Chicago Booth’s Raghuram G. Rajan explains how his 2019 book “The Third Pillar: How Markets and the State Leave the Community Behind” makes the case for giving more power to local communities. “What happens when one or two pillars get overly strong is that it creates an imbalance,” Rajan says. “And that imbalance has to be rectified either by strengthening some other pillar or by weakening the existing pillars.”
Raghuram G. Rajan: So the three pillars are really the pillars that hold up society. On the one hand, there’s the political pillar: the state, government. There is the economic pillar: markets. And then there is the societal or sociological pillar: communities, people, democracy. And together these pillars, essentially, make our society what it is.
What happens when one or two pillars get overly strong is that it creates an imbalance, and that imbalance has to be rectified, either by strengthening some other pillar or by weakening the existing pillars. And throughout history, and that’s what the book tries to show, we’ve had serious imbalances emerging, either because of dramatic calamity like the Black Death, which was the plague that killed off one-third of Europe, or because of scientific or technological advances, such as the first or the second Industrial Revolution.
And I argue we are going through something similar today: a technological revolution, which essentially is strengthening markets tremendously but also strengthening governments at the same time. And what is being left behind? It’s the third pillar, the community.
What we’re having today is a strengthening of the market. Across the world, we see vibrant markets facilitated by technology. Now, what this does is it requires more from people. It requires people to have better education, higher education, and it leaves a lot of people behind who cannot get that education. Now, where do people get education? In their communities, from strong schools in their communities. And what we’ve seen today is that third pillar, the community pillar, is breaking down because when people see that you need a strong education to survive in this world, they want the best education for their kids. They leave the existing communities, which cannot provide that education, go to the communities in New York or San Francisco with great schools. But what happens to the communities where they don’t have that kind of school? Because the smart kids, the well-prepared kids, have left, what is left behind is a less-well-to-do community, a community that prepares people less for the future.
Why is it that people are angry? Not just because they saw the global financial crisis and they saw that, you know, the elite looked after themselves, but also because they feel that the future is less good for their children than it was for them. This is a big change in the world because the history of the last 200 years has always been one of progress. We’re now coming face-to-face with the possibility of regress.
(Instrumental music) I think we need to think deeply about what is going wrong, why the system worked for 60 or 70 years and then stopped working, and how we set it back on track. And that requires fundamental change. It’s not about easing monetary policy, or a fiscal boost here, or a fiscal boost there. It is about fundamentally restructuring the social contract that we have. It’s about how we get the services and the activity to the areas where they’re disappearing.
Raghuram G. Rajan: The central, sort of, solution in this book that I want to emphasize is what I call inclusive localism. Now, localism is a word for an empowered community. That is, push more decision-making back down to the community, which over the years has migrated up into the state level, into the national level, into the international level.
I wanna push it back down so that people have a sense of control over their lives. So how do we create communities that are strongly bonded with each other but are not bonded because they keep others out, but because there’s more value from the inside and allow for people to leave or to come in and, therefore, are in a sense, a vital and efficient element of society.
The inclusive part, to my mind, is affected largely by the other two pillars: markets, which traverse the borders of the community and bring goods and take away services and goods from the community, and the state, or the national government, which ensures that each community is part of the larger nation and therefore contributes to many of the things that nations do well.
So how would one reinvigorate communities? There are many failing communities, but there are also communities that have picked themselves up. Now, often what you need is a leadership group. Every community needs to start by looking at what its strengths are. And the leadership group helps it do that: identify how it can pick itself up.
Central to revitalization is bringing economic activity back. If you don’t have economic activity, it’s much harder for a community to flourish. The reality, however, is there’s no one path. It’s much like development. We can look back at the cases where development took place, and we know what happened and why it happened. But put those same things together in some other place, it’s not clear the same things will happen.
But, the good news is, there is success. And we should build on that. One example of a community that’s built itself up despite the odds is a community in Chicago: the Pilsen community. Now, Pilsen is a community that was originally Eastern European in character and, over time, changed character. Immigrants were a lot poorer. And the initial wave was of more crime, more drugs, more violence.
Twenty-one gangs over a span of a couple of months. What Pilsen did was essentially say, “We need to change. We cannot live under these circumstances.” A leadership group got together. They started a movement. That movement involved first dealing with the sources of crime. So when, for example, there was an incident, people came out of their doors, so that the crime got crowded out. That once you see a lot of people there, the criminals sort of started leaving.
As this started bringing crime down, some of the positive benefits of community started showing up. Businesses were looking for relatively cheap places to start warehouses, some to start restaurants. This is a community where a job at McDonald’s is actually a step up, and as these restaurants came and started opening up, more youth got jobs and now no longer had to rely on crime. They started improving the quality of schools so that when kids left school, they had a future to look forward to.
(Instrumental music) So this was a community-led effort. So much so that now the risk that Pilsen faces is of a lot more people from outside coming to want to buy houses inside, or rent houses, which is pushing up the cost of housing for the native dwellers in the community. Well, that’s a good problem to have. It suggests the community is becoming much more attractive.
The community is critical to maintaining the balance between the state and markets.Raghuram G. Rajan Says Capitalism’s Future Lies in Stronger Communities
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