UNTIL RECENTLY, economists’ prescription for struggling places was bloodless: let them die. “Some towns cannot be preserved”, this newspaper argued in 2013, attracting a larger-than-usual volume of correspondence from dissenting readers. But the electoral successes of Donald Trump and the campaign to yank Britain out of the European Union (EU) have shaken the dismal science. Prominent economists have begun to consider what an efficient response to geographic inequality might look like. In a paper published in 2018, for example, Benjamin Austin, Edward Glaeser and Lawrence Summers of Harvard University argued for employment subsidies targeted at struggling places.
The reconsideration of place-based policies can often seem grudging—something to be tolerated, in order to keep those on the losing end of regional inequality from embracing populism or killing themselves with drugs. Economists’ reluctance is understandable: efforts to help struggling communities might well deter people from moving when they would otherwise have relocated to more promising places. But it is also short-sighted, argues Raghuram Rajan, an economist at the University of Chicago and the former head of India’s central bank. In a compelling new book, “The Third Pillar: How Markets and the State Leave the Community Behind”, he argues that communities are...
