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THE RISE OF THE SUBCONTRACTOR STATE: POLITICS OF PSEUDO-PRIVATIZATION IN THE ISLAMIC REPUBLIC OF IRAN

  • Kevan Harris
Abstract

Since 2009, analyses of Iran have stressed the centralizing takeover of the country's economy by a single state institution, the Islamic Revolutionary Guards Corps. At the same time, however, Iran's factionalized political elite uniformly advocate for rapid privatization of state-owned enterprises. Underneath this puzzling contradiction is a complex shift of economic ownership away from the state toward a variety of parastatal organizations including banks, cooperatives, pension funds, foundations, and military-linked contractors. The result is not a praetorian monolith but a subcontractor state. This article draws on interviews conducted in Iran during 2009 and 2010, primary data from parliamentary and governmental reports, and secondary sources to show how intraelite conflict and nonelite claims have structured the process of privatization. Framed comparatively with privatization outcomes in other middle-income countries, Iran's subcontractor state can be seen as a consequence of the way in which politics and society shaped the form of capitalism that has taken root in the Islamic Republic.

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Corresponding author
Kevan Harris is a Postdoctoral Research Associate in the Department of Near Eastern Studies, Princeton University, Princeton, N.J.; kevanh@princeton.edu
References
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NOTES

Author's note: My thanks to Ben Scully, Dan Pasciuti, Şahan Karataşlı, Farideh Farhi, and Ali Reza Eshraghi for comments and suggestions on this article. The research was assisted by a fellowship from the International Dissertation Research Fellowship Program of the Social Science Research Council, with funds provided by the Andrew W. Mellon Foundation.

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2 Arjomand, Said, After Khomeini: Iran under His Successors (Oxford: Oxford University Press, 2009), 60.

3 Glenn Kessler, “Clinton Says U.S. Fears Iran Is Becoming a Military Dictatorship,” Washington Post, 15 February 2010.

4 See Hen-Tov, Elliot and Gonzalez, Nathan, “The Militarization of Post-Khomeini Iran: Praetorianism 2.0,” Washington Quarterly 34 (2010): 4659. In Political Order in Changing Societies (New Haven, Conn.: Yale University Press, 1968), Samuel Huntington uses the concept of “praetorianism” to signify a distorted path of Third World political development wherein a “modernization gap” between mass mobilization in society and low institutionalization in politics creates political “decay” and “disorder,” allowing for more highly institutionalized organizations—most often militaries—to assume a direct political role.

5 Tehran Times, 20 February 2007.

7 Khurasan, 26 December 2010.

8 See, for example, Iʾtimad, 13 November 2011.

9 Kahler, Miles, “Orthodoxy and Its Alternatives: Explaining Approaches to Stabilization and Adjustment,” in Economic Crisis and Policy Choice: The Politics of Adjustment in the Third World, ed. Nelson, Joan (Princeton, N.J.: Princeton University Press, 1990), 3361.

10 Mann, Michael, The Sources of Social Power, vol. 2 (Cambridge: Cambridge University Press, 1993).

11 Chaudhry, Kiren, “The Myths of the Market and the Common History of Late Developers,” Politics and Society 21 (1993): 245–74, 249.

12 Haggard, Stephan and Kaufman, Robert, eds., “Institutions and Economic Adjustment,” in The Politics of Economic Adjustment: International Constraints, Distributive Conflicts, and the State (Princeton, N.J.: Princeton University Press, 1992), 337, 25.

13 Evans, Peter, Embedded Autonomy: States and Industrial Transformation (Princeton, N.J.: Princeton University Press, 1995); Waterbury, John, Exposed to Innumerable Delusions: Public Enterprise and State Power in Egypt, India, Mexico, and Turkey (Cambridge: Cambridge University Press, 1993).

14 See MacLeod, Dag, Downsizing the State: Privatization and the Limits of Neoliberal Reform in Mexico (University Park, Penn.: Pennsylvania State University Press, 2004).

15 Przeworski, Adam, Democracy and the Market: Political and Economic Reforms in Eastern Europe and Latin America (Cambridge: Cambridge University Press, 1991).

16 Cammett, Melani, Globalization and Business Politics in Arab North Africa: A Comparative Perspective (Cambridge: Cambridge University Press, 2007).

17 Heydemann, Steven, ed., “Networks of Privilege: Rethinking the Politics of Economic Reform in the Middle East,” in Networks of Privilege in the Middle East: The Politics of Economic Reform Revisited (New York: Palgrave Macmillan, 2004), 135.

18 Chang, Ha-Joon and Grabel, Ilene, Reclaiming Development: An Alternative Economic Policy Manual (London: Zed Books, 2004), 90.

19 See Dunning, Thad, Crude Democracy: Natural Resource Wealth and Political Regimes (Cambridge: Cambridge University Press, 2008), chap. 5.

20 Hertog, Steffen, “Defying the Resource Curse: Explaining Successful State-Owned Enterprises in Rentier States,” World Politics 62 (2010): 261301.

21 See Herb, Michael, “No Representation without Taxation? Rents, Development, and Democracy,” Comparative Politics 37 (2005): 297316; and Haber, Stephen and Menaldo, Victor, “Do Natural Resources Fuel Authoritarianism? A Reappraisal of the Resource Curse,” American Political Science Review 105 (2011): 126.

22 Ahmadi-Amui, Bahman, Iqtisad-i Siyasi-yi Jumhuri-yi Islami (Tehran: Gam-i Naw, 2003), 4243.

23 As translated by Keshavarzian, Arang, Bazaar and State in Iran: The Politics of the Tehran Marketplace (Cambridge: Cambridge University Press, 2007), 149–50.

24 Ahmadi-Amui, Iqtisad; Behdad, Sohrab, “The Political Economy of Islamic Planning in Iran,” in Post-Revolutionary Iran, ed. Amirahmadi, Hooshang and Parvin, Manoucher (Boulder, Colo.: Westview Press, 1988), 107–25.

25 Ehsani, Kaveh, “Privatization of Public Goods in the Islamic Republic,” Middle East Report 250 (2009): 2633.

26 Ehteshami, Anoushiravan, After Khomeini: The Iranian Second Republic (London: Routledge, 1995), 95.

27 Athari, Kamal, “The Housing Sector in Iran: Market or Planning?,” in The Economy of Islamic Iran: Between State and Market, ed. Coville, Thierry (Louvain, Belgium: Peeters, 1994), 253–60.

28 Bakhash, Shaul, “The Politics of Land, Law, and Social Justice in Iran,” Middle East Journal 43 (1989): 186201.

29 Ahmadi-Amui, Iqtisad, 271–74.

30 Amuzegar, Jahangir, Iran's Economy under the Islamic Republic (London: I. B. Tauris, 1993), 137.

31 If 80 percent of the company's new shareholders belonged to preferential groups, then 10 percent of the value needed to be paid in cash and the rest in installments over five years. If shareholders did not fall into these categories, 40 percent of the shares were to be bought with cash and the rest delivered within three months.

32 Maydari, Ahmad, “Sharayit-i Siyasi va Sakhtar-i Malikiyat dar Sih Dahih-yi Akhir dar Iran,” Guftugu 56 (2010): 2947; interviews by author, Tehran, fall 2009.

33 Muradi, Bihnam, “Abʾad-i Khususisazi va Asar-i an bar Sarmayihguzari-yi Khususi (Mutaliʾih-yi Mawridi-yi Iran),” Itilaʾat-i Siyasi-Iqtisadi 213/14 (2005): 180–99; also see Firouzeh Khalatbari, “The Tehran Stock Exchange and Privatisation,” in Coville, The Economy of Islamic Iran, 177–208.

34 See, for example, Barnamih 365 (1998): 8–15.

35 Ahmadi-Amui, Iqtisad, 272.

36 Interview of Maydari by author, Tehran, spring 2010; also see Maydari, “Sharayit.”

37 Regulatory laxity in housing and land is satirized in Dariush Mihrjui's 1986 film Ijarih-nishinha.

38 Keshavarzian, Arang, “Regime Loyalty and Bāzārī Representation under the Islamic Republic of Iran: Dilemmas of the Society of Islamic Coalition,” International Journal of Middle East Studies 41 (2009): 225–46.

39 Ehsani, “Privatization,” 29–30.

40 This paragraph draws from interviews with private sector consultants, Tehran, fall 2009 and spring 2010; also Maydari, “Sharayit.”

41 In 2010, preparing for privatization itself, Iran Khudraw reportedly sold off its remaining shares in Parsiyan to the IRGC Cooperative Foundation.

42 Maydari, “Sharayit,” 39.

43 Khajepour, Bijan, “Domestic Political Reforms and Private Sector Activity in Iran,” Social Research 67 (2000): 577–98.

44 Atiyih Newsletter, October 2004.

45 Dunya-yi Iqtisad, 27 June 2010.

46 Maydari, “Sharayit.”

47 Justice Share bylaws are on the Iranian Privatization Organization's website, http://www.ipo.ir

48 Ibid., additional details from Maydari, “Sharayit.”

49 The Economist, 12 July 2001. Petropars was sold in 2009 to a consortium of investors including Mashhad's wealthy Imam Riza religious foundation. Jam-i Jam, 28 April 2009.

50 Iʾtimad, 28 September 2009.

51 Iʾtimad, 7 October 2009; IRIN Channel 2, 29 November 2009.

52 Iʾtimad, 4 July 2009, emphasis added.

53 Alif, 27 September 2009.

54 Iʾtimad, 25 November 2009.

55 Khurasan, 26 December 2010. Fuladgar's Article 44 reports were obtained from http://www.asl44.mefa.gov.ir (accessed 1 March 2012).

56 Dunya-yi Iqtisad, 27 June 2010.

57 Ayinih-i Bazrasi 61 (2012): 6–7.

58 While yet unpublished, Boroujerdi's findings are summarized at http://pomed.org/blog/2010/03/pomed-notes-analyzing-the-political-elite-of-the-islamic-republic-of-iran.html (accessed 1 June 2011). On the provincial origins of 1979's new class, see Ehsani, Kaveh, “The Urban Provincial Periphery in Iran: Revolution and War in Ramhormoz,” in Contemporary Iran: Economy, Society, Politics, ed. Gheissari, Ali (Oxford: Oxford University Press, 2009), 3876.

59 See Kotkin, Stephen, Magnetic Mountain: Stalinism as a Civilization (Berkeley, Calif.: University of California Press, 1995); and Andreas, Joel, Rise of the Red Engineers: The Cultural Revolution and the Origins of China's New Class (Palo Alto, Calif.: Stanford University Press, 2009).

60 See Ledeneva, Alena, Russia's Economy of Favors: Blat, Networking, and Informal Exchange (Cambridge: Cambridge University Press, 1998).

61 Ibrahimipour, Hossein, Maleki, Mohammad-Reza, Brown, Richard, Gohari, Mohammadreza, Karimi, Iraj, and Dehnavieh, Reza, “A Qualitative Study of the Difficulties in Reaching Sustainable Universal Health Insurance Coverage in Iran,” Health Policy and Planning 26 (2011): 485–95.

62 Jam-i Jam, 19 January 2011.

63 Blackburn, Robin, “The New Collectivism: Pension Reform, Grey Capitalism and Complex Socialism,” New Left Review I/233 (1999): 365.

64 World Bank, The Pension System in Iran: Challenges and Opportunities, 2 vols. (Washington D.C.: World Bank, 2003), 2526.

65 Sharq, 4 April 2012.

66 World Bank, Pension System, 35. Most Iranians are unaware of the role of the SSO in the economy, even while millions of them benefit from SSO monthly checks and health insurance coverage.

67 Iʾtimad, 7 January 2010.

68 BBC Persian, 8 June 2011.

69 See Fazio, Hugo and Riesco, Manuel, “The Chilean Pension Fund Associations,” New Left Review I/223 (1997): 90100; Jung, Chang Lyul and Walker, Alan, “The Impact of Neo-liberalism on South Korea's Public Pension: A Political Economy of Pension Reform,” Social Policy & Administration 43 (2009): 425–44.

70 The National, 19 October 2010; Bloomberg News, 14 February 2012.

71 Blackburn, “New Collectivism,” 25.

72 Iʾtimad, 18 July 2009; Khabar Online, 26 May 2011.

73 Iran, 30 October 2011; Khabar Online, 21 March 2011.

74 Maydari, “Sharayit.”

75 Sharq, 29 November 2010.

76 Dunya-yi Iqtisad, 23 July 2011. Justice Share officials claim that the program's goal is to make sure these companies become profitable in the long run, which is why relatively few dividends have been distributed over the period of 2006 to 2012. Yet in most cases, provincial investment cooperatives still hold less than 50 percent of companies’ total shares. See Dunya-yi Iqtisad, 6 August 2012.

77 Hoffman, David, The Oligarchs: Wealth and Power in the New Russia (New York: PublicAffairs, 2002), 196.

78 Jumhuri-yi Islami, 17 September 2009.

79 See Wehrey, Frederic, Green, Jerrold, Nichiporuk, Brian, Nader, Alireza, Hansell, Lydia, Nafisi, Rasool, and Bohandy, S. R., The Rise of the Pasdaran: Assessing the Domestic Roles of Iran's Islamic Revolutionary Guards Corps (Santa Monica, Calif.: The RAND Corporation, 2009); and Thaler, David, Nader, Alireza, Chubin, Shahram, Green, Jerrold, Lynch, Charlotte, and Wehrey, Frederic, Mullahs, Guards, and Bonyads: An Exploration of Iranian Leadership Dynamics (Santa Monica, Calif.: The RAND Corporation, 2010). These mostly rely on anecdotes but, if read thoroughly, illustrate that the IRGC is hardly the singular economic actor that is often claimed.

80 Hourcade, Bernard, “The Rise to Power of Iran's ‘Guardians of the Revolution,’Middle East Policy 16 (2009): 5863.

81 Daily Report, Near East & South Asia, FBIS-NES-93–103, 1 June 1993, 59.

82 See the analysis of military contractors in International Crisis Group, Iran: Ahmadi-nejad's Tumultuous Presidency (2007).

83 During Ahmadinejad's tenure, Parviz Fattah went from minister of energy to deputy commander of Khatam al-Anbiya and head of the IRGC Cooperative Foundation, while Rustam Qasimi inversely went from the top post in Khatam al-Anbiya to become minister of petroleum.

84 ISNA, 13 December 2011.

85 Conceptually, large bunyādhā are a form of what Ben Ross Schneider calls “diversified business groups” common to middle-income countries. See Schneider, , “A Comparative Political Economy of Diversified Business Groups, or How States Organize Big Business,” Review of International Political Economy 16 (2009): 178201.

86 Verdery, Katherine, What Was Socialism, and What Comes Next? (Princeton, N.J.: Princeton University Press, 1996), 212–13.

87 Ayubi, Nazib, “Political Correlates of Privatization Programs in the Middle East,” Arab Studies Quarterly 14 (1992): 3956.

88 This conclusion draws from Eyal, Gil, Szelenyi, Ivan, and Townsley, Eleanor, Making Capitalism without Capitalists (London: Verso, 1998); and King, Lawrence and Szelenyi, Ivan, “Post-Communist Economic Systems,” in The Handbook of Economic Sociology, 2nd ed., ed. Smelser, Neil and Swedberg, Richard (New York: Russell Sage Foundation, 2005), 205–29.

89 On Turkish SOE privatization, see Güran, Mehmet, “The Political Economy of Privatization in Turkey: An Evaluation,” in The Political Economy of Regulation in Turkey, ed. Çetin, Tamer and Oğuz, Fuat (New York: Springer, 2011), 2350. On how the Justice and Development Party constructed a neoliberal “capitalism from without,” see Tuğal, Cihan, Passive Revolution: Absorbing the Islamic Challenge to Capitalism (Palo Alto, Calif.: Stanford University Press, 2009).

90 Bellin, Eva, Stalled Democracy: Capital, Labor, and the Paradox of State-Sponsored Development (Ithaca, N.Y.: Cornell University Press, 2002); and Moore, Pete, Doing Business in the Middle East: Politics and Economic Crisis in Jordan and Kuwait (Cambridge: Cambridge University Press, 2004).

91 John Sfakianiakis, “The Whales of the Nile: Networks, Businessmen, and Bureaucrats during the Era of Privatization in Egypt,” in Heydemann, Networks of Privilege, 77–100, 79.

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