The Third Pillar — Review (Part I)
Earlier this year, I completed reading Professor Raghuram Rajan’s latest book, also shortlisted for FT’s business book of the year, The Third Pillar. The book is a must read overview of the current socio-political zeitgeist that lays out the social complexities we face, but more importantly it also provides a framework to think through potential solutions to those problems. While Fault Lines was the perfect red herring for the global economy, The Third Pillar covers socio-economics, markets, and much more.
The third pillar referenced in the book is the community; the author takes us through a panoramic discussion on how communities can be strengthened by creating binding social relationships and making their interaction with governance structures (state) and business (markets) smoother.
The author gave the example of the Nigerian Tiv people when discussing close-knit communities whose social cohesion rests entirely on small but frequently recurring ‘favors’, such that the individuals within the communities lose count of the favors and simply continue the collaborative behavior to keep the small time gravy train of favors rolling. However, it is worth noting that any nudge towards a zero-sum game in this scenario grinds the train to a complete halt.
I couldn’t but think of my own native community’s origins in India. While I claim to be from Mumbai, a city of 20 million, my roots are in a formerly-sleepy but now buzzing town, Mathura. Mathura is a Tier-2 city in one of India’s poorest states, Uttar Pradesh. On my visits to my grandparents over summer breaks, I enjoyed the escape it gave me from the metropolis I grew up in. However, there were some key differences in the way people interacted that came back to me when I read the Tiv people example; on my visits to Mathura, I was shocked by how many things passed in and out of my grandparents’ house everyday that they termed ‘gifts’ — piles of cold barely-edible pooris, untouched sarees that had definitely been exchanged three other times previously, new-shiny kitchen utensils that too had exchanged a few hands and were too massive to ever be possibly used in day-to-day cooking, etc. I was always confused by the constant movement of goods between houses within a few blocks of each other. If no one uses these gifts, what is the purpose of the constant sharing? What was actually happening was equivalent to the Tiv people’s cross-linked chains that signaled a social bond with your neighbor, partaking in every little celebration together — of which there were plenty in a small town where homes for the longest period of time housed large joint families. A birthday today, an anniversary tomorrow, an engagement yesterday, so on and so forth.
Given sarees were exchanged for vessels or even services like managing guests at a neighbor’s wedding celebration, there was no market value attached to the gifts and services exchanged to ‘close the account.’ It was simply a form of a social cohesion mechanism where exchanging new things contributed to trust between families. Social bonds are built when the giver seemingly doesn’t expect something of equivalent value in return. However by continuing to contribute tangibly, people within the community avoid the ostracization of becoming a free-rider.
The author’s discussion of dysfunctional communities in today’s world is also relevant in my small town’s example. When communities become insular over time, they can quickly develop a trust deficit and the familialism erodes. With fewer employment opportunities in a town like Mathura (closed markets of 1980s license-permit Raj India), its youth began migrating out to cities like Delhi and Mumbai. There weren’t that many birthdays and engagements to celebrate anymore! Neighbors who had lived together for decades came to look at the limited economic opportunities in the town from a zero-sum lens. India’s local governments are infamous for apathy towards basic services, like healthcare and cleanliness, this in turn made the community relationships weaken even further — why should I keep the street clean if the government doesn’t help me and there’s a chance my neighbor might benefit, i.e. what the author refers to as ‘amoral familism.’ Bringing communities together therefore cannot simply be left to ‘free markets’. Government needs to ensure the local populace is receiving the basic benefits that avoid this problem of moral-hazard related amoral familism. Improving street lights, cleanliness in developing countries, improving fiber optic cables in richer communities are some examples to bring communities together to avoid the threat of one’s neighbor free-riding benefits.
One criticism for localizing power in communities could be that it is but the flipside of the agglomeration debate happening across the major metropolis’ across the world, busting at the seams; Agglomeration combined with localizing power in local communities may create NIMBYism and as Hsieh-Moretti’s research on salaries in American superstar cities shows, the increased productivity and rising salaries emanating from such agglomeration may not lead to great consumption power (and therefore increase GDP) if bills like the Senate Bill 50 remain dead on arrival. Therefore, localizing power needs to be combined with macro infrastructure investments in high-speed transit, especially in dense areas, as my hometown of Mumbai is finally beginning to do.
There is a paradox here; agglomeration seems to continue increasing globally, while tech reduces the need for such agglomeration. All the while productivity has stagnated. As the book argues, stronger communities create virtuous circles that strengthen the economy which then strengthens the community further, whether that is because capable people want to work and live in the same urban hubs where other ambitious people with similar characteristics reside or simply because of the presence of better employment prospects, needs further examination. Specifically, can agglomeration via localizing power in communities, increase economic productivity?
