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

by Raghuram G. Rajan

It is widely understood that job losses stem from both global trade and technological progress leading to automation of old jobs.

What is less well known is technological progress has been, by far, the more important cause.

It is the neglected third pillar, the community—the social aspects of society—that I want to reintroduce into the debate.

We will view local government, such as the school board, the neighborhood council, or town mayor, as part of the community.

It anchors the individual in real human networks and gives them a sense of identity;

Local community government acts as a shield against the policies of the federal government, thus protecting minorities against a possible tyranny of the majority, and serving as a check on federal power.

Furthermore, community-based movements against corruption and cronyism prevent the leviathan of the state from getting too comfortable with the behemoth of big business. Indeed, as we will see in the book, healthy communities are essential for sustaining vibrant market democracies. This is perhaps why authoritarian movements like fascism and communism try to replace community consciousness with nationalist or proletarian consciousness.

Once we understand why community matters, and that people who value staying in their community are not very mobile, it becomes clear that it is not enough for a country to experience strong economic growth—the professional economist’s favorite measure of economic performance. Since such people cannot abandon their community easily to move to work where growth occurs, they need economic growth in their own community. If we care about the community, we need to care about the geographic distribution of growth, and about “place-based” economic policies that affect that distribution.

The technological revolution has been disruptive even outside such economically distressed communities.

Their communities deteriorate once again, this time because of the secession of the successful.

The rest are left behind in declining communities, where it is harder for the young to learn what is needed for good jobs. Communities get trapped in vicious cycles where economic decline fuels social decline, which fuels further economic decline . . . The consequences are devastating. Alienated individuals, bereft of the hope and the feeling of belonging that comes from being grounded in a healthy community, become prey to demagogues on both the extreme Right and Left, who cater to their worst prejudices.

It is populist in that it blames the corrupt elite for the condition of the people.

It is nationalist in that it anoints the native-born majority group in the country as the true inheritors of the country’s heritage and wealth.