Tragedy of Privatization in Iran

EghtesadOnline: The government in Iran neither wants to see any part of its powers function outside its purview, nor delegate it to the private sector. This explains why challenges facing the Iranian private sector and privatization is never ending.

News ID: ۷۸۶۸۸۶

25 August 2021

This was stated by Hossein Selahvarzi, the deputy head of Iran Chamber of Commerce, Industries, Mines and Agriculture, in a write-up for the Persian economic daily Donya-e-Eqtesad. Below is a translation of the full text:

Innovations of the modern era have typically no place in our economic thinking and practice. Hence, a thorough study must be conducted regarding which new economic thought has proved successful in Iran.

Six pricy, time-wasting development plans, which unfolded before the eyes of hopeful Iranian people, were only implemented partially. The plan and law on attracting foreign investment, which shuttled among the parliament, government and the Guardians Council [an oversight body that ensures laws are in line with the Iranian Constitution and the Sharia] for months, reached nowhere.

Privatization and the transition of economic power from the government to civil institutions and the private sector is one of the modern and civil demands that was converted into law with great effort but deviated significantly from the ideal. Why? I need to get straight to the point.

Privatization failed in Iran because those in charge don’t care one iota about the transfer of power from the government to civil institutions. The dominant group, which controls the economy, has devised ambitious plans for itself; it needs every part of the economic power to achieve its goals; it won’t delegate even a small part of the powers to institutions that are not affiliated to the government.

We all know that economic power has the ability to influence political, social and cultural powers. That is why they won’t share economic power through privatization.

A probe into the history of privatization in Iran, since the time late Hassan Habibi [Iranian politician, lawyer, scholar and the first vice president from 1989 until 2001 under presidents Akbar Hashemi Rafsanjani and Mohammad Khatami] introduced it in the year ending March 1992 up until now, suggests that the dominant political force has acted against all privatization moves at all times.

The fourth parliament, in power from April 10, 1992, to May 8, 1992, approved in good faith a privatization proposal that benefited a handful from the dominant political party. The law on handing over the shares of factories to Iran-Iraq war veterans approved by the then parliament was a counterattack on privatization.

After this shocking measure, privatization was pushed to the margin. The reformist government led by Khatami attempted to do damage control by minimizing the selloff of public assets.

Mahmoud Ahmadinejad’s government couldn’t resist the strong wave of privatization either. The implementation of Article 44 of the Constitution, which underscores the positive impact of privatization and competitiveness in business environment, faced two major deviations: First, Ahmadinejad sought to sell 40% of the shares of major governmental companies under the label of “Justice Share” to the deprived and public and second the handover of public companies to semi-governmental institutions and those affiliated to the state were approved. In doing so, shadowy actors found their way into privatization deals.

The government of Hassan Rouhani needed financial resources when it took office and the sale of public companies became one of its sources of income. A number of companies, including Heavy Equipment Production Company, AzarAb Industries, Moghan Agro-Industry Company and Haft Tappeh Sugarcane Agro-Industry Company, were transferred to the private sector without finalizing the required privatization procedure.

Two years into their privatization, they are being reclaimed from their private owners and being transferred to the government. Why are they doing this?

As I wrote above, Iran’s government is not willing to see any power function outside its purview or being delegated to the private sector.

In view of recent developments, privatization has entered an odd situation, as lucrative governmental companies will be sold off and the loss-making ones will be left to the government.

The transfer of power from the government to civil institutions was the philosophy behind privatization in the UK, where it first took place, and then the US. Britain’s Conservative Party leader Margaret Thatcher saw that the country’s resources were squandered and citizens’ freedoms were compromised wherever the government had created monopolies. So she decided to put on the agenda the distribution of powers between civil and governmental institutions.

There is no such thinking in Iran and regrettably, intellectuals and a group of economists have been engaged in misguiding privatization. You can’t be optimistic.

Privatization has turned into a tragicomic spectacle in Iran and it appears to be continuing.