Pakistan's Choice: Globalization or Talibanization

"Pakistan has to be part of globalization or you end up with Talibanization. Until we put these (Pakistan's) young people into industrialization and services, and off-farm work, they will drift into this negative extremism; there is nothing worse than not having a job," says Salman Shah, finance adviser to former Prime Minister Shaukat Aziz of Pakistan, in an interview published by the Wall Street Journal today.

With Pakistan's growing population and rising expectations of its young people, it appears to me that the radical Islam is now spreading beyond its traditional home in NWFP and FATA to Pakistan's heartland of Punjab. It is also clear that the new generation of Pakistanis do not want to accept life under a feudal or tribal system that denies them basic human dignity. In the absence of significant economic growth (even the phenomenal 8% growth roughly equals 2.5m jobs), not enough jobs are being created for 3 million young people ready to join the work force each year, resulting in growing availability of recruits for terror outfits who pay them fairly well by local standards. According to Rand corporation estimates, the Taliban pay about $150 a month to each fighter, much higher than the $100 a month paid by the governments in the region. This fact has been amply illustrated by recent growth of the Punjabi Taliban who have been found recruited by terrorist groups for suicide bombings and violence within and outside Pakistan.

Here's the text of the report by Paul Beckett of Wall Street Journal:

Talking to Salman Shah, Pakistan's de facto finance minister until a year ago, you are immediately struck by the similarities between his country's long-term economic challenges and India's.

Pakistan, he notes over green tea in his Lahore home, has a huge youthful population as India does: roughly 105 million out of 170 million Pakistanis are under 25 years old. It will be these people who drive Pakistan's economy in the decades ahead. "Pakistan is a mini-India," Mr. Shah declares.

Pakistan, like India, also is relatively light on exports as a part of the overall economy. In Pakistan, exports account for less than 15% of gross domestic product, he says, compared with about 25% in India and 40% in China.

Like India, Pakistan saw a domestic economic boom time until recently. Sales of cellphones, cars, motorbikes and other consumer durables soared.

And Pakistan's future, as India's, lies in the nation's ability to move workers from the fields to manufacturing plants and in engaging more with the world rather than retreating from it.

But India has done a better job with that global engagement, led by its technology companies and through tapping international markets and international investors.

Pakistan made some headway in the last few years by successfully selling global depositary receipts of state-owned companies and issuing bonds and convertible bonds on international financial markets. International investors were taking heed, which in turn projected Pakistan's industrial potential to the wider world.

But recently, as with so much else in Pakistan, it's gone awry. The current administration nixed the international money-raising program, even before the seize-up in global markets could do the job for it. The government – Pakistan's first democratically-elected in a decade – decided it was akin to giving away the "family silver," Mr. Shah scoffs.

International investors, not surprisingly, also have bailed: Pakistan by almost any measure fails to meet the definition of a low-risk investment that is attracting money today. As a result, its economy is slowing dramatically. In part that's because the central bank has kept interest rates in double digits, hemmed in by the strictures of its IMF package.

Where India and Pakistan's paths diverge dramatically is in the consequences if their governments fail to do what is necessary now -- stimulate their economies, bring foreign investors back, and create employment for all those youth.

In India, where about 12 million people come of working age each year, commentators frequently warn that if sufficient jobs aren't created, there could be social unrest.

The important phrase here is "could be social unrest." It's a possibility, not a definite. It is very vague.

Not so in Pakistan. Pakistan, by Mr. Shah's estimate, needs to create 3 million jobs a year to employ those coming of working age. Growing at 8% a year creates up to 2.5 million.

The central bank recently forecast growth in the year ending June 30 of 2.5-3.5%.

Shaukat Tarin, Pakistan's new finance minister, recently was quoted in Pakistan's Daily Times as saying growth could reach 8% over the next three years.

But the World Bank recently predicted Pakistan's economy would grow by 1% in 2009. Mr. Shah calls 1% "suicide for Pakistan."

Unlike in India, the consequences seem all too predictable if Pakistan fails to reengage with global commerce and do what's needed to get things rolling again.

"Pakistan has to be part of globalization or you end up with Talibanization," Mr. Shah says. "Until we put these young people into industrialization and services, and off-farm work, they will drift into this negative extremism; there is nothing worse than not having a job."

You just have to hope it's not already too late.

—Mr. Beckett is the Wall Street Journal's bureau chief in New Delhi

Related Links:

Insights Into a Suicide Bombing in Pakistan

Feudal Punjab Fertile For Terrorism

Shaukat Aziz's Economic Legacy

Valuing Life in Afghanistan and Pakistan