The Privatization Panacea in Iranian Politics
Some foreign analyses of the post-election events made the argument that the factions and politicians associated with the Mousavi campaign, especially Hashemi Rafsanjani, were planning to rush through a privatization of Iran’s state-owned companies and assets if they had won. The usual epithet of the left – neoliberal – was hurled at Mousavi and his circle.
A quick aside: two words are used quite often in left leaning writing these days: neoliberalism and imperialism. The former often stands in for plain old capitalism, the latter for almost everything else the left does not like – a far distance from Hobson and Lenin. I rarely read anyone claiming himself or herself as a neoliberal or an imperialist. They are ad hominem terms, which make them excellent for politics, but not very helpful for social science.
Back to Iran. Only a few years ago I recall a particular book on Iran that argued the Ahmadinejad administration was the true neoliberal bête noire. Again, the privatization of state assets and their “tunneling” to shadowy figures was the accusation. As usual, the reality is not so simple.
Assuredly, many Iranian economists would love a huge private sector in Iran, since the public sector ranges between 60 and 70% of Iran’s GDP. The quasi-governmental sector, where the state still provides funds, staff, and has either majority or minority control, ranges around 10-20% of GDP.
The word privatization has been uttered in Iranian politics since the late 1980s, when Iran emerged from the war and entered its “reconstruction” phase. The zeitgeist of the time was “shock therapy.” The idea was to rapidly sell off state assets to private hands without much planning, and it was implemented with gusto in many Latin American countries and, most infamously, in Russia. The market would sort it out, and even if the market failed it could not be any worse than state failures in provisions of goods and services.
In Iran, there was a brief but rapid liberalization of the economy under Rafsanjani in 1992-3. Here, just like in Russia, Bolivia, Argentina, and other cases of induced “transition,” there were austerity protests due to the rapid rise in costs of living. Unlike Russia, Bolivia, Argentina, and many other cases, however, Iran backed off of its liberalization plan (to the dismay of many Western-trained economists inside Iran). If Iran was supposed to be run by neoliberals who did not care for the economic consequences of their policies on the population, then they must be still in hiding after Rafsanjani performed a volte-face.
Since then, Iran’s economy has performed in the middle range of developing countries in the world economy (the subject of an upcoming post, I promise). Also, since then, whenever anyone is asked how the sclerotic economy can be made better, all Iranian politicians throw forward the word privatization.
Just recently, Etemaad interviewed Hamid Fooladghar, the head of the Parliament’s Special Commission on the implementation of Article 44 of the Iranian Constitution. Article 44 lays out which sectors of Iran’s economy are to remain in public hands and which should either be in the private or cooperative economic sectors, and it is a buzzword for privatization. He said that the privatization efforts have not been very successful, and that government capital which is theoretically supposed to be moving into the private sector is instead “circulating” within the government itself. There are many reasons why privatization moves so slowly in Iran, which I might discuss in the future, but for now I just want to point to the original text of Article 44.
Here is what is says:
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 owned and administered by the State.
The cooperative sector is to include co-operative companies and enterprises concerned with production and distribution, in urban and rural areas, in accordance with Islamic criteria.
The private sector consists of those activities concerned with agriculture, animal husbandry, industry, trade, and services that supplement the economic activities of the state and cooperative sectors.
In 2004, while Khatami was still president, Iran amended article 44, part of a long-term project to join the World Trade Organization (the US has continually blocked Iran’s application). As with China’s entry to the WTO in the late 1990s, the regulatory environment of Iran needs to legally conform to the standards set by the WTO to gain entry. Some of the main points of Khamenei’s exective order on the subject are:
The government shall not be allowed to engage in economic activities that fall outside those envisioned in Article 44. Moreover, it is obliged to relinquish any activity, including continuation and operation of previous activities that are covered under Article 44, and cede them (at least 20 percent annually) to the private and cooperative sectors by the end of the Fourth Five-Year Development Plan.
Also, some other goals:
…Increasing the share of the cooperative sector in the national economy to 25 percent by the end of the Fifth Five-Year Development Plan. …Support by the government of the cooperatives, proportionate to the number of members….Establishment of nationwide cooperatives to cover the three lowest deciles of the population with a view to poverty alleviation….Change in the role of government from direct ownership and management of enterprises to policy-making, guidance and overseeing….Economic empowerment of the private and cooperative sectors, and enabling them to enhance competitiveness of their products in international markets….Preparing Iranian enterprises to apply global trading rules intelligently and in a gradual and target-oriented manner.
And, finally, the privatization amendment to article 44:
Eighty percent of the shares of State-owned enterprises, covered under Article 44, shall be ceded to the private sector, joint stock cooperative companies and non-state publicly-held companies as follows:
1. State-owned enterprises engaged in large mining activity, large-scale and mother industries (including large downstream oil and gas industries), except the National Iranian Oil Company and companies involved in extraction and production of oil and gas.
2. State-owned banks, except the Central Bank of Iran, Bank Melli of Iran, Bank Sepah, Bank of Industry and Mines, Bank of Agriculture, Housing Bank (Bank Maskan), and Export Development Bank.
3. State-owned insurance companies, except Bimeh Marakazi and Iran Insurance.
4. Airline and shipping companies, except the Civil Aviation Organization and Ports and Shipping Organization.
5. Power supply companies, except the main electricity transmission grid.
6. Postal and telecommunication companies, except the main telecommunication networks, frequency assignment services and the main and basic postal services.
7. Industries affiliated to the armed forces, except defense and security products and services that are deemed essential by the Commander-in-Chief.
This is supposed to be done by pricing the assets through the stock market, and then holding companies will sell off the shares. Ahmadinejad’s administration got involved when it began to distribute shares of privatized companies to low income families and named them “justice shares” (seham-e edalat). Last year each justice share supposedly paid out around $70 as a dividend (probably not from the actual “profits” of these companies). Note that the amendment says nothing about discriminating for or against foreign capital.
Is this neoliberalism? Certainly not right now. The main problem Fooladghar describes is that the shares of public companies are simply being bought up by other public or semi-public agencies - the Social Security Administration, the various Religious Foundations, the Army, the Revolutionary Guards. This may not be as nefarious as some commentators claim, though. All of these organizations possess built-up pension programs, which contain huge pools of capital that cannot be invested outside the country very easily. This actually resembles the same form of pension financialization that occurred in Brazil, Argentina, and of course, the US (the California Nurses and Health Workers Union, for example). Given that the entire state apparatus is “all on board” for this process, and the result is currently very little 100% privatization of anything, it is doubtful that this is shock therapy round two.
In reality, no faction wants full and rapid privatization of the state sector, nor would that be a very good idea given the failures of rapid privatization in other countries. They all say (Ahmadinejad waffles on it, but Khamene’i brings it up at every opportunity) that privatization will be the key to economic success, but they are not very specific about the process. Fooladghar said that these quasi-public pools of capital easy outcompete private sector capital when obtaining state assets. If anything, Iran’s private sector still needs a “leg-up” from the government.
Instead, Iran’s state-business relations look much more like China’s in the early 1990s rather than Russia’s – a slow and gradual subjection of some state enterprises to market pressures coupled with the use of the national market to lure in foreign investment (including diaspora capital). I am not sure if the government meant to enact such a gradualist industrial policy, but that is what has happened. Given the track record of the Chinese vs. Russian economies over the last 20 years (and the absolute declines in Russian welfare indicators due to its economic collapse), it was probably a preferable path.
In a way, platitudes on privatization are probably leftover from the 1990s and the “magic of the market.” Given the political turn in the global political economy, though, the talk seems rather hollow. That is not to say that privatization of certain state assets could be a positive development in Iran, only that the salvation that economic privatization represents is likely a dying discourse that will hopefully be replaced with sound and historically proven economic and industrial policy.
