reference1 - Islamic Revolution and the Management of the...

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Islamic Revolution and the Management of the Iranian Economy / BY AKBAR KARBASSL\N Introduction X HE Islamic revolution of February 1979 turned the Iranian economy upside down. It took wealth from the private sector and transferred it to the clerically-dominated Islamic state. National- ization and confiscation of property substantially reduced the pri- vate sector, while the public sector became rich and was forced to run the country's main businesses. The public sector gradually grew fat as deprivatisation contin- ued and more wealth and power was given to state-supported, clerically-controlled foundations, called "bonyads". The majority of these revolutionary institutions still operate under the supervi- sion of the Supreme Leader and are exempt from tax payment. The economic activities of bonyads now account for some 11 per- cent of the Iranian GDP. Due to deprivatisation, the government in the 80s had been forced to run approximately three thousand companies and busi- nesses, over most of which it still has monopoly control. The state managers in charge were young revolutionaries with few managerial skills and little experience. They have run the state enterprises inef- ficiently, with losses that abused the government budget. State sub- sidies to consumers on essential goods, while necessary for the augmentation of war-stricken, falling incomes, have aggravated the losses suffered by state industries. When President Rafsanjani took office in 1989, state budgets had begun to show huge deficits. Rafsanjani was committed to the reconstruction of Iran, but he sought to decrease the state deficit by printing more money that SOCIAL RESEARCH, Vol. 67, No. 2 (Summer 2000)
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622 SOCIAL RESEARCH the Central Bank of Iran could "loan" to the government. During his eight years in office, both money supply (Ml) and broad money (M2) rose dramatically. The state injected unprece- dented levels of paper money into the economy, causing nasty double-digit inflation and undermining citizens' purchasing power. During Rafsanjani's presidency, GNP increased, but the official inflation rate increased by an average of 25 percent per annum. Because wages and salaries were not indexed to increases in the cost of living, workers and state employees suffered enor- mously. Meanwhile, no structural reforms were initiated, and unemployment and inflation continued to devastate the middle class. With lasting effects, the Islamic revolution of 1979 made prop- erty and capital insecure. Massive capital fled the country, a situ- ation which has continued over the past two decades. The Islamic state developed socialistic tendencies based on its revolutionary agenda of social justice, and the country's private sector, which had taken some time to develop the principle of free enterprise, was destroyed in the aftermath of the revolution. To date, most goods and services continue to be produced by hundreds of state- owned monopolies. Market economy is largely absent; state reg- ulations and controls abound. Soviet-style planning for economic
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This note was uploaded on 04/30/2010 for the course ECON 412 taught by Professor Gribbin,j during the Spring '08 term at UMBC.

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reference1 - Islamic Revolution and the Management of the...

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