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Dr. Raghuram Rajan Speaks At Northeastern University

Paramesh Garimella

The 5th India Lecture series at Northeastern University’s Center for Emerging Markets (CEM) featured Dr Raghuram Rajan, Chicago-Booth Professor, Former Governor, Reserve Bank of India and Former Chief Economist, IMF on April 1st. The talk was “How Markets and the States have left the Community Behind”.

As the name suggests, Raghuram Rajan’s book is about how two of the pillars,Markets and State leave the third pillar Community behind. He traces back to history or even prehistory when only community existed without any market or state. As the modern economies evolved, both state and markets became more powerful and started doing some of the activities that community did earlier. All three pillars are in fact required for the smooth functioning of modern complex economies. But somewhere along the way, especially in the last 40 years or so, state and markets started taking over the role of the community to a disproportionately large extent. This according to Professor Rajan led to spread of inequality and consequent discontent among large sections of population that were left behind.

Professor Rajan emphasizes the point that even in this age of Global connectivity through internet and social media, old proximity community interaction still matters and leaving it behind has serious consequences. In his own words, community anchors the individual in real human networks.

The act of both markets and state taking over more and more of traditional community role led to serious imbalance of the three pillars. It led to middle income job losses stressing families and communities all over the industrial West.

To rebalance the pillars, Dr Rajan suggests reversing the trend in the recent past and give the power back to community from state and markets. This can be done by improving schools in middle class neighborhoods and reviving communities. Power also needs to be brought back from International bodies to national level and from national level to state and local community levels.

Dr Rajan struck an optimistic note that these trends can be reversed. One clear example is the Pilsen neighborhood in Chicago which went from middle class to poor because of loss of community. However it is now reviving all development  indicators and heading in the right direction because of the community development work led by activist Raul Raymundo.

Finally, Dr Rajan states that society needs to remain liberal and diverse which can be achieved by encouraging localism to empower the community while drawing on the state and the markets to make society more inclusive.   

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