Iran’s government has long talked of leaving the actual running of the economy to private businesses. Yet the little steps it has trodden down the path of market economics were halfhearted and gave rise to insignificant results.
The government embarked on privatizing its vast industrial holdings over a decade ago. The stakes it sold, however, ended in quasi-state hands with devastating economic repercussions. The root of the failure lies in a socialist culture within government ranks and a lack of understanding of how market economies work. Not to mention corruption.
Policymakers planned to steer Iran away from the nationalization course as early as 1990, as they were drafting plans for economic development. But lack of coordination evident in fiscal, monetary and foreign exchange policies, along with influences from the Soviet era, halted the plans.
“Socialist and nationalistic ideologies have played a pivotal role in creating protectionist policies in third-world countries,” said economist Mousa Ghaninejad, one of the strongest advocates of market economy in Iran.
“Traces of a line of thinking revolving around a state-run economy can be seen in our country’s Constitution.”
The state started to privatize its holdings around 2003. In the ensuing decade, over 1,000 trillion rials (about $28.7 at market exchange rate) worth of government property was “privatized” under a reinterpretation of Article 44 of the constitution. Of that, only 13% ended up in the hands of private owners, according to Iranian Privatization Organization. Another study by Iran Chamber of Commerce, Industries, Mines and Agriculture, sanctioned by Minister of Roads and Urban Development Abbas Akhoundi, puts the figure at 5%.
“The political hierarchy does not want a strong private sector. It wants large economic organizations and holdings to have public ownership,” said economist Alinaqi Mashayekhi.
So the policies derived from Article 44 were subverted. The quasi-state sector was added to the law, which is absent from the constitution and the civil code. Later, during the execution, the word “privatization” was dropped and “transfer” replaced it.
“Half of the policies were put in place to avoid a monopoly by private owners, giving rise to organizations like the Competition Committee and leaving the door open for the government to meddle in the economy,” said Ghaninejad.
But the real fault lies in misunderstanding the dynamics of a competitive market economy, which can also be seen in Article 44 policies. There are two parts to creating a market economy. The obvious one is ownership, addressed through privatization—though not in the Iranian way.
The second one and also the prerequisite to the other is liberalization, meaning the relaxation of government restrictions and streamlining of regulations to foster and protect fair competition.
Many Iranian politicians think that means lawlessness and fear the government would lose its relevance, while it is the opposite. “Liberalization is actually establishing the rule of law,” said Ghaninejad.
Without laws that back private businesses and the subsidization of the quasi-state sector, the Iranian economy will stagnate and a market economy will remain a bedroom poster for Iranian economists. Even a change in footing will take ages to bear fruit.
“We must know that the private sector is too small to handle the government’s enormous assets and real privatization in these conditions and in the short term is unattainable,” said Mashayekhi.
Moving forward, the quasi-state sector will stay.
“We can build a structure that is more competitive and yet able to work with the current body,” says Hossein Abdoh-Tabrizi, an advisor to the minister of roads and urban development.
The existing realities must be accounted for, he adds on a pragmatic note.
“If we want to stick to principles, we cannot change current conditions,” said Abdoh-Tabrizi.
“Our issue is creating a competitive environment. The companies and holdings controlled by the quasi-state sector must continue in that competitive setting,” said economist Farshad Fatemi.
Ghaninejad believes the quasi-state sector must learn that it cannot hinder its foreign and domestic competitors.
The stakes are too high.
“This concerns national interests. The discourse is not only about government, quasi-state and private sectors. It is about fighting monopolies,” he said.
