Iran's Economy: Ten Constraints and Two Escape Routes - Financial Corruption

Among the economic constraints of Iran outlined in the introduction of this discussion, Radio Farda examines the eighth constraint, which is dedicated to "financial corruption." Financial corruption, defined as the use of political, administrative, and professional positions to gain material advantages that serve personal interests, is a global phenomenon, and few countries are immune to this affliction. Both developed and developing worlds are entangled in corruption, albeit in different forms and at varying levels, and it is naive to think that angelic ethics can govern politics and economics. There is a significant difference between countries where corruption is seen as an "occasional" or "case-by-case" phenomenon that occasionally leads to high-profile scandals and where perpetrators face severe punishments, and those countries that are plagued by "systemic" or "fundamental" corruption, which, due to its deep-rooted, permanent, and widespread nature, has lost its stigma, and efforts to combat it go beyond mere symbolic actions that yield no results. Ayatollah Khamenei, the Supreme Leader, places Iran among the first group of countries, stating: "Systemic corruption existed during the Shah's regime, and the system was naturally corrupt, but today corruption is occasional, not systemic, and these cases must be addressed." Contrary to the Supreme Leader's statement, financial corruption in Iran, encompassing all institutions of the Islamic Republic, is a "fundamental" or "systemic" phenomenon, as it relies on the highly discriminatory political culture born from the 1979 revolution, emerging from a state-controlled and oil-dependent economy, and faces no institution or will that could create obstacles to its expansion. A) The division of society into two parts, "insiders" and "outsiders," and closely related to that, the preference for "commitment" over "expertise," is one of the most significant sources of systemic corruption in the Islamic Republic. The fact that individuals have unjustly seized power in Iran based solely on their genuine or fabricated allegiance to the ruling "ideology" has been a deadly scythe that has struck the social, cultural, and economic capital of the country, bringing many unworthy individuals to wealth. However, beyond the specific and limited definition of corruption (the use of political power to gain material advantages and personal benefits), the entire Iranian society suffers from corruption in its broadest sense. The issue is the collapse of "social capital" due to a combination of factors that erode trust in relationships among Iranians, leading to a situation where each looks at the other with suspicion and guards their own pocket to avoid becoming prey. There is a close relationship between corruption in its specific and limited sense and the corruption arising from a general atmosphere of distrust. A corrupt political system emerges from a society lacking "social capital" and, in turn, exacerbates the distrust in relationships among its members. B) Iran's economy, especially as it transformed after the Islamic Revolution, is one of the main sources of "systemic" corruption: 1) Based on various assessments, about seventy to eighty percent of Iran's GDP is under the control of the public sector and quasi-governmental institutions. On the other hand, nearly seventy percent of the national budget belongs to state-owned companies. The officials of this bloated, costly, and inefficient government, who are considered the undisputed rulers of Iran's economic sphere, achieve legendary wealth by holding "golden signatures" in domestic and international transactions. Holders of these "golden signatures," free from any serious oversight, control various economic sectors in Iran: from exports and imports to granting tax incentives, customs operations, awarding contracts for tenders and auctions, providing banking facilities, and transferring production units under the guise of privatization, land grabbing, and so on. Without ending the dominance of this powerful bureaucracy, talking about fighting corruption resembles a joke. 2) Oil exports, the most important source of foreign currency and budget needs, are another pervasive root of corruption in Iran. In fact, the fate of billions of dollars in foreign currency from oil exports is in the hands of those with "golden signatures." Injecting a large portion of this rent into mafia networks is a source of widespread corruption similar to that seen in many other oil-rich countries, from Venezuela and Algeria to Russia and Nigeria. 3) Quasi-governmental institutions, especially economic facilities under the control of the Islamic Revolutionary Guard Corps (IRGC), are naturally one of the main roots of corruption. Recently, President Hassan Rouhani made a clear reference to the economic entities affiliated with the IRGC, stating: "If guns, money, newspapers, websites, and advertising are all gathered in one place, there is definitely corruption; do not doubt it." Under these circumstances, according to the president, "even Abu Dharr and Salman would become corrupt." C) The rule of law, oversight and control institutions, and free press are considered the most effective tools in the fight against corruption. The Islamic Republic of Iran lacks such tools. Institutions like the "Court of Audit" and the "General Inspection Organization," which are responsible for overseeing the income and expenditure of government agencies and uncovering corruption, are practically not taken seriously. The country's judiciary is also mired in corruption. There is no free press in Iran that could create a very unsafe and dangerous environment for corrupt individuals. It should not be forgotten that over the past few decades in the West, a significant portion of scandals arising from corruption has been uncovered by the media and brought to public attention. The calamities caused by corruption Financial corruption is one of the greatest obstacles to economic development. The most sinister consequence of this phenomenon is the collapse of trust in society, which is a deadly blow to wealth-generating activities. With the spread of corruption, transactions do not occur under normal conditions, as only those who can pay bribes can advance their work. In other words, bribe payers, by buying off government officials and decision-makers, effectively close the door to free competition. In this situation, government tenders and auctions, instead of being held in the public interest, are diverted from their path through bribery and conducted in accordance with the interests of the corrupt. A corrupt government continually increases the volume of regulations and paperwork to raise the need for "golden signatures" in exchange for bribes. Many production enterprises are forced to allocate their resources to paying bribes instead of investing and researching. On the other hand, since large companies have better opportunities to pay bribes, they exclude small and medium enterprises from the competitive arena. Corruption is one of the most important factors creating tax evasion and consequently reducing government financial resources. Companies and investors evade taxes by paying bribes, and thus a large portion of the resources that should be used for infrastructure, educational, and health projects is wasted. Many schools, hospitals, and roads never come into existence due to tax evasion stemming from administrative corruption. A large part of the current calamities in Iranian society, including poverty, stems from the blow inflicted by this "systemic" corruption on the country's economy. In the latest report from the well-known "Transparency International," published in January 2017, Iran ranked 131st out of 178 countries surveyed in terms of corruption level. A significant portion of the current calamities in Iranian society, including poverty, stems from the blow inflicted by this "systemic" corruption on the country's economy. In the latest report from the well-known "Transparency International," published in January 2017, Iran ranked 131st out of 178 countries surveyed in terms of corruption level. What bothers Iranians the most in this report is the comparison of the level of corruption in Iran with many developing countries. Transparency International has assessed Iran to be much more corrupt than several African countries: 81 places more corrupt than Rwanda, 67 places more corrupt than Senegal, and 59 places more corrupt than Burkina Faso. Compared to its regional countries, Iran is assessed to be 113 places more corrupt than the UAE, 56 places more corrupt than Turkey, and 23 places more corrupt than Egypt. A very important point is that the annual reports of "Transparency International" and the ranking assigned to Iran regarding corruption have not been questioned by any official sources of the Islamic Republic. Even major expert centers in Iran, in examining the phenomenon of corruption in the country, explicitly or implicitly rely on these reports, effectively accepting that the Islamic Republic of Iran is one of the most corrupt countries in the world. Fereydoun Khavand is an economist, economic analyst, and professor of economics in Paris, France.