It is the best of times and the worst of times: we are, in Pakistan, in a crisis once again. But a crisis leads to many opportunities. Apart from opportunities for re-organising many things and starting new things and shelving those that have not worked, and more importantly, a financial/economic crisis gives us the opportunity to think and rethink the conceptual framework that has been utilised to order and organise the economy thus far. Are there things that need rethinking at the basic level or have we been attempting to do the right things but have just not been successful at doing them? A crisis gives us the opportunity to ask this question and it is, possibly, the most important question to ask at this point in time. There are those who, right now, are saying that we need to do more of what we have been doing. Privatise, liberalise and de-regulate, give more opportunities to multinationals through targeted concessions and special economic zones and so on and so forth. They are the ones, or some of the more extreme ones amongst them, who are also arguing that we should lower interest rates right now to ensure growth, and 'inflation be damned'. And then there are those who are saying the opposite. Privatise, liberalise and de-regulate, but the government has a role to play too. And the government should not only not abdicate; it should endeavour to do a better job. It should act as the law-maker and the law implementer. It should ensure that in areas where markets, for reasons of externalities or information asymmetries or whatever the reason, are not performing well, it should either help the market address these asymmetries or ensure provision on its own (health, education, social protection, infrastructure). This group is also more focused on the issue of poverty and inequality. For them sacrificing a few points from the growth side, for some time, in order to ensure better distribution and lower poverty is not a problematic trade-off at all: they will take it. Hence their stand on inflation, a very anti-poor tax, is also a lot stronger. This group does want to squeeze demand to bring inflation under control. And then there are those who are in the middle, favouring bits and pieces from both of the above. The democratic government in power seems to be unclear about the position it wants to take. They have opted for tighter monetary and fiscal policies, but their stand on privatisation and on the role of government in fighting poverty and inequality seems to be aligned with the other group. Let us see how they resolve these tensions in the next few months. But there is a larger conceptual issue that this crisis gives an opportunity to think about. And this is the debate about the compatibility of a democratic society and government and a capitalist system. Let me problemmatise it through a quote from Tawney (from Equality, 1938 edition):  "Seen in historical perspective, the attempt to combine the equality of civil and political rights, which is of the essence of democracy, with the inequality of economic and social opportunities, which is of the essence of capitalism, is still in its first youth. There is sufficient experience, however, to suggest that the result represents, at best, a transitional arrangement....The fatalism which foresees in Great Britain the inevitable clash of irreconcilable opponents, which has destroyed political civilisation in Germany and Italy, is clearly out of place. So also, however, is the light-hearted optimism which assumes that because so precarious an equipoise has maintained itself for half a century, it can be relied on with confidence to maintain itself for ever. It may well be the case that democracy and capitalism, which at moments in their youth were allies, cannot live together once both have come of age." Allowing for the fact that the above passage was written just before World War II, and during the Nazi era, the larger point being made is quite an interesting one. And the current crisis, in Pakistan and around the world, should bring out the tension that needs resolution. How are one person-one vote and equality in the eyes of the law to be reconciled with large concentrations of capital, significant concentrations of market power, elite capture and elite interests? This discussion is not just academic, by design or by default, the issues being raised here are going to be decided and the outcome will determine what kind of world and what kind of Pakistan we are going to be living in over the next many years. Pakistan's poverty levels, after the current inflationary episode, which is still continuing, are going to be in the 30-40 percent range. And a large number of those who are going to be just above the poverty line are also going to be in the 'highly vulnerable' category. These conditions might hold for quite sometime as the world recession and local problems associated with stabilisation and recovery might not permit a quick fix to occur. Under these conditions, the majority of the people of Pakistan, if decisions were based on the weight of numbers, would clearly vote for policies that would control inflation better, offer more in terms of social protection to people and maybe even give more opportunities for employment, and offer better health and educational services. If this means taxing the rich more, imposing duties on imports of luxuries, bringing large farmers and orchard owners into the tax net, taxing the richer traders, retailers and wholesalers, and taxing property owners, all of these would probably be voted for, as long as the people had confidence that these tax revenues would actually be spent on them and would not be lost to corruption and non-productive expenditure. If the trade-off is between the above and higher growth, most people would not mind sacrificing a few percentage points off growth at least for a while. If this option is taken, the role of the government, since responsible for ensuring the provision of education, health and social services, and as bearing the responsibility for tackling poverty aggressively, would be much more extensive than what it currently is in Pakistan. The other route open to us is to go for more privatisation, liberalisation and de-regulation, to open up all sectors for trade and foreign investment, and to, in fact, go out looking for multinationals who, given certain concessions, can come in and, hopefully, transform entire sectors. This would be the growth route to attempting to get out of the current mess. It would be hard on the poor, as it would mean more inflation and lower emphasis on provision of services to the poor, and would largely rely on 'trickledown' to address issues of poverty and vulnerability. Though one can imagine hybrids of the two ways of thinking and attempt to implement these but that might not be possible. If we are liberalising, import controls and controls on capital movements might not be implementable. If we ease monetary policy to facilitate growth, inflation will not be easy to control and bring down. If we invite multinationals to come in, we should be prepared for smaller local players to take a certain hit in their business. If taxes are not levied on the rich, it would be hard to raise money to ensure poverty alleviation or even delivery of essential services to the larger population, especially the poor of the country. The stabilisation and recovery phase, that is coming soon now, is not going to be easy to deal with for most Pakistanis, but especially for the poor. It is the poor who depend more on state provided services in health and education, and it is the unskilled who depend more on development expenditure of the state (infrastructure construction and so on). Cuts in expenditure are going to be inevitable, but how deep are the cuts, which areas are cut, how we tackle the issue of inflation and so on depends on the government's decision regarding the basic issues highlighted above. If the democratic government decides to take the growth route, they risk losing the next election, and the future of democracy in Pakistan might be at stake as well. On the other hand, if they take the other route, they will have to defy powerful business lobbies and groups within the country and outside, and to an extent followers of the 'Washington Consensus' way of thinking. This choice is not going to be easy either. Though the debate is currently couched in local terms, and is about interest rates, inflation, fiscal and monetary policy, at a larger level the debate is really about the compatibility of democratic ideals and tenants of capitalism. It is about who controls a country and whose interests take primacy. Will numbers (the poor and vulnerable are many) determine outcomes or will concentrations of capital? The outcome, to become visible in the next few months or so, will determine our destiny for many years to come. The writer is an associate professor and head of the Department of Economics, LUMS