Domestic Political Reforms and Private Sector Activity in Iran
By: Bijan Khajehpour, 2000
Introduction
March 20, 2000 marked the beginning of the current Iranian year (1379). It was also the starting point for the so-called Third Five-Year Development Plan which sets the framework for Iranian development policies until March 2005. The commencement of a new set of policies within the framework of this plan has generated some new hope in a more successful liberalization of the Iranian economy after 21 years of imbalanced economic structures. A closer look at the stated objectives of the Third Five-Year Plan indicates the new emphasis of the Islamic Republic of Iran on private sector economic activity. In fact, as will be discussed in this paper, the core objectives of this plan revolve around the concepts of privatization, deregulation, reduction of government size and liberalization. Notwithstanding, the question remains whether these policies, which analysts believe will be essential for healthy economic development in Iran, will be realized. This paper argues that the success of the policies will depend on the interaction of all policy areas.
The interaction of political, social and economic developments is a given fact in any country. The Islamic Republic of Iran, however, has lived the interrelation of policy areas most intensely in the past two decades. Though some of the negative developments of the country's post-revolutionary business conditions were a direct result of revolutionary excesses (such as confiscations, arbitrary action against industrialists etc.), it is valid to argue that the bulk of problems have directly resulted from misguided and mis-implemented policies.
One of the direct consequences of post-revolutionary political and legal developments has been the absence of a vibrant private sector in the Iranian economy. This phenomenon becomes more interesting in the light of the fact that the Islamic regime has been trying to privatize the economy since 1989.[1]
This paper argues that the main reason for the absence of the private sector from wide-ranging economic activity is found in the country's inappropriate political, economic and legal structures. As such, a discussion of the negative impacts of post-revolutionary policies on the country's economic structure is warranted; also worthy of exploration are the prospects of a positive interaction between the current political reforms and progress in the country's economic and business conditions. First, let's briefly review the current structure of the economy and key obstacles to healthy economic structure, and then discuss the prospects of economic restructuring in the light of political reforms.
The Structure of the Iranian Economy
Background
By any account and ideological perception, the Iranian economy suffers from state domination. In the words of the Iranian President, the country's economy is "ill"[2]--"it is ill in production, in distribution and consumption." In fact, the sources of the illness are identified in the country's Economic Recovery Plan:[3] State domination in economic activity and over-dependence on oil exports as the main sources of hard currency income. While the oil income seems to be a chronic illness of the Iranian economy, it is clear that the main challenge in dealing with the overall illness is to effectively privatize the country's economy. In theory, privatization would increase efficiency, create a more competitive atmosphere, and promote the culture of free enterprise. In mm, a more diversified and private enterprise culture would be in a better position to develop new potentials for export income generation.
Analyzing the current structures of the Iranian economy is not an easy task due to the fact that the borders between public and private are very ambiguous. What creates the ambiguity is the existence of semi-state institutions in various formats, especially that of revolutionary foundations or bonyads.[4] A number of such institutions were created after the Islamic Revolution to manage the confiscated assets of the Royal family and nationalized entities; these operate in the gray area between the public and private sector. It is estimated that these foundations own some 20% of the asset base of the Iranian economy with a 10% contribution to the country's GDP. Furthermore, over the past decade, a large number of state-owned entities engaged in the establishment of semi-public and semi-private firms, which have taken over some of the privatized companies. Hence, if one includes all the mentioned semi-public entities, it is estimated that the public sector controls some 80% of the Iranian economy.
This leaves a 20% share of the economy to two sectors: The private sector (17%) and the cooperatives sector (3%). The private sector is mainly present in domestic and foreign trade, small industries and small mining activity, while its role in large-scale economic activity is negligible.
Historically, the Iranian economy did produce a better balance between the public and the private sector. In fact, following the land reforms of the early 1960s[5] Iran's economic transformation started off on a growth path. Government initiatives in infrastructure and social investments, in refinery and agricultural projects, and other sector activities paved the way, and the private sector followed. Private entities were allowed to fully operate, especially in services, finance, trade, construction and manufacturing. A balanced proportion between government and private business quickly made Iran's economy, structured on a vast natural resource base, productive and innovative. The normal trend from primary production to secondary manufacturing could be witnessed as more capital, resources and people moved into industry. Market forces slowly developed and were allowed to generate opportunity and remove constraints.
The first shock to this balance came in 1973-74 when the oil boom flooded government funds. The result was a spending spree with a focus on capital expenditure. Substantially high levels of local and foreign investment followed, which truly transformed Iran's operational capability. Notwithstanding, the sharp and excessive transition phase pressured the economic structures. On the one hand, traditional market forces were overwhelmed with the new patterns, and on the other hand, pressure on resources, swift inflation, substantial movement and displacement of people, and wide and obvious income disparity all completely flooded the system, which not being able to cope, collapsed entirely into the 1979 revolution.
The post-revolutionary transformation coincided with rising oil revenues and a new social contract focusing on the revolutionary element of "social justice," but the growth process quickly became distorted as war, nationalization, central economic planning, mismanagement as well as revolutionary fervor took a tight hold. The result of post-revolutionary excesses, especially in the form of confiscations and nationalizations, was the creation of a massive state sector. The public sector's grip on the economy was intensified through the following phenomena:
a-The Constitution: The political forces that filled the post-Revolutionary power structure originated from a number of backgrounds. Religious conservatism, Islamic fundamentalism and even communist and socialist movements all contributed to the country's new Constitution in 1979. The Constitution's reference to the structure of the economy was rather influenced by the leftist-socialist currents within the revolutionary forces. Their shadow is fully reflected in Article 44, which reads:
The economy of the Islamic Republic of Iran is to consist of three sectors: state, co-operative, and private, and is to be based on systematic and sound planning.
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 ententes 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.
Ownership in each of these three sectors is protected by the laws of the Islamic Republic, in so far as this ownership is in conformity with the other Articles of this chapter, does not go beyond the bounds of Islamic law, contributes to the economic growth and progress of the country, and does not harm society.
The [precise] scope of each of these sectors, as well as the regulations and conditions governing their operation, will be specified by law.
It is clear that a strict interpretation of the above Constitutional provision would reduce the size of the private sector to almost zero. Though this article was never fully implemented, the legal basis for a complete domination of economic activity by the state sector was provided.
b-Political instability and war. In addition, what actually led to the reduction of private sector activity was discontinuity in legal and political structures. Clearly, throughout the 1980-88 Iran-Iraq war, the government's key priority was the war effort. War economics and priorities dictated more rigid state controls over economic activity. Furthermore, due to revolutionary conditions, the concept of management of the economy evolved around the notion of "loyalty being more important than expertise."[6] The consequence of these factors was the emergence of an economic structure that mainly orbited a fully politicized and over-dominant public sector and a weakening private sector.
As a result, market mechanisms and popular exchange were disregarded throughout the 1980s, and the fall in oil prices in 1985 made matters worse. The Iranian economy became increasingly unproductive, stagnant and coarse. Speculation, dis-investment, and lack of economic innovation ruled. One of the direct results was the creation of an ever-growing underground economy, which in turn consumed the limited funds and energies of the private sector.[7]
First Signs of Reform
The first trend shift was felt during the first term of Akbar Hashemi Rafsanjani's presidency (1989-1993). Post-war and reconstruction-related necessities had urged the government to develop a more diversified and efficient economic structure. The development policies of the time were documented in the First Five-Year Plan (1989-1994) and included a number of privatization and liberalization policies. The government planned to liberalize the economy through partial privatization of industries and services, a utilization of the economy's idle capacities (which had prevailed throughout the war) and, most importantly, an increase in the ratio of capital formation to the GDP from about 13% in 1989 to a predicted 25% in 1993-94. However, in both quantitative and qualitative measures, the policies of the early 1990s failed. For example, the actual ratio of capital formation to GDP in 1993-94 was only 17%, and that was only due to an increase in government capital investment in infrastructure and utilities. Furthermore, the plan had foreseen that in the five-year period, the size of the government would be reduced by 8% through privatization and rationalization. Not only did the government not achieve this goal, but the state sector in fact grew by 3% in the mentioned period (Iran Focus, 1995).
So why did the private sector abstain from renewed engagement in wide scale economic activity? One can find a number of technical and political reasons for the failure of these policies. However, it is valid to say that the actual obstacles to a successful privatization have prevailed ever since; therefore, we must look closely at the most significant obstacles in the process of privatization.
Obstacles to Privatization
There are both tangible and intangible phenomena that can be understood as impediments to the implementation of socioeconomic policies. For example, the element of "confidence in a market" is an intangible issue and cannot be measured by any means. Notwithstanding, in order to appreciate the types of obstacles that have existed in the Iranian market and also to gauge whether President Khatami's reform policies will address these issues, one needs to take a closer look at the actual impediments.
The following is a brief look at the key obstacles in the process of privatization since early 1990's.
Absence of a Competitive Environment
Although since the early 1990s the government has been resolved to privatize a number of state-owned entities, the overall economic structure has still been overshadowed by the massive public and semi-public sector (such as foundations). The extended public sector had not only monopolized a number of sectors in the market, but also relied on an easier access to finance through state-owned banks, a more favorable position within the country's judiciary. In fact, revolutionary processes combined with central planning structures led to the establishment of limited interest groups who controlled important sections of the economy (Iran Focus, 1998). Ever since, these interest groups have been among the most fierce opponents to economic liberalization, which would evidently threaten their vested interests.
Lack of Legal and Political Stability
Furthermore, the instability in laws and regulations, as well as in the country's overall policies, has discouraged serious private sector activity. A recent study conducted by Iran Economics magazine shows that the most significant obstacles to private sector investment in Iran are unsustainable policy making and lack of stability in regulations.[8] Table 1 depicts the results of the survey that summarizes the opinions of 45 key economic players in the country. This study confirms the importance of stability for the attraction of private sector investment into the economy.
Rank
Obstacle
Score on 1-6 Scale
1
Unsustainable policy-making
5.09
2
General lack of stability of regulations
5.02
3
Foreign exchange regulations
4.84
4
Labour laws and regulations
4.81
5
Financing problems
4.80
6
Corruption
4.70
7
Foreign trade regulations
4.69
8
Tax laws and regulations
4.58
9
Inflation
4.38
10
Price controls
4.22
11
Terrorism
4.07
12
Crime
4.00
13
Insufficient infrastructure
3.98
14
Complicated legal procedures for establishing a business
3.91
15
Environmental and safety regulations
3.39
Table 1: Obstacles to private sector investment in Iran Note: A score of 1 means that the factor was not so influential in deteriorating economic security, while a score of 6 means it was considered a serious obstacle.
Absence of Real Civil Society Institutions
One interesting fact about the Iranian economy is that the only institution representing the private sector has been the publicly run Chamber of Commerce, Industry and Mines. This entity, which understands itself as the representative of the private sector, is overshadowed by the state sector--to the extent that the president of the chamber is proposed by the Minister of Commerce. Evidently, the absence of truly non-governmental institutions as the main representatives of the private sector has been a serious impediment to the growth of private sector activity in Iran. Notwithstanding, there have been some positive developments with regard to the creation of real civil society institutions in the past few years, which will be discussed later.
Distorted Market Structures
Post-revolutionary developments in Iran have led to a number of imbalances in the market: The government's subsidization policy (which was derived from post-revolutionary emphasis on "social justice"), positive discrimination in access to the economy in favor of privileged groups (groups affiliated with the revolutionary and religious establishments), lack of private sector investment, and discriminatory trade policies. In the words of economist Ali Rashidi,
these social and political imbalances as well as the gap between social classes are a result of the country's planning and policy implementation. Budget planning is conducted top-down based on incorrect data and information. Mismanagement, lack of control and checks and balances have turned the state into a money distributing element which distributes the wealth among a number of subcontractors (all affiliated with the regime). (Rashidi, 2000)
Clearly, any serious effort to attract private investors need to be accompanied by a more competitive market structure and a discontinuation of preferential treatment of certain groups with regard to access to economy. Such an effort has been absent from all government attempts to restructure the Iranian economy.
Legal Barriers
Existing laws and regulations are among the most serious obstacles to privatization. Most significantly, the country's current labor law presents an important impediment. Drafted in the 1980s in the heat of leftist and revolutionary debates, the current labor law makes it very difficult to make employees redundant. As a result, private sector investors considering the takeover of a state-owned company are left with the prospect of not being able to rationalize overstaffed government entities. There are also significant legal issues in areas such as capital markets law, which hinder a larger engagement of the private sector in the economy.
Lack of Transparency
One of the key obstacles to successful privatization has been the lack of accurate information about the ownership structures of those entities that were offered to the private sector. Also, insufficient accounting data and other information offered to potential buyers impedes any serious attraction of private investors to the privatized entities. To a country that had moved out of a war situation and had not developed modern infrastructures for information dissemination, initial problems with regard to lack of transparency in the early 1990s seemed natural. However, it also seemed that the actual lack of transparency which had prevailed as an impediment to privatization was not a structural problem. The key issue that Iran still faces is the absence of a firm political will to disclose information about ownership of state-owned and semi-public entities.
Khatami and Challenges of the Economy
Mohammad Khatami, who successfully ran for president in May 1997, did not offer any economic plan during his campaign. His main response to the economic challenges came in the form of an "Economic Recovery Plan" presented on August 3, 1998, exactly one year after taking office. The recovery plan was rather general, but it identified a number of problems. Probably the plan's most encouraging element was its attention to needed political reforms in order to achieve economic objectives. It pledged to observe law, review of all current laws and regulations in order to improve economic conditions, pay attention to transparency and focus on the promotion of civil society institutions in the economic sector. Another significant issue was the plan's pledge to "break monopolies". While these were the general approaches of the recovery plan, the detailed approaches of the government were formulated in the Third Five-Year Plan, which is analyzed below.
The Third Five-Year Plan
The most significant document regarding the government's approach to solving the economic ills of the country is the Third Five-Year Development Plan (the Plan), which was debated in the Majles in the second half of 1999 and then passed by the parliament and the Guardian Council in March 2000. The main principles of the Plan set the overall framework for development policies in Iran from March 20, 2000 to March 20, 2005, and are as follows:[9]
* Regulate macro-economic policies (fiscal, monetary, trade, exchange) to achieve sustainable growth and development;
* Remove production and investment obstacles (encouraging domestic and foreign investment);
* Reform the public administrative system, reduce public sector's economic responsibilities, private sector development, and privatization;
* Reform the structure of the market, regulate monopolies, and increase competition in economic activities;
* Manage resources and efficiently utilize the existing capacities;
* Develop human resources, job-creation policies, and improve of productivity;
* Institute outward orientation (reaching foreign markets);
* Promote non-oil exports;
* Special planning (regional development and deregulation);
* Environmental considerations (pollution control and recycling policies);
* Research and Development, establish data banks, evolve and apply information technology;
* Social welfare and security;
* Regulate foreign policy (detention, development and national security, ...);
* Social, cultural and political development (judicial security, establish the civil society, and the rule of law).
The above objectives clearly indicate that the government has identified the main problem areas. The focus on restructuring the economy as well on political and legal reforms are welcome news and can pave the way for a more liberal economic structure.
Determinant Policies
Several key elements in the government policies will encourage private sector activity. These are explored below.
Growth of Civil Society
Economic restructuring will fail unless it is accompanied by political restructuring. The lessons learned from earlier attempts have pushed the Khatami administration to put significant weight behind the promotion of civil society. Significant obstacles in registering NGOs and civil society institutions have been remedied and the encouragement of such activities as well as the gradual transfer of responsibilities to civil society institutions have led to a more vibrant non-governmental sector in Iran.
As far as private sector economic institutions are concerned, the establishment of entities such as the "Confederation of the Iranian Industry" (Majma-e San 'ate Iran) as well as "Society of Productionists" (Anjoman-e Tolid-Garayan)and the "Association of Industrial Managers" ( Anjoman-e Modiran-e Sanayeh Iran).are significant steps towards the creation of civil society entities which can lobby for private sector interests.
What is required to consolidate this positive development is a legal and a practical framework to ensure these civil society institutions have access to the political structure. New laws, regulations, and attitudes are required of both the public and private sector.
Breaking of Monopolies
One of the important objectives in the Plan is the government's commitment to breaking monopolies. The only monopolies that the Plan allows are "those where the government has a natural monopoly" (Official Gazette of the Iranian Judiciary, 2000, p. 2), which refers to government services. The Plan obliges the government to remain only in activities to which the private sector is not attracted. Furthermore, chapter four of the Plan defines the sectors in which the state is obliged to break the current monopolies. If the law is implemented fully, within one year all monopolies that have been derived from governmental legal initiatives since the revolution will be dissolved. This would mainly pressure the revolutionary foundations that have enjoyed monopolistic structures. In addition, the Plan instructs the discontinuation of state monopolies in insurance, banking, downstream oil activity and other significant fields.
Undoubtedly, the successful breaking of monopolies would create more transparent and competitive market structures. Such structures will be crucial in the process of privatization and liberalization of the economy. Potential opponents to such policies would be those forces whose vested interests will be undermined. Their power base within the establishment, and hence their chance to impede such policies, will fully depend on the success of the administration's political reforms, which will be discussed later.
Reduction of the Government Size
In line with the latter objective, the Plan also instructs the reduction in size of the government. Chapter two of the Plan is dedicated to this issue with very clear objectives, such as:
* Dissolving all subsidiaries of state companies outside Iran, unless a special permit is sought from the Ministry of Finance and Economic Affairs
* Requiring the approval of parliament for any establishment of new state companies
* Requiring the specific permission of the government for any share participation of state companies in other public enterprises (Official Gazette of the Iranian Judiciary, 2000, pp. 2-3).
Furthermore, chapter three defines the procedures for the transfer of ownership from public sector to private hand. Prior to drafting the Plan, the Khatami administration had taken an important step in injecting some transparency into the process of privatization. In order to identify which state-owned companies could be privatized without breaching Article 44 of the Constitution, the government appointed a committee in March 1999. The committee announced in April 1999 that out of the 724 state-owned companies, only 128 had to remain in state ownership in compliance with Article 44 (Iran Economics, 1999, p. 25). Consequently, a list of 538 public enterprises was published as the government's prime targets for privatization. The committee even identified the methods of privatization (through the stock market or through direct negotiations). These companies will be added to the more than 1000 semipublic companies which the government also intends to privatize.
The Issue of Transparency
As stated earlier, one of the obstacles to privatization has been the opacity of ownership structures. The government's commitment to observance of law and introduction of more transparent legal and practical structures is a positive step toward gaining the trust of the private sector. In line with this move, in 1999 the administration commissioned the draft of a new capital markets law. This law was drafted by a group of experts and presented to the cabinet in May 1999,[10] however, it has not been passed since. Analysts believe that the administration is waiting for the new parliament to be in place before the bill would be presented.[11] Principally, Iran is a long way away from a transparent structure that encourages the private sector to engage in the economy. However, a number of government efforts have been positive advances toward creating the necessary structures.
Decentralization
Another significant objective of the Plan involves decentralization. This phenomenon has already taken place in limited political fields through the creation of local councils.[12] However, in the field of economy, the state will need to introduce working formulas for a more decentralized structure that would be in a better position to respond to local needs. Decentralized political structures are not only more flexible but also more transparent for private sector players. Within the Plan, the government envisages the creation of administrative zones which would take the concentration of state activity away from Tehran and introduce some degree of autonomy in executive matters to decentralized structures.
Can this Plan be Implemented?
Naturally, the Third Five-Year Plan has also attracted some harsh criticism. The main critiques challenge the planning mechanisms and the information and data that were used as a basis for the Plan. A number of quantitative targets of the Plan, especially regarding inflation and growth figures, have also been criticized. One of its interesting quantitative targets projects an 8.5% growth of capital formation by the private sector, which would contribute to the overall 7% capital formation growth in the economy. This is another indication of the Plan's commitment to the private sector. However, the key elements of the plan are qualitative and not quantitative.
While on paper the Plan does offer a number of important changes and reforms that will boost the Iranian economy, the main question remains whether the qualitative objectives of the Plan can be achieved. Before anything else, the Third Five-Year Plan requires a political will from all main political streams in the country. Groups with vested interests who feel threatened by the process of reform are considered the main opponents of such plans and it is these groups who hold key political positions in the country. Therefore, the implementation of the Plan's main policies will heavily depend on the reforms in the political fields as will be discussed below.
Importance of Political Reforms
An analysis of the ills of Iran's economy underlines the importance of policy reform in non-economic areas for a successful restructuring of the economy. Incidentally, when one analyzes the issue of sustainable reforms, it becomes clear that a number of factors are strongly intertwined in the Iranian development, including the following:
* In order to encourage the private sector to take on a more active role in the economy, the Iranian regime needs to reform domestic politics and introduce more space for non-governmental activity as well as for civic freedoms etc.
* In order to obtain foreign investment, Iran needs to improve her relations with the rest of the world, especially with key trading partners. This must be done on top of improving the domestic situation, especially with regard to observance of law and continuity in politics.
* To maintain the current momentum of domestic reforms, the Iranian government must improve the country's economic conditions. However, economic progress will heavily depend on the flow of foreign investment and increase in private domestic investment;
* To avoid new regional crises and to distract Iran from its reform course, Iran needs to improve her relations with western powers, especially the United States, which is a key player in the Persian Gulf region.
A positive interaction of all the above factors will directly effect the feasibility and sustainability of reforms, especially the dual interaction of foreign and domestic policy on the one hand and economic progress on the other. An economic relaxation in Iran will not only consolidate Khatami's power, but also diminish the potential of a conservative resurgence, as the main appeal to the people would be through dissatisfaction with economic conditions.
In evaluating Khatami's reforms, one can argue that he has managed to introduce "ideological rethinking" as a platform of his reforms. The rethinking refers to the new interpretation of the role of Islam, as well as the regime's commitment to freedom, civil society and observance of law. This ideological rethinking is partly reflected in the debates in religious and intellectual circles. Notwithstanding, the shortcoming of the reform process is that it lacks "structural reforms," especially regarding institutional structure of power and the way different institutions can influence the political process. Therefore, the most significant signposts for the success of reform will be Khatami's initiatives in structural and institutional reforms. Though a number of new debates on institutions have begun (especially a debate on the role and responsibilities of the Guardian Council), none of the reform ideas have been manifested--a fact that contributes to the fragility of the reform process. Evidently, the Third Five-Year Plan is a significant document on which future reform initiatives will be based, but the key document that will need to be newly interpreted is the country's Constitution.
So far, Khatami has successfully used the Constitution as the main platform for change. It can be foreseen that Khatami will continue his drive to interpret the Iranian constitution as the basic provider of freedoms for the Iranian people. As time goes by, Khatami will find more suitable formulations for his policies and will consolidate his power position in order to carry out his reform ideas, though some of the formulations might potentially lean more on Islamic teachings to please the centrist conservative figures. According to the Iranian Constitution, the president has the obligation to "guarantee the full implementation of the Constitution." This fact has given Khatami leverage to place himself in a power position from which he can interfere in the affairs of other power centers and bring them more in line with the Constitution. However, there are a number of critical areas in the Constitution that will require Constitutional amendments to compliment Khatami's reforms. These mainly relate to the role and responsibilities of the religious institutions in the power structure, especially the Supreme Leader, the Guardian Council, the Assembly of Experts etc.
The induction of more transparency and accountability as well as lawful behavior into the country's political establishment will be among the most crucial elements that will interact with other factors. Evidently, an unbiased analysis of Iran's situation emphasizes how the restructuring and democratization of the political system and the redistribution of wealth will be the most significant factors contributing to the creation of a more balanced social and economic structure. Whether President Khatami's reform will lead to a new balance remains to be seen. What one must be aware of is a realistic and feasible pace of reform. Though economic challenges such as the need for employment, the country's will to reintegrate in the global economy and other related issues are putting pressure on the Islamic regime to push for faster reform, a sustainable reform process will be required to consider the complexities of the current structures. That in turn might require some trial and error in the nature of political reform upon which Iranian political players have yet to find consensus.
As far as the political will for privatization is concerned, it is important to restate that any serious attempt at privatization as a key element in the country's economic reform will lead to new and challenging socio-political issues; among these are private wealth accumulation, rapid personal enrichment, further income disparities and massive workers' layoffs. It is valid to argue that this realization is an important instrument used by the opponents of a more liberal economic structure. On the other hand, it is clear that the compounding pressures of the Iranian economy, such as the young population,[13] leave no choice but to liberalize and privatize the economy.
Concluding Remarks
The different elements within the process of reform in Iran (namely economic, social and political reforms) cannot be separated. The main reason for the failure of earlier attempts of privatization was the fact that economic reforms were not accompanied by the needed political reforms.
The administration of President Khatami has indicated that it appreciates the interaction of different policy areas. This appreciation is fully reflected in the stated objectives of the Plan. At the same time, it is valid to argue that the main engines for reform have evolved from the quality of demand of the Iranian society and its desire for greater freedoms, better economic conditions and more stability. In the past few years, these engines for change have faced very clear challenges and obstacles, especially from conservative and traditional power structures. However, it would be difficult to see the entire reform process reversed, as there is a strong popular mandate behind the process. Notwithstanding, the pace of the process will have to consider the interplay between various political and social forces. It also has to take into account the concerns and fears of all groups and factions. A good example of the difficulty of reform was revealed in a recent attempt to amend Iran's labor law. The consequent debates among the political forces, intellectuals and labor groups indicated the deep-rooted challenges inherent in creating a consensus among the country's political forces.
The success of the pro-Khatami camp in securing a majority position in Iran's sixth post-revolutionary parliament (Majles) will be a considerable instrument in pushing some of the reform ideas forward. Nonetheless, one needs to be realistic about the pace of reform. Some of the reform ideas that have been documented in the Third Five-Year Plan are very ambitious. The re-injection of confidence into Iran's private sector is a more long-term process than some have the patience for.
One welcome phenomenon which can be connected to the country's emerging political atmosphere is the inclination of the newly elected deputies of the 6th Majles to adopt technocratic and expert approaches to policy areas. The elected deputies of Tehran have already taken steps towards the creation of think tanks and expert groups which would be commissioned to study various policy fields. This phenomenon will inevitably reduce the role of ideological and revolutionary considerations in policy formulas and enhance the tangibility and feasibility of new laws and regulations.
Finally, the overall improvement of social and political conditions that will result from the growth of civil society, attention to civic rights and freedoms and a more accountable state structure, will also have a positive psychological impact on the private sector.
The consequence of all of these factors will be an increased interest of the private sector in a productive role in the country's economy. That such a development would increase the chances of a more balanced socio-economic structure is evident. However to achieve the actual and sustainable balance will require patience, which is a necessary virtue in all Iranian affairs.
Notes:
Privatization schemes were introduced for the first time within the framework of the First Five-Year plan (1989 to 1993).
Khatami made this remark in August 1998 when presenting his Economic Recovery Plan.
The Economic Recovery Plan was the first economic policy document that President Khatami produced after his election. The document will be discussed in the article.
Bonyad is the Farsi term for "foundation".
These land reforms were conducted under the term "White Revolution."
Please see Saghafi (1999).
Please see Khalatbari (1994).
For a full coverage of these obstacles please see Iran Economics, Volume 2, Number 15, April 2000, page 6.
These are key objectives of the Plan. The full text of the Plan has been published in. Please see Official Gazette of the Iranian Judiciary, Volume 56, Number 16070, 30th April 2000.
The draft of the bill was published in Iran Economics, Volume 1, Number 7, June 1999.
Iran's 6th Majles was elected in two rounds of elections in February and May 2000 and will have convened on 27 May 2000.
Iran elected local councils in February 1999.
Based on different calculations, the Iranian economy will require some 750,000 to 900,000 new jobs per year in the next decade.
References:
"Facts and Perspectives: Dissecting the Iranian Economy." Iran Focus 8:4 (April 1995): Iran Economics 1:5 (April 1999).
Official Gazette of the Iranian Judiciary. 56:16070 (30th April 2000).
Khalatbari, Firouzeh. "Iran: A Unique Underground Economy." The Economy of Islamic Iran, Between State and Market. Institut Francais de Recherche en Iran. Tehran: 1994.
"Political Violence: The Shadowy Forces of Iranian Politics." Iran Focus 11:11 (December 1998): 10.
Rashidi, Ali. "The Sixth Majles and the Need to Revise the Third Plan." Payam-e Emrooz No. 38 (March 2000): 47.
Saghafi, Morad. "The Theory of Religious Commitment: A Look at the Foundation of the Ideological Government." Goftogu No.4 (Summer 1999): 7-27.
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