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

by Raghuram G. Rajan

We have been discussing what might be deemed pre-market support, that is, help in preparing the individual to enter the market as a worker or a producer. Let us now turn to what could be labeled post-market support – help to those who are hit by adverse economic conditions, or who, because of disability, misfortune, aging, or technological change, are incapable of earning a living. In a sense, both pre-market support and post-market support could be thought of as substitutes. The more people have the capabilities to participate in and benefit from the market, the less need there is of a safety net, and vice versa. Indeed, the historical US embrace of markets despite the holes in its safety net, may well be due in large measure to its high-quality and widely accessible schooling system. Today, its schooling system is no longer adequate, hence more weight falls on post-market support, which the United States is ill structured to provide, for reasons we will come to shortly. Worker lives in the early years of industrialisation were very difficult. They were, on average, much poorer than today. Wages were barely enough to put food on the table and secure shelter for the family in a noxious urban slum, let alone build a buffer of savings. Indeed, informal workers in many developing countries face similar conditions today; sickness means a loss of pay and skipped meals; and the death of the main wage earner may leave the family destitute, with few alternatives to begging or pros...

Pre and post market safety net