There comes a moment in the life of an elite when its present circumstances, largely moulded by its choices in the past, threaten the future of the people in whose name it governs. The present multi-faceted crisis of state, economy and society, constitutes such a moment.

The economic, political and security aspects of the crisis are now feeding off each other as it spirals to a flashpoint. Yet the economic dimension is the key to both its critical mass as well as to the process of defusing it. What is to be done to avoid a catastrophe and start building a better future for the people of Pakistan?

Addressing the economic challenge requires understanding three of its principal features:
1)         The historical pattern of economic growth in brief spurts that lies at the heart of Pakistan's undevelopment, must be replaced by a new trajectory of sustained long term growth. To start a process of sustained growth, equity must be built into the structure of the growth process. For this, changes need to be made in the institutional structure of the economy. The central feature of such a change is to move towards what we have called 'economic democracy'. This involves providing access over productive assets, quality education, training and high wage employment to a broad section of the population rather than exclusively to a narrow elite. This will enable sustained growth that is by the people and for the people. The policy design of this process has already been worked out in my recent work.
2)         The crucial factor in avoiding financial bankruptcy is to find the fiscal space to stimulate growth and thereby generate higher revenues to manage the budget deficit. Initiatives need to be taken for a massive reconstruction and rehabilitation program for the flood affectees; infrastructure development programs to release the physical constraints to growth such as shortages of electricity, gas and irrigation water; and finally facilitating the rapid growth of small scale industries which are high value added, export oriented and employment intensive.
The question is how to achieve the necessary fiscal space. Pakistan needs about USD 20 billion over the next three years for this stimulus package. Of course we must enhance domestic resource mobilization through new taxes; strengthen financial control systems; restructure and privatize public sector organizations which are hemorrhaging the exchequer with annual losses of Rs.300 billion; and drastically reduce unproductive government expenditure. The elite if it is to have any credibility with the people of Pakistan in particular and the international community in general, must undertake these policy measures.
Yet these measures can only finance a fraction of the funds required to do the job. The brunt of the required resources must come from the international community. After all setting the stage for sustained long term development for Pakistan is crucial for successful prosecution of the war against militant extremism. In this context it may be pertinent to point out, the Institute of Public Policy at the BNU estimates that the direct and indirect economic impact of the war against terrorism on Pakistan was USD 30 billion during the period 2003 to 2008. So USD 20 billion is a relatively small price to pay for the Western world to strengthen Pakistan's security and their own.
3)         Pakistan's India policy is the key to our security and economic problems but also perhaps part of their solution. If Pakistan is to focus on fighting the extremists within, who pose the principal national security threat, we need to defuse tensions with India if only to avoid a two front military dilemma. Indeed Pakistan needs to shift from a policy of confrontation to cooperation with India if SAARC is to fulfill its considerable economic potential, and if Pakistan is to catapult itself onto a high growth trajectory.
The choice between ineffectual tinkering with policy and imaginative initiatives within a new policy paradigm, is stark. At stake is the future of a people and the survival of a state.