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The Third Pillar: How Markets and the State leave the Community Behind

Updated: Aug 24, 2021

Shortlisted for the Financial Times and McKinsey Business Book of the Year 2019, The Third Pillar by Raghuram Rajan offers a rich and illuminating picture of a populist backlash against globalisation. It deals extensively with the far reaching implications of the neglected ‘third pillar’ i.e. community amidst liberal democracies in modern society. Rajan brilliantly uses various strands of social sciences such as economics, political science, sociology, psychology, history etc. to give a multidimensional analysis of three man-made social systems, namely, the state, the market and the community and how their role and strength with respect to each other remain in constant flux.

Markets and the state have long competed to control what Lenin called the commanding heights of the economy. Beginning from the early 1990s, many economists and thinkers such as Larry Summers pushed for financial globalisation and the free flow of capital; owing to the collapse of the Soviet Union in 1989 and the end of the Cold War in 1991 which had apparently led to the weakening of the state.Raghuram Rajan, however, in spite of being a firm believer in the free market and its benefits, has remained vocal on the other side of the picture as well. In Saving Capitalism from the Capitalists, he championed the cause of victims of competition in a capitalist society by mentioning that “markets need a heart for their own good.”

To further extend his warning against the “catastrophic meltdown,” due to excess financial globalisation, Rajan in his latest book offers the restoration of community. He defines community as a social group residing in a specific area that shares a government and often a common heritage, as an antidote to growing despair and unrest in the modern world of unfettered capitalism. He makes use of various historical events, right from ancient practices of feudalism, guilds, etc. to much modern phenomena of technological advancements. The book is a case of thoughtful analysis and logic bringing home the conclusion that we are not hostages to a random series of events but use thoughtful deductions to make informed steps towards a better tomorrow.

In terms of structure, the book is divided in three well crafted sections and each of them has a purpose; Section I is an explanation of how each pillar came to be- as they started crude and unorganized but then over time matured into powerful social constructs (behemoths and leviathans). Section II highlights the historical underpinnings of today’s imbalance among the pillars, and Section III identifies ways we can respond to the current imbalance among the pillars by not attempting to bring down the dominant pillar but instead building up the weaker pillars. In carrying forward his metaphorical pillar-type structure of the book, the author has made use of examples to discuss ideas, themes and his own commentary on the same. One such example is the reference to Pilsen- a community populated by Eastern European immigrants around Chicago, whose revival story surrounding the cultivation of community, civic-culture and “inclusive localism”, provides a very strong foundation to Rajan’s arguments. However, he doesn’t fail to mention that communities can also be restricting, such as when parochial thinking and peer pressure hold back new or progressive ideas and thus he roots for check and balance in societal structures.

Further, to introduce the market pillar in the narrative, Rajan makes use of the story of usury and the sin of avarice. From being a matter of despise in the medieval Catholic Church, it has now become one of the major tools in expansion of international trade. However, in this process, markets zoomed ahead of the development of community and the state, mainly because of the emergence of legalised loan markets, which soon replaced the barter system and personal favours within the community. Secondly, the formation of tradesmen guilds and monopolies trespassed simple manor life. Thirdly, the market intruded into the workings of government, in an insidious manner,through lobbying and cronyism and the element of competition has emerged as the manipulative force over time. Thus, Mr. Rajan, despite believing in the free market as a critical and natural phenomenon, advocates for corporate behavior to focus on value-maximization and not just profit, to fully exploit the potential of the free market system.

Juggling between these two pillars of community and market, the narrative of the emergence of the state pillar plays an integral role in the book. On the one hand it is responsible to address market abuses and confront the effects of the industrial revolutions while on the other hand, it has to ensure safety nets such as jobs, health, income etc. to compensate for the waning importance of community. It is the resulting distrust in the community during the times of weak governments and strong businesses that has led to populist nationalism and the rise of populist leaders – a topic Rajan addresses at multiple points in the book.

Analysis and Critique

The book follows a visionary technique of narration wherein the author couples theories with examples to create a logical deduction out of them, which can span across cultures and time periods. He uses cautionary language with a sense of considerable courtesy for individuals and philosophies referred to in the narrative. Yet, beyond just explaining historical events and their consequences, Rajan also adds his opinions from time to time, telling us what kind of possibilities and changes these consequences are pointing towards. Instead of revolutionarily throwing out certain themes and ideas, the book is a mouthpiece for collective efforts, even smaller ones, towards a balanced future.

The book comes out to be highly informative and it does put, both historic and current, in a new perspective. Nevertheless, in terms of the solution offered, the balance seems overly optimistic as it calls for massive changes occurring in either our economic preferences or our social motivation. Other economists like Walter Scheidelare are not so sanguine about this, and cannot see that today’s resource inequalities will be reduced without resorting to radical if not violent means. Secondly, the book doesn’t talk much of the changed and refined nature of the community in today’s world, where high-density metropolitan cities have become the archetypical community. He does acknowledge the mixed incomes of such urban communities which has led to disparity in designs of various suburbs and homes, but Rajan fails to mention the possible role of social capital in offsetting these trends that can lead to a renewed “sense of place” and identity.


Raghuram Rajan’s The Third Pillar takes us a step back to question why and how successful capitalist systems work in a modern day society. He methodically develops an insight into human behavior and applies it to historical and contemporary situations to help the reader make sense of the big picture of human affairs. By calling for the reassertion of the value of community as the workplace of tomorrow, in an era of political and economic uncertainties, Rajan not only presents us with a well-defined understanding of the problem but also leaves us with a plan of action for the times to come. He notes as machines and robots begin to produce more of our goods and services, human work “will center once again around interpersonal relationships.” Thus, the book in true sense gives meaning to words of Chicago architect Daniel Burnham, ‘Make no little plans; they have no magic to stir men's blood and probably themselves will not be realized’ and realizing Rajan’s vision, the book indeed stirs blood, at least mine.

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