The Third Pillar summary

The golden age of the state lasted from the consolidation of nation-states at the end of the fifteenth century until the late sixteenth. That’s when a new rival emerged to challenge their power: the market.

Unproductive land previously owned by the aristocracy and the Church gradually fell into the hands of the commercially minded gentry. Monarchs were happy enough with this development – after all, the wealthier the gentry became, the higher their tax revenues were. But this new class also extracted its own price: greater freedom.

The free market held out even as arguments in favor of stricter regulation became more common, but following the stock market crash of 1929 it suffered what looked like a killer blow – the Great Depression. States cast around for a culprit for the global crisis.

The rampant capitalism of the previous decades seemed to fit the bill, and governments soon rushed through anti-market measures. The Smoot–Hawley Act, for example, which raised tariffs on over 20,000 import products, was passed in the US in 1930.

The expansion of markets from the 1980s onwards meant that the maximization of shareholder value gradually displaced other aims. Take corporations. In the 1960s, large businesses were commonly expected to contribute to society as a whole. A decade later, that view had fallen into disfavor as influential economists like Milton Friedman argued that the only “social responsibility” of business was “to increase its profits.”

Friedman’s argument was simple. If managers focused on maximizing profits and the value of shareholders’ shares, their companies would survive and contribute more to society in the long run. The best way of aligning the interests of shareholders and managers, Friedman argued, was to make their pay – ideally in stocks – dependant on performance. That would incentivize them to do everything in their power to boost share value, including laying off workers.

The music industry isn’t the only sector that’s been transformed by technological innovation – in fact, labor markets as a whole are being shaken up by new tech. This cuts two ways, as established jobs are being eliminated while new positions are being opened up. But here’s the problem: there’s a huge gap between the winners and losers of such change.

Menial jobs like assembly line work are currently being decimated by automation. That means job losses for less-skilled workers, but it also creates new niche positions for specialists capable of overseeing automated processes and correcting errors. The folks who’ll fill those positions are invariably highly educated and at home in increasingly globalized labor markets.

The future of developed nations can’t be separated from that of so-called emerging nations. Whether it’s immigration or the export of high-tech goods and investments, the fate of both groups of countries are interlinked. That’s something policymaking in emerging nations will have to take into account. So what needs to be done? Well, let’s look at two case studies – China and India.

China’s recent economic gains are impressive. Between 1980 and 2015, the country’s annual GDP growth averaged out 8.7 percent every year. That expansion was mostly driven by a couple of key, state-owned businesses. These companies were given access to guaranteed cheap credit and subsidized inputs like steel by the government, which in turn funded such largesse through taxes on regular households and foreign investment.

As we’ve seen, the three pillars of our economies – state, market and community – are out of balance. The power of markets has eroded communities, while the state is increasingly identified with an out-of-touch establishment. That’s a recipe for populism.

Why? Well, populism claims to offer a solution to the problems caused by such imbalances. On the one hand, it promises to revitalize society’s sense of community by bolstering national identity along ethnic and class lines. On the other hand, it proposes economic measures like tariffs on imported commodities like steel to counteract the erosion of job security.

Reviving local communities won’t be easy – in fact, it’ll take sustained work, inspired leadership and enthusiastic engagement. But it is possible, as a number of communities have already proven.

Take Indore in Madhya Pradesh, India. When Malini Gaud was elected as the mayor of Indore in 2015, the city was in a bad way. Locals were using the city center as an open trash can while stray dogs, pigs and cows roamed the streets eating from the mountains of discarded trash and defecating in the gutters.

Inclusive localism will require states to take a back seat and cede control to communities. At the national and international levels, however, they need to promote fair competition and innovation, as well as ensuring that markets aren’t dominated by a small number of overly powerful corporations.

The best place to start when it comes to the state’s regulatory roles is to reform data rights laws. Take e-commerce platforms like Alibaba and Amazon. Currently, these companies own the online transaction histories of the merchants who use their services. That gives them valuable data concerning businesses’ cash flow and allows them to assess whether they’re eligible for loans.