Iran's ‘License Raj' resembles 1960s India — those close to the regime get permits and oil revenues, the educated get no jobs: Jeremy S. Friedman
Jeremy S. Friedman, author of 'Ripe For Revolution: Building Socialism in the Third World', teaches at Harvard Business School. Speaking to Srijana Mitra Das, he discusses the
Iran war
— and Tehran's economy:
Q. What keeps Iran going, despite decades of
sanctions
?
A. Well, the short answer is, it's not going very well — Iranians aren't starving but the country is also not growing economically. They have an 'over-education' crisis with the most educated population in the region outside Iran but no jobs. The biggest reason for economic stagnation is sanctions. There was hope with 2015's original Joint Comprehensive Plan of Action (JCPOA) that Western companies would start investing in Iran.
However, even before Donald Trump came along, the United States didn't do that, largely due to the fear of sanctions being reimposed. Investment was thus mostly limited to the energy sphere, even though Iran is not really a petrostate. It has a large, educated population, a diverse economy, a big agricultural sphere and, ironically perhaps, it is a major destination for medical tourism and plastic surgery. I've been to Tehran and it seems like half the people in the airport got nose jobs just before flying out. It is no accident that Iran has its own nuclear program and isn't dependent on foreign expertise — it has the scientific capability many petrostates don't. Essentially, Iran's potential has remained unfulfilled.
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Q. Can you describe Iran's socialist trajectory?
A. Being a theocracy, many people assume Iran must be conservative. That's not what 1979's Islamic Revolution was though — many of Iran's Islamists were socialist. There was a major socialist movement in the 1940s-50s which fought the Shah who also fought back — the Marxist left was eventually decimated by the secret police. By the 1960s, the Islamists began to step into the vacuum the socialists had left. The latter claimed they'd build an anti-imperialist, egalitarian, developed economy — the Islamists said they'd follow faith and do the same. Eventually, those people made the Revolution — later establishment personalities, like Akbar Rafsanjani, Mir Hossein Mousavi, etc., were socialist-leaning. They imagined Islamism would make Iran developed and equal. Land reform, nationalisation and national plan development began — but in 1980, just a year after the Revolution, Iraq invaded. For the next eight years, Iran was on war footing — rationing meant state control of goods. A huge state sector developed.
In the 1990s, as some groups started dissenting from this arrangement, there was some privatisation but it never fully took effect because being isolated from the world economy, it was hard for Iran to privatise on that scale. Then, Mahmoud Ahmadinejad rebuilt the nuclear program. Sanctions followed, really benefitting those who controlled the ability to produce and smuggle — the
Revolutionary Guard
. The economy stayed in state hands — and stagnated.
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There is some self-sufficiency as, owing to sanctions, they've had to manufacture many things countries would typically import. Iran's export revenue is largely dependent on energy and oil — those with access to government, the Revolutionary Guard and military get foreign items and licenses to manufacture. Similar to the
License Raj
that India had in the 1960s-70s, Iran has a smaller-scale License Raj now, with oil revenue going into the pockets of those who have the licenses. It's a two-tiered economy — those connected to the state get bits of oil money, monopolies, smuggling, etc. Those with no access to the state — which includes the aspiring middle class who thought they'd progress through education — have no jobs and nowhere to go. Iran is thus a bifurcated economy which depends on connections, not merit.
Q. What role do China and Russia play?
A. Well, a fully candid Iranian regime would say, a very disappointing role. After all the talk about a 'new axis' with China, Russia, Iran and North Korea, Russia and China are clearly not going to be there for Tehran. Iran gave Russia drones to use in Ukraine. Yet, Russia has done very little for it because it doesn't want to jeopardise its ties to Israel and Saudi Arabia.
China only really cares about Iran's oil — if Iran disrupted those exports, Beijing would suffer the most and Iran can't afford to alienate it. So, it's a one-sided relationship between Iran, Russia and China, characteristic of the entire axis. China gets what it wants from Moscow but Russia doesn't get what it wants from Beijing. This is more a hierarchy than an axis, with China on top.
Q. What does this Iran-Israel conflict mean for the
global energy market
?
A. With China being the largest consumer of its oil, I'd be surprised if Iran significantly disrupted exports through the Strait of Hormuz. That would change China's attitude towards Tehran. There could be short-term disturbances, especially with Israel attacking Iran's energy infrastructure, sparking retaliation.
Yet, it seems Iran doesn't really want a major war — the Iranian regime is afraid if that happens, they'll be overthrown as they are very vulnerable at home. A revolution in Iran, with chaos and potential disruption of energy exports, could be the bigger risk to global markets.
Views expressed are personal
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