State Security or Exploitation: A Theory of Military Involvement in the Economy

• Date: 01 May 2022
• Published date: 01 May 2022
• Author: Roya Izadi
• DOI: 10.1177/00220027211070574
• Subject Matter: Articles

Article

Journal of Conf‌lict Resolution

2022, Vol. 66(4-5) 729–754

© The Author(s) 2022

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DOI: 10.1177/00220027211070574

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State Security or

Exploitation: A Theory of

Military Involvement in the

Economy

Roya Izadi

1



Abstract

Why does the military in some countries get involved in the economy by running

prof‌it-making enterprises and what leads governments to permit such involvement?

Running household appliance factories, transportation agencies, banks, hotels, etc., are

indeed unrelated to national security and are far removed from the regular roles

assigned to militaries. Such involvement has further implications for both politics and

the economy. I argue that the process of military involvement in the economy functions

as a survival strategy for leaders and a prof‌it-making scheme for the military. Using

original cross-national data on the emergence of military involvement in the economy,

this research demonstrates that militaries are more likely to get involved in the

economy when the military’s institutional interests are at risk and when the gov-

ernment has to rely on the military to maintain power. Leaders allow the military to

benef‌itf‌inancially through economic activities in order to stay in power.

Keywords

civil–military relations, military involvement in the economy, conf‌lict

Introduction

After defeating the Tamil Tiger guerrillas in May 2009, Sri Lankan president Mahinda

Rajapaksa’s administration encouraged the armed forces to become involved in large-

1

Political Science, Binghamton University, Binghamton, NY, USA

Corresponding Author:

Roya Izadi, Political Science, Binghamton University, 4400 Vestal Parkway East, Binghamton, NY 13902-

4600, USA.

Email: rizadid1@binghamton.edu

scale commercial activities, such as selling food, running travel agencies, hotels, and

restaurants. The Sri Lankan army has since then become an economic player by running

economic enterprises that are usually in the domain of civilian groups. Sri Lanka is not

the only country in which the military is involved in economic activities. There are

dozens of countries around the world whose militaries are active economic players

often accruing millions of dollars outside the military budget.

Military-run businesses differ from state-run enterprises in that the military oversees

the management, production, distribution, and sale of goods and services, while the

prof‌its generated from such activities are directed to the military and spent at the

discretion of higher echelons of the armed forces (Br ¨

ommelh¨

orster and Wolf-Christian,

2003;Mani 2007). The benef‌its from such activities are not part of the defense budget,

and constitute an off-budget source of revenue for the military with little or no oversight

by the government. Military involvement in the economy is an advancement into the

civil sphere with severe consequences for politics and the economy. The military might

stay loyal only to the leaders that guarantee their economic interests and would

therefore have incentives to repress challengers of a status quo that benef‌its those

interests. Venezuela today is a good example of how the civilian government controls

the military and ensures its loyalty through providing it with access to the economy.

President Maduro has so far survived the political crisis and efforts by the opposition to

unseat him by providing military leaders with signif‌icant control over industries and

expanded access to those industries by promoting soldiers.

1

Military involvement in the economy has implications for military professionalism.

It diverts the military’s resources from defense purposes to off‌icers’private enterprises,

and erodes the professional ethics of the off‌icer corps by transforming the off‌icers into

business contractors. When militaries run businesses, their economic interests compete

with their national security obligations which eventually leads to corruption of the

military organization. Such an involvement has implications for foreign policy. Some

militaries not only invest inside their home country, but also establish joint ventures

with companies abroad, invest in the form of foreign direct investment in foreign

countries, and take on contractor projects abroad. The military-turned-economic-player

might affect peace and conf‌lict, military battlef‌ield effectiveness, or the military’s

willingness to f‌ight wars in the f‌irst place. Finally, military involvement in the economy

has implications for the economy. A military that enjoys favorable policies from the

government–such as receiving subsidies and tax exemption–and utilizes cheap labor by

using soldiers in economic activities might threaten the private sector through unequal

competition (Mora and Wiktorowicz 2003).

While existing work on civil–military relations has greatly enhanced our knowledge

of the scope of the military’s meddling in politics, no systematic study has analyzed

military economic activities as yet another form of military entrenchment in the civil

sphere. Economic activities are indeed beyond the domain of militaries and should be

considered a diversion from the armed forces’main role. This article breaks new

ground on this topic, seeking to explain what appears to be a widespread phenomenon

by answering the question: Why does the military in some countries get involved in the

730 Journal of Conf‌lict Resolution 66(4-5)