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

by Raghuram G. Rajan

China and India. After outlining the reasons for their extraordinary growth, we will see that each one has a different kind of imbalance to deal with. China has a strong state, dominated by the Communist Party. Can China’s increasingly sophisticated and complex markets grow while the state continues to be under Party control? For democratic India, the challenge is to make the state more effective, while placing stronger constitutional limits on it. This requires a more independent private sector. As these countries, especially China, play a greater role in global governance, the future is worrying. Populist nationalism in the developed countries will strengthen incipient nationalism in the emerging markets, and make divisive conflict at the international level more likely. This is yet more reason why reforms are urgent.

China & india currently