of optimism as well as anxiety that Raghuram Rajan must have experienced during the craft; it inspires (“I hope this book stirs your blood”, he writes) in pushing for better economics as a way to secure and maintain global peace; it engages at a personal level with examples of communities that have gone through the travails but are beginning to rise; and, it covers developments across the globe, both microscopically as well as with a 35,000 feet perspective. You may or may not agree with all of its diagnosis and all of its proposals, but a good author’s or artist’s job is not to solve every problem – it is to make you see things in a way you had not seen before, to get you to reflect deeply, and to convince you to act responsibly. “The Third Pillar” does all of this and much more. Go, read it, I say.
Understanding the forces that drive the current predicaments and weakening of communities around the world is one thing. Finding solutions, however, is more difficult. Nevertheless, Rajan makes an equally provocative attempt to do so.