Does Pakistan Qualify as "Too Big to Fail"?

The phrase "too big to fail" has gained currency in the United States to describe large and troubled financial institutions since the beginning of the banking crisis last year. The characteristics of such institutions include their large size and huge impact on the rest of the US banking system and the global economy at large.

Seen in the context of regional and global geopolitics, are there any parallels between the the large US banks and the Pakistani state? Let's examine this proposition in a little more depth.

Large Size:

In terms of its size, Pakistan is one of the largest countries in the world. With population exceeding 170 million, it is one of only eight nations armed with nuclear weapons. The nation ranks as sixth largest in population, seventh largest in its army size, 8th in number of mobile phone users, 10th in educated English speaking population, 10th in labor force size, 17th largest in number of Internet users, 26th in economy and 34th in land area.

Strategic Location:

Pakistan sits at the entrance to the oil rich Persian Gulf, and it shares borders with Afghanistan, Iran and the world's most population nuclear states of China and India. Pakistan's Gwadar port is only 180 nautical miles from the exit of the Straits of Hormuz, considered extremely important for the flow of the bulk of world's demand for oil transportation from the Gulf nations. It provides convenient access to sea routes for many of the landlocked mineral-rich Central Asian states and Western China.

Pakistan has a 650-mile long coastline on the Arabian Sea, extending from India to Iran. In addition, some of the air routes between west and east pass through Pakistan because of its central location. Karachi and Gawadar have natural harbor ports serving as trading and re-fueling stop for ships.

Major Failures:

Not unlike the troubled US banks facing the prospect of certain failure, Pakistan also shows up at number 10 on the failed state index compiled by Fund for Peace and Foreign Policy magazine in 2008. However, in spite of the disastrous political leadership and extremely poor governance, the country’s saving grace is arguably its people. As the consequences sink in among Pakistan’s secular elite of the rising Taliban, there are signs that the country’s educated class – in Islamabad, Lahore and Karachi, cities rocked recently by continuing terrorist attacks – is losing its patience with radicalism. They have now compelled the government into taking more decisive action.

Anger and Distrust:

Just like the US bankers who are getting bailed out at US taxpayers' expense, Pakistanis do not trust Uncle Sam, either. But, in spite of the widespread and deep distrust of the United States, the latest polls now indicate that 86 percent of Pakistanis agree that Taliban and Al-Qaeda militants pose a problem for Pakistan and more than two-thirds support a recent Pakistani army offensive against the extremists. Just as many US taxpayers are unhappy with the massive bailout of the US financial services, there is popular opposition to bailing out many troubled nations around the world. Just as people say that US bankers should have to pay for their own failures, there is a strong feeling that nations who have misbehaved should be made to pay for their mistakes.

Consequences of Failure:

The fear of contagion triggering national and global economic collapse was the chief reason why the US acted swiftly and decisively to prop up the failing financial institutions on Wall Street last year. The same "contagion" logic applies to Pakistan's potential failure which can lead to catastrophic consequences for Asia, the Middle East and the rest of the world, and seriously hurt American economy and strategic interests. If a nuclear-armed nation of 170 million people with a large military falls, then the millions of Pakistanis armed and trained to fight could spread out into the neighboring nations and beyond. This could be highly destabilizing and extremely dangerous for the global peace and prosperity.

Rewards of Success:

If Pakistanis, Americans, Europeans and the world make a commitment and do succeed in helping to bring peace and stability to Pakistan, then there can be an expectation of a significant upside for all. A peaceful, stable, and prosperous Pakistan has a lot to offer in terms of a large, well-educated, English speaking work force, a huge market opportunity for all sorts of products and services, and tremendous potential for global economic growth.

There is no guarantee of success if the world does make a serious commitment and starts making a long term investment in helping Pakistan, but failure is definitely not an option.

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