Iran’s Economic Populism: Antidote to U.S. Pressure

by Kaveh L. Afrasiabi

Exactly 30 years ago, I wrote a dissertation of over 500 pages on state and populism in Iran that ended with a chapter on “permanent populism.” This concept draws together various strands: the pattern of post-revolutionary mass mobilization, the role of charismatic leadership,  multiple patron-client ties between the state and civil society, the mushrooming of quasi-state foundations, and the frozen context of anti-American hegemony. The gist of my argument, which has weathered the test of time, was that instead of a clear passage to post-populism and the normalization of the state, Iran’s “double state” will continue to act simultaneously as a redistributive body and an anti-hegemonic movement. 

Despite the passage of time and the onset of a technocratic-managerial state under President Hassan Rouhani (2013-present), Iran remains wedded to this permanent populism. The previous pattern of state-making stretching back to the Khomeini era has remained remarkably consistent. There has been the same Third-World-oriented identity politics along with the part-theocratic, part-republican hybrid electoral system that emerged from the ashes of a U.S.-dependent monarchy. A proud legacy of this political order is the nation’s endurance during the 1980-88 Iran-Iraq war—commonly referred to as the “imposed war”—through popular mobilizations and a “coupon economy” that was later reintroduced as rations for fuel and food staples in response to the U.S.-led international sanctions over Iran’s nuclear program. Today, faced with the debilitating consequences of Trumpian sanctions, Iran is once again thinking about reintroducing the ration system since, for all practical purposes, Iran is under an economic siege.

Present U.S. policy toward Iran is based on a fundamental mischaracterization of the Iranian system as weak, unpopular, and prone to imminent demise. The implementation of new U.S. sanctions are aimed at crippling the Iranian economy and triggering a mass rebellion. To this end, Trump officials have now resorted to threatening the Iranian people outright, the not-so-subtle message being that if they want to eat, they need to stop following their leader and listen to America. The administration is also misinformed on Iran’s military spending, which is relatively paltry relative to Saudi Arabia and other Gulf Cooperation Council (GCC) states.

But the main problem with the U.S. narrative on Iran is that it ignores Iran’s “culture of resistance,” to quote Wendy Sherman, a former nuclear negotiator. According to a recent CNN report from Iran, the majority of Iranians blame Trump for their economic woes. If the administration’s intent is to support Iranians in their purported aspirations for a different political system, the sanctions have already failed in this regard. Even the most vocal reformist dissidents inside Iran criticize the American embargo, and Iranians clearly see the sanctions’ harmful impact on their health and economic well-being, an irrefutable fact backed by the UN.

Another U.S. problem is conceptual. The administration assumes that the Iranian regime lacks legitimacy at home and is ruled simply by repression from above. This view overlooks the integrative role of regular (local and national) elections in Iran, the multifaceted welfare state that provides a safety net for millions of Iranians and also allocates the lion’s share of the budget to public education, healthcare, subsidies, transportation, and the like. The latter is reflected in the chart below, compiled from the latest statistics on Iran.

These figures show, contrary to some misleading analyses, the Rouhani administration has not ended Iran’s economic populism. Rather he has sought to trim and adjust it, for instance by ending cash subsidies to well-to-do Iranians while maintaining basic government expenditures on goods and services such as wages for government employees, employer contributions to social security and pensions, and all the payments connected to government functions such as military, health, education, cultural, and social activities. Also, the government invests in infrastructure services and public goods through capital or development expenditures. Today as a result, about 90 percent of Iranians have some form of health insurance, which ranks, according to a 2016 Bloomberg report, above even the United States and Brazil. Two-thirds of Iranians, meanwhile, are covered by social security. Additionally, a vast network of parastatal foundations, such as the martyrs’ foundation, complement the government’s economic populism by providing crucial aid to millions of their constituents.

This is not to minimize Tehran’s current challenges. Confronted by an emerging gap between the government’s populist priorities and the shrinking revenues due to sanctions, the Rouhani administration has resorted to higher taxes, borrowing, and issuing public bonds—all with mixed results so far. It’s a daunting task to keep pace with the burgeoning demands of a growing population—nearly one million people enter the job market each year—and to prevent Trump’s economic war from derailing post-JCPOA economic growth. Rouhani’s top priorities are to increase efficiency, reshape consumption patterns, expand the cooperative sector, combat corruption, and devise the elements of a smart “resistance economy.” The sixth Five-Year Plan (2016-2021), on which such a resistance economy is based, forecasts 8 percent annual growth. According to the IMF, however, Iran’s economy is now expected to contract by 1.4 percent between 2018-2021.

Ironically, U.S. sanctions could have a potential healthy consequence. As the shocks of the sanctions ripple through the economy in the coming months, Iran could be forced to impose some budgetary discipline. Mitigating the impact of coercive sanctions requires a Herculean effort that must also address the growth-sapping features of the Iranian economy, such as the obliteration of boundaries between private and public interests, factional politics that favor the status quo and stymie change, and the impact of import-based market liberalization. The Rouhani administration has vowed to continue its social-welfare policies to shelter millions from the poverty induced by U.S. sanctions. Iran is also an ecological basket case, although some of the problems such as dried-up rivers, desertification, and dust storms can’t be solved by Tehran alone and require regional solutions.

According to a recently declassified CIA study on Iran, “Iran’s economic troubles are the results of a variety of factors, some of which were beyond the control of the clerical regime.” Perhaps Secretary of State Mike Pompeo ought to revisit the analysis of the agency he once headed, for it stands in jarring contrast to his unbounded vilification of Iran. Pompeo’s 12-point demand of Iran is an exercise in futility, and the sooner it is shelved in favor of a realistic U.S. policy toward Iran, based on principles of mutual interests and mutual respect, the better. A sine qua non for this change of policy is acknowledging that Iran is not a failed state. Rather, it has successfully institutionalized thanks to its relentless economic populism.

Kaveh Afrasiabi has taught at Tehran University and Boston University and is a former consultant to the UN Program on Dialogue Among Civilizations. He is the author of several books on Iran, Islam, and the Middle East, most recently Iran Nuclear Accord and the Remaking of the Middle East (2018) and the co-author of the forthcoming Trump and Iran: Containment to Confrontation.