The Political Economy of the Islamic Republic: A 40-Year System Trapped by 10 Nightmares

The victors of the 1979 revolution believed in the miracle of 'Islamic Economy' with the slogan 'Neither East nor West', thinking that through faith and ideological teachings, they would achieve their desired 'utopia' in a relatively short time. This 'utopia' is described in Article 12 of the third principle of the Constitution, which states the economic goals of the Islamic Republic as: 'Establishing a correct and just economy according to Islamic regulations to create welfare, eliminate poverty, and remove any kind of deprivation in nutrition, housing, work, health, and insurance.' After forty years, the palace of dreams has collapsed, and from all those promises, only nightmares remain that have the Iranian economy under their control. These nightmares, which have prevented wealth creation in Iran, do not stem from temporary and exceptional events such as war and sanctions. In fact, this political, cultural, and social environment, as well as the entire economic policymaking and the management of domestic and foreign policy in the Islamic Republic, have hindered the modernization of the country in line with the requirements of the 21st century and have prevented the utilization of its capacities for the prosperity of production systems and the improvement of the welfare of Iranians. One of the most important features of a modern country is having a small, agile, wise, and clean government that creates the necessary legal and political conditions for business freedom and can fill market gaps wherever necessary. Today, there is neither a modern private sector capable of creating wealth nor a 21st-century government in Iran. Instead, the Iranian economy is under the control of a bloated, costly, inefficient, and corrupt government that has lost its self-confidence, let alone the trust of citizens. A government with these characteristics controls a very large part of the country's economy, and even in the very limited areas that escape its direct control, it intervenes permanently. In international assessments, Iran ranks among the unfree countries in terms of economic freedom. The American Heritage Foundation, in its latest annual report (2018), placed Iran at 156th among 180 countries based on economic freedom indicators. Even among the 14 countries studied by the Heritage Foundation in the Middle East and North Africa, Iran ranks second to last based on the same indicators. To assess the weight of the government in a country's economy, the budget of that country is compared with its Gross Domestic Product (GDP). In Iran, the total budget (composed of the government's general budget and the budget of state-owned enterprises) is about 80% of the GDP. In particular, state-owned companies in Iran consume a very large portion of available resources. These companies have become a bottomless pit for the country's economy instead of creating wealth, and each year, in exchange for their payments to the government (in the form of taxes, dividends, and special profits), they receive more funds under the title of operating credits and capital asset credits from the government, contributing to the budget deficit. Additionally, a significant portion of the financial market facilities, which should ideally be available to real private sector investors, is given to state-owned companies. Alongside the multitude of state-owned companies that consume national resources, there are companies controlled by the Revolutionary Guard and various foundations and headquarters that have become, as one senior official of the regime put it, 'a lion without a mane, tail, or tears.' The debate over whether oil is a blessing or a curse holds an important place in Iranian economic literature. The experience of the last century and a half globally has shown that oil is neither 'gold' nor 'curse' by itself. Some countries, from the United States to Norway, have used their oil resources for the development and welfare of their people, while many others, especially in the Middle East and Africa, have used it as a lever to strengthen dictatorship, spread corruption, and provoke tensions. What is called the 'oil curse' is, in fact, the criminal use of this substance by some 'Third World' leaders due to their ignorance and greed. Iran could have utilized its vast foreign exchange revenues to transition to a 'post-oil economy', and despite various mistakes, efforts were made to achieve this goal in the two decades before the revolution. The Islamic Revolution thwarted these efforts, plunging the country deeper into the quagmire of an oil economy. In the 40 years following the revolution, Iran achieved about $1,400 billion in revenue from crude oil exports. Instead of using this enormous income for the country's development by moving towards a diverse and real economy and joining the club of emerging powers, Iran became increasingly addicted to oil rent, and its budget and foreign trade remained under the control of 'black gold'. Thus, many valuable opportunities were lost, and the Iranian economy remained 'oil-centric'. The GDP growth rate is the most important indicator that shows the advancement or retreat of an economy. GDP, in simple terms, is the total value of goods and services produced in a country over a year. By dividing this variable by the population of a country, per capita GDP is obtained. If the average annual population growth rate exceeds the average annual GDP growth rate, the standard of living will naturally decline. Conversely, with a high growth rate, people's tables become more colorful, their houses larger, and, in a word, their welfare increases. To better understand the importance of economic growth, it is worth noting that Iran experienced a 'golden period' in its contemporary economic history from 1961 to 1976. During these 15 years, the country's average annual growth rate fluctuated above 10%. The total volume of the Iranian economy nearly quintupled during this period. If we consider the population growth rate during these 15 years, the GDP per Iranian tripled. Countries like Korea and China have also reached the point we see today thanks to high growth rates over the past few decades. In contrast, over the past 40 years, Iran's average annual economic growth rate has only been about 2%. Given the population growth rate in Iran after the revolution, the average per capita growth rate in Iran over the past 40 years is estimated to be between 0% and 0.5%. Among the main factors contributing to the stagnation of growth rates in Iran are the lack of a favorable business environment, severe investment weaknesses, very low productivity levels, and constant tensions in the regional and global environment. The increasing army of the unemployed is one of the consequences of the very slow economic growth rate. Creating job opportunities is contingent upon increasing the number and size of production units, which is only possible through expanding investment that, under the specific conditions of the Islamic Republic, is not feasible due to various economic, political, legal, and social obstacles. Throughout the 40 years of the Islamic Republic's rule, the high unemployment rate has been one of the most stable economic variables. The Statistical Center of Iran announced the official unemployment rate of the country in the fall of the current solar year as 11.7%, which, according to the same institution, corresponds to three million and 174 thousand unemployed. It is worth noting that in this survey, an unemployed person is someone who did not work even one hour in the previous week. Moreover, in this survey, an unemployed person is someone who is actively seeking work and has registered at job centers. In other words, the official unemployment rate does not account for those who, out of necessity, accept part-time or incomplete jobs. Additionally, hundreds of thousands of people who have been searching for work for years and have withdrawn from the job market due to frustration are not included in the official unemployment statistics. There are also many individuals who are forced to extend their study time in universities because they have no place in the job market. Furthermore, thousands of people who, despite having university degrees, accept any job to earn a living...