Donkey economics and islamic martyrdom

Continuing her examination of Iran and the islamic regime, Yassamine Mather looks at the theocracy's political economy

In the heyday of the Iranian revolution before Ruhollah Khomeini came to power, he portrayed himself and the proposed islamic regime as defenders of the poor and the disinherited: “This system of clerical rule is necessary to prevent injustice, corruption, oppression by the powerful over the poor and weak, and deviation from islam and sharia law; and also to destroy anti-islamic influence and conspiracies by non-muslim foreign powers.”1

However, once in power and in a position to deal with Iran’s economy, Khomeini’s infamous response to demands for a better life spoke volumes about his real position: “People did not make revolution for bread. They made revolution for islam ... economy is for the donkeys” (“Dar sadre Islam ham Eghtesad male khar boodah”).2 He later expressed impatience with those who complained that the standard of living had dropped after the revolution: “I cannot believe that the purpose of all these sacrifices was to have less expensive food.”3

No wonder that, after three decades in power, Iran’s islamic regime rules over a country where Mahmoud Ahmadinejad’s government admits that 20% of the 70 million population live below the poverty line (the reformist faction claims that the true figure is more than 50%),4 where the official rate of inflation is 24%5 (the fourth highest rate in the world and rising 10 times faster than national growth, according to the IMF)6 and where the government is constantly ranked amongst the most corrupt in the world.7

In this article I will look at some of the economic policies that have created this unprecedented level of exploitation and inequality in Iran’s islamic republic.

Promise and reality

The revolution of February 1979 was a direct result of the failures of the shah’s regime to respond to the economic crisis of the 1970s that followed an economic boom in the early part of the same decade. Workers had been experiencing a drop in their living standards since 1976, while the land reform of the white revolution had left the majority of peasants landless and penniless - they were forced to seek seasonal work in the cities, yet the recession meant that most of them remained unemployed, living in destitution in the shanty towns.

Under these circumstances any potential regime had to promise better economic conditions for the working class and the urban and rural poor. However, from the onset the economic policies of the islamic republic had one aim: protecting capitalism and private property. Amongst the first actions of the new government was the ending of workers’ protests and the control or occupation of factories by workers’ shoras.8

In addition, in the first decade of the rule of the islamic regime the economy was influenced by factors beyond the control of the government, including the low level of oil income, due to both the Iran-Iraq war and the worldwide oil glut.

In the early years of the regime there was a degree of debate between the defenders of public ownership and ‘social justice’, on the one side, and the fundamentalist Hojattiyeh faction, on the other. The latter argued that any attempt at reducing social injustice or improving the plight of the poor would delay the return of the 12th shia imam, the Imam Mahdi (whose resurrection will restore righteousness and change the world into a perfect and just islamic society).

In fact since the end of the Iran-Iraq war, the Rafsanjani, Khatami and Ahmadinejad presidencies have all followed a laissez-faire policy regarding the budget and monetary matters. The regime’s economy has been based on a reduction in government development spending, but this has fuelled inflation, as successive governments have printed money to finance deficits and worsened the imbalance in foreign trade by encouraging imports and overall economic dependence on a single product: oil. After the Iran-Iraq war the government subsidised foreign goods to the benefit of the urban rich, while allocating resources to commerce and finance at the expense of production.

The subsequent crises and steady weakening of government control went hand in hand with the increased intervention of global capital into the internal economic policies of the islamic regime. This process reached a point where successive economic ministers acted as impotent agents - bowing to demands for major and crisis-provoking restructuring of the socio-political life of the country; presiding over policies that caused massive unemployment and subsequent despair; and overseeing a situation where chronic inflation ravaged meagre savings and acute housing shortages led to running battles between city authorities and the never-ending waves of migrants from rural areas. The endless demands of the International Monetary Fund and the credit limitations imposed by the World Bank, as well as the bitter competition between various cliques and factions of the regime to gain or maintain political power, have all played their role in impoverishing Iranians.

What little that remained of state largesse has now dried up. Millions have been made destitute, unprotected against misery. As a supporter of the Hojattiyeh faction, Ahmadinejad has taken the neglect of the economy a step further - his policies are governed by a single wish: to precipitate the “return of the Imam Mahdi”.


The islamic republic has tended towards a permanent economic crisis on a multi-dimensional scale. Ideology has limited the workings of the laws of capitalism, including its fundamental law of value, yet Iran remains firmly a capitalist state.

Private ownership is valid as long as religious tax is paid and the property has been obtained by ‘legitimate’ means. An ideological element thus enters into both ownership and exchange. A property which is used for ‘unislamic’ purposes (eg, brewing, producing DVDs ...), which is owned by a non-muslim or for which religious tax has not been paid is illegitimate and cannot be exchanged (although all this only affects a very small proportion of land ownership and industry). Commodities such as alcohol, ‘immoral’ literature or films, videos and many articles of clothing cannot be bought or sold. Given the hypocrisy and corruption of the religious state in turning a blind eye to ‘unislamic behaviour’ by the middle classes and the rich, such prohibitions have resulted in the creation of a thriving parallel black economy.

Similarly the state uses the currency to meet its political and ideological needs. The volume of money in circulation is allowed to expand at an uncontrolled rate, dictated by political opportunism. Consequently money supply is an anarchic element in the economy. Huge quantities of money are allowed to accumulate in a few private hands, creating equity that then confronts the state, vitiating its control yet determining its actions. Money is used to offset the contradictions between the ideological state and its material-economic base and, in the process, comes to function as its own antithesis - destabilising rather than stabilising the economy.

In recent years, because oil revenue is received in US dollars, the state has had a vested interest in a weak national currency (it can exchange the same amount of dollars for more rials). Ahmadinejad has exploited this situation by printing what economists in Tehran have referred to as a “torrent of worthless rials” - supposedly to finance its poverty programme. The result has been massive flights of capital, mostly into banks in Dubai and Malaysia. Ayatollah Mahmoud Shahroudi, the islamic chief justice, claims that as much as $300 billion may have left the country since Ahmadinejad was sworn in.

According to Ahmadinejad’s own ex-minister of finance, “One of the ills of our economy is the injection of huge oil money into the market, creating inflation. If any expert can pretend that exchanging 60 billion US oil dollars into local money does not create superinflation, please raise your hand.”

The use of force as a purely repressive tool in an islamic government is even more obvious in the economic sphere than in others. Force is not just deployed as it is in a ‘normal’ capitalist state - ie, to suppress conflicts and contradictions between the various sectors and to paper over cracks so that conditions for the reproduction of capital are optimised. Instead, it is used to suppress conflicts and contradictions between the economy as a whole and the ruling political power. The result is the creation of a complex web of non-economic structures, intertwined with a parasitic and unaccountable structure of capital. A powerful defensive perimeter is built around this alliance, protecting it against both the ideological-material coercion of the state and blind economic forces. This huge, Mafia-like structure has, at one extreme, bazaars and mosques, and, at the other, armed forces and religious courts.

It hardly surprising, then, that both internal and external capital avoid investment in long-term projects. Domestic investment is discouraged by the fall in the rate of capital accumulation. A huge burden is placed on the gross domestic product and value-adding activities, which hinders the possibilities of capital accumulation in line with developmental needs. The impact on the state sector is decisive and disastrous.

The effect on the private sector is less, but considerable; prompted both by the most efficient pursuit of profit and by non-economic considerations, the private sector tends to eschew productive investment in favour of playing the stock market, hoarding, speculating, buying and selling, dealing in real estate and land transactions. Iranian society has sunk into a lumpen, get-rich-at-all-costs mentality, glorifying both money and violence, aggressive towards the weak, yet simultaneously characterised by sycophancy and opportunism.

There are few foreign sources of investment and the deliberate use of the economic weapon, including official sanctions, by the US and its allies in an effort to control the islamic government acts as a barrier to the entry of international finance. The threat of being cut off from US and many major European markets means foreign investment in Iran is limited to only some oil-related projects and car manufacture. Thus, Japan and Italy have tried to ensure their future supplies of oil in Iran by investing in petrochemicals or other strategic goods. But, even here, where they are securing their supplies against present and future rivals, advance payment has been extracted in the form of oil sales, itself fulfilling the need to secure oil stockpiles.


According to the Article 44 of the constitution, the economy of Iran is to consist of three sectors: state, cooperative, and private.

A strict interpretation of the above has never been enforced and the private sector has always been able to play a much larger role than outlined in the constitution. In recent years, however, the role of private capital has been further encouraged by the IMF and the World Bank. Furthermore, an amendment of the article in 2004 has allowed 80% of state assets to be privatised. According to the fourth five-year economic development plan (2005-10), the Privatisation Organisation of Iran, part of the ministry of economic affairs and finance, is in charge of setting prices, ceding shares to the general public and making them available on the stock market.

In 2007, supreme leader ayatollah Khamenei requested that government officials speed up further privatisation through the implementation of the policies outlined in an amendment to article 44. Khamenei also suggested that ownership rights should be protected in courts set up by the justice ministry; this was to give new protection and security and encourage private investment. Then in February 2008, Iran announced that three newly formed investment banks (Amin, Novin and Pasargad) will take share subscriptions and act as an intermediary between the Privatisation Organisation and the stock exchange, helping Iran divest itself of state-owned enterprises.

As in other spheres, corruption and nepotism rule over the privatisation plans of the islamic regime. Many Iranians have labelled the government’s policy (known officially as khossoussi sazi) khodemani sazi - transferring ownership to those close to the ruling elite. Rich expatriates, many of whom fled the country after the 1979 revolution, have also been allowed to invest in the newly privatised firms. According to Daniel Brumberg and Ariel Ahram, it would be better to describe the ongoing process not as privatisation, but as a transition “from a state-held monopoly to a state-sanctioned oligopoly”.9

Of 1,000 companies awaiting the cabinet’s approval for privatisation, 240 already had the green light by March 2008. They include banks, major factories, utilities ... With the exception of a handful of key banks - the Central Bank of Iran, Bank Melli Iran, Sepah Bank of Iran, Bank of Industry and Mines - all the others will be open to flotation. Currently Tejarat, Mellat, Refah, Saderat and Post Bank are awaiting imminent sale. And 102 out of a total of 130 companies belonging to the Industrial Development and Renovation Organisation, will be sold off by March 2009.

In early 2008 leading car manufacturers Iran Khodro and Saipa took the first steps towards privatisation. In the meantime, increasing numbers of Iran Khodro’s workers, in line with the government’s and employers’ agenda nationally, are being forced to work under temporary contracts, for private contractors, with few or no rights.

The sale of power companies was completed last year and now state-owned copper, steel and aluminium companies are all candidates for privatisation. All airline companies except for the Civil Aviation Organisation, but including the flag carrier, Iran Air, and its affiliate, Iran Aseman Airlines, have already been privatised or are in the process of privatisation. The same applies to the Ports and Shipping Organisation. In 2006, the ministry of communications and information technology announced that it is to float the shares of state firms like the Mobile Telecommunications Company on the stock market.

Khamenei has stated that the downstream oil and gas sectors will be privatised, but not the National Iranian Oil Company, which oversees exploration and production of crude oil and gas. However, the reality is that many sections of NIOC have been contracted out to the private sector or are in the process of being hived off.

Iran hopes to attract foreign investment in its energy sector by creating a group of nearly 50 formerly state-run firms and listing its shares on four international stock exchanges. Under this privatisation plan, 47 oil and gas companies (including PetroIran and North Drilling Company) worth an estimated $90 billion are to be privatised on the Tehran stock exchange by 2014. The National Petrochemical Company completed the sale of 17 of its companies in 2007.

Ironically US-led sanctions, which should have raised both the cost and risk of privatisation, have convinced the regime to speed up this policy in the belief that an enlarged private sector would be more difficult to isolate from the global economy.

However, the main beneficiaries of this relentless privatisation drive are the most parasitic sections of the Iranian economy - the Bourse shareholders, speculators and individual commanders of the islamic guards and militia. Given the price of housing in and near major cities, a large percentage of the newly privatised factories are sold to property speculators and developers, resulting in factory closure and massive job losses. The data collected from 365 days of workers’ protests last year by Amir Javaheri Langaroudi shows widespread dissatisfaction with the effects of privatisation, which has provoked many workers’ protests, including sit-ins and factory occupations.10

Another pillar of the islamic republic’s economic policy, in line with ‘economic adjustment’ policies dictated by the IMF and the World Bank, has been casualisation. Today over 80% of Iran’s workforce is contracted labour, and, although job security remains one of the most important demands of Iranian workers, Ahmadinejad’s government intends to increase casualisation further. The labour ministry promises that by 2010 100% of Iran’s employees will be contract workers.


In short, islam in power has been ruinous for the economy. Though retaining capitalism as the dominant mode of production, development is slowed down, particularly in manufacture, while the speculative, parasitic sections are given free rein. Iran’s economy is in an anarchic state and, given the unequal development of international capitalism, sanctions and the threat war, it is reaching breaking point.

Ahmadinejad has been criticised by many, including his ousted economics minister, for pumping excessive liquidity into the economy to fund populist projects, causing huge money supply growth and fuelling Iran’s spiralling inflation. But the president has found a solution for all Iran’s economic problems: “If we want to build the country, maintain our dignity and solve economic problems, we need a culture of martyrdom,” he said in April.

Martyrdom or not, these are worrying conditions. This month Iran has faced renewed threats of US military attack in revenge for events taking place a thousand of miles away in Beirut,11 but the majority of Iranians are more concerned about severe economic hardship at home than further US aggression in the region. If the islamic regime were serious about fighting US imperialism, it would take urgent steps to reduce the kind of poverty that has led to major anti-government demonstrations by workers in the new Iranian year (since March 21).

However, in keeping with the statement of the islamic republic’s founder, Tehran still considers economics to be “for donkeys”, while the regime’s president claims to believe that a nine-year-old who fell into a well centuries ago (the 12th Imam) is now overseeing the day-to-day affairs of the country. No wonder Iran is experiencing its worst economic crisis since the late 1970s.


1. Cassette tape The spirit of Allah Gozideh Payam-ha Imam Khomeini, Tehran 1979.
2. V Nasr The shia revival New York 2006, p134.
3. en.wikipedia.org/wiki/Political_thought_and_legacy_of_Khomeini
4. Saramiya May 6.
5. Central Bank of Iran, May 4: www.presstv.ir/detail.aspx?id=54275&sectionid=351020102
6. ‘Rising inflation poses challenge to Iran’: uk.reuters.com/article/oilRpt/idUKN1232693220080512
7. Transparency International Corruption Perceptions Index 2007: www.transparency.org/policy_research/surveys_indices/cpi/2007
8. See T Saleth, ‘Class nature of the Iranian regime’ Critique Vol 35, No3, December 2007; www.informaworld.com/smpp/content~content=a785123881~db=all~jumptype=rss
9. www.rice.edu/energy/publications/docs/NOCs/Papers/NIOC_Brumberg-Ahram.pdf
10. AJ Langaroudi, ‘One year of workers’ struggles in Iran’: www.etehachap.org/bulletin86.doc
11. ‘President Bush blames Iran for troubles’, BBC, May 13: news.bbc.co.uk/1/hi/world/7397376.stm