President Ahmadinejad is commonly thought of as a populist. Could you please explain which kinds of populist economic policies he ran on in 2005 and 2009, and which of these policies he has or has not delivered on?
Dr. Hossein Askari:
I am no fan of Mr. Ahmadinejad, but I think to be fair to him, the things that he said the first time he ran is what I actually felt ought to be done in the country, so if I had lived there and was participating in the elections, I would have voted for him the first time around.
What he basically said was what we have been doing with this oil money, which is of course limited and will run out one day, is wrong. He wanted to use this, instead of giving food and energy subsidies, to give people cash payments. He said that he wanted to give the biggest cash payments to the people who needed it the most. So if you look at it from a populist perspective, it is certainly a good way to garner votes.
The reason I agreed with it—there is one aspect that I absolutely agreed with and another aspect that he never alluded to, which I’ll get to. The aspect that I agreed with was that basically in economics, it is much more efficient for me to give you a cash payment and let you decide what you want to do with it, rather than to subsidize electricity, for example, because if I subsidize electricity, as a general rule, the rich use more electricity than the poor, so it is a regressive subsidy that provides more help to those who need it less than others.
There is also the problem of subsidies leading to waste. If you make electricity very cheap, the tendency is for people to leave on the electricity after they leave the room. On the other hand, you may not need as much electricity—you may be a romantic who lights candles—so I should give you the money and let you do what you want with it.
The other part that he didn’t say but which I assumed, was something that I believe all oil-exporting countries should do, which is to take their oil revenues and put them into a fund—not all of it at once, but slowly over time in order to wean themselves off of oil—put that money into a fund, invest it, and eventually issue a check to every citizen. They could do that for some time. What this does, of course, is to ensure that everyone benefits from the oil revenues. Now and in the future, everybody gets the same benefits from these oil revenues. And the government then has to rely on taxes, which forces it to be much more responsible because it has to rely its citizens to pay their taxes instead of getting its money from us. This is something I believe that all oil-exporting countries should do and is in fact something that the state of Alaska has sort of begun to do.
Now, when Mr. Ahmadinejad ran, he only talked about the cash part. He never talked about weaning Iran off of oil. What he should have said was that within a ten-year period, Iran should wean itself off of oil. But instead of doing so, he said the opposite. As you said, he ran as a populist. He said that he was going to make sure that that benefits of this oil revenue were shared equally among all Iranians.
That’s what he said, but he never did so. Instead, he built improvements in villages throughout Iran so people saw what he was doing. Meanwhile, he made rousing speeches with very populist messages that people really agreed with. But there’s something else to it, which was that he would bypass parliament, and whenever he went to a village he would say, “Okay, we’re going to build this road for you, or this hospital for you.” He simply took the money from the treasury and spent it. So he built up that kind of support, but in a haphazard manner. He just did whatever he wanted to in order to demonstrate to people that he was improving their lives.
So to me, the second time he ran, after I saw what had done—and the fact that he was even more reliant on oil revenues as opposed to less—I thought it was a national disaster from the perspective of Iran’s economic future. So yes, he was a populist in what he said and in what he did, but the way he went about implementing his populist agenda was very poor.
Clearly the current opposition movement is based primarily upon political grievances, but is there an economic angle to the protests as well? Is there something about the composition of the opposition movement that would make it averse to some of Ahmadinejad's economic policies?
Yes, absolutely. I think that what you see in Iran—and this was also the case at the time of the Shah—is that there is a real economic component to all of this, then and now. When the oil prices rose between 1973 and 1975, Iran became much richer, but then there was an economic slowdown, and a good deal of dissatisfaction. In this case, however, the economic dissatisfaction is of a different kind—and of course, not all of this should be blamed on Mr. Ahmadinejad, but it is anyway.
Iran’s economic policies under the Islamic Republic have been disastrous. If you were to take real per capita income since 1979, it has grown only marginally. There are two reasons right off the bat why this is the case. The first is that Iran had very rapid population growth for the first seven or eight years after the revolution, which I’ll return to later. The second was the Iran-Iraq War, which was very costly to both Iran and Iraq.
But third were the policies of the government. Coming out of the Iran-Iraq war, what the government inherited—and what subsequent governments have inherited—are major subsidies that they used during the war period to keep people happy. I understand—they had very little choice, and I think in some ways that was the best period of their economic policies. But the problem with subsidies is that once you give them, you can’t take them away. We know that in this country. So these subsidies—which were all pervasive—became part of the economic structure of the country.
The second part that became a part of the economic structure of Iran was that after the Revolution—and this is understandable under revolutionary fervor—they nationalized much of the Iranian private sector, so that today, I would say that 60-70% of the national income in Iran is either directly or indirectly in the hands of the government or its various agencies.
So you have these massive subsidies, which continue, and you have this nationalization, so the private sector after the Iran-Iraq War was relatively small. When you look at what has happened since that time, Iran’s economic well-being—I don’t care what the IMF documents say or what the Iranian government says—the average person’s economic well-being has not really improved. I would argue that the income distribution has gotten worse—the rich are getting richer—and there are some very rich people in Iran, all through corruption of course. Very few are engaged in entrepreneurialism, creating wealth, and all that stuff. It is all corruption—how can I get a chunk of the government’s oil revenues, etc.
But at the same time, because of all the population growth that you had in the eighties, a lot of Iran’s population is very much oriented toward the youth. These people have worked very hard to get into universities—spots at the universities are extremely competitive—and they work very hard to get good grades while they are in school. But once they get out, guess what? There is nothing for them. No decent jobs. So what has happened in Iran is not what it was in 1979. You’ve got a massive percentage of the population who are young who either cannot get jobs or who have gotten good education and cannot get jobs. So what you are seeing is something that didn’t exist at the time of the Shah: massive emigration. People want to leave the country. In fact, in a study that I saw that I think was from the IMF or the UN, the cost to Iran, at least in the first part of the last decade, of these educated people leaving the country was in the order of 30-40 billion dollars per year. So while the young were important in the movement against the Shah, they are much larger now and they are much more dissatisfied, in my opinion.
The average person has a very hard time making ends meet. During the time of the Shah, yes, the income distribution was bad and people were struggling, but now that struggle has become, in my opinion, more pervasive. Now, a lot of documents are put out by the government that say unemployment is about 12%. In my reckoning it is more like 20%, and it is highly concentrated among the ages of 18 to 25. So they are very dissatisfied with what has happened. The needed economic progress has simply not been there.
The government realized what it needed to do a long time ago. I know because I have spoken to people very high up in the government. They didn’t do it, though, because they were afraid that if they got rid of these subsidies and tried to do things differently then there would be a backlash, and their interests were just to stay in power so they weren’t going to do anything to rock the boat.
I’m going to read off a few of the economic grievances that were lobbed against the Shah, and I want to ask you, first off, if you think they were fair, and secondly, if you think they apply today, perhaps in a different way, to the current government. So the first is the charge of cronyism or elitism.
I think there is a slight, subtle difference between then and now. The Shah was very removed and came across as very arrogant and proud. That you cannot say about Mr. Ahmadinejad and this regime. They don’t come across that way. But in terms of cronyism and corruption, I would say it has become more democratic, in a way—everybody is on the take in Iran! Compare that to the Shah, who was more restrictive in terms of who he favored.
What about the charge that in his attempts to modernize and westernize Iran, the Shah tried to marginalize the bazaaris and all those with traditional lifestyles?
That’s true. That was definitely the fallout of what he was trying to do.
But it isn’t the case today, is it?
No, it isn’t, because today the regime recognizes their connection with the bazaaris, and I would argue that many people within the regime have partners who are bazaaris. If you look at the regime, it is a very different crowd. I mean, the folks who used to rule Iran under the Shah were members of about a hundred wealthy families who would go to the West, get educated, and come back to take these positions of power in the government. That was all.
What you now are seeing is that many people who run Iran have a religious training background or a revolutionary background, and what you have seen over the past few months—which I think the West is beginning to realize—is the rise in importance of the Revolutionary Guard. These are basically people who have never gone to the West, most of them, aside from maybe visiting once or twice.
You alluded earlier to the oil boom due to rising oil prices and the policies put in place by OPEC. Many have argued that the Shah mishandled this boom, which led to inflation and hurt the bazaaris and small businesses.
I think that’s a fair accusation but I think that today it is also hurting the average person—in fact I think it is more true of the average person today than the bazaaris.
Let me give you an example of what I am talking about. If you take a family—a husband and wife with college degrees, and lets say they teach high school or something, and that they have two children. For these four to be able to have an acceptable standard of living, by which I mean a two-bedroom apartment and health insurance, and be able to buy food and eat meat once a week, they probably need a net income of around $2,500, and I would say about $1,000 of that would be rent. The parents, who are teachers, are lucky if they earn $1,000 together per month. So you tell me how you would make ends meet?
So I think that the dissatisfaction is much greater now than it was during the Shah, and I think it’s growing. I think that where the regime made its critical mistake was in two places: First, they were wrong to encourage that massive population growth in the 1980’s, and they realized that later on. The second is that their economic policies have been really misdirected. What they didn’t understand is that it is much easier to undertake economic reform when things are good—when oil prices are at, lets say, $140 per barrel—because you have more leeway—than to undertake reforms when oil prices are down to $30 per barrel. They always put off reforms, and they still haven’t done the reforms that they have to do. I think that that is the critical misstep.
So when you said that under the Shah there were problems with inflation, you were correct, but I would say that today there are the same problems. There is high inflation, and although the government claims that inflation has gone down to 10%, I think that’s nonsense. If you look at the things that people buy—food, for example—those things, over the last year, have gone up about 50%. The one thing that has come down, though, is rent, due to the collapse of the housing market. But the cost of living for the average person, given what they need to buy, is going up. So that kind of dissatisfaction is there, and I think it is going to make this regime extremely vulnerable unless they address it.
What about the accusation that the Shah invested in the military at the expense of providing for the welfare of average Iranians? Can the same be said for the current regime?
I think that is a very fair criticism of the Shah, and in fact of all the regimes of the Persian Gulf countries. I think the Shah bought that military equipment to project Iranian force in the region, and partly because in dealing with the United States, it was a way to reduce the cost of military hardware as this also helps the United States because if they sell more of this stuff then the unit cost goes down. So yes, that’s a very fair criticism of the Shah.
As for this regime, the reason they don’t buy such sophisticated military hardware is because nobody will sell it to them. It’s not that they wouldn’t do it. And maybe they’re lucky in a way, because that would only add to the people’s dissatisfaction.
At the same time, however, please note that the Iranian army is larger than it was under the Shah, and also, instead of importing all that military hardware, they are trying to manufacture some of it domestically, which is costing them. Most important of all, one thing that this regime has done in recent years is to basically take a big chunk of the national economy and put it in the hands of the Revolutionary Guard. So while they aren’t spending all this money on imports, they are ruining the economy by allowing entities that are not best geared to manage it to do so, which is also costing them. So one cost is military hardware, the other is mismanagement.
Let me give you an example. The National Iranian Oil Company started giving oil contracts to the Revolutionary Guard. Now you know it, and I know it, that the Revolutionary Guard in Iran is not geared to do offshore drilling and developing Iran’s natural gas fields. So what did they do? They got the contract, but then they got an outside partner who could do it! So it’s like adding a layer, while the military takes the money and uses it for themselves and probably does not engage the best company to do the work.
So while the Shah spent the money buying hardware, this regime is paying the military to take a commission and then they go and do what they need to do, so either way the money is being sucked out of the Iranian economy. So that criticism of the Shah is absolutely fair, but this regime can’t say it isn’t making the same mistakes, just in different ways.
As I mentioned, the Shah wanted to Westernize Iran, and so he allowed in lots of foreign investment, which helped to marginalize traditional economic classes while deeply offending the religious opposition. To what extent has the current regime embraced globalization, and what effect, if any, has such outside influence, or lack thereof, had on the opposition movement?
I think you have two questions there. First off, you mentioned how the Shah’s opening up of Iran to foreign influence offended the religious and traditional elements of society, and that is correct, but it wasn’t just opening up to the West. The Shah did some things that backfired, that were silly—that if he thought them through he wouldn’t have done so, as a good politician. Namely, he cut off the religious endowments from the government. You’re inviting trouble if these mullahs are getting a certain payment every month or six months or whatever from the government and you cut that off. They’re not going to like you; they are going to try to undo you. Of course they argued that he was not really a good Muslim and all that, that he wasn’t supporting the cause of the Shi’a, that by adopting all these Western things he was undermining the religious beliefs of Iranians.
Having said that, let me now compare the current regime. I think the world needs to be aware that there are many, many religious scholars of Shi’ism who in fact would argue that this regime has no legitimacy with Islam at all with the things that it has done—not just the election, but the corruption. The cheating of people—I could give you lists that would put you to sleep of things that this regime has done that a person could say are un-Islamic. So even as they accuse the Shah, they are, at least in my book, as guilty if not even more guilty. At least the Shah never said “I am the representative of God.” If you claim to rule by divine right then you should at least adhere to the basic premises of the religion.
I do agree that the modernization under the Shah was pushed too far. One classic example of the Shah trying to open up Iran to fast, and in a very silly way, was what was called the Shiraz Festival of the Arts, whereby during the holy month in the Shi’a calendar, they had a play in the nude. We don’t even do that in the United States, I don’t believe. But to do that during a holy month, in Iran—is that really opening up the country to outside culture? It is difficult to understand what they were thinking. So I think that this regime has made different transgressions in order to stay in power.
According to Islam, the rulers of any country or any group should be chosen by the people they rule in some fashion—I’m not saying it has to be like they do in Britain or the US, but they should be elected. It is very important that everyone’s views are in fact represented. One could certainly argue that this regime in Iran doesn’t do that since they bar anyone they want to bar from running for office, and since they have elections that have very heavy elements of fraud in them.
Also in Islam, it is said that the rulers of a country ought to live as does the poorest person in that country so that it gives them that incentive to do the right thing. The regime is certainly not doing that, so I think over time they have alienated a lot of Iranians, including those who are very religious. At the same time, they attacked arguably the most learned Islamic scholar in the country, Ayatollah Montezari, who attacked this regime and said it was illegitimate. So I don’t think that they can claim to be upholding Islam anymore than the Shah.
Dr. Hossein Askari is Iran Professor of International Business and International Affairs at The George Washington University’s International Business Department. Dr. Askari has served on the Executive Board of the IMF and as a consultant to the OECD, the World Bank, the IFC, the UN, the Government of Saudi Arabia, and a number of multinational corporations.
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