The Forum for Partners in Iran's Marketplace

June 2019, No. 91


Fundamental Changes in Economic Laws

When countries such as Japan, South Korea, Taiwan and later China entered free trade and global economy, and acted exactly opposite to the theory of affiliation and achieved remarkable success, we were among the few countries that followed the theory of dependency and eventually gave in to its harmful results.

Dr. Mousa Ghaninejad, Economist

The dominant political and intellectual atmosphere in the years before the February 1979 Islamic Revolution had significant impact on the formation of the line of thinking of the constitutional drafters. By examining that intellectual mood one can realize why the economic principles of the Constitution were outlined and written in that form; what were its goals and how it was finally carried out, and what its consequences are today and its effects on the current economic situation.

The slogans of the Revolution, both politically and economically, were anti-imperialist or independence seeking, and viewed the Shah’s dependence on the West and the United States. The political dependence of the regime is outside this debate, and judgment about it is complex and requires deep insight into the relationship between Iran and the West and the United States as well as the Soviet Union. But the slogan “Independence, Freedom, the Islamic Republic” was not just political, and its economic dimension was strong. The revolutionaries considered the Shah’s regime and Iran under him to be completely dependent economically. Therefore, they explained this with dependency theory, which briefly states that the global economic system consists of the exploiting centers and the exploited peripheral.

The center or the Metropole includes the developed Western countries and the peripheral includes Third World countries (other than the Soviet Union and the Eastern Bloc). This theory is essentially of the Leftist and Marxist type. Of course, non-Marxists also had a theory of affiliation, which challenged the Marxist theory. The theory of dependence was so ripe for the people of struggle and politics as well as revolutionary intellectuals that not only Marxists but Islamists promoted the same theory, including the speeches of Dr. Ali Shariati and his references to Frantz Fanon and the description of the colonization and exploitation of Europeans in Africa.

It is under such conditions that the Revolution occurs and, as a result, an important demand by the revolutionaries is to cut off any economic dependence on the outside and achieve “self-sufficiency” within the country. They want to reduce foreign trade relations, especially with the West, and cut imports more and more, and all needs be met internally. This misconception was the source of many blunders and deviations in the Iranian economy. As an example of the devastating consequences of this line of thinking is the current water crisis.

Since restricting the use of water for agriculture was considered the enemy’s conspiracy to prevent Iran from achieving self-sufficiency in producing strategic agricultural products such as wheat, irregular use of groundwater and deep well drilling was authorized. Not just license for well drilling was issued but there was basically no strict control of licenses. Even the government itself facilitated the import of motors and electro-motors thus increasing the number of wells and development of water agriculture.

Subsidized hard currency, subsidized gas oil and free water wells were utilized in the service of increased output for self-sufficiency ignoring the fact that country’s groundwater resources were being wasted rapidly. This example objectively demonstrates to us that the promotion of false thinking and its transformation into a national slogan and national aspiration can bring a lot of losses and damage in the realm of action. Self-sufficiency was not limited to agriculture and wheat cultivation; efforts were made to reach self-sufficiency in the industry and that too in the 1980s when all countries were moving toward globalization and free global trade.

In the years after the 1979 Revolution and the period described by some as the Golden Decade of the 1960s we swam in the opposite direction. When countries such as Japan, South Korea, Taiwan and later China entered free trade and global economy, and acted exactly opposite to the theory of affiliation and achieved remarkable success, we were among the few countries that followed the theory of dependency and eventually gave in to its harmful results.

In the same period some said that the conventional banking system is a Western and degenerate phenomenon, and we need to create usury free Islamic banking. This happened when the world’s banking system was evolving, and new banking innovations and methods, auditing and transparency were applied. The same thing occurred in the industry. With the onset of the Revolution, people became decision-makers and decision takers whose main slogan was struggle against capitalism.

The ruling ideology in the midst of the Revolution was the leftist ideology influenced by Marxist ideas. Islamic scholars such as Dr. Shariati or non-Islamic intellectuals, such as those who worked in the Writers’ Association as an intellectual center opposed to the Pahlavi regime were anti-capitalist and opposed to the private sector. As a result all large industries and a large part of the small and medium industries became state owned after the Revolution.

Industries were either directly owned by the state or indirectly managed by government institutions. Consequently, instead of economic logic, political logic dominated the industry. The idea of economic independence is also evident in all post-revolutionary documents. Before drafting of the Constitution, the resolutions of the Revolutionary Council were in the same direction. Nationalization of banks and industries, confiscations and nationalization of water and agriculture were also carried out by the legislature of the Revolutionary Council. The Constitution was also drafted on the same line of thinking.

Part of the flaws and perhaps the illusions that have been created for the claimants of the economy goes back to the very same historical period of the Iranian economy. At that time, oil revenues were rising and the assumption had been shaped in the revolutionary atmosphere that Iran was very rich and that the Shah and corrupt courtiers were lavishly dispossessing the assets of the nation. It was supposed that, if the revolutionaries took over, they would end this lust, and with the oil income they could meet all the requirements cited in the constitutional articles.

They also said there is no need for people to work hard and instead they can engage in self-construction by enjoying their leisure: That is exactly what they said in Article 43 of the Constitution. Today’s science tells us that the Constitution requires fundamental changes. Because the expediency monitoring the new interpretation cited in the general policies of Article 44, has failed in practice, and the economy remains state-owned and inefficient. To get out of the state economy trap, two things are urgently needed to be done: first, liberalization in the true sense of the word, not the “reform of the business environment” at the discretion of the state bureaucrats; and secondly, privatization in the real sense, and not the transfer of state-owned companies to the public sector and government institutions. To accomplish this, changes are required in the relevant articles of the Constitution, not merely their apparent reform.


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  June 2019
No. 91