Iranian strategists have long wondered about an Islamic version of the Chinese model, which has achieved a 7 to 8 percent annual growth rate over 20 years, through easing state economic control under the Communist party’s political monopoly.
The crackdown on the reformist opposition since last year’s disputed presidential election — in which Mahmoud Ahmadinejad won a 63 percent landslide — will increase the attraction of China’s example. Iran may now be better placed for serious economic reform, with the aim of reaching the 8 percent growth envisaged by Tehran’s 2010-15 economic plan, rather than the paltry 2.2 percent forecast for 2010 by the World Bank.
Oil revenue in Iran has long pitted short-term consumption against the investment needed to finance growth. Hence, the problem with elections is that Iranians believe their country is much richer than it is and will vote for those who offer them their cut.
A friend in Tehran, now in prison, used to ask people how much they thought was their “share” of the oil wealth. The usual reply was in thousands of dollars, and he delighted in pricking the bubble by saying it was about $500 per year per adult.
Economist Djavad Salehi-Isfahani put the point differently last year, when he calculated the hypothetical per-person income of Iran’s oil and gas reserves of around 300 billion barrels, and oil-equivalent barrels, could be invested in a long-term trust fund offering 3 percent. This was at the top of the market, and yet the annual yield was $430 per person, declining over time as the population rose.
Such figures bear scant relation to the growing popular belief in Iran that oil wealth should improve people’s short-term lot. Ahmadinejad stormed to power in the 2005 presidential election promising not just a return to the egalitarianism of the 1979 Islamic Revolution, but to “put the oil money on the people’s sofreh” — the carpet or cloth on which poorer Iranians sit to eat lunch.
Yet in one of the most remarkable turnarounds in recent Iranian politics, Ahmadinejad subsequently came up with the first serious government plan to tackle the most damaging consequence of Iranians’ belief in their own wealth — the state’s annual commitment of between $50 billion and $100 billion to subsidize gasoline, electricity, bread and medicines.
Ahmadinejad’s scheme to phase out subsidies over five years and replace them with benefits targeted at the poor has put him at loggerheads with parliamentary deputies, conservative and reformist, who are loath to allow the president any discretionary spending. As much as half of the savings would be allocated to the “needy,” a difficult term to define even in economies far more developed and transparent than Iran. But after wrangling between the president and parliament, the Guardian Council, Iran’s constitutional watchdog, ruled in January there should be a new government body to receive and spend the saved money — putting it at least a step away from the president’s direct control.
In truth, many of Ahmadinejad’s opponents, inside and outside the country, are less interested in the reform plan’s potential success than in its potential to make the president unpopular. Removing subsidies could well stoke inflation and make millions of Iranians worse off in the short term. Without a broad political consensus, it is hard to see how such shock therapy could be initiated without the government falling prey to the kind of opportunistic political opposition that has stymied attempts to reform subsidies since the 1990s.
Conservatives around Ahmadinejad, supported by the supreme leader Ayatollah Ali Khamenei, now seek change. And why not? Shortly after Ahmadinejad’s 2005 election win, the reformist commentator Saeed Leylaz cited the dictum that China should adopt effective policies, whether “capitalist” or not. “The cat is finally catching mice,” Leylaz wrote, “and its color no longer matters.”
True, Ahmadinejad has shown little capacity to emulate the more subtle aspects of Chinese capitalism; privatizations have merely transferred assets to quasi-state-owned bodies. But if savings from universal subsidies can fund productive investment, then the longer-term benefits for the economy could include job creation and higher living standards. And those who had carry through the change might then benefit politically, and perhaps even be ready for more competitive elections.
GARETH SMYTH is the former Tehran correspondent for The Financial Times
