Rouhani’s Neoliberal Doctrine has Failed Iran

Four years ago, Hassan Rouhani assumed the Iranian presidency on the back of a campaign pledge to alleviate Iran’s economic hardship by striving for the removal of sanctions. With nuclear-related sanctions removed, blame for Iran’s continued economic misery has either been put on remaining U.S. unilateral sanctions that present a hurdle to large-scale European involvement in the country, or Iran’s hardliners blocking the president’s economic reforms. Yet, Rouhani’s own economic doctrine has significantly contributed to his administration’s failure to improve the lives of Iranians.

The recession Rouhani inherited from his predecessor, Mahmoud Ahmadinejad, has been turned into an economic growth rate of about 5 percent, mainly as a result of the doubling of oil exports in the wake of the J.C.P.O.A.’s implementation in early 2016. This economic growth rate, together with the reduction of the inflation rate, are used by many as proof of Rouhani’s economic success. Yet, few ask whom the rise in G.D.P. has benefitted most.

As demonstrated by numerous studies, economic growth per se is not necessarily a reliable indicator of socio-economic development. Instead, attention ought to be devoted to ‘inclusive growth,’ i.e. economic growth whose dividends are distributed equally, and thus benefiting larger sections of the population, rather than merely the elite. Looking at other indicators, a more sober picture of the Rouhani administration’s economic legacy comes to the fore. On the one hand, as a World Bank study from September 2016 showed that poverty and income inequality have risen under Rouhani. On the other hand, the revitalization of trade and investment with the outside world has almost exclusively benefitted the Islamic Revolutionary Guards Corps and the Supreme Leader’s economic empires. As a Reuters analysis from January revealed, “[o]f nearly 110 agreements worth at least $80 billion that have been struck since the deal was reached in July 2015, 90 have been with companies owned or controlled by Iranian state entities.” Given the Islamic Republic’s political-economic structures where the private sector only plays a marginal role, this lopsided outcome hardly came as a surprise—but is still discomforting.

At the core of Rouhani’s economic policy stands a neoliberal-authoritarian doctrine driven by (regime) security concerns, which—very much ignored in the West—had already received severe skepticism from the country’s leading intellectual magazines months into the administration taking office. Rouhani’s agenda of economic rehabilitation is subjected to the primacy of national security as a means to reduce the possibility of social unrest. Here, Rouhani’s 2010 book, entitled National Security and Economic System of Iran, takes center-stage. The project of “Iranian–Islamic development,” he writes, shall transform the Islamic Republic into a country that is “advanced, secure and that has the smallest class divisions,” which could only be achieved by a “strategy of competitive production.” Moreover, he deplores Iran’s “very oppressive” labor laws to business. He argues that the minimum wage must be abolished, and restrictions on the laying off of workers eliminated if Iran’s “owners of capital” are to have the “freedom” to create prosperity. “One of the main challenges that employers and our factories face,” Rouhani states, “is the existence of labor unions. Workers should be more pliant toward the demands of job-creators.” Accelerated neoliberal economic models have proven to only accentuate class divisions, as oppose to bridge them.[1]

A glance at Rouhani’s budget plans could have created doubts over his administration’s seriousness to cure the country’s socio-economic problems. For instance, his 2015/16 budget rested on two problematic pillars: austerity and security. On the one hand, social welfare services (except for the health sector) were cut significantly.[2] On the other hand, the defense and security sectors were considerably alimented. In mid-April, Rouhani boasted that, under his tenure, the military budget saw a 145 percent rise. Likewise, the next two budget plans continued the reliance on austerity, as highlighted by economist Djavad Salehi-Isfahani. Following a Keynesian fiscal stimulus instead of neoliberal austerity would have been a much more promising response to Iran’s economic needs. Salehi-Isfahani lamented the budget’s focus on international and domestic private investment, while much-needed public investment in infrastructure for job creation was reduced.

Put differently, the Rouhani administration’s neoliberal-authoritarian model has neither alleviated the plight of almost half of the population living around the poverty line, nor weakened authoritarian structures. Additionally, in Rouhani’s above-mentioned book, there is no conception of a truly free entrepreneurship, thus limiting benefits from revitalized economic ties with the outside world to former and current elite groups, which would ultimately help sustain the regime’s survival.

As experienced in numerous countries of the Global South, not least in West Asia and North Africa, the pursuit of a neoliberal paradigm constitutes an inadequate means to meaningfully address deep-seated socio-economic problems. In Iran, these problems are similar to the Arab Spring countries: an alarmingly high rate of youth unemployment of officially 31.9 percent; equally disturbing rates of poverty and social inequality; as well as corruption, including among Rouhani’s own entourage.

Against this backdrop, disillusion and frustration spread among Iran’s lower and middle classes early on under Rouhani’s presidency, which was largely ignored in the West. Not only was the country’s economic growth all but inclusive, the rise in G.D.P. generated by oil exports is capital-intensive without creating jobs.

As seen in Western countries facing a populist backlash against failed neoliberal policies, Rouhani’s neoliberalism à l’Iranienne with its neglect of the social question has produced the same political effects.

The vacuum left by Rouhani’s socio-economic failure has quickly been filled by right-wing populist slogans from his most promising conservative contender, Ebrahim Raisi. Taking a leaf out of Donald Trump’s campaign promises, the conservative has pledged more money for the lower strata of society, and the creation of four-to-five million jobs. But he has done so without addressing the core structural problems of the Islamic Republic’s highly monopolized political economy.

As a result, Rouhani’s socio-economic failure has become the main target of his presidential rivals. Nonetheless, the president can hope to escape punishment by voters, who have tended to favor the lesser over the larger evil in Iran’s presidential elections.