The Third Pillar: The Revival of Community in a Polarised World, by Raghuram Rajan, reviewed

By @SimonCocking review of The Third Pillar: The Revival of Community in a Polarised World, by Raghuram Rajan, William Collins (UK), available here. Shortlisted for the Financial Times and McKinsey & Company shortlist for the 2019 Business Book of the Year Award.

From one of the most important economic thinkers of our time, a brilliant and far-seeing analysis of the current populist backlash against globalization and how revitalising community can save liberal market democracy. 

Raghuram Rajan, author of the 2010 FT & Goldman-Sachs Book of the Year Fault Lines, has an unparalleled vantage point onto the social and economic consequences of globalization and their ultimate effect on politics and society. 

In The Third Pillar he offers up a magnificent big-picture framework for understanding how three key forces – the economy, society, and the state – interact, why things begin to break down, and how we can find our way back to a more secure and stable plane.

The ‘third pillar’ of the title is society. Economists all too often understand their field as the relationship between the market and government, and leave social issues for other people. That’s not just myopic, Rajan argues; it’s dangerous. All economics is actually socioeconomics – all markets are embedded in a web of human relations, values and norms. As he shows, throughout history, technological innovations have ripped the market out of old webs and led to violent backlashes, and to what we now call populism. Eventually, a new equilibrium is reached, but it can be ugly and messy, especially if done wrong. 

Right now, we’re doing it wrong. As markets scale up, government scales up with it, concentrating economic and political power in flourishing central hubs and leaving the periphery to decompose, figuratively and even literally. Instead, Rajan offers a way to rethink the relationship between the market and civil society and argues for a return to strengthening and empowering local communities as an antidote to growing despair and unrest.

The Third Pillar is a masterpiece of explication, a book that will be a classic of its kind for its offering of a wise, authoritative and humane explanation of the forces that have wrought such a sea change in our lives. His ultimate argument that decision-making has to be watered at the grass roots or our democracy will continue to wither is sure to be both provocative and agenda-setting across the world.

The Third Pillar: The Revival of Community in a Polarised World, by Raghuram Rajan, reviewed

Rajan correctly identifies that we are living in problematic times, with a worrying rise in populism, nationalism, and unenlightened self interest. Equally it is also valid to point out that, as wealth became over concentrated in a smaller and smaller minority of super rich elites, the traditional middle classes found their wealth and disposable income actually diminishing. While we have see more people move out of absolute poverty, it is also a legitimate point that the middle classes have become squeezed and are arguably worse off than they were in previous decades. In a situation like this it enables xenophobic nationalists to appeal to narrow self interests.

Rajan rightly looks to identify the causes of these changes, and the potential solutions to the dangerous situation we now find ourselves in, both in India, the US and among many European countries (both current and potentially soon to be ex EU members). Rajan’s historical economic analysis is interesting, logical, plausible and presents a good overview of what we have experienced economically over the last few centuries. These chapters we would recommend as useful reading for anyone looking to contextualise the situation we now find ourselves in.

From the subtitle of the book it is clear where Rajan sees a potential solution to our current malaise and problems we are experiencing. His examination of the importance of community is perceptive and insightful. Our concern however is that while a decrease in community has created a more susceptible to the demagogues who are looking to lead our nations down into dark, self-serving alleys. Trump for example, breathlessly looking to host the G7 event at his own property, in clear breach of the self-emoluments legislation shows how far we have come, that he even felt it might have been possible to host it there.

Up to this point we are in agreement with Rajan’s hypothesis, our concern is that while he correctly outlines a decline in community as has having a negative impact on our wider lives, it is a much, much harder to restore this. The book towards the closing chapters feels like it is urging us to see this, and make it different, but with much less of a clear road map to outline how on earth we might achieve this. We don’t wish to be glass half full on this topic, but it is an area where the details are critical and Rajan’s book left us wanting in this area.

See more reviews here.

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