Christian Caryl

Guns and Butter

Countries around the world are finding that military involvement in private business is a major barrier to reform. But pensioning off CEOs in uniform is easier said than done.

On the face of things, OYAK Inc. offers a shining example of the qualities that have made Turkey such a big economic success story over the past few years. OYAK is the country's leading car manufacturer (having beaten out Ford's local subsidiary for the top position). It makes tires, cement, iron, and steel. It owns one of Turkey's biggest insurance companies, and its brokerage is a major player in the financial markets. It owns a chain of grocery stores, and also makes some of the things that are sold in them, from biscuits to tomato paste. Its 29,000 employees toil away in 50 different companies.

It turns out, though, that OYAK enjoys a crucial edge over its competitors in the various markets where it's a player. That is because it happens to be the pension fund of the Turkish armed forces. Though its CEO is a civilian, virtually all the members of its board are current or former generals (including the current defense minister). Though the company is beholden to its private shareholders, it enjoys many of the perqs of a public entity. All 200,000 officers in the armed forces are obligated to pay 10 percent of their salaries to the fund. Firat Demir, a Turkish economist at the University of Oklahoma, points out that some members of its board sit on the powerful National Defense Commission, a post that potentially gives them advance knowledge of government decisions on economic policy. (When Turkey devalued its currency in 1994 and 2001, says Demir, many businesses were devastated. But OYAK sailed through with nary a scratch -- a triumph one of its managers attributed to "gut feeling.") Nor does the company pay corporate income tax. Yet its budget is subject to minimal outside oversight.

There's no question that the armed forces, once an all-powerful force in Turkish society, have seen their role gradually erode over the years as democratic institutions have gradually taken root in the country. But Demir argues that the military has managed to preserve considerable political power precisely by retaining a variety of economic prerogatives. OYAK is just the tip of the iceberg. There are other military-controlled charitable funds and companies that enjoy monopoly powers in various business sectors. Meanwhile, the civilian government, led by the Islamist Justice and Development Party, still shields the official defense budget from anything more than superficial scrutiny. "The political side might be restricted," says Demir, "but the economic power is what stays."

Even so, Turkey is much better off in this respect than many other countries around the world. Many societies trying to make the shift away from authoritarianism often find that it's precisely their militaries that stand in the way of crucial economic reforms. That usually turns out to be the case because senior officers control private assets that give them a direct stake in the outcome. From Egypt to Burma, countries struggling to open up their economies are discovering that they have to get past the generals first.

There are powerful historical reasons for this. In many developing nations, the army often turns out to be the most effective state institution. Just take Pakistan, where the army has tended to lord it over the shaky central government since the country was founded in 1947. By some estimates the Pakistani army today controls 10 percent of the civilian economy, including businesses ranging from granaries to cement factories. In China, the People's Liberation Army, direct descendant of a guerilla force that once had to produce its own food and clothing in the field, today owns companies producing everything from bicycles to satellites. "In Central America, for example, particularly Honduras and El Salvador, the military or its pension fund owns banks, insurance companies, telephone companies, shrimp businesses, hotels, and palm oil farms," U.S. scholars Frank Mora and Quintan Wiktorowicz wrote in a 2003 paper. They also pointed out that Nigerian military officers still retain key positions in the economy there, especially in the all-important energy sector.

Buying the army off also tends to be a good insurance policy for would-be dictators. This was already well understood by Roman emperors, who gradually institutionalized bribes to the military in the form of donativa, cash payments aimed at ensuring loyalty. It's a principle maintained today by many modern rulers in the Middle East - Hosni Mubarak being one of the most notable examples. The Egyptian army has translated those prerogatives into a vast business empire that encompasses pasta, butane gas cylinders, real estate, livestock farming, and gas stations. (In 2008, when food prices were soaring, the army boosted its popularity by dispensing free bread from its own bakeries.) Mubarak was happy to let the military make all the money it wanted as long as it didn't pose any challenge to his continued rule. (That this tradeoff entrenched inefficiency and barred many Egyptians from economic opportunity was the least of his worries.)

It should hardly come as a surprise, then, that the military's business dealings are already becoming the key issue in the next stage of Egypt's revolution. The Muslim Brotherhood, set to dominate the newly elected parliament, has already signaled that it's ready to make oversight of the defense budget (implicitly including the army's commercial undertakings) one of its priorities. If the Brotherhood makes good on its threat, it will be justified in claiming that it has taken a major step toward circumscribing the army's power.

But that is much easier said than done. The problem in countries where the military has big private business interests is precisely that the generals understand that they won't be able to compete if the playing field is leveled out. Nowhere, perhaps, is this more of an issue than in impoverished Burma, where large swathes of the economy are under the control of current or former senior officers (the country's former leader, Than Shwe, is shown in the photo above). Sean Turnell, an expert on the Burmese economy at Macquarie University in Sydney, says that there already indications that what he calls "military commercial interests" are "acting in ways to impede reform" -- for example, by retaining their control of licenses for the lucrative export of resources such as natural gas, timber, and gemstones. The only way to break their stranglehold, he says, is through a broad liberalization of the economy that introduces transparency and genuine competition.

That just might work -- but only if the generals can be persuaded that they'll benefit in other ways as the country's economy opens up to the outside world. In reality, squaring this circle will undoubtedly translate into many a messy compromise. Experts say that the countries facing this dilemma should prepare for a long, hard slog.


Democracy Lab

The Slow Death of 'Asian Values'

Why the latest news from Malaysia helps to undermine authoritarianism throughout the region.

Something remarkable is happening in Malaysia, and the rest of the world should take note.

Malaysia, you ask? Really? It's only 28 million people, and it's just one part of Southeast Asia, a region fragmented into a variety of cultures and systems -- and largely off the radar  of people in the West, except when it comes to planning honeymoons on the beach. So why should non-Malaysians care?

Last week, a Malaysian court acquitted Anwar Ibrahim, the leader of the country's main opposition movement, of sodomy charges. (Sodomy is a crime in Malaysia.) Anwar's supporters have long maintained that the case against him was actually political, cooked up by the government to prevent him from mounting a credible challenge to the system that has ruled the country for decades. Anwar was arrested on similar charges back in 1998 and spent six years in jail before a court finally overturned his conviction. Many understandably expected the same thing to happen again this time around.

But it didn't. To general astonishment, the court dismissed the accusations, saying that the DNA evidence cited by prosecutors didn't hold up to scrutiny. The judges, it seemed, had actually assessed the case on its own value. And with that ruling, Anwar can now continue his campaign against the government, one that is likely to culminate in a general election within the next year or so.

So why should we regard this story as worth our attention? Well, it's certainly true that the verdict could help Anwar lead the opposition to victory, thus overturning decades of control by the ruling United Malays National Organization (UMNO). But this is by no means a given. Just because Anwar has been pronounced innocent doesn't mean that he'll win. Ernest Bower, a Southeast Asia expert at the Center for Strategic and International Studies in Washington, notes that the opposition movement headed by Anwar is a fairly volatile coalition of different groups pulled apart by sometimes competing interests: "Anwar has a real challenge ahead," Bower noted in a recent email to me. "As he and his supporters anticipated a guilty verdict, they had planned to rally around political martyrdom. Now they need to go back to basics and compete in an election based on an economic and policy platform and ensure their very diverse coalition gets unified around those ideas."

Meanwhile, Prime Minister Najib Razak, who has been pledging to clean up corruption and reform the system from within, can now argue that efforts are bearing fruit. The verdict works in his favor as well.

And even if Anwar does win the next election, there's no guarantee he'll be able to deliver on his own promises of reform. Malaysia's complicated political mix -- in which ethnic Malays have long enjoyed the benefits of affirmative action programs designed to improve their chances against the country's sizable Chinese and Indian minorities -- will throw considerable obstacles in the way of any effort at fundamental change. It's likely, of course, that imposing accountability on the ruling party is a good thing in itself. It's hard to dispute the need for a thorough housecleaning of the entrenched Malaysian political elite.

But these are issues that matter primarily to Malaysians. What about the rest of us?

Here's the thing. For decades now, Malaysian leaders -- above all, the country's crusty ex-prime minister, Dr. Mahathir bin Mohamad -- have been arguing that the country owes its remarkable record of economic progress to something called "Asian values." In this reading, Asians are inherently predisposed to discipline and thrift, traits often attributed to Confucianism or its influence. In line with this theory, the region's authoritarian leaders have dismissed democratic institutions and "Anglo-Saxon" free-market capitalism as alien assaults on local mores. Of course, this was an argument that just happened to have the handy side effect of shoring up the legitimacy of said authoritarian leaders. As long as they could reasonably claim to be delivering the goods of rapid growth and social stability, many voters were content to take the claim at face value.

Of late, however, the "Asian values" model has been taking some dents. Indonesians threw their dictator overboard at the turn of the century and now enjoy one of the region's strongest economic growth rates. Last year, voters in Singapore, long controlled by the ruthlessly efficient People's Action Party (PAP), handed surprising victories to opposition candidates. (To be sure, the PAP is still in power - but its share of the popular vote declined to just over 60 percent, its worst result since 1965, when Singapore became a country.) Meanwhile, Myanmar's military rulers have announced that they want to free up the country's political system, and the leaders of its long-abused opposition are preparing to participate in a parliamentary by-election in the spring. And now the story in Malaysia is getting interesting too.

Some of the other societies in the region aren't quite there yet. But while Cambodia, Vietnam, and Laos all maintain authoritarian forms of government, they have opened up considerably in economic terms. So what's to stop them from one day following in the footsteps of Singapore or Malaysia?

Around the region, people are increasingly expressing a desire for official accountability. Economic growth on its own is not enough to satiate the desires of a rising middle class that is tired of being patronized by the powers-that-be. These citizens are insisting on participation, transparency, and an end to corruption.

Indeed, it would seem that these are the real Asian values now coming to the fore. Last month, writing in a Malaysian newspaper, journalist Karim Raslan noted that, under the old rules of the game,  were willing to concede certain civil liberties in return for implicit government guarantees of "prosperity and social peace." But that compact no longer holds: "This worked well enough when the economy was growing and internal checks and balances prevented undue injustice," wrote Raslan. "Unfortunately, a stalling economy has brought out our inherent weaknesses, including corruption and mismanagement. Moreover, there's a mounting sense --whether true or not -- that elite groups are securing enormous personal benefit by manipulating the system." As a result, he suggested, Malaysians are now starting to think seriously about throwing the bums out.

None of this, of course, means that the people in these countries are necessarily striving to embrace the Washington Consensus or the principles of Jeffersonian Democracy. The push for greater openness is coming from the region's peoples themselves, not being imposed from without. And it is precisely for that reason that the rulers' self-aggrandizing claims of legitimacy are sounding hollower by the day. So, once again, why is this important to Westerners or Americans?

Because it's not just Malaysians or Singaporeans who will feel the effects. The Chinese Communist Party has long legitimized its rule in terms strikingly similar to those employed by Mahathir or Singapore's Lee Kuan Yew. But suddenly those arguments about wise rulers lording it over happy and quiescent populations are looking, well, very 1999. "These values will continue to force change in Asia," Bower notes. "In fact, it is likely that political evolution in Southeast Asia may influence China more in the next five years than Chinese economic dynamism influences Southeast Asia." And there's the real take-away from this story.