Academic journal article Harvard International Review

"It's the Economy, Stupid." Trials and Tribulations of the Iranian Economy

Academic journal article Harvard International Review

"It's the Economy, Stupid." Trials and Tribulations of the Iranian Economy

Article excerpt

The possible implosion of Iran's theocratic regime due to economic pressure reminds one of the quote: "It's the economy, stupid." These famous four words from Bill Clinton's successful US presidential campaign against George Bush in 1992 have an eerie connotation when considered in the context of untangling the myriad of issues in today's Middle East, and specifically Iran. Years of economic sanctions on Iran have not changed the regime's behavior--as some in Washington have hoped for--but the behavior of the Iranian people has changed towards their government due to mismanagement of Iran's economy. Iranians know that they should be living in the midst of wealth, but their leaders have bequeathed to them an economic crisis of monumental proportions.


The demonstrations in Egypt were initially dominated by young, educated, and unemployed citizens who poured into the streets to complain about economic conditions and the lack of opportunity. Tunisia's recent regime change was also largely due to the state of its economy. While many speculate about other nations in the region, we should not ignore one of the world's most striking economic mismanagement examples--Iran.

Assuming an average annual 10 percent growth rate since 1978, Iran should be ranked among the world's top five economies today. Unfortunately, the reality is that over 30 percent of its citizens live below the poverty line. The regime is facing its toughest challenge in its 30-year monopoly as the Iranian economy continues to feel the sting of unemployment, sanctions, shortages, layoffs, and inflation fears. This widening gap between the regime and the people is also sharply set against the backdrop of recent civil unrest in the region.

Many international eyes have been solely focused on Iran's nuclear program to the detriment of all other critical factors. While this issue is definitely one of concern, it is not the most important force at work with regards to Iran. Three decades since Khomeini declared, "Economics is for donkeys," the system he helped create is on shaky economic grounds. As Iran's Revolutionary Guard succeeds in monopolizing the engines of economic growth, it is also ironically sowing the seeds of its own potential demise. For example, since its takeover of the natural gas industry, it has not been able to secure financing for expansion of production and thus failed to increase Iran's exports of natural gas.

The lifting of subsidies by the Ahmadinejad government has been welcomed by the International Monetary Fund (IMF) as a necessary step toward divorcing Iranians from a dependence on cheap consumer goods and low gasoline prices. While this belated macroeconomic move should have happened a long time ago, the regime's underlying economic problems remain unresolved. The challenges facing Iran's economy remain the same as they did three decades ago: corruption, mismanagement of Iran's natural resources, lack of foreign investment, unemployment, brain drain, marginalization of Iran's nimble private sector, and last but not least, putting ideology before national economic interests. We only have to take a look at the former Soviet Union for a lesson in failed, ideologically-driven economies. While there were many successful external forces at play during the collapse of the former Soviet Union, ultimately the economy was what led to its downfall. The same situation is very likely to happen again in Iran. The mismanagement of the Soviet economy turned out to be a key issue in determining its fate. Even though the Soviet Union had the most abundant energy reserves in the world, its misguided energy policy turned out to be one of the most disruptive factors in its economy.

Today, Iran suffers from a whole host of economic problems that are very similar to the challenges Soviet leaders faced towards the end of communism. If we can mine from the mistakes as well as the opportunities that the past presents to us, we may be able to better deal with the Iran of today. …

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