Iran Middle East
IranSource December 20, 2019

Iran is losing sight of its “developmental vision”

By Esfandyar Batmanghelidj

On December 11, Iran’s information minister announced via social media that he had a “surprise” to reveal. Mohammad-Javad Azari Jahromi, the Islamic Republic’s youngest-ever cabinet minister, had been the subject of intense criticism from the Iranian public following a week-long internet blackout. Authorities had taken the unprecedented step to cut internet access in response to the nationwide protests that erupted on November 15 following a subsidy reform that doubled fuel prices. Angered by the crackdown, many Iranians “surprised” Jahromi by blocking him on Twitter. 

Undeterred, Jahromi made his grand reveal on December 12: a slickly produced video that showed Iran’s postal service delivering a package to the information ministry by drone. While such drones may be helpful for rural communities and disaster response, Iranians were understandably bewildered by the PR stunt. 

Jahromi’s postal drone offers a metaphor for perhaps the central political challenge facing the Islamic Republic. In the wake of a brutal response to protests that has left over 300 dead, commentators have pointed to a crisis of legitimacy now facing Iran’s leaders and their ideological tenets. But in reality, it is the compounding failure of technocrats like Jahromi to manage a decade of economic volatility that best explains Iran’s new political turmoil. 

As a recent study of the fuel protests shows, “economic grievances were likelier to inspire protest in areas where frustration with the whole system was endemic… Economic hardship turned frustrations with the system into assertive protest activities.” The protests appear to have comprised largely of individuals newly confronting economic hardship, which suggests the emergence of a precariat class in Iran. Just last year, 1.6 million Iranians fell into poverty due to high inflation. The study details how the counties in Iran which saw protests were often those more dependent on state support, meaning that the withdrawal of that support—such as the reduction of the fuel subsidy—was felt most acutely. As the study observes, “the Islamic Republic, through its long-term developmental and welfare programs, has empowered a citizenry that now resists neoliberal policies, such as cuts to energy subsidies.” 

These long-term developmental and welfare programs are the underappreciated pillars of the Islamic Republic. As sociologist Kevan Harris has described, state-society relations in Iran have been shaped by a “developmental vision” established when the young Islamic Republic began to emerge from the brutal Iran-Iraq War. As revolutionary fervor and wartime zeal ebbed, a core group of technocrats, many of whom had served in the Shah’s civil service and who had been educated abroad, began to set the country’s development agenda. After a few years of structural readjustment, the country’s economy started to grow, and the technocrats became firmly ensconced in the powerstructures of the Islamic Republic. 

Iran’s GDP per capita peaked in 2012, buoyed by record-high oil prices. But the same year, the international community imposed strict sanctions on Iran over its nuclear program, triggering a 7.4 percent contraction and ending 23 years of consecutive increases in GDP per capita, which had risen from just over $2,200 in 1989 to just under $8,000 by 2012. The developmental vision of the Islamic Republic had significantly improved the welfare of the average Iranian. For millions of Iranian households, development meant the arrival of electricity, gas, refrigeration, personal mobility—and in the last decade, access to the internet. But success in economic development is inherently relative. Iran fared much better than Iraq in the two decades following their eight-year war. Iraq’s GDP per capita had been higher than Iran’s in 1989, at $3,800, but rose to just $6,800 by 2012, having lagged behind Iran even before the 2003 US invasion. In the same period, however, Poland, which emerged from its stagnation behind the Iron Curtain in 1989, saw its GDP per capita rise from just below $1,800 to $13,000, becoming a widely touted example of successful development. 

That Iran finds itself between Iraq and Poland on the measure of GDP per capita speaks to the predicament facing the country’s technocrats. The political establishment in Iran is, in some respects, the victim of its success. Economic development became, even in an ostensibly “revolutionary” state, the foremost expectation of governance among the Iranian people. The Islamic Republic has only recently ceased delivering consistent distributive economic growth, leaving chronic and underlying issues of inflation, unemployment, and corruption unassuaged by economic expansion. Sanctions—which have deprived the country of investment, stifled trade, and weakened the currency—have contributed to nearly a decade of stagnation. 

In a prescient 2011 study on the impact of economic crises on Iran’s youth, economist Djavad Salehi-Esfahani concludes with a question. He wonders how a lack of economic opportunity “shapes the attitudes of Iran’s youth about the country’s future and their ability to lead and build the nation.” Are Iranian youth “slowly losing not only their skills but also their hope and optimism?” 

While Jahromi was busy toying with postal drones, a new budget was being prepared for the forthcoming Iranian year (March 2020). As analyst Henry Rome explains in his study of the new budget, the Iranian government will seek to mitigate the harms of high inflation, which the IMF projects at around 30 percent next year, by instituting new cash transfers and increasing the wages of public sector employees. Overall, the new budget represents an 8 percent increase in spending in rial terms. But with the contribution of oil revenues down from 29 percent in last year’s budget to a likely-too-optimistic 9 percent, the government will be seeking to increase tax revenue in to fulfill its fiscal burdens, ostensibly increasing the importance of functional state-society relations. 

Iran’s technocrats will continue to seek policy solutions to address widespread economic frustrations and alleviate poverty. But as Salehi-Isfahani observes in his study from eight years ago, there is only so much that the technocratic solutions can achieve. In the face of myriad economic pressures, including “maximum pressure” sanctions, Iran’s resilience is a remarkable achievement, but it is nonetheless approaching a kind of political limit. Referring to the government’s response to the economic malaise of the Mahmoud Ahmadinejad years, Salehi-Isfahani notes, “there are new policy initiatives ranging from the reform of the nation’s decades-old subsidies, to amending the family laws, to reviving population growth, not to mention the nuclear standoff with the West, but none that help salvage Iran’s demographic gift.” That an article written years ago describes the current dilemmas so accurately speaks to Iran’s stagnation. 

In the aftermath of the protests, Iran’s political elites have begun to realize the stakes. In a speech one week after the fuel protests, Mohsen Rezaei, the hardline secretary of the country’s influential Expediency Council, acknowledged that Iran was failing to deliver economic development. Pointing to the importance of economic development in state-society relations, Rezaei stated, “Since the beginning of the revolution until today each government of the Iranian people has tried to make an impact on the economy, and particularly in the last two decades the focus various stakeholders has been the economy, but we have yet to find a pathway that gives us optimism for the future.” While the Islamic Republic had proven able to “address the issue of elections, defense, security, and freedom,” it had failed to reach the optimal model for “economic development and economic justice.”

Today, an Iranian precariat is seeking economic justice. Iranian economic planners and policymakers, like their fellow technocrats around the world, are struggling to find the pathway to continued growth in the face of factional infighting and foreign interference. Signing-off in his announcement of the postal drone, Jahromi declared, “We must make Iran the best and most advanced country in the world!” 

If only it were so easy. 

Esfandyar Batmanghelidj is the founder of Bourse & Bazaar, which tracks developments in Iran’s economy. Follow him on Twitter: @yarbatman.

Image: ICT Minister Mohammad-Javad Azari Jahromi with postal drone (Twitter)