Teaching Comparative Government and Politics

Monday, February 15, 2016

Making the powerful more powerful

After the 1979 revolution in Iran, many of the richest people fled the country. But they couldn't take their companies with them. Charitable foundations, called bonyads, headed by prominent clerics, took over as owners of the abandoned assets.

Today, the bonyads control an estimated 30% of Iran's economy. They are exempt from taxation. Their financial activities don't have to be audited. The clerics, the Revolutionary Guard, and their foundations actively support the conservative hard liners and in return get first access to subsidies, loans, and government contracts.

Guess who is benefiting from the end of sanctions? Guess who is becoming more powerful? Will the economic benefits translate to political benefits?

In Iran, State-Backed Companies Win From Lifted Sanctions
Behind the headlines announcing big business contracts with European companies it is becoming increasingly clear that, so far, the only deals being struck have been with the state-backed conglomerates. These are the groups that dominate major industrial and commercial sectors of the Iranian economy and are tightly controlled by pension funds and investment companies linked to state organizations, like the Revolutionary Guards.

As a result, little or nothing is trickling down to the lower levels of Iran’s beleaguered but still enormous private sector…

All the major international deals signed in recent weeks have involved state or semistate-backed industries…

President Hassan Rouhani on Tuesday repeated the government’s aim of achieving 8 percent growth this year, not an unreasonable goal given the influx of frozen assets and the enormous investment needed for Iran to modernize facilities grown decrepit after years of sanctions. But to achieve such growth levels, experts here say, particularly in an era of low oil prices, would require an easing of financial strictures that Iran’s conservative leaders show no signs of tolerating.

“Our bigger companies are our top priority,” said Amin Amanzadeh, a financial reporter for several Iranian newspapers. “They are the only ones who can handle foreign investment. Also, if they improve the whole economy will.”

But critics of the quasi-socialist conglomerate system dismiss such claims, saying it is notoriously corrupt and inefficient. More likely, they say, the conservative leadership’s overriding aim is to keep Western influence in the economy and society to a minimum.

Iran’s hard-line factions do not dispute the point…

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