Perspectives for socialist revolution in Iran – Part Two: The Iranian Economy

The Iranian economy cannot escape developments within the world economy, but it also has its own peculiar national characteristics, being an underdeveloped country based mainly on the production of oil, which affects every other aspect of the economy.

Capitalist development in Iran

Historically capitalism in Iran developed relatively late. Its weakness compared to European capitalism meant that it was doomed to undergo its development under the command of the latter. Thus Iran was dragged into the world market as a part of the world division of labour; a division that the whole preceding development of capitalism had created. Especially the discovery of oil was to shape the development of Iranian society. Iran’s main purpose in the world market has been to supply oil. This situation has continued to this day.

Thus the development of capitalism in Iran proceeded on the basis of a combined but at the same time immensely uneven development. Next to the immensely advanced oil installations or the gigantic steelworks, such as the Mobareke Steel Complex, there existed and still exist a huge informal economy in various forms and shapes; from the army of street vendors to traditional craftsmen.

The Iranian bourgeoisie and petit bourgeoisie, itself being reliant on – and through a thousand paths connected to – different imperialist countries, was incapable of develop the economy along any other path. The never ending search of the Stalinist parties in the 1979 revolution for a “progressive bourgeoisie” was thus doomed to fail. This must be the dearly paid for conclusion that the masses of Iran must draw from the 1979revolution.

An oil economy

Today, the same as a 100 years ago, oil, constituting 80% of all exports, is the main contributor to the national economy. The high rate of profit in this industry makes it a gigantic pole of attraction for capital investment; according to the IMF the extraction cost of oil in Iran is about US$5-10 a barrel while the price currently is hovering at about US$115.

The uneven and underdeveloped nature of the Iranian economy means that this has a paralyzing effect on the rest of the economy. Neither foreign nor domestic capitalists are interested in sustainable investments and development in other sectors. Even when investments are made, and production facilities are built, in many cases in one way or another, they rely on the profit extracted from the oil sector. So the oil industry, as in many other oil-dependent countries, plays a distorting role for the economy as a whole.

The enormous subsidies on fuel, for instance are precisely an indication of this fact. According to the International Energy Agency, Iran is the most energy inefficient country in the world, with per capita consumption of energy is 10 times what it is in the EU. Although the administration tries to blame the workers and poor for this it is clear that the bulk of such waste is in industry.

We have to state clearly that Marxists do not oppose the subsidies plan as such. On the contrary we demand the reintroduction of the subsidies, especially on basic consumer goods, which are essential to the everyday life of the Iranian workers and poor. However, at the same time, we also recognize that the fact that such a plan has been necessary is a reflection of the poorly developed Iranian economy that is not able to effectively produce these goods cheaply. The most visible indication of this fact, contrary to all claims, is that Iran is not self-sufficient even in processed gas and petrochemical products.

According to Trend News Agency, Iran needs investments to the value of US$46.5 billion to build new refineries and increase production of oil products in order to become self-sufficient. So far within the fourth development programme, Iran has invested a total of $8.2 billion in this sector. Over $6.3 billion is required simply to maintain existing production, meaning that no more than $2.1 billion has been invested in the actual expansion of production. Instead the regime has started using some of its petrochemical plants to process oil, but this again is a highly inefficient method that is not sustainable since it would probably raise the cost of production by 15 to 40 times!

The plan to cut the subsidies, especially on fuel, along with the privatization of the bulk of state-owned companies, has been promoted by the IMF, World Bank and other institutions of imperialism for quite a while. The regime has also been forced to engage in this plan since it lost a large amount of revenue when the price of oil fell from about $160 to between $60 and $80 – although since then it has risen again somewhat, but not the previous peak.

The natural result of such policies will be that large parts of Iranian industry will be destroyed, because it has never been geared for competitive production in an open “free market”. It could only survive thanks to the injection of state subsidies made from the sale of oil. The regime can no longer afford to sustain this with the present oil price. The destruction of industry in turn will force the regime to be even more dependent on imports and it will have to open up its markets even more to foreign capital.

This is a fact that is, for the time being, does not emerge clearly in the light of the present sanctions programme. Although, according to Tehran Times, the volume of smuggled goods did rise by 22 percent in the year 1388 [March 21 2009 to March 21 2010] compared to the previous year.

All the above is proof of the fact that the bourgeoisie of colonial, semi-colonial or ex-colonial countries, being completely entangled with imperialism and dependent on the world market, does not have any interests in – and is incapable of – developing society.

Under capitalism this will not change. Every step towards building a national industry would collide with the interests of the imperialist countries and the world market. Even China, whose trade with Iran is expected to grow in the future (Iran is China’s second largest oil supplier while China is the world’s biggest exporter to Iran), would never allow Iran to develop a national industry capable of competing with the cheap goods that China is flooding the Iranian market with.

On a capitalist basis, it is utopian to think that a qualitative development of the Iranian economy is possible. What is needed is to nationalize the large private companies, renationalize the main sectors of the economy that have been privatised and centralize production under the democratic control of the working masses. Only under democratic workers’ control and with a democratically decided plan can the Iranian economy be developed on a cohesive and sustainable basis. Accompanied with massive investments with the money gained from oil sales the Iranian society could be developed to unheard of heights guaranteeing access to all basic goods at cheap prices.

Economic perspectives

Capitalism in Iran has a completely parasitic character. Quick schemes and a buy-cheap-sell-expensive bazaar-like mentality predominates at all levels. The regime and the capitalists act in a very short-sighted manner and with no intentions, or ability, of developing society or the economy. Of course this impressionistic method of ruling means that the regime is not capable of establishing any real control over anything.

It has often been said that Iran escaped the world economic crisis that started after the sub-prime crisis in 2008, but this statement is meaningless in face of the facts. Of course the sanctions placed on Iran have played a role in the kind of development the Iranian economy has undergone, but only to a certain extent. Iran is still a part of the world market and thus reflects, albeit in a distorted manner, the movements on the world market.

For the last three years GDP and inflation figures have not been released by the Central Bank. The IMF estimated GDP growth would be between 1 and 2 percent for 2010 (well short of the 5% the regime estimated would be needed to keep the level of unemployment stable and the 8% targeted in the Five Year Plan). In 2008 and 2009 these figures were an estimated 2.5 percent and 1.4 percent – down from an estimated 7.8 percent in 2007! So it is clear that there has been a significant decline in the economic growth of the country since the inception of the crisis. The real figures are, however, a mystery, but there are some indications that the situation is far worse than this and that there has actually been a contraction in production. The fact that 12 percent of all cheques bounced in the four first months of 2010, compared to almost 5 percent in the whole of 1384 [2005-06] and almost 9 percent in the whole year of 1388 [2009-10].

This is much more indicative of the real state of the economy than the random figures of growth that different institutions throw up. And there is not much reason to think that the situation is going to change in the short term. On the contrary all signs are pointing towards a further collapse in the economy.

According to the IMF, inflation fell from about 30 percent to about 10 percent in 2010. But this figure, which has also been echoed by some official sources, is so random that it serves more as an insult in the face of normal working Iranians than as an economic indicator. The reality for most Iranians is that prices are rising daily. According to Reuters Africa an unofficial survey commissioned by the Iranian parliament showed that inflation was around 50 percent.

On top of this there are three main factors that will serve to push up inflation in the next period. Firstly, the cut in the subsidies alone is predicted to raise prices by more than 30 percent. Secondly, the sanctions imposed on Iran are already making imports more expensive. Last year, according to official records, although the weight of goods passing through Iranian customs was the same as the year before, their value (read price) rose from $6billion to $30billion.

Thirdly, the Rial has started to show signs of weakness that the regime may not be able to control in the next period. For years the regime has only allowed the Rial to fall by about 5% a year compared to the dollar. This was maintained even though inflation in Iran was much higher than in the US. This means that while the Rial was steadily losing its real value compared to the dollar it was being kept up artificially by the massive spending of Iranian reserves. A major reason for this was probably to protect the massive increase in imports that are increasingly controlled by the Guards. Iran's production of sugar cane, for example, has dropped from 1.2 tonnes in 2006 to 0.5 tonnes at present. This came after the tariffs on sugar imports were reduced to zero. Iran used to be a net exporter of rice; now it is a net importer. In the first five months of the last Persian calendar year, rice imports came to 654 metric tonnes, or $542 million worth. That is a massive 311% increase over the corresponding period in the previous year.

In spite of the measures adopted by the government, in October 2010 the Rial suddenly started a sharp decline, falling almost 13% against the dollar in less than a week, before its value was restored thanks to the intervention of the Central Bank. Although the regime did not comment on the incident officially, there were several reasons given for this by Iran-based and non-Iran-based economists: shortage of reserves because the regimes accounts abroad had been frozen; Korean and Gulf-based banks breaking relations due to the sanctions; speculation and black market dealing in Iranian currency markets and several other reasons.

However, no matter what the trigger for the fall was – and it could have been any or all of the above – the main reason was the inflated currency that cannot be kept up “naturally” because of the chronic weakness of the Iranian economy and its manufacturing sector. If inflation starts spiralling due to the first two factors there is no guarantee that the regime can keep the value of the Rial up and its fall would thus add to all the other factors, starting a vicious spiralling inflation.

While inflation is looking to soar in the next period there is no reason to think that other factors of the economy will improve. The Manufacturing sector, which is the only sector that can create real economic growth, is in fact facing difficult times. In late 1388 [January 2010] the ILNA published figures that revealed there had been a decline of 93 percent in new foreign direct investment (FDI). This was probably both due to the global economic crisis and the unstable situation created by the outbreak of the mass movement in the summer of 1388 [2009]. Since then FDI has fallen even further, also pushed down by the sanctions. All the largest players on the oil markets are leaving the country and taking with them investments that are needed to maintain the old and outdated infrastructure of the oil industry. Also other industrial actors such as German steel giant ThyssenKrupp have started to pull out.

At the same time the regime’s privatization plan – aiming at giving away the bulk of Iranian industry to the friends of the regime – is already preparing the road for massive layoffs and bankruptcies. Most obvious is the example of the electricity sector, to which the government owes 5,000 billion toman ($5 billion) and that therefore faces many bankruptcies and layoffs (some say as many as 900,000 layoffs).

Already in late 1388 [2010] the president of the Chamber of Commerce (رئیس اتاق بازرگانی ایران) announced that more than 50 percent of the industrial capacity of the country was inactive. Also it was announced that almost 16 percent of all production units were in crisis.

In the first month of last [Iranian] year, starting on March 20 [2010], many workers are reported to have lost their jobs in Iran. Sadeghi of the Tehran Islamic Labour Councils put the increase in the number of layoffs during the New Year break at 49 percent compared to 2008 and the increase in the number of workers visiting the labour offices at 70 percent. The layoffs were in many sectors, large and small, spanning different geographical locations in the country.

Pars Electric, a major public electrical supplies manufacturing factory, which has been privatized, in the course of the year kept only 150 workers out of the 3,500 once it employed. Leather factories in the city of Mashhad in north-eastern Iran have recently shed at least 1,500 jobs. Since 2003, 45 major leather factories in Khorasan province have closed down. With the rise in imported goods, continuation of the sanctions, rapid privatization and, most importantly, the cutting of subsidies for fuel, the crisis in manufacturing industry will generally get worse.

Of course the biggest and most important production units such as Iran Khodro and Saipa, which is effectively being handed over to its management, will probably see further development and maybe even receive more investments, but this is only due to the fact that they will remain connected to the state apparatus and the lucrative oil money. But the second layer, embracing the bulk of production, will probably suffer severely in the next period. In any case it would probably be more profitable to fragment these units and sell off the machinery and the premises than to develop and invest massively only to have to compete with the wave of cheap Chinese goods produced in large and modern facilities that are presently flooding into Iran.

There are other factors working against the prospect of a revival of the Iranian economy. If anything a capitalist produces to sell his goods. Unfortunately, the prospects for increased demand in Iran are bleak.

Most important in this context is unemployment. The official figures of unemployment are heavily distorted and sometimes even seem randomly picked out of thin air. Officially unemployment is said to be 13 % but this doesn’t take into account people working less than two hours a week and who are either housewives or soldiers in service. As Abbas Vatanpour, Secretary of the Co-ordination Council of Employers in Iran, told Mehr News, the real figure, including housewives etc., stands at least at 22 percent, and is above 45 percent in some provinces. But there is no reason to think that even this figure is reliable, since hundreds of thousands of people are systematically not included in these statistics.

According to the regime’s own and highly underestimated figures, unemployment will increase sharply in the next few years, going above 15 and even 18 percent. Combined with the removal of state subsidies on basic goods, this will cause a collapse in the spending power of the Iranian masses

According to the IMF subsidies amount to around US$4000 a year for an average family. At the same time hundreds of thousands of families’ yearly income stands at around the same amount. This indicates not only what a dark future awaits the Iranian masses that will be facing a desperate situation once the cuts in subsidies are fully implemented, but it also highlights what a dire situation the economy is really in.

Dark clouds are gathering and all the factors are pointing to new lows for the Iranian economy. Helped by high oil prices and increased foreign investments in the past it was able to expand some parts of industry, for instance the automobile sector, but this development has never been sustainable. As long as the global economy was booming, oil prices were high and foreign investments were rising, this situation could be sustained. Now, however, these factors are no longer present and all the contradictions are slowly starting to emerge. Inflation is moving towards higher levels as the economy begins to stagnate, creating a vicious combination known as “stagflation”.

Iranian capitalism is sick and rapidly moving towards a severe crisis, but this does not mean that it will collapse by itself. To solve its crisis it only has one option, to unload burden onto the Iranian masses. This is creates the conditions for fierce class struggle in the future. The Iranian working masses will be facing a major onslaught on a scale never seen before. The Iranian masses face factory closures, layoffs, price hikes and attacks against even the most basic rights that they have won in the past.

The Iranian masses will have no other option than to engage in the fiercest class struggle. They will see through their own experience that within the system of capitalism there is only endless horror and that the only alternative is socialism. Only by consciously taking over the commanding heights of the economy under the democratic control of the workers and by centralizing production under a democratic plan can the masses find a way out and develop the country to fulfil its true potential.

The Islamic Republic

The present Islamic Republic was built on the bones of thousands of revolutionaries. Helped by the international mass media, it has done everything to bury the faintest memory of the real 1979 revolution under a mountain of corpses and lies that claim that the present system was the choice of the masses. In reality the main practical purpose of the Islamic Republic was to strangle one of the greatest revolutionary movements of the last century, physically destroy all workers’ organizations and through this preserve the rule of capital and private property.

For this purpose the regime had to erect a monstrous state apparatus that could penetrate the masses and prevent any independent crystallization of the proletariat. However, this enormous state apparatus, that at first served to crush the revolution, is now turning into its opposite. It is becoming a fetter on its own rule. Over the years different layers and groups within the apparatus have developed different bases for their activities – some have worked their way within the Guards, some within the Bonyaads, some in the privatized companies, some in the oil industry, and so on. As long as the economy was moving forward to some degree and the masses were not moving, this situation was simply seen as a simple division of labour (or sharing out of the spoils).

Foolad Mobarakeh Steel Mill, Isfahan. Photo: Iranian EngineerFoolad Mobarakeh Steel Mill, Isfahan. Photo: Iranian Engineer Now, however, with all these factors changing, the contradictions within the regime are coming to the surface and acting as strong centrifugal forces that are tearing the system apart. The main difference between the two main groups, the “liberalists” [or Reformists] and the “conservatives”, is to be found in the fact that they are rooted in different sectors of the economy and the state apparatus. The Iranian regime consists of both these factions.

Ever since the mass eruptions in the summer of 1388 [2009] the Iranian regime has been chronically divided. The entrance of the masses on to the scene disrupted all deals and alliances within the regime. Lenin described this process – where the rulers are split and can no longer rule in the way they used to – as the first condition for a revolutionary situation.

Politically the Reformists were no alternative to the regime. Their liberal policies of opening up the country and the speeding up of privatisation would not have meant any improvement in the lives of the masses. On the contrary, they would have actually made things even worse. We must remember that also when Khatami was president there were several crackdowns on workers and protesters.

However, because of the absence of any mass organizations or leadership, the masses chose the figure of Mirhossein Mousavi and the colour green as a focal point for expressing their demands. Mousavi himself, and also Karroubi, belonged to the right wing of the “Reformist” faction of the regime. His was a safe and loyal opposition. But when the masses put their weight behind him and the “Reformists” these were no longer in control of the movement. Under pressure from below, they were forced to go a lot further than they wished.

Mousavi did not really want to join the demonstration on 25 khordad [June 15], the largest after the elections, but he was forced to because the youth around him kept on mobilizing for it. Mousavi therefore had two choices, either to go against the movement and let it follow its own path and thus risk it threatening the whole system or follow it and try to derail it. He chose the latter path. Thus he was pushed far more to the left than he ever wanted.

The movement of the masses dealt an important blow against the regime, and ever since it has been thrown completely out of balance. On the one hand the economic situation forces the regime to attack wide layers of the population, including parts of its own base, but on the other hand it is not strong enough to carry through the attacks to their logical end.

This has been clearly illustrated by the bazaar strikes that have taken place in the last few months. Every time the regime has tried to impose some kind of tax increase it has been forced to a humiliating retreat. The significance of these retreats lies in the fact that they have been caused by the internal divisions within the ruling clique.

So, contrary to what all parties and factions have hoped for, the regime has not been able to unite and reaffirm its position since it was shaken severely between the elections and Ashura 1388 [December 28, 2009]. On the contrary, internal splits and conflicts keep devouring the regime from within and will continue to do so as long as the balance of forces does not allow one of the contending classes to impose itself and consolidate its position.

These divisions, as it has become popular to do, cannot simply be reduced to the “Reformists” versus the “hardliners”, putting the former on the side of US imperialism (and the royalists) and the latter on the side of Chinese and Russian imperialism. This conception is wrong and only opens the way for speculation and conspiracy theories that lead nowhere. Each camp of the regime is welded together by the immediate interests of the individuals belonging to that camp. In fact the period since the summer of 1388 [2009] can best be characterized by the constant rise and fall of alliances in and between the two camps. Speculating about who-is-who and about the exact form that the divisions and alliances within the regime take, is a pointless and impossible task.

What we can conclude, however, is that there is one side that says that the regime must clamp down in order to save itself and the other that believes that concessions from the top are needed in order to prevent revolution from below. Both camps are wrong, however, for when the movement is ready to take off both these tactics will only serve to strengthen the masses. Clamping down can temporarily cut across the movement, but in the long run it will strengthen the resolve of the workers and youth to go further. Making concessions sends out the message that the regime is weak and more can therefore be achieved, thus spurring on the movement.

The task of the Marxists is to analyze the splits as they occur, define their significance for the class struggle and use them in order to spread the ideas of Marxism. In the recent period the “Reformists” have been able to keep some form of apparent unity. This has been caused on the one side by the fact that they are not in government and secondly – and most importantly – because the hardcore of youth who comprised the vanguard of the mass movement in 2009 have been forcing unity upon them.

Thus the most significant splits in the last period have occurred within the hard-line camp. An important indication of deep splits within this camp was revealed when Elias Naderan, himself a hard-line Member of Parliament, accused the Iranian first vice-president Mohammad Reza Rahimi of heading the Fatemi street corruption ring. However, the allegations against Rahimi have not materialized into any legal action.

Also it has been clear that there has been much tension between Ahmadinejad and Khamenei. The latter for instance, did not mention Ahmadinejad for months after the crackdown on the Ashura uprising. The attacks and counterattacks between Ahmadinejad and the ayatollah have since continued. Kayhan, which is under Khamenei's control, criticized the president for proposing to negotiate with the United States and for reaching the nuclear agreement with Turkey and Brazil. Larijani declared that "some were fooled by the Westerners during the nuclear negotiations." Ahmadinejad countered in a TV interview, saying that his critics were uninformed.

The president and his right-hand man, Mashaei, clearly recognize that a large majority of the Iranian people are tired of the brand of Islam enforced by the clerics. They also know that nostalgic feelings for pre-Islamic Iran have been used by some in the opposition, particularly in Europe and the United States, to provoke anti-government activities. They are consequently trying to distance themselves from the clerics in this and other matters. Some time ago, Mashaei said that Iran has no quarrel with the people of Israel, prompting a widespread outcry within parts of the clergy.

In "normal" times the different factions agree to “ignore” or even accept each other’s actions, but in a situation where they are all trying to maintain their legitimacy among their base, their constant undermining of the system puts enormous strains on their relationship. They are all forced to attack and expose each other in order to justify their own existence and defend their legitimacy. This is exactly what is happening within the regime.

Lenin explains how the inability of the ruling classes to rule and live as before is the first pre-requisite for a revolution:

"[First condition for a revolutionary situation is] When it is impossible for the ruling classes to maintain their rule without any change; when there is a crisis, in one form or another, among the “upper classes”, a crisis in the policy of the ruling class, leading to a fissure through which the discontent and indignation of the oppressed classes burst forth. For a revolution to take place, it is usually insufficient for ‘the lower classes not to want’ to live in the old way; it is also necessary that ‘the upper classes should be unable’ to live in the old way..." (Lenin: The Collapse of the Second International - 1915)

Trotsky further explains that this process is in no way a static one:

"The changes in the mood both of the proletariat and the middle class correspond and develop parallel to the changes in mood of the ruling class when it sees that it is unable to save its system, loses confidence in itself, begins to disintegrate, splits into factions and cliques." (Leon Trotsky: What Is A Revolutionary Situation? - 1931)

The splits within the Iranian regime, on the one side provided an outlet for the mass movement, but then they were then further opened up by the powerful thrust of the movement itself. However, that does not exhaust the question. The further weakening and disintegration of the regime also plays the role of keeping the movement alive and can even serve to act as an impulse for its further development. One thing is clear, however. As long as there is no class, layer or group that is strong enough to take and consolidate power –defeating the other layers and classes – the unity within the regime will be an unstable one.

[To be continued...]

Source: Mobarezeye Tabagathi (Iran)