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

by Raghuram G. Rajan

in the United States, only 57 percent of low-income respondents trusted people from their neighborhood, while 85 percent of upper-middle-class respondents did so.

For instance, only 58 percent of rural communities have access to broadband, while 70 percent of the typically richer suburban communities do.

in the 1980s, Japanese officials argued for keeping out US beef because Japanese digestive systems were different, US pharmaceuticals because they had not been tested on Japanese subjects, and US-made skis because Japanese snow was unique.3 While such arguments are so patently protectionist that they border on the facetious, and thus can quickly be called out for their protectionist intent, some countries have genuine reasons for the differences in their markets.

with China growing rapidly, it is clear that the United States will not remain the largest economy in the world for much longer.12 China wants more recognition and say in multilateral institutions. Indeed, it would be natural for it to want to take the place that the United States carved out for itself postwar. The privileges are many. For instance, in the International Monetary Fund’s founding statutes, Article VIII, Section 1 states that the principal office of the Fund shall be located in the territory of the member having the largest shareholding, which typically goes by economic heft. So, by right, the Fund’s head office should move soon from Washington to Beijing. The view of global economics from the Grand Canal in Beijing will look very different from what it seems from the shores of the Potomac in Washington.

Dani Rodrik from Harvard University has argued that globalization, democracy, and national sovereignty constitute a trilemma that are impossible to reconcile. Countries can have two but not all three.

A ban on lobbying would be near impossible to enforce, though. Far better, then, to follow Madison’s cure for the problem of political interests—have enough corporations lobbying that no interest dominates and they compete to keep each other honest. This is one more reason to not have any industry or country dominated by a few large firms, a matter we will return to shortly.

The temptation when imbalances arise is to hack all the pillars down to the lowest height among them. This typically will bring back equilibrium, but at a much lower level for society. Far better to push a pillar down only if absolutely necessary, and instead, focus on elevating all pillars to the greatest common level. That is the only way society will progress.