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  • Andrew O'Brien

Book Review: The Third Pillar by Raghuram Rajan

There is increasing global recognition that the two great trends of the 20th Century, the growing power and intervention of the state in the first eighty years and the rising power of the market in the last twenty, have created an imbalanced economic and social system. Raghuram Rajan’s latest book “The Third Pillar” (brought out in paperback in February 2020) is an attempt to restore the importance of “community” in economic discourse.


State too remote, market too unequal


Rajan’s diagnosis of our current ills is that the state – whilst essential for maintaining access to markets and ensuring fairness – has become too powerful. Far too much is driven from the “federal” level driven by concerns about inequality and the lack of resources at the local level needed for comprehensive public services. The market has also become too powerful with large corporations able to set the rules of the game and hollowing out the “middle class” of independent business owners which are essential to democracy.


The solution? Strengthen local communities. As Rajan rightly points out, communities and the cultural of a community has a huge impact on everyone in it – from educational outcomes, to employment and family breakdown. For ease, when talks about “community” he means people living together in a village, town or borough level (in a UK context).


Unfortunately, Rajan lumps community and local government together from the beginning and ends up talking a lot about the latter without much regard for the former, what one could call “civil society” which is surely the heart of community. There is also a repetitive focus on schools and education, which of course are critical to society, but a community is more than just a collection of people that come together to educate their children. To be fair to the author, it appears that he has focused on education because there is a great deal of literature on the subject. Ultimately Rajan has little original to contribute to his chosen subject, beyond a diagnosis that draws multiple different sources together. Hence why half of the book is focused on schooling and education where he can draw on other people’s work. Perhaps it could have been more accurately titled “The Third Pillar: Devolving Educational Control to Local People”.


How do communities form?


Politicians talk a lot about community (as does Rajan) but there is very little understanding about how communities are formed and developed. Authors like Rajan seem to assume that people living together just magically come together into a community. Rajan is able to document so vividly how communities break down and the challenges in patching them together, but when it comes to explaining how communities are forged, revived or strengthened we are left with woolly statements about “local leadership”. We know that local leadership is important, but leaders need some raw matter to be able to shape into something. A latent power that exists in the people that can then be moulded into action. Rajan just takes the community as a given, which is flawed. Communities are not “natural” in the sense Rajan talks about them. If they were, then every country in the world would be a mini-United States.

Politicians talk a lot about community...but there is very little understanding about how communities are formed and developed. Authors, like Rajan, seem to assume that people living together just magically come together into a community.

Understanding the development of communities is critical because without knowing how a group of people come together to form a community, from a policy level it is very hard to know what to do. The reader is left feeling that “community” is something that just comes into being. This lack of understanding is probably why the main solution from Rajan appears to be to devolve as much power to the local community as possible and hope that a “thousand flowers bloom”.


A purposive community


What is the difference between a group of people living together (what Rajan calls a “proximate community”) into a community which is able to take joint action together for the benefit of all? Some would argue that identity is important and certainly based on the literature available, most of our modern communities have emerged from tribes and clans which are relatively homogenous. By the Middle Ages, in Europe, this type of structure had already been steadily eroded. Initially replaced by religious affiliation but over time this too has waned in the developed world. Quite rightly, Rajan does not want to go back to communities shaped purely by identity, as this would lead to ethnic or religious segregation, but he does not really offer anything to replace it. This is a problem better identified by Francis Fukuyama in his latest works on political order. The “return of the tribe” is one of the biggest threats to order in prosperity in the modern world.

This is the black hole of the liberalism that Rajan espouses. He is enthusiastic about giving power back to the local community to come together and achieve something. But to achieve what?

This is the black hole of the liberalism that Rajan espouses. He is enthusiastic about giving power back to the local community to come together and achieve something. But to achieve what?

Although he does not directly say this, the underlying assumption to this book is that people should come together in order to improve their material wellbeing. Yet if materialism was enough to motivate communities to come together, surely they would already be doing so? You do not need to be a world-renowned economist to see to places with strong community ties are richer than those that lack community, the problem is that material self-interest is not in itself a strong enough binding agent.


Moreover, as Rajan highlights, if you are a well education person or successful in business and have the potential for great material wellbeing, why would you sacrifice that to live in a community which is weak and has poor prospects? This is why Rajan proposes some form of tax relief for more advantaged people to “stay behind”. Good luck with that. It also undermines his own argument that tax cuts should not be used to stimulate local communities as this merely takes resources away from their future development.


What makes a group of people into a community? A purpose. Purpose comes in many forms. It could be materialism, but this is too weak and merely encourages the centrifugal forces which end up leading people to turn away from communities. Rajan is right to raise concerns around ethno-nationalism. This can provide a powerful purpose, but we know from history that it is a pathway to death and destruction on a large scale. Religion can also provide a purpose, although there is a risk that this too can be come aggressive and exclusionary. However, Rajan is wrong to throw out national identity completely as a purpose which can drive both local and “federal” renewal.


Communities which see themselves as part of a larger whole and are prepared to compete with each other to deliver a national (or even international) mission and receive adulation can generate impressive results. This is why Fukuyama, in a much better series of books on Political Order, outlines the need to revive civic nationalism. Rajan references the efforts in China where local officials are competing to create growth to enhance Chinese national economic power, but seemingly ignores the revitalised Chinese nationalism that is motivating this “mission” because it does not fit into his philosophy. Closer to home, this desire to contribute to a national mission can explain why one of Britain’s greatest Mayors, Joseph Chamberlain, was both a revolutionary radical as a local government leader but a staunch nationalist at Westminster.

Communities which see themselves as part of a larger whole and are prepared to compete with each other to deliver a national (or even international) mission and receive adulation can generate impressive results.

Rajan has very little original to say in policy terms either, but perhaps given his view that we should just devolve power and hope that generates results, that should not be surprising.


Community is as important as physical infrastructure to revive Britain


What One Nation Conservatives should take away from his book is that when people are brought together in a common endeavour, they can achieve extraordinary results. Community does not happen by accident but needs a philosophy and structure. The goal of Conservatives has been to create those institutions which foster a shared purpose. We cannot just rely on the market or state to create progress unless people are bound together by a sense of community. This is true at a local level and a national level. Community is just as important as new roads, super-fast broadband or improved FE colleges. All actors and institutions in our society need a cause for action beyond just their own material wellbeing.

What One Nation Conservatives should take away from his book is that when people are brought together in a common endeavour, they can achieve extraordinary results. Community does not happen by accident but needs a philosophy and structure. The goal of Conservatives has been to create those institutions which foster a shared purpose.

Community too requires investment. Some of this is financial investment – such as providing grants and funding for civil society, supporting local sport and culture, creating a tax environment which encourages giving etc. It also means funding and preserving institutions which bring us together such as the BBC, museums and other historically and culturally important institutions.


But all this needs to start from a political investment in creating a sense of common purpose and endeavour which gives people, government and businesses something to strive for. This is what the Government needs to sort out immediately, otherwise it will not have a direction of travel. “Global Britain” will not cut it, as it lacks a tangible outcome. We must be “global” to achieve what? Something more tangible is required. Leading the world in tackling the climate emergency seems an obvious place to start but there are many others.


Although there is plenty that this reader would disagree with Professor Rajan on, we can both agree that creating stronger communities is a central challenge of our time.

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