What is the Structure of Iran's Dual Oligarchic Economy?

It is difficult to describe the structure of Iran's economy using conventional economic models, such as those relevant to the economic models of other countries. This is because the 'Velayat' system, under which Iran's economy operates, does not resemble the political systems of other countries. In Iran, part of the economy is controlled by non-elected and personal institutions such as the leader or institutions affiliated with him (like the Executive Headquarters of Imam's Command, the Foundation of the Oppressed, and the Astan Quds Razavi), while another part is under the control of the official government; a kind of dual political economy or monopolistic state and quasi-state economy. In simpler terms, this type of economy is a combination of state and quasi-state structures with personal control or institutions affiliated with the leader that operate separately from formal economic structures and in the shadows. This part of the economy is not subject to the oversight of existing laws - with all their shortcomings or weaknesses - and is neither transparent nor accountable, benefiting from tax exemptions and evasion. What is a dual oligarchic economy? Economists Acemoglu and Robinson specifically examine the role of economic and political institutions in the formation of oligarchic governments and the concentration of power in their book 'Why Nations Fail.' Their theory is based on the distinction between inclusive and extractive institutions: Inclusive institutions are designed to facilitate broad economic and political participation and promote economic growth and development. These institutions are formed through the guarantee of private property rights, rule of law, and the creation of a space for innovation and competition. Extractive institutions, on the other hand, act in favor of small oligarchic groups that use their power to exploit the country's resources. These institutions are organized to concentrate resources in favor of a small group at the top of the Velayat governance pyramid. In such conditions, access to economic resources is limited, and a group of individuals and rent-seeking groups, often linked to the government, impose their extensive control over the country's resources. These institutions, which lack transparency and accountability, restrict competition and disrupt the equitable and efficient distribution of resources. Many economic institutions are controlled by quasi-state and military institutions such as the Revolutionary Guards and affiliated entities, the Foundation of the Oppressed, the Executive Headquarters of Imam's Command, and Astan Quds Razavi, which are examples of so-called extractive institutions that have exclusive access to economic resources and prevent broad economic and political participation by other citizens. This has led to the concentration of power in the hands of a small group and limited broad economic growth and development. Why should and cannot the Iranian government continue subsidies? The theory of Acemoglu and Robinson is one of the most applicable analytical frameworks for examining Iran's economy, as it clearly explains the institutional structures that lead to the concentration of power and wealth in the hands of a small group led by Ali Khamenei as the supreme oligarch of the regime and his associates. This theory emphasizes the distinction between inclusive and extractive institutions and seeks to show how these institutions determine the economic and political fate of countries. Extractive institutions dominate Iran's economy, as key sectors of the economy, whether legally or factually, are under the control of quasi-state and military institutions overseen and managed by the leader. Some of these institutions include: The Revolutionary Guards, which are extensively involved in the oil, gas, petrochemical, construction, banking, and foreign trade industries. This institution also benefits from smuggling opportunities such as oil to China. At the same time, it receives cheap currency and banking resources from the central bank at low-interest rates. The Executive Headquarters of Imam's Command, which is directly controlled by the leader and manages vast resources of assets and economic companies. The Foundation of the Oppressed and Astan Quds Razavi, which exclusively hold vast assets and are practically exempt from public and financial oversight. How do extractive institutions hinder economic development? As Acemoglu and Robinson point out, quasi-state and leader-affiliated institutions use their power to monopolize economic resources and prevent transparency, accountability, and free and broad market competition. The consequences of the performance of these institutions can be categorized as follows: Rent-seeking; Extractive institutions seek rent to maintain their monopoly on economic resources. They use natural resources such as oil to finance their operations and seek to create and expand networks of political and economic dependence that serve to strengthen the power of the leadership's affiliated factions. Suppression of innovation and entrepreneurship; Extractive institutions limit independent and non-governmental enterprises, restricting public access to economic resources, hindering the development of entrepreneurship, transparency, accountability, competition, and innovation. Government and leader-affiliated institutions, which hold vast resources of the economy, are highly sensitive to competitive environments and suppress innovation and economic progress to maintain their interests. This is part of the reasons for capital flight and investors leaving Iran for neighboring countries and the inability to attract foreign direct investment. Economic instability and corruption; Given the concentration of economic power in the hands of specific institutions, Iran's economy suffers from widespread corruption. Political and economic networks close to the regime's leadership and the Revolutionary Guards operate non-transparently and utilize economic resources for their specific interests. This situation causes extractive institutions to negatively impact distributive justice and increase class disparities. Unsustainable growth dependent on global fluctuations; Economic growth in such structures dominated by extractive institutions is dependent on the global prices of oil and other natural resources. When oil prices rise, the economy temporarily grows unevenly and unsustainably, but this growth is not sustainable and quickly declines with falling oil prices, imposing its consequences on Iran's economy. Within the framework of Acemoglu and Robinson's theory, Iran's economy is a prime example of widespread extractive institutions where powerful economic and political groups use their power to concentrate resources and control the country's economy. This concentration of power and resources hinders sustainable economic growth and exposes the country to corruption, instability, and economic inequality.