Iran: The Fight Over Economic Power
The way some apologists of the Khomeinist regime put it the current power struggle in Iran is between the mass of the poor led by the populist Mahmoud Ahmadinejad and the “rich and privileged” Tehranis whose leader is Mir-Hussein Mousavi.
Ahmadinejad himself played that tune during the ceremony in which he took the oath of office for a second four-year term as President of the Islamic Republic. He declared war on “the aristocracy of wealth” and vowed to “uproot the rentier elements”.
At the other end of the spectrum, some critics of the Khomeinist regime present Ahmadinejad as the leader of a Stalinist group determined to prevent Iran from liberalizing its economy, and praise Mousavi as a pro-market reformer.
As always with matters Iranian, things may not be that simple.
There is no doubt that the future of the Iranian economy is one of the key issues in what is presented as a dispute over the outcome of last June’s presidential election.
However, the dispute is not between partisans of state control and free-marketers.
Both Ahmadinejad and Mousavi have promised to transfer large chunks of the economy to the private sector. The difference between them is over who should benefit from such a transfer.
Mousavi, backed by former President Hashemi-Rafsanjani, reputed to be the wealthiest man in Iran, wants the transfer to benefit the long-established network of businessmen-cum-mullahs and their traditional bazaar partners. That would be the continuation of a policy initiated by former President Muhammad Khatami at the start of the privatization process in 2004.
Ahmadinejad is determined to fight the mullah-bazaar business coalition, which he labels “the black Mafia”, and has threatened to bring “the ring-leaders” to justice on charges of corruption.
However, that does not mean that Ahmadinejad wants to create a genuine private sector or to give the masses of the poor a fairer share of national income.
He wants state enterprises to go to a new business Mafia consisting of senior officers in the Islamic Revolutionary Guard Crops (IRGC) and their business partners.
Ahmadinejad launched his privatization scheme in 2006 with a guideline amending Article 44 of the Islamic Republic Constitution that stipulates that “strategic sectors” of the economy should remain in public ownership. Under the amendment, public ownership is replaced by government “guidance and supervision”.
During his first term, Ahmadinejad privatized state-owned businesses worth $17 billion. A galaxy of public sector companies, worth an estimated $12 billion, is also ready for privatization. Had Mousavi won, these would have gone to the mullahs and the bazaar merchants. With Ahmadinejad declared the winner, the IRGC and its partners will get the deals.
Having promised a “smaller government”, Ahmadinejad has started merging several ministries, disbanding some sections of the bureaucracy, and phasing out public subsidies that swallow about a fifth of the national budget. He has also liberalized the prices of hundreds of goods as the first step toward ending price control within four years.
The privatization of the postal service, one of the sacred cows of the Iranian economy, symbolizes Ahmadinejad’s determination to reduce the size of the public sector. Two major state-owned banks have also been privatized, and a third has put six per cent of its share for sale to the public.
To show that even “the crown jewels” are not exempt, the state has already sold five per cent of the shares of the giant Mubarakeh steel works near Isfahan. Plans are in the pipeline to divide the activities of the National Iranian Oil Company (NIOC), the country’s biggest business in terms of turnover, into 32 smaller corporations most of which could be sold to the private sector.
Ahmadinejad’s key economic promise is to privatize 80 per cent of the state-owned industries by the end of 2010.
Ahmadinejad has also relaxed rules on direct foreign investment in Iran. His government has signed agreements with the International Monetary Fund (IMF), lifting restrictions on currency transactions and the flow of capital. Previous administrations, including the government headed by Mousavi as in the 1980s, had refused to sign similar accords.
The supposedly populist Ahmadinejad, praised as a champion of the poor workers, has led the most brutal anti-labor crackdown in the history of the Islamic Republic. Ignoring the Labor Code and agreements signed with the International Labor Organization (ILO), Ahmadinejad has banned free trade unions and sent hundreds of their members to prison.
He has abolished the minimum wage and given employers carte blanche to hire and fire as they please.
According to the Workers Organizations and Activists Coordination Council (WOACC), more than 1.5 million Iranian workers lost their jobs during Ahmadinejad’s first term.
In the same period, the number of “precarious employees”, those hired with no contracts, rose from 12 to 30 per cent of the work force. As a result, Iran has witnessed countless workers’ strikes in the past four years; a sign that, far from being a populist hero of the working people, Ahmadinejad is regarded as a champion of unscrupulous employers, mostly linked with the IRGC.
Privatization in the Islamic Republic is not always what it means in other countries.
In Iran, state-owned banks provide the capital needed to buy the shares of the public companies. Most bank loans granted for the purpose are interest free in accordance with Islamic rules. The question is who gets them?
Under presidents Rafsanjani and Khatami, most of the loans went to the mullahs or their sons and sons-in-law. A list of 300 wealthiest Iranians in circulation in Tehran last year included the names of at least 100 mullahs or “aqazadehs” (mullahs’ sons).
In many cases, the mullahs own businesses through charities and other phantom organizations supposed to be dedicated to helping the poor and the needy. This means that large segments of the private sector pay no taxes and are not subject to public accountability.
Under Ahmadinejad, the interest-free loans used to buy the privatized companies have gone to the IRGC officers and members of the various security organizations that have emerged as the regime’s true support base.
To secure a populist varnish, Ahmadinejad has also issued a number of so-called “Justice stocks”, blocs of shares reserved for employees of the privatized companies. According to estimates from the Labor Ministry, so far only four per cent of the stocks have been distributed.
Over the past four years, military figures, including Chief of Staff General Hassan Firouzabadi, Interior Minister General Sadeq Mahsouli, and IRGC Commander General Muhammad-Ali Jaafari have been listed as major shareholders in many of the privatized companies. Thousands of other IRGC officers, both active and retired, have also received shares along with colleagues from the security agencies.
Ahmadinejad is determined to wrest away control of the lucrative trade with such countries as China, South Korea and Germany from groups associated with Rafsanjani’s faction.
If the present trend continues for the next four years, the military-security elite of around 100,000 active and retired officers and NCOs could emerge as the principal economic power bloc in the Islamic Republic.
Legally speaking there is nothing to prevent the military from assuming ownership of privatized businesses. However, many Iranians believe that the policy strengthens the military’s hold on power, further reducing chances of developing a pluralist system based on a market economy.
While handing over the “family jewels” to the military-security establishment, Ahmadinejad has tried to defuse public anger by distributing money among the poor, especially during his much- publicized tours of the provinces.
The tactic may make good propaganda, but has produced little positive result. In some cases, it has fueled inflation and injected a strong dose of corruption in public life.
Whether or not Ahmadinejad has “stolen” the election as Mousavi claims, we may never know for sure. What is certain, however, is that Ahmadinejad is trying to rob the rival faction of its economic power-base by promoting the interests of his supporters within the military- security establishment.