Review: Raghuram G. Rajan, The Third Pillar (2019) – Guest Review by Share My Library

What follows is a guest review by Share My Library. All opinions belong to the author. Please visit Share My Library’s website here, and follow them on Twitter here. If you are interested in contributing a guest post to my blog, please contact me using the information here.

Quote of the book:

  • “Too much market and society becomes inequitable, too much community and society becomes static, and too much state and society becomes authoritarian.”

5 key points:

  • There is a necessity for a balance of three pillars in society: State, Market, and Community.
  • Rajan makes a case for ‘inclusive localism’ – in other words, this is a system where the community is self-governing and autonomous such that people who are part of this community can participate and are represented in the decision-making process.
  • In modern society, especially in Western individualistic societies, people have been turning away from their neighbours and towards the service sector, contributing to a breakdown of community relations.
  • Power has been transferred from communities to governments and technology, as a result of Big Tech and Globalisation. As a result, communities no longer have as much power in decision-making and Rajan argues that there needs to be decentralisation of power to communities to combat this.
  • The role of communities has changed since pre-industrial times to the modern day. Communities are important as social infrastructure in a healthy democracy, allowing people to have an emotional and spiritual support system, as well as protection if anyone is harmed by the market or the state.


‘The Third Pillar’ by Rajan, a renowned Indian economist, makes a compelling case for why, in addition to markets and the state, society also needs strong communities in order to achieve balance and harmony in economic and political systems. This is primarily a book about economics, but it is written in an accessible way with academic rigour and knowledge. It should be accessible for anyone with an appreciation for economics, political science, and public policy.

It is easy to look at the headlines and feel that the world has become increasingly polarised and divided, on a global, national, and even local level. Within towns and cities, many people might not even know who their neighbours are, never had a conversation with them, and in some, there may even be hostility. The main premise of this book is that people have been turning away from their immediate communities and relying on services instead. In addition to communities becoming more fragile, this has resulted in a breakdown of community relations.

But, it is not enough to only rely on the market (in economic terms) and the state (for government services) to provide for society. Society fundamentally needs the community too. One need that people have is belonging. For some time, the nation has been trying to fulfil this need: there is an ‘imagined community’ of nationhood, where people come together and serve the nation. In some ways, this is something that has been observed during the coronavirus pandemic. There is a sense of shared rewards in return for serving the nation, whether people receive protection by the state or the rewards of economic growth. However this sense of belonging is one which the neighbourhood and immediate community has provided for and could continue to provide for.

In terms of writing style, this book starts by explaining some political history of Western institutions. This was not necessary for the main premise of the rest of the book, so a reader already familiar with this history could skip this section. However, it does provide useful context for the main premise that stronger communities create a healthy democracy. One major pitfall of this book is that, as it is written like an extended dissertation or thesis, it can be a little long winded in its explanation of what is essentially one premise. The argument itself could be structured better in order to be more compelling, rather than predominantly looking at it through an economics lens. Rajan is right that (economic) incentives are important in order to help communities act in certain ways, but it is not the only facet. There are other facets which should be explored in order to create an even more compelling argument, such as cultural, psychological, and social factors.

I found it interesting how this book has become even more relevant today in the context of COVID-19. There has been an increased dependence on communities, instead of the market and the state, in order to make it through the pandemic. Rajan described how people withdraw their support from markets if they feel like the market is unable to or unwilling to protect them. This could happen in instances where people are not employed or are underemployed, or if they find that financially the market is leading to greater inequalities between the best off and the left behind.

To tackle some of this, in the UK there has been an entire army of Community Response Volunteers and COVID-19 Mutual Aid groups. These are community led, organised, and monitored, marking a rise in the strength of community relations. They helped people where the market and the state did not, by providing people with much needed social interaction, the collection of groceries and prescriptions, as well as regular check-ins to ensure people are keeping well. These were things that were traditionally done by the community, before being passed to the service sector, and are now being done by the community again. Time will tell if this marks a more permanent return of the community, in the way that Rajan has advocated for and predicted. Nonetheless, there does seem to have been a greater appreciation for the community and I am curious to see how people’s relationships with their immediate communities will develop over the coming months and years.

Overall, this book makes an important contribution to economic study by offering a very human argument for how to improve society and economic systems. I found it to be unique in this sense as many economic solutions are often proposed at a macro level. It holds relevance and has great potential since the pandemic, so I am curious to see how far Rajan’s economic theory will be put into practice, though Rajan could have more strongly emphasised practical actions for governments and policymakers in the book itself. I recommend this book for anyone interested in or studying economics, political science, social policy, or public policy, as well as those curious about community relations on a local, national, and global level.

Overall rating: 4 out of 5 stars

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