Rahuram Rajan's new book is a survey of contemporary societies and a search for an economicutopia
The Third Pillar: How Markets and the State Leave the Community Behind
Raghuram Rajan has an active mind and a fluid pen; he writes and speaks with great facility. From his chair in Chicago he was lured away by then prime minister Manmohan Singh to serve his country of origin, and after a stint in Delhi, elevated to the top floor of the Reserve Bank of India in Mumbai. That automatically made him persona non grata with the NDA government that followed; its finance minister unceremoniously dismissed Rajan. One might have expected him to have much to say about his Indian experience, but he was virtually silent for almost three years. Now, he has written a substantial book; but it has only 15 references to India, and barely a dozen to his previous work.
He begins with Pilsen, a community close to his residence in Chicago. In 1979, there were 67 murders per 100,000 people in Pilsen; the average in Western Europe was one. Then a resident named Raul Raymundo organised its people. When they saw criminals preparing to strike, they would come out on the streets and crowd them out; they would make multiple calls to the police to come and tackle the gangs. They improved schools. They took over a failing bank and turned it around. They built affordable housing. Over time, they turned a crime-ridden poor area into an attractive community.
This is the focus of Rajan’s book: much has been written about the state and markets, whose functioning is crucial to human welfare, but people’s happiness depends as much on the communities they live in. The social sciences have little to say about how to build ideal communities. Rajan does not have a formula, but he has taken a panoramic view of what seems to work and what does not.
The book is in three parts. The first is about the three pillars, and why the state and markets developed and left communities behind. The second is about the basic problems facing major countries: growing distance between the rich and the poor in developed countries, inconsistency between China’s sophisticated economic structure and primitive political structure, and a private sector dependent on a weak state in India.
The last part is about the changes required to tackle the problems. Rajan is in favour of devolution of powers and functions to smaller entities rather than national governments — essentially, to communities. He does not favour dissolution of states; they should continue to do more or less what they are doing, including law and order, border control, taxation, etc. But social services should be devolved much lower down to communities, and they must be given freedom to experiment.
Essentially, Rajan wants innovation in governance. He has ideas on its direction — the book is brimming with them — but he does not think he has got the answer. He sees the need for a new kind of social organisation. He has found bits of it in Indore, Chicago and elsewhere, but they do not add up to the ideal structure the world should move over to. In a sense, this book is a rather chaotic survey of today’s society and a search for tomorrow’s society.
But that is not all that it is. It is also a summary of all that Rajan has read in the course of his search, and of the many observations and lessons he has drawn from it. They are driven more by his intellectual curiosity than by his goal of defining a new ideal society. The result is that this book does not flow from a problem to a solution. There is no such logical continuity; someone who is looking for it will find the book frustrating. It is more like a lost explorer’s wanderings in a jungle looking for an elixir. If one is focused on an elixir, one will not find this book a perfect guide. But if one enjoys getting lost in this particular jungle, this book is a fascinating companion.
Rajan is not the first one to go looking for the ideal community. There was one man who spent his entire life not just looking for one, but experimenting to create one. His name was Mohandas Karamchand Gandhi. He created three communities — Tolstoy Farm, Sabarmati and Sevagram. None of them made it. He barely figures in this book. Rajan is not trying to create a community; he goes around the world looking for his ideal. He will find many approximations to it. Maybe those are what his next book should be about.
Ashok V Desai is a former chief consultant with the finance ministry (1991-93), Government of India. But he’d rather be identified as “an extinguished economist and aspiring wordsmith”
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