October 14, 2016
by Amir Taheri
By normal standards the Iranian economy, if not surging ahead in full sail, should at least be on an even keel. And, yet, according to most experts, it is heading for choppy waters towards unknown shores.
Against such a background, the current debate within the ruling establishment in Tehran over economic strategy is of great moment for all those interested in the future course of Iranian behavior in the region and beyond.
To be sure, because the debate does not include the many different visions that Iranians have of their future, its long-term impact may be limited to the duration of the present regime. Nevertheless, even with that caveat, its importance cannot be ignored.
The debate has two sides. On one side are the various groups of technocrats, businessmen and academics who insist that Iran should seek its proper place within the global economy as a middling power with the potential to become an important player in the international market. Former President Hashemi Rafsanjani has been an eloquent exponent of that view along with his protégé Hassan Rouhani, the incumbent, and his mostly American-educated economic team.
Collectively known as “islah-talab” or “seekers of reform”, those groups argue that in order for Iran to embark on such an economic strategy it must first change aspects of its behavior, especially in regional policy. A string of foreign dignitaries visiting Tehran in the past few months, that is to say since the so-called “nuclear deal” midwifed by President Barak Obama was launched, relentlessly market that view. Among them are German Vice Chancellor Sigmar Gabriel, a frequent visitor to Tehran, and the European Union foreign policy tsarina Federica Mogherini, a passionate supporter of the Islamic Republic. Dozens of former Western politicians, now engaged in business, also play the same tune, largely in the hope of making a living for themselves in case the Iranian golden goose actually starts laying some eggs.
To be sure, compared to many “developing nations”, Iran has a number of advantages. To start with, thanks to huge oil and gas reserves it can enjoy energy independence for decades to come. Even if energy consumption per head reaches current Western levels, Iran could still remain a major exporter of oil and natural gas well into the future.
The typical “modern economy” needs to save up to 15 per cent of its gross domestic product (GDP) at private and public levels to sustain an adequate rate of capital formation. In a proper context, Iranian oil and gas export revenues, currently around 12 per cent of the GDP could provide almost all of the percentage required.
Iran’s vast natural resources are complimented by its agricultural potential. Until the mullahs seized power in 1979, Iran had been self-sufficient in food production for more than two decades. Even now, and despite 30 years of mismanagement and the flight of skilled personnel, Iran imports no more than 40 per cent of its food. Water shortage, part of it due to misconceived dam projects and the neglect of traditional water channels is a major problem. But even then, according to some accounts Iran could add around 18 million hectares to its productive agricultural base within a generation.
Iran’s geographic location is also an advantage, being close to major markets such as Europe, Eurasia, Central Asia, oil-rich Arab states and, of course, the Asian giants of India and China. Iran also has a history of industrialization, what some economists call “the industrial memory” that dates back 150 years, and a fairly well-organized bureaucracy shaped over at least 500 years of semi-modern statehood.
Iran’s demography is also a potential advantage. With a population of around 80 million, Iran does not face the problems of nations suffering from over-population relative to their natural resources and life-space. At the same time, Iran’s population is not too small to prevent the emergence of mass industries that require a domestic market as an initial growth-base. More importantly, perhaps, despite the recent levelling off of birth-rates, Iran has a relatively young population with a level of education slightly above the average for “developing nations”, including some 15 million individuals of working age who have a university education.
And, yet, Iran’s economy is performing poorly. Unemployment is officially put at 12 per cent, although the Iran Chamber of Commerce claims it is closer to 25 per cent. Last August, the government unveiled plans for “easing women” out of the job-market in the name of helping strengthen family life. The real purpose, however, is to reduce unemployment for men, especially young ones. A double digit inflation combined with negative growth threatens to produce the dreaded stagflation. In fact, had President Obama not released parts of Iran’s frozen assets, President Rouhani’s administration may have been unable to pay the wages of at least some of the 3.4 million public employees.
To tackle its economic problems, Iran needs to change its political behavior. And that is precisely what the other camp, often called “hardliners” vehemently oppose. The “hardliner” camp is home to important segments of the Khomeinist establishment, including most of the Islamic Revolutionary Guard, the eight or nine security services, the remnants of the Left which, with the fall of the USSR, is left with nothing but pro-Russian and anti-American sentiments. In this camp, the standard-bearer is the “Supreme Guide” Ali Khamenei who advocates what he calls “Resistance Economics”, an Iranian version of North Korea’s “Self- Reliance” (Juche) strategy.
Khamenei sees any integration into the global system as the beginning of the end for the Khomeinist regime. He prefers Iran to be “poor but pure” rather than rich and submissive. He reads history as a narrative of conspiracies’ by a handful of Western nations to exploit the scientific and industrial and economic weaknesses of others nations to their own advantage.
He fears that opening Iran to the outside world would lead to the nation being brought under the yoke of foreign debt, needed to invest in keeping the oil industry going and launching development projects. He recalls how Western powers used the “trick” to destroy the Ottoman Empire, then the khedivate in Egypt and in Iran itself the Qajar Dynasty.
More recently, the European Union powers used the “trick” in Spain and Greece by lending them vast sums of money to create a bubble economy, largely based on real estate and social benefits for the public sector. As a result, neither Spain nor Greece can now make a move without the say-so of European bankers. Even when, in a referendum, the Greeks massively rejected a deal with the EU, Prime Minister Alexis Tsipras, the leader of the radical “anti-Imperialist” Left had to eat humble pie and start implementing the imposed plan to the last detail.
Between two options, Iran remains frozen. And that, perhaps, is even worse than the two options on the table.
Amir Taheri was the executive editor-in-chief of the daily Kayhan in Iran from 1972 to 1979. He has worked at or written for innumerable publications, published eleven books.
