HomeThe Political Economy of the Islamic Republic of Iran

The Political Economy of the Islamic Republic of Iran

L’économie politique de la République islamique d’Iran

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Published on Friday, March 04, 2016 by Céline Guilleux

Summary

An accurate assessment of the current economic and political situation in Iran today clearly implies examining the relations between the structure of political power, the dominant forms of ownership, and economic activity. Furthermore, the interweaving of the economic and political spheres in Iran today can be better understood through this lens. Finally, an analysis of the Islamic Republic of Iran’s political economy can also provide keys to understand the country's future political evolutions. An analysis in terms of political economy thus requires a multidisciplinary approach involving exchanges between economists, political scientists, sociologists, and historians.

Announcement

Contextualization

Over thirty-five years after the 1979 Islamic Revolution, Iran has entered a new historic phase, which will be decisive for its future, with the signature of the Iranian nuclear program agreement between Iran and the P5+1 in Vienna on July 14, 2015. This agreement means that the issue of the Iranian nuclear program, which has generated considerable tension between Iran and the international community over the past ten years, almost leading to armed conflict, is in the process of being resolved. This event provides the context for the United States and the European Union (EU) lifting the bilateral sanctions which greatly weighed on the Iranian economy in 2011-2012. Yet, beyond these facts, however important they may be, the agreement will also have diplomatic, economic, and political implications.

In terms of diplomacy, it marks the strong comeback on the international stage of Iran, which has been set on becoming the major regional power in the Middle East since the end of the war with Iraq (1980-1988). The agreement could be a major step in allowing the country to achieve its ambition. In a way, the civilian side of the Iranian nuclear program has been endorsed by the international community, thus reinforcing Iran's status as a regional power. More importantly, this agreement could usher in a new era in the history of the relations between Iran and the United States. Indeed, the agreement could not have been signed without the constant joint efforts of American and Iranian diplomats since 2013. Both countries also share interests in the region, such as the fight against the Islamic State (ISIL), or the resolution of the Iraqi and Syrian crises. The American authorities seem to consider that, under certain conditions, Iran could play a more constructive role than it used to in the region. Some of Iran's ruling circles believe that improved relations with the United States would reinforce the country's status as a regional power. Admittedly, there is still very strong opposition to a rapprochement in the US and in Iran. However, since the agreement, it has become clear that the relationship between the two countries has entered a new era. At the same time, it should be underlined that the signature of the Vienna agreement could also give new momentum to the relations between the EU and Iran. Similarly to the US, the EU's strategic interests would be served by developing better relations with Iran: fighting ISIL, putting an end to the Iraqi and Syrian crises (as well as to the flow of migrants toward Europe), reducing European dependence on Russian gas (Iran has the world's second largest natural gas reserves), and so on.

The Vienna agreement may also have consequences on Iran's national political environment. Indeed, since Hassan Rouhani's election to the Presidency of the Republic in 2013, two political movements have been opposed: a “moderate” movement which supports the current president, and a more radical one which is very critical of the government's policy, including the agreement on Iran's nuclear program. Quite clearly, the Supreme Leader's (Ali Khamenei) go-ahead regarding the nuclear deal has rather strengthened the moderate faction, without fostering political openness in the country. Moreover, the struggle between the two groups (so-called “moderates” and “fundamentalists”) is bound to be fierce, particularly in view of the elections for the Assembly of Experts and the Islamic Parliament or Majles on February 26, 2016. It is noteworthy that the Guardian Council has already rejected the candidateship of the majority of ‘reformist’ or non-fundamentalist candidates. The outcome of this struggle will be crucial to the evolution of the Islamic Republic of Iran moving forward. Indeed, Hassan Rouhani was elected to the presidency in particular on a number of promises concerning the strengthening of human rights and individual liberties. A significant part of the population (especially young people and women) therefore expects him to deliver on his promises. Meeting these expectations will be decisive for the legitimacy of the “moderate” political forces in Iran, as well as for the country’s legitimacy.

Finally, thanks to the agreement and the lifting of the sanctions, Western companies hope to have access to the Iranian market quickly. As for the Iranian population, above all it expects a rapid improvement of the economic situation. Indeed, due to the sanctions linked to the Iranian nuclear program and to the Iranian authorities' mismanagement during Mahmoud Ahmadinejad's presidency (2005-2013), Iran faced a severe economic crisis in 2011-2012, which caused a recession of over 6% in 2012 and an acceleration of inflation (over 40% in early 2013), thus setting the economy on the brink of hyperinflation. The macro-economic environment has slightly improved since Rouhani's election, thanks to a slowdown of inflation, which reached almost 11% by the end of 2015. However, because of the collapse of oil prices in the summer of 2014 and of the leading institutions' structural deadlock, growth was probably close to 0% in 2015. This situation has fueled considerable social tensions in a context in which the unemployment rate can be estimated at around 18-20%. Based on the IMF's 2015 estimates, the upcoming lifting of the sanctions should lead to an acceleration of growth of around 4.3% in 2016. In this context, the main question is whether the Iranian economy will benefit from a recovery in 2016, and, if so, for how long. The answer to this question depends on the type of economic policy which will emerge once the sanctions have been lifted. A priori, the government is in favor of economic liberalization, which implies, in particular, welcoming foreign investment. The previous attempts at liberalizing the Iranian economy in the early 1990s and 2000s failed. One may therefore wonder whether a policy of economic liberalization is relevant in a rent-based economy which is dependent on oil income, under the authority of the Islamic Republic of Iran. It seems unrealistic to want to liberalize, or even reform the Iranian economy, without taking into account the links between the country's political and economic spheres.

Argument

Since the 1979 Revolution, Iran’s economic system has been designed so that a certain number of social groups benefit from a very broad redistribution of the oil rents (Behdad, 1989; Bina, 1992; Pesaran, 2000; Coville, 2002; and Salehi-Isfahani, 2006). This implied policy of redistribution was implemented through a high-inflation regime (close to 20% on annual average since the Revolution). It has largely contributed to widening the inequalities between the clienteles of the political system (bazaaris, charitable foundations, and Pasdaran[1]) and the other social classes (in particular the middle class), whose purchasing power has declined. The charitable foundations and the Pasdaran have developed economic activities, in particular thanks to an unclear status which places them between the private and public sectors (Saeidi, 2004; Hen Tov et Gonzalez, 2011 ; Harris, 2013; Coville, 2016; and Vahabi, 2016). Incidentally, these socioeconomic groups have largely contributed to the failure of the privatization policies carried out in the 2000s. The redistribution in favor of groups such as the Pasdaran or of the most underprivileged classes through “populist” measures (Salehi-Isfahani, 2009) can be considered to have peaked during Mahmoud Ahmadinejad’s term (2005-2013); it was one of the main reasons for the widespread economic and political tensions in Iran at the time (Coville, 2013).

These remarks suggest that an accurate assessment of the current economic and political situation in Iran today clearly implies examining the relations between the structure of political power, the dominant forms of ownership, and economic activity. Indeed, without such an approach, the stakes in terms of economic policy cannot be understood. These socioeconomic groups' rent-seeking plays a key part in the institutional deadlock and renders the economic policies inefficient overall. Furthermore, the interweaving of the economic and political spheres in Iran today can be better understood through this lens. The “hidden” redistribution carried out by the regime is therefore harmful to the legitimacy of the Iranian political system, which is weakened by the contradiction between the financial support given to this clientele and the reference to common values such as nationalism, social justice, or Islam. Some studies have also shown that this rent redistribution reflected a confrontation between various political orders and legitimacies in fine(Vahabi, 2010).

Finally, an analysis of the Islamic Republic of Iran’s political economy can also provide keys to understand the country's future political evolutions. For instance, whether the Iranian private sector will eventually be able or not to take on more responsibility in the economic field is bound to have consequences on the political sphere. An analysis in terms of political economy thus requires a multidisciplinary approach involving exchanges between economists, political scientists, sociologists, and historians.

Main Themes and Topics

The main stakeholders’ strategies

This special issue will first clarify the strategies of the main socioeconomic stakeholders or groups which play a part in the current Iranian political economy.

The charitable foundations (Bonyads): what is the weight of their economic activities? In which sectors can they be found? Who controls them? Which political groups are associated with the charitable foundations? Where do these charities stand on the government’s project of economic openness?

The Pasdaran: what is the weight of their economic activities? In which sectors can they be found? Who controls them? Who are their intermediaries, in particular in local government (for instance, in the Tehran City Hall)? How do they justify the scope of their economic activities, in particular to their critics? Where do they stand on the project of economic openness in Iran?

The public sector: there are numerous stakeholders from the public sector who play an important part in the Iranian economy. On the one hand, there are companies which belong to the public sector (carmakers, steel and energy industries, and so on). On the other hand, because of the “fake” privatizations carried out in the 2000s, a number of parapublic organizations now exist: companies created by public banks, and investment funds and pension funds established by various ministries (Harris, 2013). One of the main public shareholders in the Iranian economy is thus SHASTA, the pension fund of the Social Security Organization. Is it possible to identify all of these stakeholders’ strategies? Which political groups support them? Where do these groups stand on the policy of economic openness?

The private sector: a genuine private sector emerged in Iran under the previous political regime. It is currently weak in relation to the State. However, the private sector is also a direct representative of the educated Iranian middle class, in particular through a very modern “view” of society. Its ability to take on more economic and political responsibilities is thus a major stake. One goal is to establish a typology of this sector. It is composed, in part, of genuine entrepreneurs, i.e. leaders who do not benefit in any way from rents. However, it also comprises entrepreneurs who live off rents, called “xosultati”.[2] A crucial question for this sector is whether it can become a political player. Historically, the network of Chambers of Commerce and Industry has been in charge of representing the private sector and of interceding with the government on its behalf. Yet this network has been criticized lately for being far too dependent on the Iranian state. One question which arises is therefore whether this network can become a legitimate representative of the private sector in Iran. Furthermore, a number of entrepreneurs from the private sector remain extremely mistrustful of the Iranian state, which they consider inefficient, corrupt, and even “dangerous”, insofar as they are still traumatized by the wave of nationalization and confiscation which occurred just after the Revolution. This lack of trust may thus limit the effective ability of the sector to become an actual political player, unless the Chamber of Commerce network gains legitimacy in its critics' eyes.

The working class: since the 1979 Revolution, the purchasing power of this social class has steadily declined overall (Behdad, and Nomani, 2006). Moreover, government authorities in Iran have done everything in their power to limit and even prevent the emergence of independent trade unions (Maljoo, 2006). There are in fact obvious political stakes behind the difficulties faced by the working class to establish independent organizations to represent it: the official line of the Islamic Republic of Iran is substantially based on defending the “deprived” segments of the population, which should logically include the working class.

The political economy of the financial system

The Iranian financial system is a key sector in which several important stakeholders of the political economy in Iran clearly come into conflict. The charitable foundations and the Pasdaran created Islamic financial institutions and then secured approval from the Central Bank of Iran (CBI) to establish them as banks. Having banks within their groups has given undeniable economic benefits to the conglomerates managed by the Bonyads and the Pasdaran; this is especially true in the current context of rationing bank loans in Iran (given that the monetary policy has been very restrictive since 2013 in order to fight inflation). Furthermore, a controversy broke out in the past few months concerning the informal financial institutions which operate in plain sight in every major Iranian city. These institutions, which claim to follow Islamic banking laws, were created without the CBI's authorization. Over the past few months, several ministers have questioned the CBI’s inability to shut down these institutions. The reason why they are still operating can quite clearly be explained by the support from powerful socioeconomic groups linked in particular to the bazaaris (Keshavarzian, 2007).

It is therefore important to analyze the Iranian financial system through the prism of political economy: what are the main socioeconomic groups which play a part in the formal and informal Iranian financial system? What is their rationale? Could they operate in a more open economy?

The political economy of the sanctions

The sanctions imposed on Iran led to a severe economic crisis which was characterized in particular by a recession in 2012 (with a negative growth rate of around -6.9%) and inflation above 40% in early 2013 and over 50% for a number of products. Such an acceleration of inflation necessarily put certain social groups at a disadvantage (those who mainly relied on a salary), while giving an advantage to others who could speculate on the currency and real estate markets. Similarly, the financial sanctions imposed by the United States and the EU harmed companies from the Iranian private sector which could no longer find the financial instruments allowing financial flows into or out of Iran. On the contrary, the charitable foundations and the Pasdaran have long had unofficial financial channels at their disposal, allowing them to bypass the sanctions. Moreover, the development of smuggling operations, which have traditionally been controlled by the charitable foundations and the Pasdaran, has also favored these groups, to some extent. Therefore, it cannot be denied that there is a genuine political economy of sanctions. Such an analysis would be particularly useful and could significantly contribute to the debate on the efficiency of the sanctions against Iran (Erami and Keshavarzian, 2015).

Political economy and income distribution

The rationale behind the Iranian economic and political system since the 1979 Revolution has been based on an income redistribution which favors “clienteles”. It could therefore be interesting to expand on previous studies by empirically establishing a link between this redistribution and the evolution of inequalities in Iran since 1979 (Salehi-Isfahani, 2009). More specifically, what were the consequences on income distribution of the economic policies implemented during Mahmoud Ahmadinejad’s term (2005-2013), such as the reduction of subsidies, privatizations, and housing assistance (Mehr housing scheme)?

International comparison

Iran is obviously not the only economy in which powerful socioeconomic groups can use their influence on the political system to develop rent activities. It is likely that such a system can be found in particular in numerous oil economies in which political Islam is a powerful force (Moaddel, 2005; and Moaddel and Karabenick, 2013). It would be interesting, however, to know in what respect the case of Iran is different. Does the modernization of Iranian society since the Revolution render the analysis of Iran in terms of political economy fundamentally different from the other cases?

Notes

[1] The Pasdaran constitute an army which was created in 1980 to defend the “achievements” of the Revolution.

[2] “Xosulati” comes from the Persian rossusi (“private”) and dowlat (“government”) and refers to private companies which are “supported” by the government. 

References

  • Behdad S., 1989, « Winners and Losers of the Iranian Revolution: A Study in Income Distribution », International Journal of Middle East Studies, Vol. 21, n° 3, pp. 327-358.
  • Bina C., 1992, « Global Oil and the Oil Policies of the Islamic Republic », in Bina C., Zanganeh H. (ed.), Modern Capitalism and Islamic Ideology in Iran, New York, St. Martin’s Press, pp. 121-57.
  • Bina C., 2013, A Prelude to the Foundation of Political Economy, Oil, War and Global Polity, Basingstoke, Palgrave Macmillan.
  • Coville T., 2002, L'économie de l'Iran islamique: entre ordre et désordres, Paris, L'Harmattan.
  • Coville T., 2013, « How to Transform a Rent-Seeking Economy: the Case of Iran », in Chehabi H.E., Khosrokhavar F., Therme C. (ed.), Iran and the Challenges of the Twenty-First Century, Oxford, Routledge, pp. 165-181.
  • Coville T., 2016, « The Economic Activities of the Revolutionary Guards », in Posch W. (ed.), The Routledge Handbook on Iranian Security, New York, Routledge.
  • Erami N., Keshavarzian A., 2015, « When Ties Don't Bind: Smuggling Effects, Bazaars and Regulatory Regimes in Postrevolutionary Iran », Economy and Society, Vol. 44, N° 1, pp. 110-139.
  • Hen-Tov, E. and Gonzalez, N., 2011, The Militarization of Post-Khomeini Iran: Praetorianism 2.0’, The Washington Quarterly, Winter, pp 45-59.
  • Harris K., 2013, « The Rise of the Subcontractor State: Politics of Pseudo-Privatization in the Islamic Republic of Iran », International Journal of Middle East Studies, Vol. 45, n° 1, pp. 45-70.
  • IMF, 2015, World Economic Outlook, Washington D.C., IMF.
  • Keshavarzian A., 2007, Bazaar and State in Iran: Politics of the Tehran Marketplace, Cambridge, Cambridge University Press.
  • Maljoo M., 2006, « Worker Protest in the Age of Ahmadinejad », Middle East Report, Vol. 36, n° 241, p. 30.
  • Maljoo M., 2014, « Whither the Iranian Oil Labour: Passivist or Strikist », in Makinsky M. (ed.), L’économie réelle de l’Iran, Paris, L’Harmattan, pp. 129-146.
  • Maloney S., 2015, Iran’s Political Economy since the Revolution, New York, Cambridge University Press.
  • Moaddel M., Karabenick S., 2013, Religious Fundamentalism in the Middle East: A Cross-National, Inter-Faith, and Inter-Ethnic Analysis, Leiden, Brill.
  • Moaddel M., 2005. Islamic Modernism, Nationalism, and Fundamentalism: Episode and Discourse, Chicago, The University of Chicago Press.
  • Nomani F., Behdad S., 2006, Class and Labor in Iran: Did the Revolution Matter?, Syracuse, Syracuse University Press.
  • Pesaran H., 2000, « Economic Trends and Macroeconomic Policies in Post-Revolutionary Iran », in Alizadeh P. (ed.), The Economy of Iran: The Dilemmas of An Islamic State, London, I.B. Tauris, pp. 63-100.
  • Saeidi A. A., 2004, « The Accountability of Para-Governmental Organizations (Bonyads): the Case of Iranian Foundations ». Iranian Studies, Vol. 37, n° 3, pp. 479-498.
  • Salehi-Isfahani D., 2006, Revolution and Redistribution in Iran: Changes in Poverty and Distribution 25 Years Later, Blacksburg, Virginia Polytechnic Institute and State University, Department of Economics.
  • Salehi-Isfahani D., 2009, « Poverty, Inequality, and Populist Politics in Iran », Journal of Economic Inequality, Vol. 7, N° 1, pp. 5-28.
  • Vahabi M., 2010, « Ordres contradictoires et coordination destructive: le malaise iranien », Canadian Journal of Development Studies/Revue canadienne d'études du développement, Vol. 30, n° 3-4, pp. 503-534.
  • Vahabi M., 2016, The Political Economy of Predation: Manhunting and the Economics of Escape, New York, Cambridge University Press.

Framework for the Papers

Disciplinary framework: history, political science, economics, sociology, anthropology, and socio-economics.

Methodological framework: particular attention will be paid to: strong contextualization, combining a solid theoretical approach and fieldwork, empirical studies, and original corpuses. The editors will encourage multidisciplinary approaches.

Publication of the Special Issue

The article submissions, in French or English (4,500 characters, spaces included), must feature:

  • A title
  • A research question
  • A theoretical framework
  • Empirical material
  • Main results
  • Bibliographical references (they are not included in the character count).

Calendar:

  • Proposals must be submitted by April 15th, 2016 to: tiermond@univ-paris1.fr;

  • Authors will be notified by the editors and the Editorial Committee of their preselection by May 13th, 2016;
  • First drafts must be sent by July 11th, 2016 to: tiermond@univ-paris1.fr

Redaction board

  • Tania ANGELOFF, Sociologie - Université Paris 1/Développement et sociétés
  • Amina BÉCHEUR, Gestion - Université Paris-Est/Institut de recherche en gestion
  • Sarah BEN NÉFISSA, Science politique - Institut de recherche pour le développement/Développement et sociétés
  • Natacha BORGEAUD-GARCIANDÍA, Sociologie - Consejo nacional de investigaciones científicas y técnicas/Développement et sociétés
  • Roser CUSSÓ, Sociologie - Université Paris 1/Développement et sociétés
  • Alain DESDOIGTS, Économie - Université Paris 1/Développement et sociétés
  • André GUICHAOUA, Sociologie - Université Paris 1/Développement et sociétés
  • Pierre JANIN, Géographie - Institut de recherche pour le développement/Développement et sociétés
  • Marc LAUTIER, Économie - Université Paris 13/Centre d'économie Paris-Nord
  • Anne LE NAËLOU, Sociologie - Université Paris 1/Développement et sociétés
  • François PACQUEMENT, Professionnel du développement (histoire) - Agence française de développement
  • Mehrdad VAHABI, Économie - Université Paris 8/Laboratoire d'économie dionysien

Places

  • 45 bis avenue de la Belle-Gabrielle
    Nogent-sur-Marne, France (94736)

Date(s)

  • Friday, April 15, 2016

Attached files

Keywords

  • Iran, rente, revenu, sanction, répartition, système financier, stratégie, acteur

Contact(s)

  • Emmanuel Jouai
    courriel : e [dot] jouai [at] my [dot] westminster [dot] ac [dot] uk

Information source

  • Emmanuel Jouai
    courriel : e [dot] jouai [at] my [dot] westminster [dot] ac [dot] uk

To cite this announcement

« The Political Economy of the Islamic Republic of Iran », Call for papers, Calenda, Published on Friday, March 04, 2016, https://calenda.org/358725

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