RAGHURAM RAJAN
The Third Pillar by Dr.Raghuram Rajan ; Published by Penguin ; Pages 433 ; Price Rs.799/-
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Dr.Raghuram Rajan is the Katherine Dusak Miller Distinguished Service Professor of Finance at the Booth School of Business at the University of Chicago. He was the Governor of the Reserve Bank of India between 2013 and 2016. He served as Vice‐Chairman of the Board of the Bank for International Settlements between 2015 and 2016. Dr. Rajan was the Chief Economist and Director of Research at the International Monetary Fund from 2003 to 2006. He 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 him 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 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.
Dr.Raghuram Rajan is the Katherine Dusak Miller Distinguished Service Professor of Finance at the Booth School of Business at the University of Chicago. He was the Governor of the Reserve Bank of India between 2013 and 2016. He served as Vice‐Chairman of the Board of the Bank for International Settlements between 2015 and 2016. Dr. Rajan was the Chief Economist and Director of Research at the International Monetary Fund from 2003 to 2006. He 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 him 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 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.
Rajan has an unparalleled vantage point onto the social and economic consequences of globalization and their ultimate effect on our politics. The book is about the three pillars that support society and how we get to the right balance between them so that society prospers. Two of the pillars are the State and the Markets. It is the third sector the Community and the social aspects of Society that Rajan concentrates on. When any of the three pillars weakens or strengthens significantly, typically as a result of technological progress or terrible economic adversity like a depression, the balance is upset and society has to find a new equilibrium. The central question addressed in the book is how we restore the balance between the pillars in the face of ongoing disruptive technological and social change.
Economists comprehend their domain as the relationship between markets and the state, and they consign social issues to other people. This according to Rajan is fraught with danger. All economics is actually socio-economics – Markets are embroiled in a mesh of human relations, values and norms. Throughout history, shifts in technology have forcefully brought the market out of these constraints resulting in violent backlashes and populism. Finally, a fresh equilibrium is arrived at but with the possibility of the situation turning ugly and messy, especially if wrong methods are employed.
Rajan describes the present status--- how we are doing it wrong. As markets scale up, the state scales up with it, concentrating economic and political power in flourishing central hubs and leaving the periphery to decompose, figuratively and factually. Rajan's panacea is to rework the link between market and civil society. He argues for a return to strengthening and empowering local communities as an antidote to growing despair and unrest. His clinching is that decision-making has to be entrusted to the grass roots. Otherwise there is a fear of democracy withering.
Rajan describes the present status--- how we are doing it wrong. As markets scale up, the state scales up with it, concentrating economic and political power in flourishing central hubs and leaving the periphery to decompose, figuratively and factually. Rajan's panacea is to rework the link between market and civil society. He argues for a return to strengthening and empowering local communities as an antidote to growing despair and unrest. His clinching is that decision-making has to be entrusted to the grass roots. Otherwise there is a fear of democracy withering.
"The Third Pillar" is a quintessence of clear thought that is at once a wise, authoritative and a humane explanation of the forces that have wrought such a sea change in our lives and an attempt to retrieve our position. Rajan proposes a re-balancing to be brought about by decentralised politics, diverse immigration, and other measures that, though controversial, certainly merit discussion.
The Third Pillar is the community, which Rajan makes central to the book. It is a neglected pillar, and the renowned economist traces many of the economic and political concerns across the world today, as well as the rise of populist nationalism leading to the diminution of the community. The state and the markets—the other two pillars—have expanded their powers and work in tandem and this has left the community relatively powerless, he argues.
“The Third Pillar” is a must read for everyone seeking a way to preserve democracy as we know it. The opening chapters of the book sparkle with concrete illustrations of how vibrant local communities contribute to human flourishing in ways typically overlooked. As a former central banker, Rajan gives special attention to the community’s role in financial markets and goes so far as to defend long-ago prohibitions on usury. Neighbours helping neighbours represents a form of saving, creating a reciprocal obligation to be repaid when the tables inevitably turn. Small, young firms tend to get more and better loans when fewer banks are present, perhaps because less competition means a higher likelihood of retaining a firm’s business as it grows. This leads to a crucial, more generalisable point: “Relationships seem to be stronger when the members of the community have fewer alternatives, for it gives the members confidence that they will stay mutually committed.” The modern market’s greater abundance of choice is not without trade-offs. While ably describing how both a growing market and a growing state have eroded the community’s relevance and vitality over time, Rajan gradually redefines the Third Pillar from “communities whose members live in proximity” to merely democracy or the “voting public.” An intrinsically valuable and varied local institution congeals into a homogeneous tool for ensuring that the market and state behave.
The Third Pillar is the community, which Rajan makes central to the book. It is a neglected pillar, and the renowned economist traces many of the economic and political concerns across the world today, as well as the rise of populist nationalism leading to the diminution of the community. The state and the markets—the other two pillars—have expanded their powers and work in tandem and this has left the community relatively powerless, he argues.
“The Third Pillar” is a must read for everyone seeking a way to preserve democracy as we know it. The opening chapters of the book sparkle with concrete illustrations of how vibrant local communities contribute to human flourishing in ways typically overlooked. As a former central banker, Rajan gives special attention to the community’s role in financial markets and goes so far as to defend long-ago prohibitions on usury. Neighbours helping neighbours represents a form of saving, creating a reciprocal obligation to be repaid when the tables inevitably turn. Small, young firms tend to get more and better loans when fewer banks are present, perhaps because less competition means a higher likelihood of retaining a firm’s business as it grows. This leads to a crucial, more generalisable point: “Relationships seem to be stronger when the members of the community have fewer alternatives, for it gives the members confidence that they will stay mutually committed.” The modern market’s greater abundance of choice is not without trade-offs. While ably describing how both a growing market and a growing state have eroded the community’s relevance and vitality over time, Rajan gradually redefines the Third Pillar from “communities whose members live in proximity” to merely democracy or the “voting public.” An intrinsically valuable and varied local institution congeals into a homogeneous tool for ensuring that the market and state behave.
Rajan’s aim seems to move “toward one borderless world,” with stronger communities working as a perhaps helpful means to that end. “A central concern in this book is about the passions that are unleashed when an imagined community like the nation fulfills the need for belonging that the neighbourhood can no longer meet.”
Rajan impressively builds the foundation for his view of society in a fleet history of economic development that tracks the development of mostly Western economies from the earliest prohibitions on usury to the development of the 20th-century Progressive movement. The historic survey and analysis are the strengths of Rajan’s work. He makes a strident call for a dramatic rethinking of educational systems and the decentralising of governmental power. Though Rajan’s writing can stray into the academic, it is at times pithy (“Democracy preserved market competition, and market competition preserved democracy”), and he makes complex economic principles more accessible in brief .
Rajan writes that wrong choices could derail human economic progress at this critical moment in history. He sees that economic progress and a humanity that has “never been richer”, is worried to death, literally. Rajan's book says that the “primary source of worry seems to be that moderately educated workers are rapidly losing or at the risk of losing, good 'middle class' employment, and this has grievous effects on them, their families and the communities they live in.”
It is difficult to disagree with the judgment of the IMF Economist Kenneth Rogoff---“The book is a remarkably original and insightful take on the evolution, foundations and future of capitalism..a landmark treatise of profound depth”.
P.P.Ramachandran.
17/03/2019.
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