Roundtable: Iran’s Domestic Politics and Political Economy (Part 1)

[This is the second installment of a two-part roundtable on domestic politics and political economy in Iran featuring Peyman Jafari, Azam Khatam, Ali Kadivar, Saira Rafiee, and Zep Kalb. Read Part 2 here.]

Introduction

Much of the discussion about politics in the Islamic Republic of Iran focuses on the characteristics of “the regime” and the attitudes and beliefs of a select few political offices and organizations (e.g., the leader, the Islamic Revolutionary Guard Corp, or particular political factions). Political economy is either relegated to the margins or reduced to macroeconomic indicators, such as oil revenue. With the ever-tightening US and international sanction regime, economic factors make their way into media accounts and policy papers, but only as a mechanism to “bring the Islamic Republic to the negotiation table” or a trigger for a revolutionary uprising. Despite the narrowness of this understanding of Iranian politics, the multitude of protests, strikes, and vociferous and courageous struggles by working-class communities and professional classes highlight the need to consider how political-economic fault lines run through society. They disaggregate “the mullahs” or “the regime” in important ways. 

This two-part roundtable is organized to encourage discussion and research about how contemporary Iranian politics is shot through by localized as well as international debates about regulation, the provision of welfare, the consequences of sanctions, and demands for participation in policy-making. We have brought together five researchers who have studied Iran’s post-revolutionary politics as intimately connected with social formations and economic forces. 

The participants are Peyman Jafari, Azam Khatam, Ali Kadivar, Saira Rafiee, and Zep Kalb.

It should be noted that this roundtable took place in the first two weeks of November 2019 and, hence, predated the protests against the raising of gasoline prices that began on 15 November. We believe the participants offer critical insights and questions for understanding the context and conditions that made the current protests possible and, indeed, likely. We also ask them to reflect on the protests in the final question.

Part 2 is out now. Read it here.

Question 1: A Snapshot of the Domestic Economy

Post-revolutionary Iran witnessed the expansion of welfare programs and infrastructure through populist policies that blurred the urban and rural divide. How have recent sanctions interacted with this feature of Iran’s domestic political economy? For instance, have demonstrable gains in the reduction of poverty seen measurable reversals? Has income inequality (a long-standing problem) increased, or have all sectors equally felt the impact of recent sanctions? In this midst, what do you make of the Rouhani administration’s efforts to privatize state industries? How would you describe the relationship between these three vectors (populist institutions, state privatization by Rouhani, and recent sanctions)? 

Peyman Jafari: As the fight against poverty and inequality were important goals of the Iranian Revolution, both have remained central to popular claim-making in Iran. The number of Iranians living under the international poverty line (1.9 dollars per day) has declined since the 1980s. However, there are signs that the situation has worsened in the last few years. The Iranian Parliament Research Center published a report last year that applies the international poverty line of less than 2100 kcal intake per person. In 2016, the provinces Kermanshah, Alborz, and Qom had the biggest share of their urban population (forty percent) living under the poverty line. This was also true for the periphery of Tehran province, and the Shiraz and Mashhad regions. In the other areas of Iran, the average rate of urban poverty was around thirty percent. The rate of rural poverty was highest in the provinces Sistan and Baluchestan, Ilam, and Kahgiluyeh and Boyerahmad (sixty-five percent), followed by the Tehran and Alborz provinces (fifty-six percent). The upper half of Iran, excluding Tehran and Alborz, has the least rural poverty.[1] When we overlay these two maps of urban and rural poverty, we find a large concentration of the poor in the periphery of the Tehran province and in the Alborz and Sistan and Baluchestan provinces. It should be noted, however, that this calorie-related poverty rate tends to overestimate real poverty as observed, for instance, in studies on India. 

It is difficult to say how the poverty rate developed exactly, but according to an official study by the Advanced Teaching and Research Institute of Management and Planning, the purchasing power of most Iranians somewhat declined between 2005 and 2014, and most of this decline happened between 2011 and 2014 at the zenith of the economic sanctions against Iran.[2] It is safe to presume that with the return of sanctions in 2018, reflected in a sharp rise of inflation since May 2018, purchasing power has further declined, pushing more people into poverty. 

After the revolution, there was relatively more attention paid to the development of some rural areas that helped to improve overall living conditions. As Djavad Salehi-Isfahani, for instance, has argued poverty declined between 2000 and 2012, but rose afterwards, most sharply in the rural areas. The same trend is visible in average per capita household expenditures, which rose in Tehran between 2012 and 2016, while declining in other urban areas as well as in rural areas. 

The political consequences of these trends are important of course. As we know, poverty does not automatically translate into large-scale protests, and compared to similar countries, absolute poverty in Iran is still quite low, though increasing. My estimation is that in the coming years, most social pressure will be on small towns for two reasons. First, due to drought, there is an increasing push from the rural areas to surrounding small towns. This raises unemployment in these areas. Second, unlike in large cities like Tehran, there are fewer opportunities in these small towns to find a job in the informal sector. 

Azam Khatam: My research focuses on how capital in Iran has moved to real estate in order to avoid the high-risk economic environment of other sectors. I also consider how the flow of capital in real estate created over-built luxury and unaffordable housing as well as vacant commercial buildings and malls. I argue that real estate provides a new financial basis for government, and that the housing crisis in Iran should be analyzed through the lens of over-built landscapes.

Welfarist policies in urban housing (where my research focus lies) did not last more than one decade following the revolution and did not create an institutional base for building public commons or public housing in Iran. The Urban Land Law, ratified by parliament in 1980 after long fights with conservative clergymen, was only effective for two five-year terms. During this period, subsidized land comprised one-third of the residential areas under construction. Land distribution and the growth of informal settlements caused a dramatic fall in housing prices. In 1976, land accounted for forty-three percent of the costs of building a residential unit in Tehran. It dropped to twenty-six percent in 1988.

Iran has had no land law in place since 1991. The total number of affordable housing units built by the government between 1995 and 2005 do not exceed one hundred thousand units, while the number of households added by the residents of informal settlements is over half a million. Maskan-e Mehr, a massive affordable housing project launched by the conservatives in 2007, should be understood as a political response to increasing discontent in urban Iran. Based on World Bank figures, Iran’s gross domestic product (GDP) grew at an average annual rate of 3.1 percent during the last decade of the twentieth century and at an average annual rate of 5.4 percent in the first decade of the twenty-first century. Growth slowed down in the past decade and turned negative in 2018 and 2019. Public money has left the housing sector for other sectors prioritized by the government.

In recent decades, three waves of major increases in housing prices have pushed working- and lower-middle-class households to the margins of cities. So, while a housing crisis is not new, the recent round of sanctions created another level of crisis. The liquidity circulating in other markets has flooded the housing market where no regulations exist and where prices fluctuate with changes in the foreign currency market. Sanctions have also had a negative effect on the manufacturing sector, which relies on foreign suppliers for parts and machinery. Without a mechanism in place to slow it down, capital flight from these sectors has spurred investment in real estate. Iran has over 2.6 million vacant units, with forty-five percent of the demand for housing attributed to the pursuit of investment opportunities. In part, well-connected investors and non-consumer buyers saved Iran’s housing market from collapse through speculation, while the Ahmadinejad administration responded to the crisis with Maskan-e Mehr.

Question 2: Conceptualizing Neoliberalism

Is there such a thing as Iranian neoliberalism? If so, what does it look like? And does it conflict with the developmentalist agenda of the immediate post-revolutionary period (which included welfare expansion)? Is the category (neoliberalism) applicable to contemporary Iran, or does it obscure specific features of Iran’s political economy? Can (and should) we revise the category per phenomena specific to Iran, or is it not useful to retain it? 

Azam Khatam: Neoliberalism in Iran has been adopted partially, and supported by both ruling factions in Iran when and where it served the transfer of wealth and resources to affiliated elites. It should be noted, however, that conservatives affiliated with the supreme leader have developed the Islamic welfare system as an appendage to the government welfare system of the 1980s. This system has been delivered by foundations supervised by the supreme leader, including the Imam Khomeini Relief Committee and Astan-e Quds-e Razavi. The system has mobilized more resources in the past decade as the government welfare system has become bankrupt or was dismantled by neoliberal technocrats.   

The 1979 Revolution incorporated the discourse of inclusive development into the new constitution. Development was one of the formal responsibilities of a new Islamic government. The constitution also expanded this notion to include such revolutionary goals as national independence, economic self-sufficiency, the removal of all forms of oppression, and an end to poverty and social and regional inequality. Finally, the constitution furnished the basis for multiple power structures in the Islamic Republic. Since the end of the Iran-Iraq war (1988) and the death of Ayatollah Khomeini (1989), a powerful shadow government has emerged as a permanent feature of Iranian politics. This dual government-generated two distinct discourses of development. One, led by Rafsanjani in his capacity at the time as president of the republic, adopted the vision of the so-called Asian Tigers with structural adjustment and market-oriented development as its core policy proposal. The second, supported by the supreme leader of the Islamic Republic, prioritized economic and political independence and looked to the growing power of China as justification for putting a clique of powerful loyal individuals and institutions in charge of the economy—without, however, rejecting the principles of private property or a market economy. These discourses also clashed over foreign policy and internal cultural issues. As part of the adjustment reform of the late 1980s and 1990s, public companies were privatized, but the major achievements of the privatization scheme were only fully realized under conservative rule in 2006-7.

Ali Kadivar: I think Iran’s political economy has had both the features and tendencies of a welfare state as well as some neoliberal practices since the 1990s. On the one hand, for instance, the state has been funding and sponsoring education and health programs throughout the country. On the other, we also observe neoliberal policies such as privatization adjustment programs and the monetarization of higher education. These privatization policies have resulted in increased student and workers’ unrest in the country in the last several years, akin to anti-neoliberal protest waves in other countries across the world. Political institutions in the Islamic Republic have a hybrid quality, combining democratic and non-democratic institutions. We can similarly characterize Iran’s political economy as a hybrid of welfare and neoliberal policies that are in tension with each other. These strategies and policies are anchored in state institutions. There are different elite groups and factions favoring and contesting each strategy. I think if we recognize this duality, then we might be able to have a better understanding of the situation, and ask more specific questions about the clashes between welfare and neoliberal policies, and their consequences.

Saira Rafiee: Structural adjustment policies implemented in Iran since 1990 were distinctly designed around a neoliberal agenda of privatization, deregulation, and the state’s withdrawal from social provisions. The impact of privatization policies on Iranian industry has been largely negative. According to Parviz Sedaghat, the majority of the 173 enterprises that were privatized in the primary stage of structural adjustment policies do not exist anymore. Since then, many major Iranian companies have gone bankrupt after privatization, and the ongoing strikes at Hafttappeh and HEPCO are just a few examples of the troubles caused by this policy. Even neoliberal ideologues in Iran are now critical of these privatization policies. Various social and economic troubles that ensued these policies have also led to temporary retreats. For instance, in 1995, the rise of inflation to forty-nine percent, and a wave of urban riots that began in 1991, shortly after the implementation of structural adjustment policies, forced Rafsanjani’s administration to suspend these policies. These riots have been documented in Asef Bayat’s “Squatters and the State: Backstreet Politics in the Islamic Republic.”[3] As a result of this retreat, cuts to subsidies were delayed until 2010.

Despite temporary retreats, consecutive state development plans followed the same logic, introducing these policies as the latest advances in economics and the only tenable model for development. As such, 1990 should be viewed as the beginning of a new era in Iran and a break with the policies of the preceding decade. This break intensified upon the leader’s new interpretation of the forty-fourth article of the Iranian constitution in 2007, which authorized further privatization of big industry, banking, and mining.

In a series of interviews with economic officials in the Islamic Republic, published in Bahman Ahmadi Amouiee’s Political Economy of the Islamic Republic, we clearly see a discursive shift towards free-market economics. In another study, Yousef Ali Abazari and Hamidreza Parnian document how, after the war, free-market economists who designed Iran’s structural adjustment policies forcefully opposed what they deemed “leftist tendencies” in the Plan and Budget Organization and established new educational institutions “to reinforce the discourse of free-market economics in Iranian academic and political spheres.” 

The internal dynamism of Iranian politics, as well as the international context of ascendant neoliberalism, also contributed to the endorsement of neoliberal policies by Rafsanjani’s Construction Cabinet. From the very beginning, Islamic revolutionaries were divided into two camps on the issue of economic policy. In Khomeinism, Ervand Abrahamian discusses some of the disagreements and rivalries between the right and the left in the 1980s. During Rafsanjani’s presidency, the Islamic left is gradually removed from the political scene. These political developments had an important role in the reversal of the welfare policies of the 1980s, and should be taken into account in assessments of economic policies in the Islamic Republic today.

It should be noted that major parts of privatized companies have been transferred to organizations and institutions with direct and indirect governmental ties. Those who believe that privatization is only real when ownership is transferred to the “real private sector” (whatever that means) repeatedly raise this issue. But these privatizations have nevertheless affected workers in very real terms. Neoliberalization of the Iranian economy is reflected in labor’s relation to capital, as characterized by growing precarity and the state’s progressive withdrawal from welfare provisions such as healthcare and education. Mohammad Maljoo has studied in detail the ever-increasing commodification of the labor force after the Iran-Iraq war. Prior to the end of the war, ninety percent of workers had permanent contracts. According to the former minister of labor, after legal reforms, today ninety percent of contracts are temporary. Meanwhile, education’s share of total annual government expenditures has contracted from 19.34 percent in 1991 to 10.34 percent in 2019. Up until 1989, almost all schools were public and free. Finally, according to the state’s budget for the current year, its share in public healthcare is no more than thirty-four percent.  

Therefore, both at a discursive level and in terms of policy, neoliberalism has been a major force in Iran since the 1990s. These policies have given rise to particular formations and contradictions. That is, while neoliberal policies implemented in various countries have been more or less identical, in the particular context of each country they have led to particular outcomes. Identifying the policies themselves as neoliberal does not absolve us of investigating particularities. Abazari and Arman Zakeri, for instance, have attempted to investigate peculiarities specific to the Iranian context caused by a conjuncture between neoliberalism and the ideological aspirations of a state formed after a massive revolution for justice and freedom. Regardless of what we call the policies (and I see no reason why they should not be called neoliberal, considering the fact that they were under the direct influence of neoliberal economic theories and encouraged by institutions such as the World Bank), there is no doubt that developments that began with structural adjustment deeply affected Iranian society, economy and politics. Any study of contemporary Iran should take account of these developments. The same holds true for a neoliberal culture that, despite its contrasts with the “revolutionary spirit” the Islamic Republic encouraged and boasted about, has been forcefully promoted by the ideological apparatus of the regime in the last two decades.

Peyman Jafari: The concept of neoliberalism has become somewhat overstretched, although it is useful to describe and understand a specific set of policies and strategies. It is more useful to look at the reconfiguration of the relationship between the state, the social classes that underpin it, and the economy. In the case of Iran, neoliberalism only describes a specific dynamic within this broader context.

The social formation that emerged after the revolution was an unstable amalgam of state capitalism, redistributive populism, predatory economics, and free-market relations. Predatory economics, a concept developed and applied to Iran by Mehrdad Vahabi refers to appropriation through coercion. The populist state capitalism of the 1980s had a developmentalist orientation through an import substitution strategy combined with redistributive measures. Since the 1990s, there has been a shift towards neoliberal state capitalism through such measures as subsidy and labor law reforms, price liberalization, and above all privatization. The fate of the latter bears out the paradoxical character of neoliberal state capitalism. 

Those in command of state institutions, state-owned companies and para-state organizations have maintained their central role in the economy, opening it to the domestic and foreign private sector only where their interests required doing so, or if they believed they could benefit individually. As a result, privatization (or, pseudo-privatization as it has come to be known) transferred the assets of many state-owned companies to para-state organizations such as the bonyads, pension funds, and the IRGC. The private sector has expanded as well but is still subordinated to the (para)state sector.

So, what we need is a closer look at how neoliberal policies combined with predatory activities and the expansion of market relations within the context of authoritarian capitalism. The latter would allow us to understand the similarities that Iran shares with the developments in, for instance, Russia, China, and Egypt. 

Finally, there is the question of the driving force behind the shift from developmentalist to more neoliberal policies. Obviously, ideology has played an important role. As in many other countries, the 1990s in Iran were marked by the disillusionment of the supporters of statist developmentalism, which I prefer to call state capitalism. The collapse of Stalinist regimes was obviously central to this. Iran’s “Islamic left” faction started to embrace free-market policies, and those who had always pushed for such policies became influential. Prominent among them was Masoud Nili who has served under the administrations of Hashemi Rafsanjani, Khatami, and Rouhani. In my view, however, sometimes too much emphasis is put on the ideological influence of neoliberalism. Social and economic factors are more significant. 

By the late 1980s, the failure of state capitalism in the context of globalization had become manifest, reflected in the stagnation of import substitution strategies. Iran’s petroleum industry development, for instance, remained heavily dependent on the capital and technological know-how of the oil multinationals, and its industrial development relied on the import of intermediate capital goods. Moreover, it was not merely the effectiveness of the dissemination of neoliberal thought among Iranian technocrats that attracted more groups to it. Neoliberalism resonates with the class interests of the parts of the state bureaucracy that had developed its interests in the private sector, or in the interstices between the state and the private sector since the 1990s, and hence adopted neoliberalism in a form that would reflect this hybridity. 

Zep Kalb: There can be neoliberalism in Iran. It depends on how we define the term. Usually, the term is used to denote an ideology in which a set of policies are favored, including small state and limited fiscal policy, the spread of market relations and commodification, and central bank independence to pursue inflation-targeting monetary policies. It is true that it is often on the minds of politicians and policymakers to pursue these policies. But in practice, they do not materialize, or if they do, under very different conditions. Why?

The left likes to use the term “neoliberalism” for Iran, but this preference stems from two mistakes. First, there is an unspoken idealization of the heavily nationalized and state-dominated war economy of the 1980s. If anything, this period was exceptional. Given the nature of the revolution and the composition of the post-revolutionary Iranian elite, privatization could only be expected after 1988. It is notable that the speed of privatization only really picked up during the Mahmoud Ahmadinejad presidency (2005-13). This major shift was a product, partially, of a strategy to efficiently and substantially reward certain state organizations and political allies without having to go through the established corporatist framework of property transfer and redistribution. If Ahmadinejad had followed Khatami to attempt the latter, it would have caused an uproar and would have created many obstacles for his political project along the way.

Second, there is a fascination with the idea that “religion and neoliberalism” can be cozy bedfellows. I do not think religion really matters. If anything, the experience of many other developing countries shows that privatization in contexts of capital scarcity pushes parastatal organizations to take on more active roles. In contemporary Iran, private capital has been relatively scarce because market participants face an uncertain investment climate. When private capital is scarce, organizations that can piggyback off state revenues, credits, and other types of preferential treatment, become much more likely to partake in privatization processes. The fact that state-affiliated organizations remain central to the Iranian economy requires theorizing of the state and the political system, and, I think, not of neoliberalism, which has no immediate bearing on it. At base, Iran is an oil-producing state with immediate national security concerns that demand much more active state interference. In short, I do not find the concept of neoliberalism to be very relevant, analytically, to understanding Iranian capitalism today, despite its occasional practical applicability.

Question 3: The Impact of Sanctions

Have recent sanctions been as consequential as they appear in global media or as intended by the Trump administration? Which sectors of Iranian society have been most effected by the recent sanctions regime? Have any sectors or classes benefited from it and how? Are the effects of recent sanctions in Iran distinct?

[Responses featured in Part 2]

Question 4: Social Mobilization

In the past decade, strikes by various workers’ associations (including truck drivers, teachers, and Hepco workers) repeatedly made public claims on the state. These labor actions were amplified by social welfare protests against austerity in December 2017 and January 2018. Recent reports suggest that pensions of military officials are under pressure and on the verge of collapse. Some years ago, teachers’ pensions similarly faced collapse. What is the current terrain of civic contestation around economic rights?

[Responses featured in Part 2]

Question 5: Research on Domestic Political Economy

What are some questions you would like to see other researchers take up to provide a fuller picture of scholarship on Iran’s domestic political economy? Having read your fellow participants’ responses to the roundtable, are there any additional thoughts you would like to add?

[Responses featured in Part 2]

Question 6: The November Protests

Given the recent rise in gasoline prices and subsequent nation-wide protests, would you like to add anything to your discussion?

[Responses featured in Part 2.]