The Third Pillar. Raghuram Rajan

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СКАЧАТЬ organized effort to bring a hospital nearby, despite villagers complaining for years about the lack of access to medical facilities. Stopgap measures to improve access to education and health care, such as rescheduling public bus timings to transport village children to schools elsewhere, or funding an ambulance to carry emergency cases from the area to the hospital, were simply not considered.

      A functional community would have put pressure on the local government to improve public services, failing which volunteers would have gathered to undertake the task. While Montegrano had an elected mayor and council, decisions “even to buy an ashtray” were taken by the prefect, a member of the civil service sitting in Potenza, the nearest large town.17 Similarly, the director of schools reported directly to Potenza, public works were not under the purview of local government, and the police were under the Ministry of Justice in Rome. Too few important decisions were taken locally, a problem we will discuss later in the book, but even so, villagers did not even try to influence them.

      The problem in Montegrano, as Banfield argues, was the extreme distrust between villagers, their worry about losing relative social position if they helped someone else improve their lot, and their corrosive envy of those who did succeed. Given this attitude, anyone who undertook a public-spirited action felt they incurred the full costs of acting, would probably receive only a small part of the public benefits, and would feel diminished by the public benefits that went to others. As one teacher explained, not only was there little public spirit, but many people positively wanted to prevent others from getting ahead.18 Such public apathy explains why voluntary efforts to supply public services—for example, masons repairing the monastery—simply did not emerge.

      There are a variety of reasons why these attitudes exist in communities. When economic opportunity is very limited, economic activity might be seen as zero-sum—your gain comes at the expense of mine. The problem is exacerbated when families are at risk of slipping in social status, from the barely self-sufficient but still respectable to the “deplorable,” who are dependent on others for subsistence. With few savings and little wealth, many peasants were just one hailstorm or one pig’s unfortunate death away from a winter of deprivation or worse. While families were willing to help one another tide over temporary misfortune, more general public spirit required a degree of comfort with their economic situation that they simply did not have. Given the difficulty of staying afloat economically, villagers’ focus was on providing for their immediate family rather than maintaining a broader public spirit.

      This inward focus may actually do public harm. A common example of what Banfield calls “amoral familism” is visible in many developing countries, where people keep their houses spotlessly clean, but unceremoniously dump the garbage collected inside on the street outside. The ultimately self-defeating effects of having unclean and unhygienic public spaces surrounding clean homes can only be explained by extreme public apathy, a fundamental characteristic of dysfunctional communities.

      The state, despite being recognizably apathetic, distant, and nonfunctional itself, nevertheless dampened initiative in Montegrano. The faint hope that the government will dig a latrine, pave a road, or discipline school teachers can prevent the local population from organizing to do so. In frontier towns in the United States, the community raised a barn or built a road itself, knowing there was no one else who would do it. In dysfunctional communities where the government is closer, the misplaced expectation that the ghost of the inefficient government will eventually appear and do the job crowds out what little private initiative there is.

      WHEN DO COMMUNITIES NOT WORK WELL?

      Communities can be fragile even without becoming dysfunctional. They tend to work best when they are small and have little competition. Community relationships are built when members have limited choices, both at a point in time and over time. Relationships, and thus communities, are harder to sustain when the available set of choices expands, as when communities grow or when the outside market starts offering more opportunities to community members. Communities can also distort decisions in the opposite direction, reducing excessively the incentives for individuals to move, change, or adapt. While this may be the right individual choice, when many members make such choices it can drag down a community.

      Too Many Alternatives

      Mitchell Petersen of Northwestern University and I were interested in uncovering the effects of the greater availability of potential financial partners on the strength of relationships.19 We examined the relationships between small firms and their banks. Small firms typically find it hard to get finance, and young small firms especially so. Most economic theories would suggest that in areas with greater bank competition, young small firms would be better off.

      Interestingly, we did not find this. Instead, in areas in the United States served by fewer banks, and hence with a less competitive banking market, we found small young firms got more bank loans, and at lower interest rates than similar small young firms in areas with many more banks. Importantly, they also seemed to pay back for this help. As the young firms aged, the interest rate they paid on their borrowings moved up faster in areas with few banks, with older firms paying more in such areas than in areas with more competitive banks.

      Why were banks more willing to help out young firms in areas where firms had less choice of banking partners? The answer seemed to be that they knew they could build stronger relationships. As in the community relationships described above, a banking relationship is based on give and take over time. Lending to untried young firms is costly because even a small loan requires a fair amount of due diligence by the banker, and the size of the loan does not allow the bank to recoup the cost of the effort invested. Moreover, many small firms fail, adding further to the bank’s costs as such loans have to be written off. A bank therefore takes a chance on an untried young firm only if it is reasonably confident the firm will survive, grow, and give it more profitable business in the future.

      In areas with many banks, a successful firm could always renege on its implicit promise to reward the bank that helped it early on, by replacing it with a new banking partner at better terms. In areas with few other banks, however, the successful firm would likely stay with its original banker because of the lack of choice, and thus would compensate the bank with additional profitable business for the risk the bank took when the firm was young. A bank in such an area, being more confident in the (forced) durability of the relationship, would then be more eager to support young firms.

      Thus, relationships seem to be stronger when the members of the community have fewer alternatives, for it gives the members confidence that they will stay mutually committed. An interesting corollary is that communities within a larger economy that are partially ostracized by others may flourish because members build stronger ties within the community. For instance, a disproportionate number of entrepreneurs during England’s Industrial Revolution were nonconformists such as Unitarians and Quakers, who were excluded from civil or military office and from Oxford or Cambridge University.20 Entrepreneurship was one of the few attractive career outlets that was not barred to capable Quaker youth. Many a budding entrepreneur got help from others in the community as he started out—given their exclusion from the larger community, nonconformists trusted one another more in business.

      In sum, in a small community, not only am I assured that those I help will stay committed to me, but I also know if I don’t help someone in deep trouble, my community may shrink and leave me worse off. In a small community, therefore, everyone has a stake in everyone else’s well-being. We are spoiled for choice as the community grows, which could hurt the community.21

      Community relationships are stronger if members interact over multiple activities—if one’s neighbor is not just a source of the odd gardening tool but also helps deliver our child, we are likely to have stronger bonds. This will occur naturally in small communities. There is no point specializing as a midwife if one is to serve a community with only a handful of women of childbearing age, but it makes more sense if there are hundreds—as Adam Smith famously wrote, “the division of labor is limited by the extent of СКАЧАТЬ