international analysis and commentary

An economic way forward for Iran: from corporatism to social market


The Islamic Republic of Iran certainly has strong ideological foundations, and the 2009 presidential election has further weakened the already dubious “republican” component of the Iranian system. However, it would be wrong to assume that the struggle for democracy should be predominantly, if not exclusively, focused on political-ideological issues: free and fair elections, freedom of speech, civil rights.

Indeed, the Green Movement has so far been an eminently political movement – a characteristic that implies both a strength, given the power of single-issue mobilizations and a weakness, insofar as a powerful source of popular mobilization, socio-economic grievance, is not addressed. Besides, the social base of the Green Movement is mainly middle and upper-middle class.

This insufficiently wide popular mobilization represents in itself a “quantitative” weakness, but a further problem is that the social characterization of the protest, both in terms of participants and of slogans, leaves much space for the populist appeal of the regime.

Iranian democrats should take note and adjust their attitudes. Good policy, however, demands good analysis. The starting point should be, therefore, an assessment of the socio-economic characteristics of the Iranian system. The Constitution spells out a “social” approach, in the sense that, although capitalism is not rejected, the functioning of the market is subordinated to religiously inspired ethical principles of justice and equity. The economy is described as “a means not an end”, and its purpose is defined as follows: “to create welfare, eliminate poverty, and abolish all forms of deprivation with respect to food, housing, work, healthcare, and the provision of social insurance for all”. One cannot help but noting that there is nothing especially revolutionary, or radical, in a set of goals that rather resembles many European constitutional texts and legislations inspired both by social democracy and by Christian democracy.

However, while setting up a moderately “social” economic system, a sort of religiously inspired “ethical capitalism”, the Constitution of the Islamic Republic tilts the balance toward the state, by singling out the key economic sectors: “The state sector is to include all large-scale and mother industries, foreign trade, major minerals, banking, insurance, power generation, dams and large-scale irrigation networks, radio and television, post, telegraph and telephone services, aviation, shipping, roads, railroads and the like; all these will be publicly administered by the State.” Thus, a theoretically “mixed” system has the State maintain a heavy, dominant weight in the economy.

Despite these limitations, since 1979 a veritable struggle on the interpretation/application of those contradictory principles has never stopped, making the relationship between the state and the market rather dynamic. The years of Hashemi Rafsanjani’s political hegemony saw economic reform and the creations of a wider space for private enterprise. Traditionally, religious foundations (“bonyad”), had exercised an indirect state control over the economy; they are now less powerful than in the 1980s, while the role of the pasdaran has grown sharply.

The Iranian system can be described as a form of corporatist capitalism, as private business does function, and even thrives, insofar as it gets a sort of “green light” from the state and is seen as operating in harmony with the regime. Iran’s “crony capitalists” have been able to enrich themselves by operating under soft fiscal pressure, no labor union challenge (official union leaders are regime puppets, authentic union leaders are in jail), and very little control of safety standards. No wonder they have been part of the political constituency of the regime.

An interesting historical parallel for the present Iranian socio-economic system could be Italian fascism in the 1930s: that too was a system in which private interests could thrive as long as that they had a crony relationship with the regime, and in which workers had no right to strike nor to organize outside the pseudo-unions controlled by the regime. Fascist Italy and the Islamic Republic also share the “social” character: indeed, unlike its neighbors, in Iran a minimum standard is guaranteed for basic needs, such as food, housing, health, education (although poverty does exist and inequality is significant). This has been achieved through a combination of free public services, subsidies of several consumer items, and Islamic charity.

In defining a strategy and a political platform, Iranian democrats will have to deal with this economic and social history of the country. Naturally they will have debates and divergences on economic policies, yet we can tentatively set out some consensual points.

First, the social dimension of the Constitution will have to be preserved even in a democratic Iran. If Iranian democrats were to propose a sort of radical free enterprise, neo-liberal economic platform, their chance of gaining majority support in the population would be minimal. Iranians want a more efficient economic system: real, competitive capitalism, not the present crony capitalism. The creative energies of a young and educated population are ready to be focused on economic activity and –once the isolation brought about by the present regime is overcome – a full integration into the global economic system.

Second, Iranians would in no way abide by a weakening of the level of welfare granted by the present regime. On the contrary, they would demand to make welfare more efficient and, simultaneously, more substantial than it is today. It is clear that without good public education and other accessible and quality public services, there is no chance for social mobility and the growth and prosperity of the middle class. As for the lower classes, the support that the present regime still obtains is largely based on its populist appeal to millions of citizens who are resentful at what they perceive as the unjust privilege of elites.

Planning a future economic system for Iran is politically necessary in order to gain credibility beyond the immediate protest, but short-term issues complicate the choices to be made by the “Green Movement”, starting with international sanctions. It is certainly not easy for Iranian democrats to take a stand on international measures which are aimed at weakening the regime they are struggling against, but which objectively hit a fiercely nationalist people affecting the daily lives of common citizens. However, one should be realistic about the actual impact of sanctions on the Iranian economy: they are not bringing Iran to its knees. The country, according to latest IMF data, is still growing at around 3% per year, and trade is not being radically impaired. Several countries (China, but also many mid-level economic economies) are not joining in the sanctions, and some European countries have maintained a certain flow of exports to Iran and continue buying Iranian energy. What is being affected is the financial sector, with banks very reluctant to deal with Iran, forcing Tehran to rely on indirect and expensive financial detours. Most significant is the impact of sanctions on investments in the energy field. 

Here is exactly where Iranian democrats could address in a critical way the regime’s intransigence on the nuclear issue without appearing “unpatriotic”: they should point out that the pursuit of nuclear energy (a long process which could produce results only sometime in the future) is harming the exploitation of an energy source that is already available. Ultimately, any Iranian will be critical of international sanctions which hampers the country’s economic development, but putting torturers and inquisitors on the no-fly list is definitely seen in Iran as a signal that we care about freedom and democracy in Iran.

The current regime will not fall because of sanctions; yet, with caution and some smart decisions, the international community can indeed help the cause of Iran’s economic transformation, which in turn is an integral part of its political evolution.