Bruce Riedel who ran President Obama’s AfPak review now favors containment over engagement:

It is time to move to a policy of containment, which would mean a more hostile relationship. But it should be a focused hostility, aimed not at hurting Pakistan’s people but at holding its army and intelligence branches accountable. When we learn that an officer from Pakistan’s Inter-Services Intelligence, or ISI, is aiding terrorism, whether in Afghanistan or India, we should put him on wanted lists, sanction him at the United Nations and, if he is dangerous enough, track him down. Putting sanctions on organizations in Pakistan has not worked in the past, but sanctioning individuals has — as the nuclear proliferator Abdul Qadeer Khan could attest.

It is useful to think of the US-Pakistan game as a principal-agent relationship.  The US (principal) would like to “pay for performance” and make a transfer if and only if the Pakistani army (agent) capture terrorists and quash the Taliban.  Performing this task is costly for Pakistan for many reasons. For one, they use the terrorists as proxies in their fight against India.  But if the US values elimination of terrorists enough, there is a transfer or sequence of transfers that are large enough to persuade Pakistan to work hard on America’s  behalf.  For the transfer scheme to work, the US has to be able to commit to pay.  If Pakistan is too successful, then the US has no incentive continue paying them.  Knowing this, Pakistan does not want to work too hard on America’s behalf.  Do enough work to keep the money rolling in but not enough to kill off the goose laying golden eggs.

This delicate balancing act can tip one way or another with random events. After one huge such event, the capture of Osama Bin Laden, the relationship has gone sour.  Perhaps, we are in a new phase, that is the gist of Riedel’s column.  But how should this be managed?  I need to think about part 2….

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