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

by Raghuram G. Rajan

While the nomenclatures vary, at the heart of such regimes is a pact between the cartelised market and the state, leaving little room for economic or political competition, or the community. Such arrangements are examples of what political economists Douglass North, John Wallis, and Barry Weingast call limited- access societies.35 In contrast, the liberal market democracies in developed countries are what they call open- access societies, combining free and open markets with vibrant democratic control over the government. Implicit in the work of a number of political scientists is the belief that open- access societies are the desirable pinnacle of social development, and they will not regress back to limited-access societies because of the strong institutions that protect them. They are probably right in believing that open- access societies are the best we can do for now, but they are mistaken in thinking that open-access societies cannot regress. To prevent regression, it is critical that the balance be maintained. As we will see now, communities of citizens, expressing their interests through democracy, played an important role in the United States in preventing a corrupt compact between the state and the markets.

Limited access vs open access to societies