In The Third Pillar, economist Raghuram Rajan offers up a magnificent big-picture framework for understanding how 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 they leave squishy social issues for other people. As Rajan argues, that’s not just myopic; it’s dangerous. All economics is actually socioeconomics – all markets are embedded in a web of human relations, values and norms. He demonstrates how, throughout history, technological phase shifts have ripped the market out of those 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.
And right now, we are 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. Rajan is not a doctrinaire conservative, so 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 provocative.
But even setting aside its solutions, 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.
About the author
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, and also 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.
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.
‘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’
‘A remarkably original and insightful take on the evolution, foundations and future of capitalism. Sweeping in historical perspective, Rajan argues convincingly that the conventional dichotomy between the state and markets misses the critical role of communities in economic and social development … A landmark treatise of profound depth’ Kenneth Rogoff, author of ‘The Curse of Cash’
‘Few economists span the worlds of policy and scholarship with such distinction, and fewer still have been so consistently right about the wrong turns the world economy has taken … We need to strike a balance not just between state and market …. but also between these two and community … A bold, original vision that significantly advances our contemporary debate on the ills of democracies and moves it onto new terrain’ Dani Rodrik, author of ‘The Globalization Paradox’