Military-Owned Businesses & Corruption Risks
Thursday, 26 January 2012
Commercial businesses owned by the military are a surprisingly common phenomenon which is open to a wide range of potential abuses. As there is extremely limited information on such businesses, Transparency International's Defence and Security Programme (TI-DSP) has taken a first step through an initial review. Saad Mustafa explores the topic
A significantly under-researched and often overlooked subject, military-owned businesses (MOBs) pose a significant corruption risk within the defence and security sector. They are usually, but not exclusively present in weak or transitioning democracies attempting to assert a certain degree of civilian control. However, by allowing militaries such influence and authority, the civilian government essentially weakens its position and allows the armed forces to play a significant role in society.
Given that this is such a pressing issue in countries that receive large amounts of overseas development assistance funds – Egypt, Pakistan, and Turkey to name a few, Transparency International UK Defence and Security Programme's (TI-DSP) new report provides a timely first-look into how such businesses are structured, what some of the inherent corruption risks are, and why and how some countries have reformed their respective MOBs.
There are a number of reasons why military entrepreneurship should be a cause for concern for both policymakers and civilians. For starters, when you introduce profit incentives into an organisation whose sole purpose is defending the country, it distracts officers from their official duties. Second, there are significant costs to the country's economy because not only can it encourage monopolistic behaviour, it may also prevent the liberalisation of the economy by promoting cartelisation in certain key economic sectors. There is an opportunity cost as well: private entrepreneurs will regard the military's involvement as a significant barrier to entry seeing as how MOBs will always enjoy a competitive business advantage.
Most worryingly of all however is that military businesses are usually linked to the exploitation and eventual depletion of a country's natural resources. This is especially worrisome when one considers that in some countries the military is responsible for policing borders and inspecting what is brought in and what is taken out of the country. In Indonesia for example, the military uses this privileged position to move illegally logged timber without any worry of accountability or external oversight.
All this is not to say that corruption is an inevitable consequence of MOBs. It is more that the military's participation in the economy creates certain vulnerabilities which compromise the degree of professionalism within the armed forces and create opportunities for corrupt practices to take place.
A longer version of this article appears on the Trustlaw Governance blog