An Evaluation of the Islamic Economic System of Iran,Its Dynamics and Directions

Presented at Southwestern Social Science Association, New Orleans March 24, 2005

(Abstract)

The Islamic Republic of Iran (IRI) that codifies Islamic principles into a theocratic government was created in 1979, and for the first time in modern world history a new political and economic system was born. Its governmental setting and economic structure are unique and unparalleled in the modern world. The leaders claimed that this system would meet both the spiritual and material needs of mankind, and the goal was to export this system to the rest of the world. In the early months of the revolution, the idea was appealing to many Muslims both inside and outside Iran. Over time, with the structural changes that took place, the appeal declined.

The IRI is now approaching a quarter of a century of existence. An important question for students of economic development and comparative economic systems is to investigate and evaluate the economic performance of IRI, its dynamics and its direction of change. The result of the evaluation can provide guidance regarding the future direction of this theocratic setting and the possibility of its success as a system, that can continue, inspire, and be imitated by other countries.

The purpose of this study is to assess the political, economic, and social performance of this system against criteria that have passed the test of history theoretically and empirically. These criteria are broad measures of Geography, Integration, and Institutions. The findings suggest that IRI has changed the social and economic fabric of Iranian society tremendously. However, based on those criteria it does not appear to move in the right direction.

Area References:

Growth and Poverty Reduction Taxation and Fiscal Policy Institutional Reforms and Governance

Trade, Regional Cooperation, and Geopolitics

Introduction

The Constitution of the Islamic Republic of Iran (IRI) that codifying Islamic principles into a theocracy was passed on December 2-3, 1979, and for the first time in modern world history a new political and economic system was born. Its governmental setting and economic structure are unique and distinctively unparalleled in the modern world. At the present time IRI is the evolutionary system of Islamic religion, unique political, economic, and cultural synthesis and is now approaching a quarter of a century of its existence. At this juncture, it is important to investigate and evaluate the performance of the IRI, its dynamics and its direction of change spiritually, economically, politically, socially, and objectively.

This evaluation will provide information regarding the success or failure of this theocracy and possible future direction. It may provide guidance regarding the continuation of the system, the possibility that it will be imitated by other countries. The spirituality of this system and its dynamic is difficult to quantify or evaluate, and is beyond the scope of this paper. However, it is possible to assess its performance in political, economic, and social arenas, using the criteria that have been proved theoretically, and empirically.

The goal of this paper is to evaluate the Islamic Republic of Iran (IRI) against historical criteria. While the Islamic theocracy has been studied by diverse economists, its performance using proved empirical criteria has not been investigated. The findings of this investigation suggest that the IRI has changed the social and economic fabric of Iranian society, but has failed in its performance. This paper begins by summarizing the assessment criteria, and follows with an evaluation of the IRI based on those criteria.

Roots of Progress and Assessment Criteria

Today there are wide differences in income and standard of living between the rich and the poor countries of the world. The results of extensive theoretical and empirical studies by economists have concluded that the fundamental causes leading to historical economic evolution and development of countries toward either economic progress or poverty depends on three distinctive factors: 1) geography, 2) integration, and 3) institutions.

The first factor, geography, influences the long term destination of a country location. It is the key determinant of climate, natural resource endowments, transportation costs, and ecology. Geography can determine the extent of diffusion of technology and knowledge across borders. It also can influence productivity, advancement, and incentive of its population. Geography emphasizes forces of nature as a primary and completely exogenous factor influencing the level of prosperity or poverty of nations. Notable research in this area has been performed by Jared Diamond (1997), and Jeffrey Sachs (2001, 2003).

The second factor, integration, focuses on the role of international trade to influence economic growth, productivity enhancement, and the fostering of economic convergence between the rich and poor regions of the world. This view argues with the merit of trade in the globalization debate, and the experience of exports and trade promotion measures that have coincided with high economic growth of East Asian countries.

The third factor is the human influence that centers on institutions, which establish the rule of law, and property rights. It further emphasizes the explicit and implicit behavioral norms of society and the ability to create incentive for desirable economic activities. This factor is perhaps most often associated with the work of Nobel Prize winning economist, Douglass North (1997), and empirical studies by Daron Acemoglu (2003a, 2003b), and Daron Acemoglu, et al (2002, 2001, 2000).

Recent empirical work in support of these three factors offers some sharp, striking, and robust results. The findings suggest that the quality of institutions is the only positive and statistically significant determinant of income level and standard of living, and it overrides all other factors. Dani Rodrik, and Arvind Subramanian (2003) found that controlling for institutions, geography has, at best, weak direct effects on income, although it has a strong indirect effect through institutions, due to its influence on institutional quality. Similarly, these authors found that trade has a significant effect on institutional quality, but it has no direct positive effect on income (pp. 31-32). Edison (2003) found that, if developing countries strengthened the quality of their institutions, their economic development could be substantially improved. In addition, he found that the better the quality of institutions, the lower the volatility of per capita economic growth. This influence may partly reflect the role of institutions in enhancing the sustainability of policies.

North (1997) describes institutions as the formal and informal rules governing human interactions. Empirical work on the role of institutions used a broader subjective measure from country experts or assessments made by residents responding to surveys. Edison (2003) summarizes three relatively broad measures of institutions that researchers used in their empirical work as follows:

A. The quality of governance, including the degree of corruption, fairness, political rights, public sector efficiency, and regulatory burdens

B. The extent of legal protection of private property and how well such laws are enforced.

C. The limits placed on political leaders, and elites.

An Evaluation of Islamic System

This section evaluates the performance and dynamics of the Iranian theocracy based on the three criteria of geography, integration, and institutions, that described previously. As mentioned earlier, these criteria have passed the theoretical and empirical test of history with robust result.

1. Test of Geography

Iran is located in the northern hemisphere, half way between the North Pole and the Equator, and between Europe and Asia. It has a temperate climate, with rare extremes of hot or cold, and is connected to the sea through the Persian Gulf and the Indian Ocean. Iran has many natural resources: petroleum, natural gas, coal, chromium, copper, iron ore, lead, manganese, zinc, and sulfur. Iran is strategically location on the Persian Gulf and Strait of Hormuz, and is a vital pathway for crude oil transport.

According to Central Intelligence Agency estimates as of July 2002 Iran’s population was about 66,622,704, with labor force of 18 million. This is a very low labor participation rate of 27 percent, compared to 64 percent in the United States. This means there is a vast untapped labor pool available. Forty-five percent of its labor force is in service, thirty percent in agriculture, and twenty five percent in industry. The population age structure is 0-14 years: 31.6 percent (male 10,753,218; female 10,273,015), 15-64 years: 63.7 percent (male 21,383,542; female 21,096,307), 65 years and over: 4.7 percent (male 1,633,016; female 1,483,606), with population growth rate of 0.77 percent.

Iran has a birth rate of 17.54 births/1,000 population, death rate of 5.39 deaths/1,000 population, net migration rate of -4.46 migrant(s)/1,000 population, male: female sex ratio of 1.03, average life expectancy at birth is 70.25 years: female: 71.69 years, male: 68.87 years. The population consists of Shi'a Muslim (89%), Sunni Muslim (10%), Zoroastrian, Jewish, Christian, and Baha'i (1%). The primary language is Persian and Persian dialects (58%). Other languages spoken include Turkic and Turkic dialects (26%), Kurdish (9%), Luri (2%), Balochi (1%), Arabic (1%), Turkish (1 %), others (2 %). The Literacy rate of the population is 72.1 percent--male: 78.4 percent, and female: 65.8 percent (1994 CIA estimates).

In sum, Iran’s vast natural and human resources, its moderate climate, and its location as the pathway between Europe and Asia pass the test of geography. Thus, if the other two criteria of integration and institutions are met, Iran has the potential to achieve one of the highest standards of living in the world.

2. Test of Integration

There is a vast body of literature on the policies of the Islamic regime regarding trade and integration with the rest of the world. Full analysis of those policies is beyond the scope of this study. However, this section will summarize some of the actions of the IRI that are representative of those policies. The Islamic revolution grew from open hostility against the super economic power of the world, the United States. It started with taking 32 American hostages for 444 days, completely occupying the Carter administration and costing President Carter reelection.1 The Carter administration imposed a trade embargo against Iran, and froze its assets.

In the early days of its existence the Islamic government closed many foreign corporations, largely all American, that were conducting business in Iran. That action itself resulted in complete loss of or reduction of production in many sectors of the economy. In addition, Iran was charged large fines by those corporations for contract violations which were paid from the frozen assets. The violations included confiscation of those corporations that were already established and had their own networks in Iran before the revolution.

Trade constraints including frozen assets still exist today, and they have been very costly to Iran on several levels. First, the IRI lost access to frozen assets and the reserve currency. Secondly, the loss of trade ties with the United States resulted in a loss of the ability to buy some strategic commodities such as arms and weapons that Iran needed for its war with Iraq. The Iranian regime was forced to purchase a limited amount of armaments through the black market at inflated prices.

The policy of attempting, unsuccessfully, to export the revolution to other countries further isolated the Islamic regime politically and economically. It also limited trade ties for the export of oil and for essential imports, which had to be obtained at much higher cost. Industrialized countries, especially the United States, decided it would be prudent to prevent the export of fanatic Islamic ideology to the oil rich neighboring countries. A policy of containment of IRI through restriction of trade including exports of technology that could lead to the attainment of weapons of mass destruction, particularly nuclear was instituted. This policy continues to be followed by industrial countries, but to a lesser extent beginning with the eight year period when Iran was occupied with the war against Iraq. After that war, the IRI was left militarily, economically and ideologically weak.

During the war years, 1980-88, the world started to undergo substantial deregulations and privatizations and IRI became even more isolated from the world economy. The IRI created a state monopoly of foreign trade by forming “Procurement and Distribution Centers,” that were in charge of importing, functioning as intermediaries between foreign suppliers and state industries. Those centers were paid by state banks. This huge state bureaucracy resulted in many wasteful procedures; these included importing the lowest quality raw materials at noncompetitive prices and delays in distribution, which are contrary to the laws of a free market (Karbassian, 2000).

That practice put the private sector, mostly merchants (Bazaris), at a great disadvantage. In 1989 the powerful Guardian Council reversed itself and issued a ruling that state monopoly of foreign trade was “contrary to Islam.” However, this change was accompanied by more restrictions on foreign trade, which effectively continued limitations on participation by the private sector. For instance, exporters were required to insure the return of foreign exchange proceeds and required to sell to the Central Bank of Iran at rates below market. Furthermore, importers were required to deposit one hundred percent cash deposits prior to opening letters of credit. (Karbassian, 2000).

The historical trend of the world as a whole in the last quarter of the century has been toward greater integration and globalization. However, during this period the IRI has not moved in that direction. In fact, it has moved away from globalization to greater isolation in all areas: economic, political, and cultural. Although the IRI has attempted, in recent years, to reverse this trend, it appears that their efforts have been too little and have come too late.

In sum, the taking of the American hostages led to the freezing of Iranian assets, the trade embargo by the United States, and closing foreign corporations in Iran at the beginning of the revolution set the stage for failure. This was then followed by the IRI,s attempt to export the revolution to other countries and creation of a state monopoly of foreign trade, which resulted in more restrictions on foreign trade. These factors combined to cause a weakening of the integration of IRI within the world. Accordingly, the Islamic regime has failed the test of integration.

3. Test of Institutions

The IRI began as a controlled market economy with a feudal flavor that go back to its Islamic roots of 1400 years ago. These measures infiltrated the new institutions, particularly the laws and the structure of the government, and political system of the IRI. Although Iran passes the test of geographical location as a necessary requirement, that alone is not sufficient to result in economic progress and a high standard of living. This section focuses on the role of institutions as the cornerstone of economic progress, and evaluates the performance of the IRI based on broad measures of institutional quality. 2

Quality of Governance, Effectiveness, and Competence

During the early days of the revolution, officials of the old regime were dismissed, and many in the top ranks were executed. They were replaced with those loyal to the regime without regard to their knowledge or qualification for the position they occupied. Confiscated corporations and enterprises of the old regime fell into the hands of inexperienced individuals with no managerial training; the only requirements consisted of rigid Islamic ideology and political correctness. The main criteria for top management positions were to be a Muslim cleric, a “true Muslim,” or related to someone with religious standing. This policy combined with commonplace corruption in the workplace resulted in low moral and low productivity among workers, especially public employees.

With government corruption and waste, the economy remains overly dependent on oil; however, carpets and pistachios account for a large percentage of non-oil exports. Consequently, the state of the government budget and the economy are highly dependent on the world price of oil, as well as the quantity of oil exports. Data strongly support the contention that when the price of world oil is high (low) there is good (poor) economic performance and good (poor) condition of the government budget.

Since the beginning of the Islamic regime, government effectiveness, measured by the provision of the traditional functions of security and law enforcement, has declined substantially. Duplications, overlapping of functions, and inefficiency are common among the many branches of the public sector. In contrast, the regime’s effectiveness in oppressing the opposition has substantially increased. According to Karbassian (2000), the size of the government is almost 2/3 of the GDP (p.5). It is a common knowledge that the only way people can obtain government services is to bribe government employees, including officials at all levels. In terms of civil service, the regime is completely incompetent due to the fact that obtaining civil service jobs has, from the beginning, been based on religious ideology and political relationships, rather than experience, training, and competence.

Government Controls on Goods Markets, Banking, and International Trade

Government, to a large degree, controls the markets for goods and services, international trade, and banking systems. To a great extent, enterprises that were confiscated from officials of the old regime now belong to public foundations (Bonyad). These foundations have many privileges, including subsidy by the government, lower foreign exchange rate, and tariff free imports. All banking institutions have been nationalized resulting in gross inefficiency of those institutions. Government is involved in international trade, including contracts with foreign oil companies, imports of arms, and basic necessities such as wheat, rice, and meat. This market interference and government control are almost entirely kept secret from the public, and even from representatives of the Parliament.

Quality of Public Service, Degree of Corruption, Public Sector Efficiency

At the present time the degree of corruption in the IRI has broadened and deepened well beyond that of the monarchy it replaced. A recent case was reported by the Norwegian press, “Olav Fjell, the chief executive of Statoil, Norway's state-owned oil company was voted to continue as the firm’s boss following a 13 hour questioning session by the company’s directors. There was concern about $15.5 million in bribes paid to an intermediary group used to secure guaranteed access to the lucrative Iranian oil market. Interestingly, the man suspected to have opened the doors of Statoil to Iran’s south Pars gas fields in the Persian Gulf is Mr. Mehdi Hashemi, one of the five children of Iran’s second in command, Ayatollah Ali Akbar Hashemi Rafsanjani.” (http://www.iran-press-service.com/ September 2003).

Corruption was rare at the beginning of the revolution, which was originally driven by a true desire to improve the lives of the citizens of Iran. There are several reasons for the expansion of this phenomenon. First, since the war with Iraq in 1980 there has been a shortage of almost everything, and rationing coupons are necessary for distribution of basic needs to the population. As a result, a black market has developed for all commodities, including food, construction material, automobiles, domestic and foreign air tickets, foreign exchange, and imported goods. Although the war ended in 1988, failed economic policy that started at the inception of the revolution has caused the situation described above to persist to the present time.

Secondly, Islamic-government employees who suffer from a high rate of inflation year after year, and are faced with loss of purchasing power of their paychecks. This can be used to rationalize their failure or delay in doing their jobs unless a bribe received. Thirdly, gradual personal isolation and loss of trust in the regime due to wide spread corruption by top officials of the government has taught people to pay for what they need and/or want. The corruption and bribes have spread to other sectors of semi private and even private sector businesses faced with shortages.

Abuse of Public Power for Private Gain or Corruption

During the tenure of this regime, public power has been used widely for private gains by top officials of the government. Some officials, such as Hashemi Rafsanjani, who has been the Speaker of the Parliament and President had no wealth prior to the revolution, was pictured as one of millionaire mullahs on the cover page of July 2003 Fortune magazine. These new millionaire mullahs, as the magazine refers to them, have all the privileges of foreign trade, exporting and importing, largely without payment of duties. Furthermore, high officials of the government and their relatives have privileges in all areas including high paying jobs for which they are unqualified.

Regulatory Burdens

During its existence the Iranian regime has created massive economic, political, and social rules. Those rules include price setting, export and import controls, forbidding of all political organizations and gatherings not in favor of the regime, requiring women to wear a veil, punishment for producers, distributors and consumers of alcoholic beverages, and punishment for those who listen to or watch music videos and/or performances, even in gatherings such as weddings, birthdays and picnics. Relationships between men and women, men and men, and women and women, are all regulated and highly restrictive.

Violations of these rules have been subject to severe punishment, including imprisonment, torture, stoning to death, and executions. Adultery by women is severely punished. These punishments are regularly reported in TV and the newspapers, sometimes with pictures.

Since its creation and the war with Iraq, the IRI has had a shortage of domestic food products. The state policy of price setting has only made matters worse. As an example, the Islamic regime was the only remitted buyer of wheat and the price was set at about cost, far below world market price. This has penalized and discouraged domestic farmers, resulting production far below the country’s needs. Thus, the state has been forced to import wheat at world market price, subsidizing it at a lower price to consumers. This has resulted in substantial cost, especially in foreign currency, to the government.

The IRI also regulates private sector investment which results in corruption of all kinds. Private investment and private businesses are at a comparative disadvantage vis-à-vis public institutions (Bonyad) that have been subsidized in many ways including tax exemption. Those regulations that have led to a comparative disadvantage for the private sector have discouraged investment, resulting in lower economic growth, lower labor productivity, and lower growth in wages,.

Extent of Legal Protection of Private Property and Independent Judges

In the new Islamic Constitution, all properties that had been acquired by “un-Islamic” means were declared illegal and made eligible for confiscation by the cleric-dominated regime. Accordingly, during the early days of the revolution all private properties that belonged to officials of the old regime and properties belonging to those suspected of “wrong doing” were automatically confiscated.

Confiscated factories, corporations, and enterprises were transferred to public foundations (Bonyad). Confiscated homes were occupied by the officials of the new regime. The public foundations include Bonyad-e-Mostazafan va Janbazan (Foundation of the Deprived and War Veterans), and Bonyad-e-Shahid (Foundation of Martyrs). According to Karbassian (2000) the Islamic state had become one of the richest, and possibly the strongest state-owned and controlled economies in the world. In the 1980s the government had to run approximately three thousand companies and businesses and most continue to remain under monopoly control. The economic activities of the Bonyad now account for some 11 percent of the Iranian GDP.

Under Article 49 of the Constitution, thousands of profit making, privately owned enterprises, transferred to the state, making property and capital insecure. Massive capital fled the country and that has continued over the past two decades. This has resulted in a largely absent market economy where state regulations and controls abound. Anti-private ownership slogans can still be seen on the walls of Tehran and occasionally in the press. The Iranian government remains heavily involved in production, distribution, and trade; policy makers fail to consider economic efficiency, price competition by producers, and public accountability of state-run enterprises (Karbassian, 2000).

In the IRI, judges are appointed by the unelected Supreme Leader, and are accountable only to him. The only qualification for that position is to be a “good Muslim.” Although president Khatami and a large majority of the members of the Parliament are from the “reformist” faction, judges are chosen from the extreme right-wing of the regime. This implies that judges and the courts are in agreement with the Supreme Leader regarding punishment including beating, torturing, and execution of political prisoners. In addition, any disputes regarding the action of the President and/or Parliament that go to the courts are generally resolved in favor of the view of the right-wing fundamentalists, although they are in the minority. Since the Supreme Leader’s term is for life, there is no change, no opportunity for change, and no chance of a shift toward reform. This has resulted in hopelessness, despair, anger, and a polarization of the Iranian people.

Political Rights, Civil Right, and Independent Press

Initially, the regime had majority political support and the enthusiasm of the Iranian people. However, due to continued purging of any opposition, often by the use of force and fear, has resulted in radical a decline in public support. Political divisions within the fundamentalist clergy itself have evolved into the formation of two widely divergent groups; the conservatives who have power and resources, and the reformists, who have no power and no resources. This evolution does not alter the fact that there remain a large number of fanatic followers, who justify any actions taken for their cause, and /or their survival. Gradually, even less politically active Iranians have realized the depth and breadth of corruption and oppression which has resulted in disappointment, distrust, passiveness, addiction, and emigration.

The IRI has silenced all opposition the regime in all areas of life: politics, business, education, art, and theater. Ayatollah Khomeini became the first Supreme Leader, although he was not elected. His successor, Ayatollah Khamenei, was appointed for life by an unelected fundamentalist group, the Assembly of Experts. The Supreme Leader has vast power with no responsibility and/or accountability. He is the commander-in-chief of the armed forces, as well as other shadow forces called the Sepah Pasdaran and the Basij.

The office of the Supreme Leader has its own bureaucracy without oversight, regardless of the magnitude of its policies or impact on people’s lives. This individual has the power to wage war, plan war strategy, and conduct secret negotiations with other governments, such as the United States regarding the release of the hostages, buying arms, oil contracts, and spending of oil revenue. He also has total control over political prisoners: arresting, condition, torture, etc. As yet the IRI has not required discussing the meetings, negotiations, or arms purchases from the United States and other countries, like Israel, during the war with Iraq and following, although their actions are public knowledge.

This Islamic government has been constantly in a stage of crisis with continual political upheaval since its beginning in 1979. The regime uses crises as justification for the harsh treatment of its opposition. The Islamic government has created a variety of large paramilitary forces: the Sepah, and the Basige, employed largely to oppress domestic opposition to the regime. Since its beginning the IRI has sentenced thousands of dissidents to death. It began with mass executions of the top military and political elite from the former regime, including those in the armed forces who made a truce and signed neutrality pledges during the popular uprising against the Shah. Those military leaders were executed swiftly through a summary revolutionary court in the early days of the revolution.

The first purge started in the far left wing with the collusion of Mojahedin Khalgh and Fedeon Khalgh. In order to solidify their power, fundamentalist hard liners eliminated former, more centrist, comrades, permanently. These political divisions and purging continue today. The revolutionary court, under the control of the Supreme Leader, is currently as active as it was at the early days of the revolution. The division between the fundamentalist hard liners with financial and military power and fundamental reformists with little or no power continue to exist. The arrest and execution of political prisoners continues at virtually the same level as in the beginning of the revolution. The current regime has imprisoned and executed more mullahs than any other regime, including that of the Shah, in Iranian history.

Any criticism of the government, regarding freedom, democracy, validity and legitimacy of Supreme Leader (Valih Faghih), Council of Guardians (Shovraye Negahban), and Council of the Expedience (Maslahat Nezam) to be “anti Islam and enemy of God.” Critics are treated harshly, including long term imprisonment, torture, and execution. In 2003 , the Parliament, whose members’ candidacy were approved by the Council of the Expedience, voted and requested the prohibition of torture of political prisoners. The request was denied by the Council of the Guardians. Even members of the parliament who are “elected” are not immune from prosecution and imprisonment for criticism of the Supreme Leader.

Newspapers are not free to question or criticize the policies of the regime. Those who oppose the regime have been imprisoned and prosecution behind closed doors continues to the present time. Recently some members of Parliament wrote to the Supreme Leader to open the prosecution of journalists to the public, rather than continuing the secretive and closed prosecutions. Those requests were not answered.

During the early days of the revolution, the regime created a force of civilian vigilantes that interrupt all public gatherings and public speeches against the regime. These “civilian” have several organizational and operational tasks, but it is widely believed that they operate under the command of the office of the Supreme Leader and therefore, are accountable to nobody. Using sticks, knives, and other cold weapons, they brutally beat and injure the speaker and participants in those meetings. Frequently, the speakers and some of the participants are prosecuted and severely punished. The existence of these “civilian” groups in addition to the police and the army of Sepah and Basige thwart the formation of any nongovernmental political organization or public gatherings. Therefore, all gatherings are planned by the regime and/or for the regime.3

The IRI not only created the vigilantes, but also formed a secret killer squad composed of military and intelligence agents, which is used to eliminate enemies of the regime. This has become known through confessions made by intelligence agents of the regime. Between 1988 and the present, a series of individuals opposed to the regime were killed as were those who confessed that they got their orders from the regime.4 Those mullahs in command “truly believe and behave” as though they are the intermediary and the link to God. Thus, those who question governmental affairs are considered to be against God. Very often the verdict of political trials has been to brand political prisoners and those who were executed by the regime as: “The Enemy of God.”

Revolutionary courts created in the early days of the revolution in 1979 still exist and behave in much the same way. The function of the revolutionary courts is to prosecute political opponents of the regime secretly and apply harsh punishments, including imprisonment, torture, and execution. The President and members of Parliament are without any substantive power, unless they are politically aligned with the Supreme Leader. Recently, legislation passed by the Parliament to eliminate torture in prison was vetoed by the Council of the Expedience.

Over the tenure of this regime, many who were originally supportive have become critics; either openly resulting in imprisonment, torture, and execution, or subversively, working against the regime. A number have been forced to escape abroad. Many supporters who have chosen not to become politically active have become passive. 5 Thus, the political base of the regime has decreased continuously since its creation. Over time, the Islamic regime has eliminated or outlawed its rivals, the Marxist left, republican nationalists, and all those along the political continuum who are not on the extreme right. These outlawed groups participated in the fight against the Shah’s regime, helping the current regime to take power.

This harsh policy of political oppression has transformed a large portion of the population into politically passive individuals. Furthermore, the high rate of unemployment and low labor participation rate during the years of this regime has resulted in a high rate of drug addiction, opium and heroin specifically. This has been reported in the newspaper and confirmed by statistics provided by the regime. According to a Central Intelligence Agency Report, Iran is a key transshipment point for Southwest Asian heroin to Europe, and its domestic narcotics consumption remains a persistent problem. The Iranian press reports estimate at least 1.8 million drug users in the country. As with illicit drug use in all societies, the effects go further to include the families and relatives of those addicts.

The Limits Placed on Political Leaders, and Elite

The Supreme Leader of the IRI is not an elected official and has a lifetime job. His scope of authority is limitless, although he is not accountable to the population for his policies and actions. The regime created a new body called Council of the Expedience (Maslehat Nezam) that “supervises” the laws passed by the Parliament and “guides” institutions of the government. This body is very powerful, second only to the Supreme Leader: its members are religious conservatives appointed by the Supreme Leader for life.

The Council of Guardians, another body appointed by the Supreme Leader, must approve candidates for the Presidency and the Parliament. The Council of Guardians carefully investigates the candidates’ background. If they are not “true Muslim,” or if they oppose the regime, they cannot be candidates. It is public knowledge that the Council rejects many qualified candidates if there is even a minor opposition to the regime, and/or those not ideologically classified as fundamentalists. In the election of 2004 about half of the members of parliament who applied for reelection were rejected by the Council.

As the only available method of protest, the voters have repeatedly voted against candidates who are supported by the Leader and the fundamentalists. Consequently, although people vote for President and members of Parliament, their term in office is four years, they are not truly elected officials. This political structure has resulted in a President and Parliament who are powerless, and unable to generate political change. In essence, the elected officials are acting out the wishes of the Supreme Leader, rather than society at large.

To summarize, the IRI has failed in virtually all institutional criteria commonly accepted as the cornerstone of progress. The dynamics of these combined measures have been deteriorating, and exhibit continued movement in the wrong direction. Evidence suggests the degree of corruption has gone deeper and wider over time. The political right has not modified its stance since the first year of revolution. Revolutionary courts are still very active with absolute power of summary trial, imprisonment, rape, torture, and execution. Many government activities remain secret and public representatives have no right to question officials regarding such important matters as oil contracts, weapons purchases, nuclear policy, or foreign policy. During the tenure of this regime, the fabric of Iranian society has been negatively altered both quantitatively and qualitatively.

Summary and Conclusions

This paper employed the theoretical and empirical criteria of Geography, Integration, and Institutions to evaluate the performance of the Islamic Republic of Iran since its inception in 1979. The paper explained that while Iran passes the test of geography, as an exogenous variable, the theocratic regime has completely failed on the other two criteria of Integration and Institutions.

The Islamic regime’s integration and trade policy with the rest of the world started with revolutionary changes of great magnitude. Their support of the taking of American hostages resulted in the freeze of Iranian assets and the trade embargo by the United States. These policies isolated Iran from the rest of the world economically, politically, and culturally. It prevented technological diffusion into the country. Thus, the Islamic Republic of Iran, without doubt, failed the integration criterion.

Of greater concern, the regime failed according to the institution criterion. It has been, at best, unsuccessful on virtually all criteria and, at worse, a miserable failure. Specifically, it failed on the Limits placed on political Leaders, and Elite, Degree of Corruption, Quality of Public Service, Public Sector Efficiency, Regulatory Burdens, Extent of Legal Protection of Private property and Independent Judges, Political Right, and Independent Press, Government Effectiveness and Competence, Government Controls on Goods Markets, Banking, and International Trade, and Abuse of Public Power for Private Gain or Corruption.

The evidence of the failure of IRI is evidenced by the deterioration of the standard of living of the Iranian people, in that most are forced to work two jobs in order to support themselves and their family. This has resulted in less time at home and the deterioration of the quality of family life that is highly valued under the Islamic system. The failure is also reflected in political purges and separation of the regime from the Iranian people which is demonstrated by the voting pattern against those candidates who are supported by the Supreme Leader. The failure of the system is also obvious in the current economic and social unrest expressed by regular and increasingly frequent demonstrations against the regime. This occurs even at great personal risk of beating, prosecution, imprisonment, torture, and execution. Thus, the Islamic Republic of Iran as a system of economic, political, and cultural ideals does not meet the needs of its own people, and is abhorrent to the rest of the world.

Notes

1. Speculation about a secret deal with the Reagan campaign during the 1980 election postponed the release of the hostages. For more information, go to internet search for October Surprise.

2. For the detail of the criteria of institutional quality see Edison (2003).

3. BBC News web cite, in its June 14, 2003 issue, regarding who Iran’s vigilantes are wrote:

“As anti-government demonstrations escalate in Iran, the hard-line authorities are using Islamic vigilantes to suppress the students and their supporters. During the fourth night of protests in the capital Tehran, armed plain-clothes groups raided university hostels injuring a number of students. They attacked other protesters with clubs and chains. The militants pledge loyalty to Iran's Supreme Leader, Ayatollah Ali Khamenei. Conservatives in the Iranian leadership for many years have been using hard-line Islamic groups as one of the most effective tools to suppress any challenge to their rule. Whenever there is a pro-democracy gathering, member of this shadowy organization is brought to the scene.

They normally arrive on motorcycles, wielding knives, chains and clubs. They are young men with distinctive features such as beards and untucked shirts. Their sheer presence causes panic. They attack their opponents viciously . It is widely believed in Iran that the vigilantes are paid and organized by people close to Ayatollah Khamenei. They are fiercely loyal to him, and see their role as defending Islamic values and the Iranian revolution. Because of their powerful connections, they feel free to openly attack their opponents without any fear of prosecution. They are not like the normal police force, which is accountable for its actions. And the hard-line authorities often portray these militia forces as the true representatives of the Iranian people. But most Iranians regard them as young thugs. Therefore, as general discontent increases in Iran the action of these militant groups could backfire.”

(http://news.bbc.co.uk/2/hi/middle_east/2990786.stm).

4. According to http://www.jebhemelli.net/news/2002/01-jan/torture tapes.htm,

The drama began in November 1998, when secular opposition leader Dariush Forouhar and his wife, Parvaneh, were stabbed to death in their Tehran apartment. Within weeks, three leading journalists-writers outspoken in their demands for greater freedom of expression in Iran - Majid Sharif, Mohammad Mokhtari and Mohammad Pouyandeh - were also found murdered.

Early in 1999, authorities announced that a circle of "rogue" intelligence agents had carried out the killings, but without the knowledge of top intelligence ministry officials. Then, in June 1999, the agent named as the mastermind behind the assassinations, Saeed Emami, was reported to have killed himself in prison by drinking a bottle of hair remover. Defendant Ali Rowshani admitted murdering Mokhtari and Pouyandeh. But he said he had done so under orders from Mostafa Kazemi, a former head of internal security at the intelligence ministry and another man, Mehrdad Alikhani. Another pair of defendants admitted killing the Forouhars, a husband and wife found dead at home from multiple stab wounds. They too said they had received orders from Kazemi and Alikhani. Another man said he had assisted in the murder. Kazemi was reported telling the court on Saturday he had been the mastermind behind the killings, while Alikhani said the decision was taken "collectively."

Amid the firestorm of controversy and public outrage, journalist Akbar Ganji published a book and a series of articles alleging former president Akbar Hashemi Rafsanjani was linked to the murders. Two pro-reform journalists and a former interior minister said the real number of those killed was as high as 80, with murders and mysterious disappearances stretching over a decade. They say that senior clerics conspired with high-ranking intelligence officials to carry out the murders. The two journalists and former minister are now in jail.

In early December 2000 a lawyer for the families of Mokhtari and Pouyandeh, Nasser Zarafshan, was jailed after claiming other people had also been killed and that the assassinations had been ordered by religious decree. No photos of the agents of the Ministry of Intelligence tried in Dec 2000-Jan 2001 were published; their identity remained a "state secret". Most Iranians are convinced their "confessions" are part of a deal to allow them freedom after the trials, irrespective of the verdict.

The trial was held in secret and the security forces' official report is the only reporting of the proceedings. One of the accused, Kazemi, who claimed last week to have ordered the killings, has previously maintained that the orders came from Dorri Najaf Abadi, Iran's minister of intelligence at the time of the murders. Iran's Supreme Leader had claimed on a number of occasions that these murders were acts of sabotage by foreign powers and that the "rogue agents" were working for US and Israeli Intelligence, yet the court never took up this claim. On the 5th of January 2002, the chair of the "Parliamentary Commission" on National Security hinted that the special squad responsible for serial political murders in Iran has been reorganized and is starting its activity again.

Mohsen Mirdamadi, a leading member of the coalition supporting Khatami referred to the disappearance of journalist Siamak Pourzand and a young cleric kidnapped in Ghom.

On Sunday the 13th Jan 2002 the MP for Tabriz, Akbar Aalami, informed fellow MPs that a young cleric Nazem Zadeh ( son of a well known cleric) was kidnapped in Ghom, he was tortured for 6 days and told to confess receiving money from Foreign Radio stations (including the BBC) to act as a contact with Ayatollah Montazeri. Nazem Zadeh was then left semi conscious in Tehran. Mr. Aalami implied involvement of sections of the security forces in this kidnapping.

5. For more information of the tortures of political prisoners, and freedom of expression and human abuses by the regime see Amnesty International Annual report entries: 2003, 2002, 2001, 2000, 1999, 1998, 1997.

(http://web.amnesty.org/library/index/ENGMDE130082000).

For more information of the types of tortures including physical and psychological tortures, conditions obtain in the general cell block units, names of several inhumane and a few torturers, a brief description of the prisoners in prison of the Islamic Regime see nine parts of The Frightening Conditions for Political Prisoners in Iran. (http://www.daneshjooyan.org/english/communique/2003/260203a.html). Also see

http://www.khavaran.com/Adobe/1367.pdf

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