The news of the closure and reopening of Darugar, a vintage company in hygienic and cosmetic industry, once again brought prestigious Iranian brands and their sad fate into stark relief.
The fact of the matter is that the birth and death of commercial brands has a clear economic logic, therefore it is not surprising or worrying to see some of them dissolve over time. The problem is somewhere else.
The question is why almost all successful and important Iranian economic enterprises formed during the 1950s and 1960s gradually lost their efficiency and either turned into loss-making state companies or went bankrupt. The next question is why new and large private-run enterprises like those set up before the 1997 Islamic Revolution were not established after the revolution, Mousa Ghaninejad, a prominent economist, prefaced an editorial for the Persian economic daily Donya-e-Eqtesad with this note. A translation of the text follows:
History Check
An informed response to this question requires a comprehensive study of economic, political and social systems established in Iran after the revolution.
In short, we can say that the political and economic ideologies of the revolutionaries at that historical juncture played a decisive role. The signs of this ideology can be found not only in the discourse of the politicians currently in power, but also among their competitors and opponents. In fact, almost all influential intellectuals of the time, regardless of whether they had Islamic affiliations or not, openly and strongly opposed what they called “dependent capitalism” and sought to eradicate it from Iran. Under that intellectual atmosphere, decisions and policies took the so-called “anti-capitalist” and “anti-reliance” direction.
As a result, right after the revolution, the vast majority of large and successful companies, most of which had become famous brands, were expropriated and their fate was placed in the hands of young managers. The owners of all large and successful companies were considered paragons of “capitalism” and any link with the global economy and technology was considered a sign of “dependency”.
How could a private-run company expand, become successful and transform into a famous brand under such circumstances? The inefficiency of this ideology was manifested in the first decade after the revolution. The intellectuals thought of a solution, the first of which was launching economic reforms in the late 1980s and the beginning of 1990s.
Despite some blunders, these reforms brought about positive results, but they did not sit well with the ideologues who continued to beat the drum of fighting “dependent capitalism” and warned of deviation from the path of revolution.
However, the political and social changes that took place in the Iranian society in the 1990s did not allow the return of that ideology in its original form. Economic reforms continued during the government of Mohammad Khatami, although it was mainly dominated by the left. At the same time, the “general policies of Article 44 of the Iranian Constitution”, which aimed to pave the way for the privatization of state-owned economy, was placed on the agenda of the Expediency Council and finally promulgated in 2014.
With the communication of the general policies of Article 44, which coincided with the inauguration of the ninth government [led by Mahmoud Ahmadinejad] and the embracing of economic reforms, the transfer of state-owned companies continued at an unprecedented speed and altered the economic system of the country. As the privatization process gained momentum, it became clear that although the economy was becoming non-governmental, the economic system remained politicized and the real private sector, which was supposed to take the helm of the national economy, continued to live a tough, miserable life on the sidelines.
A Version of Crony Capitalism
Today, you see that the final outcome of handing over state-owned companies was the formation of crony capitalism, in which there is no place for the competitive free market.
Large companies that emerged after the handovers were called “semi-governmental” entities that are legally non-governmental on the surface (in terms of ownership) but are in fact totally dependent on political powers in terms of management and profit.
At a time when Iran’s economy and markets are dominated by the government and almost all prices are set by fiat, how can we talk about the growth and prosperity of private sector?
The formation of brands is imaginable in the real private sector and in a free and competitive environment, but branding is impossible in the presence of crony capitalism and semi-governmental companies whose management is unstable and whose system is feudalistic.
It is no wonder that in the Iranian society, which has educated and elite manpower at different levels, we still do not have a “unicorn” startup of a global stature.
As long as command economy rules the country and the closed domestic and foreign business environment does not allow the growth of the real private sector, it will be futile to expect the rise of successful brands and startups, even if we potentially have the appropriate abilities to achieve that goal.
