Iran's Lost Economic Opportunities Under the Islamic Republic's 'World Hostility'

Many countries around the world have achieved economic growth and development by taking advantage of free trade opportunities, providing better living conditions for their citizens. For instance, in the 1990s, India became a leader in technology following market reforms. Similarly, China lifted its economy by joining the World Trade Organization in 2001, reducing the number of its citizens living below the poverty line from 88% in 1981 to less than 1% in 2015, according to World Bank reports. Unfortunately, the Islamic Republic, due to its monopolistic-rentier governance, hostility towards the world, international sanctions, and especially avoidance of global financial standards such as the Financial Action Task Force (FATF) and the Palermo Convention, has not only hindered Iran's economic development but also worsened the living conditions of Iranians. The single-digit inflation rate before the revolution soared to over 40% after it, crippling the ability of Iranians to meet basic needs. The poverty line, which had decreased to around 40% due to a transition from traditional agriculture and remarkable growth, increased to over 50% after the Islamic Revolution. Pre-revolution Iran, known for its acceptance of immigrants, became a country that exports its educated individuals, with about half of its graduates seeking to emigrate. The aversion to free trade and Iran's regression is not merely the result of this or that policy of a particular president under the Supreme Leader but is fundamentally rooted in the rent-seeking nature of the Islamic Republic, which has stifled economic growth and development. Fereydoun Khavand, Bahman 1399. The revolution that was alien to economic development remained so. James Buchanan, one of the founders of the 'Public Choice' theory and the 1986 Nobel laureate in economics, demonstrated that in a rent-seeking economy, government decisions are more beneficial to special interest groups than to the public good, and economic resources are spent more on monopolistic benefits than on creating value. In a rent-seeking economy, the government distributes national wealth among powerful groups instead of creating wealth. Anne Krueger also showed that in a rent-seeking economy, the government resorts to protectionist policies for rent-seeking monopolies and prevents new competitors from entering the market. In short, the rent-seeking economy avoids free trade, and this avoidance is detrimental to development and the well-being of the people. The report on free trade and how countries benefit from it is the latest report from the Boston Consulting Group (BCG), one of the largest consulting firms in the world specializing in economic strategy. In this article, we will first discuss the details of this report and then the outlook for the economy of the 'Velayat' system in global trade. The BCG report on countries' utilization of the global economy shows that to understand the economic consequences of countries' approaches to 'free trade agreements', BCG developed a theoretical tool called the 'Trade Interaction Index' and published a report on it. The 'Trade Interaction Index' encompasses two dimensions: 'application' and 'depth'. The 'application' dimension indicates the percentage of GDP and foreign trade of each country that arises from 'free trade agreements'. The 'depth' dimension refers to the number of items included in 'free trade agreements', such as tariff reductions, service liberalization, non-trade items, intellectual property rights, freedom of investment, labor mobility, and the ability to enforce property and trade rights. Based on these two dimensions of the 'Trade Interaction Index', countries are classified into four categories: 1) Free-Trade Stalwarts, which score highly on both 'application' and 'depth', with a large part of their GDP and foreign trade stemming from 'free trade agreements'. Countries like the UK, Chile, Singapore, Canada, and Mexico fall into this category. 2) Selective Optimizers, such as the United States, Taiwan, and Gulf Cooperation Council countries near Iran, focus on deep trade liberalization with a few key partners for various reasons, but most of their GDP is outside of 'free trade agreements'; for instance, the US, Canada, and Mexico concentrate on extensive trade among themselves under the USMCA or the previous NAFTA. 3) Targeted Allies support some of their industries but enter 'free trade agreements' with countries to gain technology, resources, or markets, with most of their GDP and foreign trade arising from these 'free trade agreements'. Examples include Norway, South Korea, and Vietnam. Notably, Vietnam fought the United States on its soil from 1965 to 1975 and had a more radical revolution than the Islamic Republic, but for the economic development and well-being of its people, it resumed diplomatic relations with the US in 1995. Subsequently, both countries joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), making the US Vietnam's largest export market. The US is the 11th largest investor in Vietnam, with over $11.4 billion. Major American companies like Intel, Microsoft, and Ford have also brought significant technologies to Vietnam. Thus, Vietnam gradually found a significant place among targeted allies. 4) Independent Movers: Countries in this category, such as China, India, and Turkey, may be less willing to enter 'free trade agreements' to protect some domestic industries; for instance, Turkey considered industrial sectors in its customs union with the EU and did not include agriculture in the agreement. China also enters trade agreements based on its competitive costs. Free trade agreements are not yet paramount in India's strategy, but India is rapidly moving in that direction, having signed free trade agreements with Australia and the UAE and is in talks with other countries. According to BCG, countries that actively utilize 'free trade agreements' not only grow economically in the short term by accessing other national markets and collaborating with international companies but also gain competitive advantages and achieve significant profitability in the long term in the complex and ever-evolving global market. Fereydoun Khavand, Mordad 1400. The Shiite clergy and the economic decline of Iran. The Islamic Republic's lack of integration into the global economy. As the above index shows, the Boston Consulting Group in its Trade Interaction Index report examines several regional cooperation groups around 40 countries such as Bangladesh, Egypt, Turkey, Israel, and even Vietnam, but does not mention the Islamic Republic of Iran. The Islamic Republic not only has no place among the four categories described but also, due to its rent-seeking economy and external tensions, has lost the opportunity to participate in trade agreements and even expand trade with other countries. Two examples illustrate this. In 2000, the Islamic Republic signed a contract with India and Russia to build a North-South transit route, expecting to transit 30 million tons of goods annually between these two countries. However, the Indians did not develop the Chabahar port and the Chabahar-Zahedan railway due to international sanctions against the Islamic Republic. Russia, also sanctioned by the West due to its military invasion of Ukraine, did not invest in the Rasht-Astara railway due to the withdrawal of the Indians in the south. Not only did these two countries, claiming friendship with Iran's transit project, not cooperate, but other regional countries also excluded the Islamic Republic from the new India-Europe transit route, despite Iran's unique and historical position in the geography of the Middle East. For the new railway and shipping transit route that is to be constructed from India to Europe, India, Saudi Arabia, Gulf Arab countries, Turkey, Jordan, and Israel are cooperating, and Iraq is supporting it by constructing a railway and road from the Turkish border to the Persian Gulf. The Islamic Republic has not only been sidelined from such a project, but when this route is built, the value of the transit corridor of all southern Iranian ports will also diminish. Each lost route equates to a decrease or even the loss of Iran's income and credibility in the world. Comparing Iran's economy under the Islamic Republic with Qatar highlights the opportunities Iran has lost under the Velayat system. Qatar, by investing in modern infrastructure such as Hamad International Airport and Hamad Port and closely cooperating with major international companies like Shell and ExxonMobil from the US, Total from France, and Mitsubishi from Japan, has not only gained significant material and technical capital but also the support of industrial powers. With this infrastructure, Qatar is now an important commercial center in the Persian Gulf between Asia, Europe, and America. We have seen what has happened to Iran's historical transit routes. Qatar began exporting gas six years after its independence in 1991, while Iran started six years before that. Forty years after the Islamic Revolution, Iran, due to poor business conditions, sanctions, and hostility towards the world, has not only fallen behind Qatar in exploiting the shared gas field but has also failed to attract foreign investment to develop its major gas fields. By hosting international sporting events like the FIFA World Cup, Qatar has gained soft power, cultural and political influence over others without using force and pressure, attracting more tourists and foreign investors, thus enhancing its economic and political power. The Islamic Republic has not only failed to host any significant international events in Iran but has also eliminated the country's previous soft power by banning women from entering stadiums. In sustainable development, Qatar has achieved new technologies for renewable clean energy with the support of international companies, while Iran, under the Velayat system, has been deprived of foreign technical and material investment due to sanctions, tensions, and poor business conditions. Comparing Iran's economy under the Islamic Republic with Qatar in areas such as international indices like economic freedom, corruption, and ease of doing business shows the incompatibility of the Islamic Republic with free trade and globalization. Rent-seeking has kept Iran from the opportunities of globalization and free trade, presenting a bleak outlook of inflation, unemployment, a decrease in the production coefficient relative to the workforce, and increased emigration of educated and skilled Iranians. Khordad 1402. Why is Iran's economic freedom ranking at the bottom of the table? Conclusion: Sanctions, lack of adequate economic cooperation, monopolies and rents in state-owned and government industries, refusal to comply with international norms such as the Financial Action Task Force (FATF) and the Palermo Convention, inefficiency of property rights to support foreign (and even domestic) investment, the collapse of the national currency, banking system constraints, and lack of access to banking and financial markets have placed Iran in the greatest economic isolation in contemporary history. For economic and social improvement, reforms such as alignment with international norms, transparency of accounts and accountability, respect for property rights, and ease of doing business are needed, which are incompatible with the rent-seeking structure of the Velayat system. Therefore, to achieve economic development, the problem must be sought in the very existence of the Velayat system; otherwise, the economic situation of the Iranian people will worsen.