The Third Pillar: Incubating civic nationalism

Raghuram Rajan’s latest book, The Third Pillar, is a fascinating read. The book offers a rich insight into the independent roles of three pillars of modern capitalist frameworks – the state, the market and the community. In the text, the state is observed designing laws to regulate markets while enforcing contracts and property rights; the market, represents a competitive space, facilitating processes of production and exchange between different agents in an economy.

The ‘community’ as the third pillar plays a critical role in building long-term trust and social bonds between agents (households, firms, financial institutions, government etc.), allowing the other two pillars- state and market- to work in tandem.

In the Post-World War scenario, as Rajan argues, liberal market democracies (in Western Europe and North America) saw a better exhibit of interdependence between these three pillars, ensuring greater economic and social well-being of people (as part of community networks), with less inequities in distribution of economic resources.

However, since late 1970s, with disruptive effects of technological growth in information and communications technology (ICT) and rise in automation, as global supply chains grew, market sizes expanded too- scaling up from meeting the demands of local communities to national/global demands.

As markets became more integrated, governance mechanisms too migrated up- leaving the proximate community behind. Here, with the ICT revolution, Rajan draws a distinction between: proximate communities (involving close geographical proximity), and virtual communities (connected through virtual platforms on the internet). For him, the weakening of the third pillar, represents waning of proximate community networks, that started dissolving with a centralisation of political and economic powers (scaling up happened from local to national to international levels).

As an example, the changing governing dynamics of commercial banks – earlier catering to financial needs of proximate communities, help us understand the weakening agency of proximate community networks. It is true how most banking capital requirements nowadays are increasingly determined by the demand and supply of loanable funds or credit requirements as per national (or international) frameworks. A community’s financial needs play thus a limited role in influencing banking capital requirements.

Therefore, as islands of privilege emerged with rise of big corporations in countries like United States, community-determined methods in meeting the needs of finance or provide social protection for workers via unionised platforms became increasingly fragile, simultaneously resulting in loss of local jobs to more automated, capital-intensive modes of production.

Rajan further explains how, it is the dissolution of proximate community networks, that is primarily responsible for waves of anti-elite populist movements in recent years, where local communities feel powerless and perturbed to act against the elite and those (immigrants) perceived to have more opportunities than themselves (native-proximate community).

Addressing this feeling of powerlessness amidst rising inequality, The Third Pillar argues for an urgent need to decentralise and bring some power back to the community’s proximate roots.

This can allow the community, with a common sense of identity and more agency, to have a greater say on meeting its civic obligations, influencing decisions that concern schooling, healthcare access, waste management and employment opportunities.

The case of Pilsen

A cited reference to Pilsen – a community populated by Eastern European immigrants around Chicago, and its revival story can help one understand Rajan’s argument better (on strengthening the third pillar).

Pilsen as a community in late 1970s faced serious issues of drugs, alcoholism and a high crime rate. This was largely due to the low levels of education, incomes and high unemployment rate in the community. Since late 1990s, the community with local leadership to coordinate its revival effort pulled the community up in most performance criterion, ultimately bringing crime rates down in the neighbourhood.

From the church to everyone else in Pilsen’s proximate community – the collective effort in cultivating a civic-culture of building schools, cleaning streets, reducing alcoholism, reduced crime incidence rates. The effort further allowed different virtuous cycles to emerge – with everyone else contributing to the cause.

In Rajan’s view, the case of Pilsen – as one of the many community-driven examples- reflect a feature of “inclusive localism”, where, a strong Mexican-American community worked hard to fulfil basic civic obligations, allowing themselves to be open to other American communities.

The book, in its core thesis, draws an important distinction between: a need to acknowledge the waning effect of regressive community networks (from ancient tribal systems) with the rise of markets and individual autonomy in democratic societies, as against, (acknowledging) a need now to develop an inclusive sense of localism – built upon shared civic obligations- in areas of local education systems, need for healthcare access, creating the right kind of social safety net for the local people.

In context to societies outside North America and Europe, in countries like India – those witnessing a high population diversity with greater levels of ethno-linguistic fragmentation, striking a balance between needs of the state, the market and the community remains tough.

There is a collective need to recognise and consciously tackle issues around internal/external migration, while addressing other concerns around climate change, technological challenges of automation (widening divide between three pillars), to limit job-losses and loss of social safety nets. A direct consequence from some of the above challenges is observable in widespread movements of populist nationalism with majoritarian characteristics – India with rise of Hindutva-nationalism; U.S. with the rise of Trump (and his onslaught on immigrants); the crisis across Europe (resisting inter-country migration), and in Brexit affected UK (where immigration fuelled a rhetorical axis of ‘us versus them’).

Incubating civic nationalism

As a way forward, in avoiding the exclusionary practice of populist majoritarian-nationalism waves, Rajan, in his concluding chapters, stresses on a need to bring some powers back to the community via “inclusive localism"– enabling them to take charge of basic civic obligations with greater agency in decision making.

In case of nations with diverse social and cultural diversity like India, United States, France, Australia, inclusive localism can be made best possible with a much broader discussion around civic-nationalism, allowing citizens– independent of their community bonds, to associate themselves in civic duties, while abiding by principles laid out in the constitution.

Raghuram Rajan’s The Third Pillar offers useful insights on some of the structural problem in 21st century capitalist economies. It is rare for economists to consistently highlight the wrongs taken by economies across different points of time. Rajan has done this brilliantly in most of his books so far, including this one.

The Third Pillar, helps us take a step back, to question why and how do successful capitalist systems work better for a nation’s well-being. Realising the value of the community, in challenging times of economic and political uncertainties, Rajan provokes social thinkers to underpin the value proximate community networks offer, in connection to the needs of the market and the state.