[Marxism] Models

Yoshie Furuhashi critical.montages at gmail.com
Mon Aug 21 09:49:38 MDT 2006

On 8/20/06, Louis Proyect <lnp3 at panix.com> wrote:
> She neglects to
> mention that this does not include anything that is remotely radical or
> socialist.

Read the following article, written from the perspective of an Iranian
scholar in favor of free enterprise, against the grain of his
preference, and you'll get glimpses of contradictory currents of
Islamic thoughts on economy (especially ownership and control), social
forces behind them, and political factions that represent them, some
of which were indeed radical and radically restructured the Iranian


Social Research, Summer, 2000

Islamic Revolution and the Management of the Iranian Economy

Akbar Karbassian

. . . . . . . . . . . . . . . . . . . .

The Creation of the Public Sector

The Islamic revolution in Iran succeeded in February 1979. In a
popular referendum held in April 1979, some 98 percent of the
participants voted "yes" to the establishment of an Islamic Republic.
A constitution was hurriedly prepared and confirmed by another
referendum held in December 1979. Representatives of a broad spectrum
of divergent ideologies, ranging from hard-line Islamic Marxists to
conservative religious Shi'i clergy, drafted the 175 articles of the
Constitution. They united under the umbrella of opposition to the Shah
and the struggle for Revolutionary Islam. The Shi'i jurists applied
sharia-based scholastic criteria to wealth and property that had been
acquired during the Shah's regime. The left-leaning Islamists,
however, sought to destroy what they considered to be remnants of
trade capitalism that had started to blossom under the Shah, aspiring
to establish a classless socialist Islamic state. Out of the
interaction of these opposing views a three-sector economy arose. The
Constitution of the Islamic Republic identified public, private and
cooperative sectors as the components of the Iranian economy.

In the new Islamic Constitution, all property that had been acquired
by "un-Islamic" means was declared illegal and made eligible for
confiscation by the cleric-dominated state. The wealthy were
automatically suspected of wrong-doing and foul play. In the
pernicious atmosphere of frenzy and fear that followed the
confiscation, several thousand companies and pieces of property were
possessed, often forcefully, and transferred to the public sector.
Many Iranian entrepreneurs and foreign owners fled the country. It
took about 19 years and several hundred court cases until the Iranian
government paid for each piece of confiscated foreign property,
through the intermediary of the International Court of Justice at The
Hague. Iranian entrepreneurs received no comparable compensation.
Billions of dollars of liquid capital fled the country because of the
widespread insecurity and revolutionary unrest.

The theocratic regime created a new balance between private property
and public ownership. The public sector, which comprised the
government and the bonyads, served the function of the Bait ol-Mal,
the early Islam fiscal department described in Islamic text, and its
wealth grew as confiscation and de-privatisation continued. As the
public sector grew, official antagonism to capitalism grew as well,
hampering the development of a free enterprise system. Free
competition and market economy operations were replaced by state
intervention. The Iran-Iraq war, which began in September 1980,
occasioned additional state regulation and control, with national
mobilization demanded by the war economy. Rationing of essential goods
by coupon, a practice that still continues (although to a lesser
degree) was also introduced at that time.

. . . . . . . . . . . . . . . . . . . .

Without hesitation, the new constitution encouraged greater
involvement of the state in the economy, at the expense of curtailing
the free market. When the mass confiscation of private property was
nearly completed, the management of a significant portion of this
newly appropriated wealth was turned over to clerically-held,
state-supported charity organizations. Through this change it became
apparent that the Islamic government had no understanding of the
significance of free enterprise and competition. Article 45 of the
Constitution specifies that ownership of anfal, or spoils, and public
wealth, such as mavat (barren lands without owners; abandoned lands,
mines, lakes, seas, underground water, reed beds, natural groves,
pastures, unclaimed properties and properties obtained by usurpation),
must go to the state. Article 44 called for massive nationalization
and threatened private capitol. It called for nationalization of all
large-scale industries, mines, banks, insurance companies, power
generating stations, dams, postal services, the telephone and
telegraph service, shipping, aviation, roads and railroads, without
compensation being paid to their owners. Some left-leaning clergy,
against the clear evidence of history that casts prophet Muhammed as a
private trader, managed to add nationalisation of foreign trade to
this list. Thus, the multi-billion dollar foreign trade enterprise,
hitherto in Bazaari hands,(2) was added to the list of public

Article 49 of the Constitution was the mandate most antagonistic to
private capital, treating as spoils of the revolution the thousands of
profit-making privately owned enterprises that were confiscated and
transferred to the bonyads and the state. With puritanical and
moralistic judgment, this article specified that the government shall
take over all wealth allegedly derived by usury, usurpation, bribery,
embezzlement, theft, gambling, misuse of religious endowments,
government contracts, transactions, and sale of original mavat and
mubahat, meaning ownerless properties, centers of corruption and
illegitimate acts. When in due course the content of this article was
fully implemented, public sector ownership had increased enormously,
and the private sector had been reduced to near extinction. A decade
later an unofficial estimate put the Iranian state in charge of 80-85
percent of national resources.(3) At the expense of destroying a
burgeoning economy, the Islamic state had now become one of the
richest, and possibly the strongest, state-owned and controlled
economies in the world.

Theoretically speaking, private sector activity was to be limited to
areas and activities falling outside of those assigned to the state.
The largest concentration of private sector activities was trade,
followed by agriculture, small-scale enterprises, businesses, urban
construction, and mining. Compared to the size and extent of public
holdings and the power of foreign exchange generated by the state from
the export of oil and gas, the private sector of Iran was extremely
small. Semi-official estimates put the private-sector share of the
national economy at between 15 to 20 percent. This made the Islamic
state a mixed capitalist-socialist economy predominantly under
clerical control.

. . . . . . . . . . . . . . . . . . . .

In 1993, the first serious steps were taken to strengthen the
cooperative sector. Dormant for nearly 15 years, a Cabinet Minister
was appointed and the Ministry received a budget allocation. This
means that the cooperative sector is state-generated rather than
self-generating, as in other countries. In the meantime, several
thousand cooperatives have been set up adjacent alongside the public
sector. However, these Iranian cooperatives depend heavily on the
state's financial support. The cooperative sector was included in the
Constitution because some Islamic jurists and Shi'i clergy believed
that cooperatives truly reflect the spirit of equality and brotherhood
in Islam. A large number of the cooperatives in Iran are consumer
cooperatives, followed by producer coops, active mainly in the
agricultural sector.

In terms of administration, the government of Iran has been divided
into three main parts. One part includes the 24 government ministries
and the hundreds of related government organizations, state agencies,
and units functioning under the ministries. The ministries are
generally involved in the exercise of political authority. A larger
part of the administration includes some 2,000 state-owned
enterprises, banks, and insurance companies, all operated by state
managers. These state enterprises produce several thousand types of
goods and services. Many of these companies are outright monopolies,
exercising economic authority in the name of the Islamic state.
Finally there are the para-statal foundations that continuously
receive heavy foreign exchange subsidies and special trade privileges
from the state. For the purposes of accountability, however, they are
considered independent units, active in the private sector. Many of
the charity organizations and foundations, such as the famous Bonyad-e
Mostazafan va Janbazan (Foundation of the Deprived and War Veterans),
and Bonyade-e Shahid (Foundation of Martyrs), as well as municipal
authorities, fall under this section. Overlapping and duplication of
functions is common among the three parts that make up the public

State authorities have often spoken of reducing the size of the public
sector, because it has grown too large, now accounting for almost 2/3
of the GDP. By controlling the public sector, the government intends
to decrease the number of public employees and stop the growth of new
state agencies, the number of which continues to increase every year.
Nevertheless, anti-private-ownership slogans can still be seen on the
walls of Tehran and in some of the press. These signs indicate that
there is still no collective will to increase the prestige of the
private sector or to provide it with greater security. The government
continues to be suspicious of the private sector, and the old leftist
faction remains hostile. While the present government wants to
encourage more private investment, sporadic arrests on corruption
charges of businessmen and state officials has further damaged the
prestige of the private sector. In the public eye, the private sector
spells corruption. Consequently, the economy continues to be lopsided
and heavily run by and in favor of the state. This means that the
Iranian government remains heavily involved in production,
distribution and trade, failing to consider economic efficiency, price
competition by producers and public accountability of state-run

. . . . . . . . . . . . . . . . . . . .

Without the advantage of such support, the weaker private sector sank
even further. As far as the hard-line Islamists and left-leaning
clergy were concerned, the multi-billion dollar foreign trade had
entered the public domain. Iran went backward from an emerging free
enterprise system to state socialism. In addition, during the war
years, Iran became further isolated from the world economy--this in a
decade in which the world underwent major changes with regard to
privatisation and de-regulation.

To exploit the state monopoly over foreign trade, the Islamic state
created some 12 "Procurement and Distribution Centers," each connected
with a given ministry. Each one of the twelve centers was in charge of
importing a cluster of related goods. These centers acted as
intermediary agents between the industry as the end-user and the
foreign suppliers. They collected service charges, taxes, and levies
from the clients. Orders for imports of raw materials, machinery,
spare parts, and finished products had to be placed with these centers
and paid for by the state banks. The trade centers generally imported,
with delays, the lowest quality raw materials at uncompetitive prices.
The state monopoly of foreign trade created a huge government
bureaucracy and cumbersome, wasteful procedures, and contrary to the
laws of the free market. The system was not in tune with the
requirements of a country planning for economic progress. By paying
high prices for low quality goods, both consumers and producers

The public monopolization of foreign trade placed the bazaaris, the
traditional merchant class and staunch supporters of the Islamic
state, at a huge disadvantage. During the Iran-Iraq war, when the
state centralization and heavy-handed regulations dominated the
country's war economy, bazaaris remained complacent, if unhappy with
the state's monopoly of foreign trade,. Meanwhile, they collected
fatwas, religious edicts, from prominent Shi'i jurists on the
legitimacy of state monopoly of foreign trade, intending to reverse
the relevant articles of the Constitution. Their efforts paid off in
1989, when the powerful Guardian Council(6) issued a ruling that the
state monopoly over foreign trade is "contrary to Islam." They argued
that all economic monopolies caused ezrar-e be gheir, meaning, "harm
to third parties." All harmful acts to other individuals are contrary
to Islam. As a result of this verdict, the state gave up its direct
involvement in foreign trade and left these activities to the private
sector. The President and the bazaaris welcomed the ruling, but the
relevant article in the Constitution remained unchanged.

De-nationalization of foreign trade did not mean encouragement of
competition or enhancement of free trade. On the contrary, while
private players were now free to act, the country's import and export
rules were made more strict. For example, banks required one hundred
percent cash deposits from Iranian importers prior to the opening of
letters of credit (L/Cs). Cash and bank guarantees were also required
from the exporters for insuring the return of foreign exchange
proceeds. Trade proceeds had to be sold to the Central Bank of Iran at
rates generally below the free market. Meanwhile, the rise in
population and high costs of the war devastated the economy. From 1979
to 1989, per capita income of Iranians dropped by 50 percent. In 1989
most shops in the bazaars and streets of Tehran were generally empty
of merchandise.

The Rafsanjani Era

The election of Akbar Hashemi Rafsanjani as President in 1989
generated a post-war reconstruction euphoria embued with hopes of
prosperity. Rafsanjani was basically pro-private-sector, and he
favored the greater involvement of private individuals and companies
in trade and production. He had vowed to stop the growth of public
sector, which had begun to bloat during the war. His term coincided
with the passing of the country's first five-year development plan
(1989-93) by the Majles (parliament). When in office, he proposed an
IMF reform package that came to be known as "the structural adjustment
program." This package included an orderly exchange-rate unification,
increased fiscal discipline, trade and business deregulation,
reduction of consumer subsidies, attraction of private foreign
investment to the country, greater budgetary control over the
parastatal public foundations, and privatization of loss-making public
enterprises. The left-leaning Majles, however, resisted the
president's reform packages and blocked the passage of the necessary
legislation. Disillusioned, the President quickly abandoned his
proposals and reversed course. In tune with the faction dominating the
Majles he asked for larger subsidy payments and embarked upon spending
on public sector reconstruction projects. The five-year plan was
financed by state revenues from oil exports, and heavy foreign
borrowings. It also included heavy borrowing from the Central Bank and
the domestic banking sector. Massive state budgetary deficits were
created, financed by large-scale Central Bank loans and commercial
bank credit facilities. Bank loans caused inflation to dramatically
increase. During the first five-year development plan, inflation
averaged 24 percent per year. It soared up to 50 percent in 1996.

. . . . . . . . . . . . . . . . . . . .

Akbar Karbassian is a Lecturer at the Iran Banking Institute and is
also affiliated with Azad University. Among his recent publications
are "Budget and Budget Planning in the Iranian Economy" (in Farsi,
1999) and "A Note on the Islamic Banking Practice in Iran" (in
Relazione Internationale, 48: [1999]). His book Iran: A SocioPolitical
Assessment is forthcoming in Italy.</blockquote>

In the eyes of Iranians who voted for and have supported Ahmadinejad,
his program reminds them of the revolutionary currents in Islam that
expropriated large sectors of the Iranian and multinational ruling
classes in the early phase of the revolution..

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