Privatization in Iran: A 'Lion Without a Mane, Tail, or Tears'

The title of this article is derived from Ali Akbar Nategh Nouri, who about six months ago described the privatization process in Iran by saying: 'Repeated meetings were held for privatization, but what was expected did not materialize. Part of the economy was handed over to pension funds, the Social Security Organization, the Foundation of the Oppressed, or the Executive Headquarters of Imam's Command. This trend has more disadvantages, because if these transferred enterprises were still state-owned, institutions like the Court of Audit would oversee their performance. Now, in the wake of 'quasi-privatization' (a mix of private and state), a lion without a mane, tail, or tears has emerged in our economy.' (Quoted from the weekly 'Tejarat-e-Farda', Issue 204, December 19, 2016). The remarks of the head of the inspection office of Ayatollah Khamenei about the failure of the privatization process were echoed in a somewhat similar manner by Hassan Rouhani, the President of the Islamic Republic, this past Friday. He, who attended an iftar banquet for economic activists on July 1, said: 'The announcement of the policies of Article 44 was meant to transfer the economy to the people and for the government to withdraw from the economy. But what did we do? We handed over part of the economy from a government without a gun to a government with a gun. This is not privatization... They feared the government that had no gun, let alone that we handed this economy to a government that has both a gun and media and everything, and no one dares to compete with them.' (IRNA, July 1, 2017). Could the privatization process have had a better fate in the political, economic, and social environment of the Islamic Republic? In Iran's economy, similar to the economies of the former 'socialist camp', the state sector is the source of power and wealth for the beneficiaries dependent on the political system, and they do not easily relinquish this lucrative enterprise. We see that Hassan Rouhani, in describing what has been called the privatization process in Iran, goes beyond Nategh Nouri and, with a completely understandable reference to the Islamic Revolutionary Guard Corps, states that under the pretext of advancing this process, part of Iran's economy has come under the control of a 'government with a gun'. However, Article 44 of the Constitution, which Hassan Rouhani refers to in his remarks on Thursday night, has a tumultuous history. According to this article, which was incorporated into the Constitution after the Islamic Revolution inspired by the theories of the Tudeh Party about 'the path of non-capitalist growth', all heavy industries, foreign trade, banking, aviation, and 'such things' (according to the text of the law) are entrusted to the government, leaving the private sector with only 'those parts of agriculture, animal husbandry, industry, trade, and services' that complement the activities of the private and cooperative sectors. With the inclusion of this article in the Constitution, the role of the government as 'the active agent' in Iran's economy was established, creating a significant legal barrier to private sector activity, especially at a time when many countries, including those neighboring Iran, were gradually reducing the weight of the government in the economy. In the 1980s and 1990s, influenced by the advance of liberal thought globally and especially the collapse of socialist systems, thousands of production units around the world were transferred from the government to the private sector. However, Iran, with the Islamic Revolution, chose to move in the opposite direction of global transformation and expanded the state economy. Of course, at the beginning of the second decade of the Islamic Republic, especially after the end of the Iran-Iraq War, the idea of exiting the state economy also entered the expert circles of Iran, and the designers of the country's development policy during Hashemi Rafsanjani's presidency became convinced that, with a heavily bloated yet inefficient government, nothing would progress. But what should be done with Article 44 of the Constitution? Years after this question was raised, Ayatollah Khamenei, with a decree on July 1, 2006, provided a new interpretation of Article 44 to create conditions for Iran, like many developing countries, to be able to transfer production, commercial, and financial units from government control to the private sector. Eleven years after the issuance of the leader's decree regarding Article 44, Hassan Rouhani, following numerous senior officials of the Islamic Republic, reports its failure and reiterates that state economic units have largely been transferred under the guise of privatization to quasi-state sectors, including the Islamic Revolutionary Guard Corps. Abbas Akhoundi, Minister of Roads and Urban Development, described the privatization process in Iran as a 'joke' and said: 'The privatizations of the 1990s were flawed from beginning to end. What was done was essentially a preparation for very extensive speculation.' (Eghtesad News, April 3, 2016) Ali Tayebnia, Minister of Economic Affairs and Finance, also described this process on another occasion as a 'disaster'. How much of what has been done in Iran under the title of privatization is real? Ali Tayebnia, Minister of Economic Affairs and Finance, says 'Of the more than 100 trillion tomans of enterprises transferred by 2013, only 13 percent were transferred to real private sector.' Mr. Tayebnia also doubts this amount of transfer to the real private sector, as he immediately adds: 'This amount relates to the initial transfers, which have decreased after being passed around. As one of the ministers believes, two to three percent of the transfers were to the private sector.' (IRNA, March 9, 2016) In other words, within the framework of what the Minister of Roads and Urban Development described as 'very extensive speculation', many production units in the country have been transferred under the false title of privatization to quasi-state institutions, including religious-economic foundations and the Islamic Revolutionary Guard Corps. Based on this, the 'speculation' referred to by Mr. Akhoundi can be translated as 'economic malfeasance'. Ali Tayebnia, Minister of Economic Affairs and Finance, points to the strong resistance of state managers against the privatization process and says: 'It must be stated clearly that the state mentality is embedded in the minds of our managers, and local and county managers benefit from these companies, as a state company means a source of rent production, foreign travel, membership in the board of directors, astronomical salaries, corruption, and hiring anyone these individuals need. That is why instead of hiring a thousand people in a state company, five thousand are hired, and these hires are made based on friendships and family connections.' (Fars News Agency, March 1, 2017). With all these privileges, state rent-seekers naturally do not relinquish the enterprises under their control unless they face rent-seekers more powerful than themselves, especially religious-economic foundations and also the commanders of the IRGC. The transfer of production units from a 'government without a gun' to a 'government with a gun', which Hassan Rouhani emphasized at the iftar banquet on Thursday night, means just that. The biggest victim in this process is Iran's development, which continues to struggle in the grip of state rent-seekers (whether with or without guns). Fereydoun Khavand is an economist, economic analyst, and professor of economics in Paris, France.