Political Economy of milbus: Social, Economic and Political

cost of Milbus

Introduction:

Military is one of the most important institutions of a

country. A strong and efficient military is indispensable
to the security of a sovereign state. Protecting the state
from foreign aggression is the main task of a military.
However, in some countries the military becomes
deeply involved in the politics and economy. Instead of
working for the state, it tries to control the state
through its involvement in economy and politics.
Military’s deep penetration into economy and politics
deeply affects its professionalism. Dr.Ayesha Siddiqa has
coined the term “milbus” to define this internal
economy of military. In some countries, military works
in partnership with the private corporate sector and
government. In other countries, it operates in
partnership with the dominant ruling party. But the
most interesting case of Milbus can be found in
countries like Pakistan where military is the sole driver
of Milbus. It’s internal economy is kept hidden and lacks
transparency. Defence budget is just one part of this
economy.
Explaining Milbus:

The Military as an Economic Actor: Soldiers in business,

an edited study on the military’s cooperative and
business activities carried out by the Bonn International
Center for conversion defines “Milbus” as:

Economic activities falling under the influence of the

armed forces, regardless of whether they are controlled
by the defence ministries or the various branches of the
armed forces or specific units or individual officers.

This definition is not ,however, entirely appropriate in

the context of Pakistan’s military. Defence ministry in
Pakistan is subject to government’s accountability
procedures. A more appropriate definition of Milbus is
given by Dr.Siddiqa in her book “Military Inc”. In this
book, she defines Milbus as:

Military capital used for the personal benefits of the

military fraternity, especially the officer cadre, which is
not recorded as part of the defence budget or does not
follow the not follow normal accountability procedures
of the state, making it an independent genre of capital.

So, Milbus is an independent genre of capital that is

neither recorded nor part of the defence budget. It can
take various forms from transfer of land to military
personnel to resources spent on providing perks and
privileges for retired armed forces personnel to
subsidies and protection given to military’s business.
The stakeholders in Milbus are not just limited to the
serving members of the military. They also include
retired personnel and those in Pakistani elite who build
a partnership with Pakistan’s military to benefit
themselves. Milbus provides financial autonomy to
military. Milbus consists of two broad but distinct
activities; Profit making through privatization of security,
and military’s engagement farming and profit making
ventures. Pakistan’s military engages in the second set
of activities i.e profit making through business ventures.

Structure of Milbus:

To understand the evolution of Milbus in Pakistan, it is

necessary to keep in mind the fact that for Pakistan’s
military, financial autonomy is proportional to political
power. The Milbus grew considerably at the times when
military was the most dominant player in the political
landscape of Pakistan. The military considers itself as an
alternative and efficient institution capable of
contributing to social, economic and political
development. Milbus in Pakistan dates back to 1954,
when the first welfare foundation was established. The
senior generals had enough autonomy to invest welfare
funds in the commercial ventures. The funds were
received from the British as part of Pakistan’s share of
the post war services reconstruction fund. Instead of
distributing the funds among those who fought during
the world war II, Pakistan’s military used the funds to
invest in the profit-making ventures. The profits from
these investments were shared among the
shareholders.
Pakistan military’s internal economy is a complex
network. Although critics mostly focus their attention on
its four subsidiaries- The Fauji Foundation(FF), Army
Welfare Trust(AWT), Shaheen Foundation(SF), and
Bahria Foundation(BF)- it extends beyond the four
subsidiaries. A large part of Milbus remains hidden
owing to lack of transparency. Milbus operates at three
levels; Organizational, Subsidiaries, individual. Although
Ministry of Defence is placed at the top of this structure,
it is in fact used as a forum to negotiate economic
opportunities and to monopolize resources.
At the organizational level , the three major public
sector organizations are the National Logistic Cell(NLC),
The Frontier Worker Organization(FWO), and the Special
Communication Organization(SCO).
Created in August 1978 by the Quarter Master General
of the army, the NLC is the largest goods transportation
company in the country. With a total of 1,689 vehicles, it
is one of the largest public-sector transport fleets in Asia.
The estimated net worth of the NLC in 2000-1 was Rs
3,964.652 million.
The FWO was established in1966 to construct the 805
km Karakoram Highway. Since its establishment, it
remains the largest contractor in the country for
constructing roads and collecting tolls.
The SCO was originally established in 1976 to handle a
telecommunication project in AJK and Northern areas. It
was revitalized in 1990s to expand its network.
There are also small and medium-sized profit-making
activities carried out by the individuals in the military.
The activities are of a diverse nature ranging from
bakeries and cinemas to gas stations and commercial
plazas and markets. The cost of running these
operations runs in billion rupees.
The second level at which the Milbus operates is named
as “The subsidiaries”. These include FF, AWT, SF and BF.
Although military tries to distance itself from the
economic operations of these welfare foundations,
there is ample evidence of military’s involvement in
profit-making ventures carried out through them. These
welfare foundations flaunt their connection with armed
forces to attract investors.

The Fauji Foundation:

Established in 1954 under the Charitable Endowments

Act 1890 with an initial funding of Rs 18 million, today
the FF is one of the largest business conglomerates in
Pakistan. It was meant to cater for the welfare of
military personnel from all the three services. The FF
operated in both wings of countries before 1971.
Starting its industrial operations in consumer-oriented
commodities like rice, flour, jute and textiles, today it
owns 25 independent project worth Rs 9.8 billion. Out of
the total 25 projects, about 18 are fully owned by FF,
while the remaining 7 are subsidiaries, with shares held
by other parties. The FF has a decentralized structure so
as not to disrupt a smooth running of business operated
by military in partnership with the private investors. The
profits are shared among the shareholders and are also
used to build infrastructure needed to provide health
care, education and vocational training for ex-service
personnel and their families.

The Army Welfare Trust(AWT):

The second welfare foundation, the AWT, was

established on 27 October 1971 with an initial
endowment of Rs 700,000 under the Societies
Registration Act 1860. AWT has a greater dependence
on its parent service as it borrows money from The
Benevolent Fund account maintained in GHQ. With 41
independent projects, it has assets worth Rs 50 billion.
AWT is a subsidiary that generates profits for
distribution among shareholders. AWT runs a diverse
range of operation from Askari Farms to Askari
commercial Bank to Askari Housing scheme.

Shaheen Foundation(SF):

The Pakistan Air force established its own welfare

foundation, The SF, in 1977 with an initial funding of Rs
5 million. It runs about 14 independent projects with
assets worth Rs 2 billion. Sold to private investors for Rs
600 million in 2004, Shaheen Airlines was the biggest
project of SF.

Bahria Foundation(BF):
Pakistan Navy established its own welfare foundation in
January 1982 with an initial funding of Rs 3 million. Its
business ventures range from Bahria Constructions to
Bahria University to Bahria security and System Services
with its assets worth Rs 4 billion.

At individual level, Milbus operates in the form of

beneficial jobs given to retired personnel, business
opportunities and land acquired by individuals using the
influence of their parent organization. The military’s
acquisition of land has transformed its individuals into
one of the many feudal lords. As a single group, military
owns more land than any other group or institution. The
military controls about 11.58 million acres out of the
total 93.67 million acres of state land. Rural land is used
for agricultural purposes. Whereas urban land has been
used to launch private housing schemes. Despite
acquiring land from the provincial and federal
government, military is the sole beneficiary of the
profits earned from these housing schemes.

Assessment of the financial cost of Milbus:

Much has been made of military’s efficiency to run

these business ventures. Yet a fair assessment of Milbus
gives us a totally different picture. It has been argued
that since military is a professional and efficient
institution, it can run business efficiently as compared to
other players in the private sector. But the reality is
different. Despite channeling public money into its
business, military has been unable to turn most of its
business operations into profit making entities. Many of
the commercial ventures and operations of Milbus are
not cost efficient. The AWT defaulted on loans various
times and several times asked the government for
financial bailouts. The cement factory and sugar
manufacturing plants of FF were reported to be running
at an annual loss of Rs 200 million and Rs 1 billion
respectively. FWO was also running at an annual deficit
of Rs 980.026 million.

Social, Economic, and Political cost of Milbus:

Military’s capture of resources through defence budget

and other illegal ways results in low spending on health
and education. Being part of the elite group with
sufficient political and economic clout, the army could
buy quality educations for itself. It builds best education
institutes and health care system for its fraternity.
Whereas poor people do not have free access to these
resources hence growing social inequality. Its use of
coercive measures to appropriate land from poor people
has resulted in growing anxiety among those who are
left landless. The notorious case of Okara farms is a case
in point.
The supporters of Milbus argue that these ventures
contribute to the socioeconomic development of
country. But they forget to mention that the poor have
to pay for this so called economic development. A
business that is above accountability and lacks
transparency does no good to the economy. Defence
establishment is among those elites in Pakistan who
have captured the economy and process of
policy-making. It avails billions in annual tax benefits.
The unaccountable transfer of resources and
opportunities to Milbus from public and private sector
results in monopolization of markets. By giving subsidies
and protection to milbus, the governments openly flout
the principles of free-market economy. Despite labeling
Milbus as private ventures, military asks government for
financial bailouts and subsidies, hence eliminating
competition and harming domestic industries.
The biggest cost of Milbus is political. Owing to its
economic interests, military is one of the largest
stakeholders in politics. It tries to consolidate power to
support its economic interests. Milbus is the largest
threat to democracy in Pakistan. Milbus perpetuates the
military’s intervention in politics. It overthrows a
government that questions its authority therefore
creating political instability. Political instability hinders
economic growth and dissuades foreign investors. But
military is more interested in maximizing its political
power considering it pivotal to its financial autonomy.
Milbus weakens democratic norms and institutions. The
importance of military as a dominant economic and
political player resulted in a relationship between
military and politicians in which politicians sometimes
used military to undermine their rivals. This has resulted
in political fragmentation and weakening of political
parties hence opening the door for military’s
intervention in politics.
This social and economic exploitation is not going to end
until Milbus is subjected to deeper scrutiny and
accountability. Only strong democratic institutions can
guarantee such transparent accountability.