An Economist’s Argument for Preserving Communities

A summary of an article published in New York Times on Feb 27, about How Markets and the State Leave the Community Behind By Raghuram Rajan.

Raghuram Rajan comes both to praise community and to bury it. This University of Chicago professor and former chief economist for the International Monetary Fund wants his new book to «reintroduce into the debate» the titular and neglected «third pillar» of the community alongside the pillars of market and state that dominate modern society. Rajan says he is seeking «the right balance between them so that society prospers.» But he lacks the courage of his convictions. What begins as an incisive critique of how economists and policymakers abandoned community ends as a dismaying illustration of the problem.

Rajan describes how ranchers benefit by handling livestock trespass cooperatively. Because the community is more attuned to individual circumstance, he observes, «given any quantity of available resources, it can offer a far higher level of benefit to the truly needy». As a former central banker, Rajan gives special attention to the community’s role in financial markets and goes so far as to defend long-ago prohibitions on usury. Small, young firms tend to get more and better loans when fewer banks are present, perhaps because less competition means a higher likelihood of retaining a firm’s business as it grows.

On one page, Rajan recommends that «powers should stay at the most decentralized level consistent with their effective use,» but on the next, he declares that «when inclusiveness goes up against localism, inclusiveness should always triumph». Rajan’s real aim seems to be a movement «toward one borderless world,» with stronger communities a perhaps helpful means to that end.

Source: New York Times