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Reviews 19 July, 2020

Book Review: A Look at the Political Economy of Iran

Mehran Kamrava

Head of the Iranian Studies Unit at the Arab Center for Policy Studies and Research and is also Professor of Government at Georgetown University Qatar. He is the author of a number of journal articles and books, including, most recently, A Concise History of Revolution and Inside the Arab State.

Negah-i be Eqtesad-e Siyasi-e Iran (A Look at the Political Economy of Iran)

Author: Rahmanzadeh Haravi, Mohammad.

Date of publication: 1396/2017.

Publisher: Akhtaran

No. of pages: 568

The years immediately following Iran’s 1978-1979 revolution saw the publication of a number of in-depth studies on the country’s political economy and the forces that fostered the collapse of the Pahlavi state and the establishment of the Islamic Republic. Then, for many years, the topic was all but forgotten, scholars of Iran paid attention instead to the country’s international relations, especially the nuclear issue, or the fallout from the contested presidential elections of 2009.

Fortunately, the last few years have seen a reversal of this trend, with several excellent books in both Farsi and English exploring aspects of Iran’s political economy. Suzanne Maloney’s Iran’s Political Economy Since the Revolution (2015) provides a thorough and erudite overview of the topic starting with the early Pahlavi era up until recent years. For obvious reasons, the list of books published in Iran is much more extensive. For example, Bahman Ahmadi Omoee’s Political Economy of the Islamic Republic (Eghtesad-e Siyasi-ye Jomhouri Eslami), published in 2004, presents excellent first-hand accounts of early policy decisions at the start of the revolutions that continue to have economic and political repercussions until the present day. Abolhassan Faghihi and Hassan Danaifard (2011) provide a historically rich examination of the role of bureaucracy in economic policymaking and implementation in Iran from the earliest days in Bureaucracy and Development in Iran: A Comparative Historical Look (Borokrasi va Tose‘eh dar Iran: Negahi Tarikhi-Tatbiqi), although only one chapter is devoted to the Islamic Republic.

More recently, in 2018, Alireza Kheiroullahi examines the nature and composition of the working class in the Islamic Republic in Classless Workers: Bargaining Power of Workers in Iran after the Revolution (Kargaran-e Bi Tabagheh: Tavan-e Chaneh-zanie Kargaran dar Iran Pas az Enghelab), a study that is both theoretically well-grounded and empirically rich. Kheiroullahi’s volume makes an excellent companion to Farshad Nomani and Sohrab Behdad’s Class and Labor in Iran: Did the Revolution Matter? (2006). Also noteworthy are contributions by Farshad Momeni to the topic, which in many ways are essential readings for anyone interested in understanding the Islamic Republic’s political economy. Of these, Momeni’s Political Economy of Development in Iran (Eghtesad-e Siyasi-e Tose‘h dar Iran), published in 2016, and Social Justice, Freedom, and Development in Contemporary Iran (‘Edalat-e Ejtema‘i Azadi va Touse’eh dar Iran-e Emrouz), published in 2017, stand out.

A final book to highlight here is Abbas Mossalanezhad’s Pathology of Iran’s Economic Development (Asibshenasi-e Touse‘h-e Eghtesadi-e Iran), published in 2018. As the title indicates, Mossalanezhad’s book meticulously examines the goals, successes and failures of the first four development plans devised under the Islamic Republic. The Fourth Development Plan was meant to be implemented from 2005 to 2009. But President Mahmoud Ahmadinejad’s anti-technocrat impulses led him to ignore expert advice and to disband the Plan and Budget Organization, responsible for devising development plans, in 2007. Much of the plan, which Ahmadinejad dismissed as Western-inspired, was never implemented.

From among this group of outstanding books on Iran’s contemporary political economy, Mohammad Rahmanzadeh Haravi’s A Look at the Political Economy of Iran (Negah-i be Eqtesad-e Siyasi-e Iran) stands out for its encyclopedic empirical depth and its historical breadth. The book begins with the first appearances of industry in Iran during the reign of Nassereddin Shah Qajar and moves all the way through the two Pahlavi monarchs and then the Islamic Republic. Throughout the book, the author chronicles the establishment, operations, and the ups and downs of various industrial enterprises, from the country’s first textile and crystal making factories in the 1800s to the emergence of new commercial and mercantile classes starting in the second and third decades of the Islamic Republics.

The book is organized chronologically, starting with the final decades of the Qajar dynasty. During each period, Rahmanzadeh Haravi examines the key sectors of the economy and the main industries that were active in each sector. Up until the early 1960s, the industries that were important included those involved in textiles, leathermaking, foodstuffs, pharmaceuticals, and wood and paper. For each of these, the book examines the main factories that were involved in the production and distribution of goods, including, in many cases, how the factory was founded and who its main owners and operators were. Heavy industries began to appear in noticeable numbers starting in the 1960s, including large factories working in steel and other metals, cement, and various types of machinery. In the same decade, policymakers provided subsidies and affordable facilities for small and medium sized industries in what became special industrial cities in Ahvaz (1967), Qazvin (1967), Kermanshah (1971), and Rasht (1974). In 1985, the Islamic Republic decided to continue the building of industrial cities, and by 2017 the country had no less than 945 such cities containing nearly 36,000 industrial enterprises and employing approximately 737,000 workers. In recent years, however, many of these enterprises have either shut down altogether or operate at far below capacity, due mostly to insufficient capital and resources.

One of the book’s most valuable and original contributions is its chapter on Iran’s automobile industry, focusing not only on the country’s two main car producers, the Saipa and Iran Khodro holding companies, but also on affiliate industries that make diesel engines, trucks, buses, tractors, radiators, spare parts, and tires. Combined, the two holding companies are comprised of some 200 smaller companies and employ around 90,000 workers. In 2017, Iran was the world’s eighteenth largest automaker and the biggest in the Middle East, producing 1.5 million automobiles a year. Quantity, of course, does not necessarily mean quality, and Iranian manufactured cars have yet to capture the hearts and the imaginations of their intended consumers.

Other chapters focus on the mining sector, oil and oil-related products, agriculture, and services. In his examination of the agricultural and animal husbandry industries, Rahmanzadeh Haravi demonstrates that both are well-developed and can go a long way in answering domestic demands. In fact, Iran has the potential of becoming a major exporter of halal meat to other Muslim countries. Like most other industries, however, the agriculture and meat industries suffer from the activities of speculators and importers whose financial interests are tied to sacrificing domestic industries in favor of imports. Import permits are awarded as a form of rent to entrepreneurs with connections in the state, while farmers and meat producers are not given the materials and the support they need. Such activities by speculative importers, Rahmanzadeh Haravi shows, are systematic, rampant, and highly deleterious for literally every sector of the Iranian economy. Domestic industry, and economic development more broadly, in Iran are victim to politics in general and state policy in particular.

Over the course of its four-decade life so far, the Islamic Republic has gone from a clearly statist political economy to what is today a confused array of uncoordinated and often contradictory policies. Back in 1980, most drafters of the Islamic Republic’s Constitution came from lower income urban and rural backgrounds, and their hostility to large scale capitalism found its expression in the ensuing political economy of the nascent system. As Rahmanzadeh Haravi explains, immediately after the revolution more than 30 percent of the capital belonging to the private sector was nationalized and taken over by the state. One economic sector and industry after another, revolutionary policymakers took over and nationalized factories and industrial outlets in the name of the dispossessed and the downtrodden. Some industries were turned over to ministries and newly established foundations, called bonyads, and others were left to rot. Parastatals and state-owned enterprises, and massive government foundations, became ubiquitous features of the Iranian economy.

Despite various development plans, Iranian policymakers have yet to devise a coherent, consistent economic strategy that is institutionally anchored and theoretically sound. In fact, each new administration changes the policies of the previous government and adopts its own strategy. Today, Iran’s economy is comprised of a confused mélange of state-owned enterprises, parastatals, and semi-productive private enterprises that cater to crony capitalists at worst and mercantilist bazaaris at best.

Once the war with Iraq ended in 1988, about a decade after the revolution’s success, the same policymakers privatized what they had nationalized earlier, having realized that a bloated state could not possibly run a complex economy even remotely efficiently. That privatization process, whether through forging partnerships between the private sector and the state or through selling shares on the Tehran Stock Market, continues to this day. According to Rahmanzadeh Haravi, in fact, by far the most consequential economic change in the life of the Islamic Republic has been the large-scale privatization of state assets, especially during the Ahmadinejad years from 2005 to 2013. The primary beneficiaries of this privatization, today’s economic elites, are the very same revolutionaries of a couple of decades ago. And, while Iran’s mercantile entrepreneurs keep getting wealthier, the country’s industry continues to perform below its potential and capacity.

Rahmanzadeh Haravi is clearly not a theorist, and the book is therefore mercifully free of jargon or forced attempts to explain the nature, evolution, and performance of Iran’s political economy through imported, and seldom applicable theoretical frameworks. This lack of theoretical framing takes nothing away from the book. If anything, Rahmanzadeh Haravi’s rich descriptions of the country’s economic sectors provides fertile ground for important theoretical inferences.

In his valuable book, Rahmanzadeh Haravi shows how in Iran engaging in production, whether agricultural or industrial, does not pay. Interestingly, conspicuously absent from his discussion is the debilitating comprehensive sanctions from which Iran has suffered for four decades now. This in itself is an important point, for while Iran’s economy is surely suffering under the weight of international sanctions and its lack of access to the outside world, there are other, equally fundamental, structural problems that keep the economy performing at its current low capacity. To start, the state lacks a coherent and meaningful development strategy, not even a vision of where it wants the country’s economy to go in the next decade or two. Equally important is the absence of a coordinating institution, or institutions, with capacity and authority for policy enforcement and coordination among the various state agencies, economic sectors, and factories and industrial concerns. It is telling that the one such agency that has long been a pride of Iranian technocrats, the Plan and Budget Organization, was abolished by President Ahmadinejad. Although reconstituted after the populist president left office, the organization has yet to find its footing again in the Iranian system.

These political dimensions of the Iranian economy, especially the clash between rhetoric, ideology, and policy on the one side and economic realities and objectives on the other, do not receive sufficient attention in Rahmanzadeh Haravi’s book. The Ahmadinejad years corresponded with some of the highest oil prices in recorded history. How did the Iranian government squander such an opportunity? Did the president’s various populist pet projects, of which the Mehr housing scheme was a prime example, drain the economy to its current desperate state? And why did crony capitalism flourish so wildly during the same period? More recently, how successful has President Rouhani been in turning away from Ahmadinejad’s populism to his own, unstated laissez-faire preferences? And, in all of this, where does the ultimate arbiter of Iranian politics, the Leader, Ayatollah Khamenei stand?

Rahmanzadeh Haravi cannot be faulted for these omissions. He is, after all, writing in a political system where government censors pour over every word to be printed, and the words that get away can come back and haunt an author or an analyst. Besides, the book is already more than 560 pages long, and elaborations of the kind suggested here would no doubt make its size overly large and its publication prohibitively expensive. Nevertheless, in addition to the theoretical inferences to which the book’s thick descriptions lend themselves, they open up additional avenues of inquiry into Iran’s political economy.