The Third Pillar. Raghuram Rajan

IMBALANCE

       5. The Pressure to Promise

       6. The ICT Revolution Cometh

       7. The Reemergence of Populism in the Industrial West

       8. The Other Half of the World

       PART III

       RESTORING THE BALANCE

       9. Society and Inclusive Localism

       10. Rebalancing the State and the Community

       11. Reinvigorating the Third Pillar

       12. Responsible Sovereignty

       13. Reforming Markets

       Epilogue

       Acknowledgments

       Notes

       Index

       About the Author

       About the Publisher

       PREFACE

      We are surrounded by plenty. Humanity has never been richer as technologies of production have improved steadily over the last two hundred fifty years. It is not just developed countries that have grown wealthier; billions across the developing world have moved from stressful poverty to a comfortable middle-class existence in the span of a generation. Income is more evenly spread across the world than at any other time in our lives. For the first time in history, we have it in our power to eradicate hunger and starvation everywhere.

      Yet even though the world has achieved economic success that would have been unimaginable even a few decades ago, some of the seemingly most privileged workers in developed countries are literally worried to death. Half a million more middle-aged non-Hispanic white Americans died between 1999 and 2013 than if their death rates had followed the trend of other ethnic groups.1 The additional deaths were concentrated among those with a high school degree or less, and were largely due to drugs, alcohol, and suicide. To put these deaths in perspective, it is as if ten Vietnam wars were simultaneously taking place, not in some faraway land, but in homes in small-town and rural America. In an era of seeming plenty, a group that once epitomized the American dream seems to have lost hope.

      The anxieties of moderately educated middle-aged whites in the United States are mirrored in other rich developed countries in the West, though perhaps with less tragic effects. The primary source of worry seems to be that moderately educated workers are rapidly losing, or are at risk of losing, good “middle-class” employment, and this has grievous effects on them, their families, and the communities they live in. It is widely understood that job losses stem from both global trade and technological progress leading to automation of old jobs. What is less well known is technological progress has been, by far, the more important cause. As public anxiety turns to anger, radical politicians find it easier to attack visible and better understood targets like imports and immigrants. They propose to protect manufacturing jobs by overturning the liberal rules-based postwar economic order, the system that has facilitated the flow of goods, capital, and people across borders.

      There is both promise and peril in our future. The promise comes from new technologies that can help us solve our most worrisome problems like poverty and climate change. Fulfilling it requires keeping borders open, in part so that these innovations and associated investments can be taken to the most underdeveloped parts of the world. The peril stems from influential communities not being able to adapt and instead impeding progress. If we are to harness technology’s promise, our values and institutions must change as innovations disproportionately empower and enrich some.

      disruptive technological change

      Every past technological revolution has been disruptive, prompted a societal reaction, and eventually resulted in societal change that helped us get the best out of the technology. Since the early 1970s, we have experienced the Information and Communications Technology (ICT) revolution. It built on the spread of mass computing, made possible by the microprocessor, and mass communication, enabled by the internet and the mobile phone. It now includes technologies ranging from artificial intelligence to quantum computing, touching and improving areas as diverse as international trade and gene therapy. The effects of the ICT revolution have been transmitted across the world by increasingly integrated markets for goods, services, capital, and people. Every country has experienced disruption, punctuated by dramatic episodes like the Global Financial Crisis in 2007–2008 and the accompanying Great Recession. We are now seeing the reaction in populist movements of the extreme Left and Right. What has not happened yet is the necessary societal change, which is why so many despair of the future. We are at a critical moment in human history, when wrong choices could derail human economic progress.

      This book is about the three pillars that support society and how we get to the right balance between them again so that society continues to prosper. Two of the pillars I focus on are the usual suspects, the state and markets. Many forests have been consumed by books on the relationship between the two, some favoring the state and others markets. It is the neglected third pillar, the community—the social aspects of society—that I want to reintroduce into the debate. When any of the three pillars weakens or strengthens significantly, typically as a result of rapid technological progress or terrible economic adversity, the balance is upset and society has to find a new equilibrium. The period of transition can be traumatic, but society has succeeded in rebalancing repeatedly in the past. The central question in this book is how we restore the balance between the pillars once again in the face of ongoing disruptive technological change.

      I will argue that many of the economic and political concerns today across the world, including the rise of populist nationalism and radical movements of the Left, can be traced to the diminution of the community. The state and markets have expanded their powers and reach in tandem, and left the community relatively powerless to face the full and uneven brunt of technological change. Importantly, the solutions to many of our problems are to be found in bringing dysfunctional communities back to health, not in clamping down on technology or on markets. This is how we will rebalance the pillars at a level more beneficial to society and preserve the liberal market democracies many of us live in.

      definitions

      To avoid confusion later, let us get over the tedious but necessary issue of definitions quickly. Broadly speaking, the state in this book will refer to the political governance structure of a country, usually the federal government. In addition to the executive branch, the state will also include the legislature and the judiciary.

      Markets will include all private economic structures facilitating production and exchange in the economy. The term will encompass the entire variety of markets, including the market for goods and services, the market for workers (the labor market), and the market for loans, stocks, and bonds (the capital or financial market). It will also include the main actors from the private sector, such as businesspeople and corporations.

      According to the dictionary, a community “is a social group of any size whose members reside in a specific locality, share government, and often have a common cultural and historical heritage.”2 This is the definition we will use, with the neighborhood (or the village, municipality, or small town) being the archetypal community in modern times, the manor in medieval times, and the tribe in ancient times. Importantly, we focus on communities whose members live in proximity—as contrasted with virtual communities or national religious denominations. We will view local government, such as the school board, the neighborhood council, or town mayor, as part of the community. A large country has layers of government between the federal government (part of the state) and the local government (part of the community). In general, we will treat these layers as part of the state. Finally, we will use the terms society, country,