Role of Economics in

The Role of Economics in the Power Struggle in Iran

[This essay was originally published in, October 3, 2000:; it was subsequently translated into Farsi/Persian and published in Negah, Vol. 4, No. 8 (Spring 2001): 62-65.]


Despite the critical role that economics play in the ongoing power struggle in Iran, that vital role does not usually receive the attention it deserves in the analyses of the country’s socio-political developments. Instead, most observers of those developments tend to attribute them to purely religious, ideological, or political factors. Yet, it can demonstrably be argued that, for example, Ayatollah Khamenaei, the “supreme religious leader” and his conservative cohorts derive their power more from real vested economic interests than from pure or abstract Islamic principles.

What are some of the economic interests that are vested in the status quo, and what social strata benefit from, or depend on, them? And why do they wield so much power despite the fact that, as evidenced by the voting records of the recent three nationwide elections, they are a minority in the population at large?

An obvious answer to the latter question is that, although in the minority, the forces behind the conservative camp are well-organized around the key power positions, especially the “security” apparatus and the judicial system. But this is only a partial explanation. Another explanation is that, in the factional power struggle, the reformists, especially the President, do not seem to possess the will or temerity to stand to the hard-liner’s challenges. Some frustrated supporters of the President even argue that he is essentially playing the role of a pressure valve, and that he is accordingly engaged in a behind-the-scene compromise game with Ayatollah Khamenaei and his supporters. To the extent that there are elements of truth in this explanation, it too remains only a partial explanation.

A more satisfactory explanation can be sought in economic factors, especially those related to globalization and interdependence of global markets. At the heart of the fierce resistance to reform are vital economic interests that are seriously threatened by change, especially by the prospects of economic openness to global markets.

Top among the vested interests are the monopolistic giants who control the import-export trade, the construction industry, transportation and communications enterprises, and the major manufacturing industries. Most of these big businesses owe their fortunes, directly or indirectly, to various centers of power within the ruling circles—often in the form of protection from imports, lucrative business contracts, easy credit, concessional foreign exchange rates, and a whole host of other illicit deals. The notorious “economic mafias” are firmly rooted in this stratum. Spokespersons of this group utilize heavy doses of nationalist rhetoric (for example, “national” industries, “national” interests, and so on) in order to camouflage and protect their nefarious interests.

The second category of vested interests resisting change includes traditional businesses and the bazzari merchants. This stratum is quite well organized, with close ties with conservative clerics and extensive links with various mosque networks. Similar to the previous stratum, this stratum often disguises its interests as national interests in its opposition to change, especially to foreign investment and to imports beyond their control.

The third stratum supporting the status quo for economic reasons includes large segments of the employees of the state and para-statal (or quasi-public) enterprises and institutions. Whereas the middle and lower ranks of this stratum resist change largely due to economic vulnerability, the higher ranks do so for property accumulation and self-enrichment. The well-entrenched bureaucratic networks and the high ranking officials of this stratum often collaborate with the first interest group mentioned above, and usually view their privileged positions not so much for serving the nation or the people but as vehicles to riches and resources.

The fourth and the most numerous stratum resisting change is the multi-million poor, working, low income, and unemployed people who depend on the state (and para-statal) welfare programs as the major source of their subsistence, of education of their children, and of their basic health care needs. For example, Ben Barber of the Washington Times recently reported from Tehran that “some seven million of the poorest people in Iran…are entirely dependent on the Imam Khomeini Assistance Committee that supplies basic foods, university scholarships and even marriage dowries” (August 10, 2000).

With varying degrees, the interests of all these social strata converge on resisting change, hence supporting the conservative camp. But whereas the economically well-off members of these strata do so because they are satisfied with the status quo, the poor and the low income members resist change not so much because they are satisfied with the status quo but because they have become economically dependent on it and are afraid of the bleak prospects of economic restructuring.

Lacking its independent leadership and/or its alternative, the working class seems to be torn between proponents of change and those of continuity. One the one hand, the workers clearly realize that the paralyzed economy needs change; on the other, they are wary of change as it will certainly entail neoliberal austerity measures such as downsizing (laying off workers), undermining workers’ rights, and eliminating or diluting state welfare programs.

In their challenge of the reformist camp, leaders of the conservative faction have been quite skillful in banking on the economic fears and vulnerabilities of the masses of the poor. Portraying their own, often dubious, interests as the national or people’s interests and claiming defense of the interests of the economically-depressed (some perhaps genuinely, others demagogically), conservative leaders have frequently rallied the economically-dependent masses to their side in their challenge of the reformists. For example, Ben Barber of the Washington Times, quoted above, observes that the conservative leadership “buses these [poor] people by tens of thousands to rallies and Friday prayer meetings, where they provide an unstoppable, direct force that reformists cannot confront.”

This observation succinctly captures the core of the power of the conservative faction. Without that powerful force, all the religio-nationalist rhetoric and all the pronouncements of the hard-line leaders, including the “supreme” leader’s Islamic decrees, would sound hallow and ineffectual. This is also the force with which President Khatami and his supporters have to reckon.

It might be argued that, as shown by the last three nationwide elections, President Khatami enjoys the support of even a bigger number of the population, and that, therefore, what he lacks is not so much the number of supporters but a clear strategic vision and a firm political will to fight for his ideals. While there may be some merit to this judgment, two critically important additional factors need to be considered here.

First, although it is true that the President enjoys the support of the majority of the population, that majority is neither organized nor armed, as the supporters of the conservative camp are. Nor are his supporters as ready to fight and die for their cause as those of his opponents—admirable sacrifices of freedom-loving students and journalists notwithstanding. This is not a statement of hopelessness or resignation. It is rather a simple description of the balance of social forces at the present juncture, that could, of course, change precipitously and tilt the scale of power in favor of change. Instances of unarmed and unorganized masses rising up in rebellion and overthrowing mighty armies are certainly not rare in the history of social developments. In the last few decades alone there have been a number of such cataclysmic social developments: the overthrow of the Shah’s rule in Iran, of the Marcos regime in the Philippines, of the Samosa dictatorship in Nicaragua, and of the Stalinist bureaucratic rule in Russia and other Soviet Republics.

A second, and perhaps more important, explanation of Khatami’s hesitations to act more decisively in his challenge of the conservative forces lies in today’s economic globalization and its effect on national economic policies. In the globally interdependent markets of today profitability competition takes place not just on a national or regional level but also on a global level. This means that differences in international profits, wages, or interest rates can quickly lead to massive cross-border capital movements and economic instability. It also means, among other things, that spending by national governments on such vital programs as health, education, and the environment clashes with the logic of global markets and often leads to capital flight, balance of payment difficulties, and currency devaluation. Global market rules can, therefore, severely punish those countries whose economic policy makers fail to play by those rules. This, in fact, seems to be what is plaguing the Iranian economy and its policy makers who have tended to ignore, dismiss, or defy global market imperatives.

The pressure to play by the rules of the global economy are, of course, not limited to Iran. With varying degrees, it affect all societies, not just the less-developed ones: in Japan, for example, the traditional practice of lifetime employment is being gradually abandoned; the governments of Germany and of a number of other European countries are fighting unions to cut pension benefits and to institute flexible labor markets in order to improve international competitiveness; and most developing nations are compelled to open up to trade, to deregulate their economies, to dilute their social welfare programs, and to privatize their public enterprises.

But playing by the rules of international markets (that is, lifting trade controls, encouraging foreign investment, implementing economic austerity measures, diluting or eliminating welfare programs, and the like) is not safe or redeeming either because it creates more losers than winners—at least in the short- to medium-term. The winners of globalization include the big, internationally competitive businesses and the skilled workforce. The losers, on the other hand, are usually the small, traditional, non-competitive businesses and the less-educated and less-skilled workforce. The losers also include millions of the poor and the unemployed who largely depend on social insurance programs for their basic needs. Economic vulnerability and the fear of losing jobs and other sources of livelihood could lead to what might be called antiglobalization backlash: a mass rebellion by the millions of the globalization losers that could result in cataclysmic social changes, including changes of regimes and/or governments.

Antiglobalization backlash and its drastic social consequences have, in fact, become a pattern in recent years: a pattern of massive social upheavals in reaction to globalization imperatives resulting in the gaining of popularity or even coming to power of the inward-looking nationalist leaders offering populist solutions that claim to be able to defy global market rules or mitigate their painful effects. This is how, for example, the Islamic Welfare Party recently came to power in Turkey. It also explains why in Russia and a number of East European countries former Stalinist bureaucrats have regained power and popularity in a number of recent elections.

Global market imperatives thus seem to confront nation-states, especially those with weaker economies like Iran, with stark options. If they maintain social insurance programs, capital controls, and trade protection, they are almost certain to earn the wrath of international capital markets and their institutional representatives such as the IMF, the World Bank, and the World Trade Organization. This is almost certain to lead to market failure, production paralysis, and economic crisis. On the other hand, if they open up their borders to free trade and try to accommodate international capital markets, they will have to comply with the neoliberal economic restructuring policies that will undermine their social insurance programs, create economic insecurity and hardship for most of their citizens, and lead to social tension and political instability.

In the competitive game of global market profitability, thefore, many nation-state economic policy makers seem to be check mated!

While such dire circumstances bedevil the official heads of nation-states and their economic policy makers (such as President Khatami and his economic advisors), it provides the opposition forces (such as his conservative opponents) with potent propaganda artillery in their challenge of the official economic policies. Such opposition forces tend to conveniently blame the baleful effects of globalization on the official economic policies while trying to portray themselves as champions of the victims of globalization and the defenders of national interests. This is not to say that all the conservative opponents of President Khatami are demagogues; not at all. Many in their ranks, especially middle and lower ranks, may indeed genuinely be committed to the interests of the poor and working people. Most of the top brass of the leading conservative establishment, however, seem to defend national or people’s interests in a populist, demagogic fashion.

This brief picture of economic globalization and its effect on national economic policies will, hopefully, go some way to explain why President Khatami and his allies are hesitant to fight more vigorously for their reform program. It may also explain why to the extent that they timidly do so it is largely focused on politics, and only secondarily on economics, as economic issues and policies are fraught with dangers and uncertainties. It further explains why their conservative opponents are more decisive in their challenge of reform ideas and suggestions. For, in the factional power struggle, the conservatives seem to perceive that they are in a win-win position: they will have an obvious case of victory if they continue to successfully block the reformers’ agenda for change. On the other hand, if the reformers somehow succeed in pushing their economic reforms through, the conservatives can still hope to (and they probably will) benefit from the political backlash that such economic restructuring might create among the many citizens dependent on the public sector, either through employment or through welfare programs. Such a backlash might even lead to their regaining of the majority seats in the parliament in the next election, or to victory in the next presidential election.

This pattern of shifting political fortunes, resulting largely from a mass rebellion against economic restructuring measures, or from an anti-globalization backlash, is not lost on President Khatami and his reformist allies. Their hesitations to fight more vigorously for their reform agenda can, therefore, be explained better by economic and/or globalization factors than by any other factor. While religious and political rhetoric is heavily used in the factional power struggle in Iran, economic issues, especially their global dimensions, seem to play a far more important, though often submerged, role. And although the radical armed forces and the masses of the poor and urban underclass claim readiness to fight and die in the name of Islam, the fundamental reasons behind that readiness seem to do as much with their economic dependence on the status quo as with their faith or religious devotion. Likewise, the wasteful, parasitic monopolies and “economic mafias,” along with their representatives and accomplices in the leading conservative establishment, resist change not just to preserve Islamic values, as they claim, but, perhaps more importantly, to preserve self-interest and continue self-enrichment.