Khaki capitalism

Schumpeter

In some countries the “military-industrial complex” is more than a metaphor

THE darkest character in Joseph Heller’s dark novel, “Catch-22”, is Milo Minderbinder, a lowly mess officer who runs a huge business empire, M&M Enterprises, on the side. He flogs “surplus” army supplies, travels the world making deals and accumulating extravagant official titles (such as Caliph of Baghdad and Mayor of Cairo) and, in the spirit of popular capitalism, gives his fellow soldiers nominal shares in his ever-expanding business. M&M Enterprises almost crashes when the caliph-cum-mayor overextends himself by buying all the cotton in Egypt. There is so much of the stuff that he cannot get rid of it even by covering it in chocolate and serving it to the troops. The American government eventually steps in to solve his mounting problems: M&M Enterprises has grown too big to fail.


Milo Minderbinder’s spirit is still alive in the land that almost destroyed him with its cotton. The Egyptian army has more on its hands than running armoured cars over people in Tahrir Square. It also runs about 10% of the economy. Military-backed companies produce cement, olive oil and household appliances as well as arms. They also provide pest control, catering and even child care. The army owns large chunks of Egypt’s most precious commodity, land, particularly on the Red Sea coast. It also leans on private companies to provide powerful retirees with jobs.

The Egyptians have plenty of brothers-in-arms-and-boardrooms. Pakistan’s top brass are even more enterprising. Ayesha Siddiqa, the author of “Military Inc: Inside Pakistan’s Military Economy”, calculates that the army controls a $15 billion empire, with hundreds of companies making everything from fertiliser to breakfast cereals. In China the People’s Liberation Army took Deng Xiaoping’s aphorism that “to get rich is glorious” as a direct order. At one point in the late 1980s it was running nearly 20,000 firms. Military men in Thailand and Indonesia have a long tradition of padding their pay with profitable enterprises. Zimbabwe’s army has recently formed joint ventures with Chinese partners in farming and mining. Even in democratic India the army runs about a hundred commercial golf courses.
But the most enthusiastic practitioners of khaki capitalism are the Iranians. The Revolutionary Guard runs more than 300 companies in agriculture, industry, transport, foodstuffs and even tourism. (The slogans practically write themselves: “Visit Iran and we won’t storm your embassy!”) The Guard has been snapping up companies “privatised” by the government, and exploits its control of border crossings to dominate Iran’s black market.
There are several reasons why generals love to muscle into business (besides self-enrichment, of course). Armies like to be able to feed and supply themselves in the event of a total war. If this means they produce a surplus in peacetime, why not sell it? Some armies do not receive enough from the public purse to make ends meet: Indonesia’s, for instance, started running businesses to support itself during the country’s independence struggle in the 1940s. Some military businesses are also, officially at least, there to provide jobs and welfare for retired and disabled soldiers—and in Iran’s case, the families of “martyrs”.
A diplomatic cable from Cairo to Washington in 2008 (subsequently aired by WikiLeaks) put its finger on the main reason why Egypt’s old government tolerated khaki capitalism. The army was a “quasi-commercial enterprise”, it said, because this helped ensure “regime stability and security”. (Except, as we now know, it didn’t.) Egypt’s military chiefs expanded their business empire after the 1979 peace treaty with Israel, to provide work for thousands of demobbed conscripts. Sri Lanka’s army did the same after defeating the Tamil Tigers in 2009. Sri Lankan troops now sell religious bric-a-brac, run restaurants, collect refuse and build cricket stadiums.
Recently, some countries have begun to curb their captains (and majors and generals) of industry. China has done so vigorously, hoping this will make both the military and corporate sectors more professional. Although Indonesia’s president is a (democratically elected) former general, he has continued to push the army out of both business and politics. The Thai Military Bank has been renamed TMB Bank, and is now a civilian institution.
Sound the retreat
This is welcome. The military-industrial complex damages politics by making the army a vast interest group. It also damages the economy by distorting competition. How can private companies compete fairly when their military rivals enjoy access to cheap land, credit and conscript labour—and have guns? Ms Siddiqa argues that one reason why Pakistan’s railways are in such a mess is that the army flexes its muscles behind the scenes to force hauliers to use its commercial lorry fleets.
There are also sound military reasons for getting armies out of business. They should get better value for money if they buy supplies on the open market instead of making them themselves. More important, as the Chinese recognise, they are more likely to become modern and professional defenders of the nation if they are not distracted by moneymaking.
That said, the armed forces can provide superb training for future business leaders: some 10% of the bosses of America’s 500 biggest companies are former military officers. They are also a great incubator of entrepreneurs—and not just shady ones like Milo Minderbinder. A striking proportion of Israel’s high-tech entrepreneurs went into business with friends they made in the Israeli Defence Forces. The founders of China’s Huawei, one of the world’s most successful makers of telecoms equipment, also met in the army. Many soldiers in Egypt and elsewhere clearly enjoy the challenge of running businesses. But they would do a better job of it if they took off their uniforms first.