Download Rouhani Might Be A Mullah, But He`s Our Mullah: Supporting The

Rouhani Might Be A Mullah, But He’s Our Mullah: Supporting The
Liberalization Of Iran Through The Political Economy
Alex Deep
Despite electoral success for more moderate politicians during the 2016 parliamentary
elections, dominant-power politics in Iran remain prevalent, in which the structure of democratic
institutions inherently favors conservative politicians and interest groups. Along these lines, the
Guardian Council and the Islamic Revolutionary Guards Corps (IRGC) are the most significant
challenges to liberalizing the Iranian regime. The former has the ability to nullify laws passed by
the Iranian legislative body and can disqualify any candidate running for public office. The latter
reports directly to the Supreme Leader, receives the majority of the Iranian defense budget, is
deeply entrenched in Iranian business interests, and often intervenes in the electoral and
governing processes. However, the signing of the Joint Comprehensive Plan of Action (JCPOA)
presents an opportunity for the United States and its allies to implement economics-focused
policies in Iran that seek to reduce the influence of these two conservative organizations in favor
of more reform-minded political and social movements. These policy options include increased
foreign direct investment, lifting of additional sanctions regimes, and further global economic
connectivity. By focusing on the political economy, the United States can build an informal
coalition with moderate Iranian politicians, who can leverage positive economic indicators into
favorable results in the upcoming presidential election in 2017.
The signing of the JCPOA between Iran and the P5+1 whereby Iran agreed to terms
limiting its potential to develop a nuclear weapons program in exchange for sanctions relief, is an
opportunity both for moderate Iranian politicians to consolidate control over major governing
1
institutions and for the United States to promote the liberalization of the Iranian regime. 1
Whether Iran can navigate the policy reforms necessary to encourage foreign investment and
domestic growth, while managing powerful interest groups, will affect U.S. policy in the region.
Expectations of economic improvement under the JCPOA drove the success of President
Rouhani’s political party and its moderate allies in the February and April 2016 parliamentary
and Assembly of Experts elections. Similarly positive results in the 2017 presidential election
will depend on whether these expectations come to fruition as Rouhani’s political opponents in
the conservative camp, including the Supreme Leader Ayatollah Khamenei and leaders of the
IRGC, will attempt to translate any stagnation in the Iranian economy or ill-effects of the JCPOA
into electoral victory. Such success at the polls could have repercussions not only for the
implementation of the nuclear deal, but for the potential of a “reverse wave” to counter any
liberalization of Iranian government institutions.
The Transition Paradigm and its critiques
The literature on transition from authoritarianism to more democratic forms of
government offers insight into the nature of the Iranian regime and prospects for its liberalization
going forward. In his article, “Democracy’s Third Wave,” Samuel Huntington argues that,
starting in 1975, the world has seen a general pattern of democratization due to legitimacy
problems in authoritarianism, unprecedented global economic growth, the external policies of
global powers, and a “snowballing” effect of democratization by precedent. 2 From the general
concept that the world is experiencing a massive wave of democratization, Guillermo O’Donnell
1
The P5+1 countries are the permanent members of the United Nations Security Council plus Germany.
Samuel P. Huntington, “Democracy’s Third Wave,” Journal of Democracy, Volume 2, Number 2 (Spring 1991),
13.
2
2
and Philippe Schmitter espouse the transition paradigm that has formed the crux of U.S.
democracy-promotion policies over the past two decades. 3 This optimistic view assumes that
any country transitioning away from authoritarianism is on a path towards democratization,
based on the decision of elites and powerful interest groups to accept political openness and
elections, rather than on underlying structural factors to support the burgeoning democracy. 4 As
a caveat to these claims, the authors recognize that transitioning regimes may experience reverse
movement away from democratization due to uncertainty in how elites will respond to political
change and how well a democratic government can address issues that led to political openness
within the authoritarian regime in the first place. 5
Thomas Carothers adds to this critique of the transition paradigm, arguing against the
concept that the liberal political opening of an authoritarian regime will lead to a breakthrough of
a democratic government and then a consolidation during which democratic institutions form and
develop. 6 On the contrary, Carothers explains two common political syndromes that more
accurately describe many “third wave” democracies: feckless pluralism and dominant-power
politics. Limited political participation, corrupt and self-interested public officials, poor
economic policy, and little public faith in democratic institutions mark the former, and the
domination of a single political party or individual leader, with little chance of change, marks the
latter. 7 Where the transition paradigm uses terms such as “semi-democratic” or “weak
3
Thomas Carothers, “The End of the Transition Paradigm,” Journal of Democracy, Volume 13, Number 1 (January
2002), 6.
4
Guillermo O’Donnell and Philippe C. Schmitter, Transitions from Authoritarian Rule: Tentative Conclusions
about Uncertain Democracies (Baltimore, MD: Johns Hopkins University Press, 1986), 65.
5
O’Donnell and Schmitter, 67-9.
6
Carothers, 7.
7
Ibid, 7-12.
3
democracy” to qualify the process towards the ideal of Western, liberal democracy, Carothers
argues that using these terms is an attempt to make states “fit” into the model. 8
This literature on transition away from authoritarianism has influenced U.S. foreign
policy when it comes to the spread of democracy and should not be taken lightly. The transition
paradigm concept that democracy requires no prerequisites formed the basis of interventionist
policies in places like Iraq and Afghanistan, with questionable results for democratization. The
optimistic view that O’Donnell and Schmitter share in describing the transition paradigm do not
reflect the realities of continued political repression, reactionary elites and interest groups, and a
lack of democratic institutions to support transition. While more sobering, Huntington’s
description of a potential third reverse wave against democratization due to weakness of
democratic values among elites, severe economic setbacks, social and political polarization,
breakdown of law and order from terrorism or insurgency, and negative effects from foreign
intervention offers an important contrast to the transition paradigm that policy-makers should
consider when supporting burgeoning democracies or democratic political movements. 9
Challenges to liberalization (not democratization) in Iran
The modern history of Iran is fraught with waves and reverse waves of democratization,
with the current Iranian government marked by dominant-power politics that prevents potential
liberalization. Before addressing policy options to address these challenges to liberalization
however, it is important to differentiate between this concept and democratization. Schmitter
and Karl offer a simple definition of democracy as a “system of governance in which rulers are
held accountable for their actions in the public realm by citizens, acting indirectly through the
8
9
Ibid, 10.
Huntington, 17-18.
4
competition and cooperation of their elected representatives.” 10 By this definition, Iran
transitioned away from the authoritarian regime of Mohammed Reza Shah in 1979, establishing
a constitution that provides for the separation of political power across branches of government
and for the inherent political uncertainty that comes with regular elections to determine the
composition of both the legislative and executive branches. Much as elections do not necessarily
indicate a functioning democracy however, a republican constitution does not necessarily
indicate liberal principles.
Along these lines, Robert Dahl offers an expanded definition of democracy based on the
concepts of contestation and inclusiveness, in addition to describing conditions for democracy to
exist. Dahl defines contestation as the ability of citizens to “formulate preferences, signify their
preferences to their fellow citizens and the government by individual and collective action, and
to have their preferences represented by government” and inclusiveness as “the proportion of the
population entitled to participate on a more or less equal plane in controlling and contesting the
conduct of government.” 11 In practice, democratic governments adhere to these foundational
principles through promoting the freedom of organization and expression, the rights to vote and
run for office, free and fair elections, alternate sources of information for its citizens, and by
vesting control of policy to elected officials through a constitution. 12
While Iran has many of the structural and institutional features of a democracy, many of
the cultural and normative aspects that Dahl describes remain elusive, as powerful interest
groups and individual leaders stifle both contestation and inclusiveness. During the most recent
parliamentary and Assembly of Experts elections in February 2016, the Guardian Council,
10
Philippe Schmitter and Terry Karl, “What Democracy Is…and Is Not,” Journal of Democracy, Volume 2,
Number 3 (Summer 1991), 76.
11
Robert Dahl, Democracy and its Critics (New Haven: Yale University Press, 1989), 2-4.
12
Robert Dahl, Dilemmas of Pluralist Democracy (New Haven: Yale University Press, 1982), 11.
5
composed of senior clerics appointed for life by the Supreme Leader, only approved 51.4 %
(6,229 of 12,123) and 20% (161 of 801) candidates respectively. 13 More troubling for U.S.
policy vis-à-vis Iran, an increasing number of IRGC veterans are members of the Iranian
parliament, provincial and local governments, media outlets, education sector, and major
businesses and conglomerates. 14 So, while the Guardian Council limits the electoral options
available to Iranian voters, entrenched IRGC interests throughout Iranian society prevent
potential liberalizing measures by more moderate politicians.
The Joint Comprehensive Plan of Action: A Political Economy Story
Iran has the potential to receive an economic windfall due to the JCPOA across all
sectors of its economy, but the extent of these benefits will depend on reforms to domestic
monetary and fiscal policy, and international market prices. Due to the terms of the JCPOA and
the associated lifting of sanctions, Iran will gain access to between $30-50 billion in frozen
assets, will be able to expand oil exports between 500,000 and one million barrels per day, and
will reconnect with the global financial market through the Society for Worldwide Interbank
Financial Telecommunication (SWIFT). 15 However, a combination of a pro-cyclical monetary
policy, sustained low oil prices, and entrenched domestic economic interests threatens to curb the
potential economic gains from the JCPOA, the results of which will have an influence on the
prospects for the continued success of moderate politicians.
13
Suzanne Maloney and Emma Borden, “Iran’s Guardians’ Council has approved a record-low percentage of
candidates. What will that mean for the upcoming vote?” Markaz, February 24, 2016, The Brookings Institute, 2.
14
Frederic Wehrey, The Rise of the Pasdaran: Assessing the Domestic Roles of Iran’s Islamic Revolutionary Guards
Corps (Arlington: RAND Corporation, 2009), xi.
15
Patrick Clawson, “Iran’s Post-Deal Economic Stagnation Challenges Rouhani,” Washington Institute on Near
Eastern Affairs (October 2015), Accessed 5 February 2016. http://www.washingtoninstitute.org/policyanalysis/view/irans-post-deal-economic-stagnation-challenges-rouhani
6
Iran has consistently run high interest rates over the past ten years, which, in combination
with a sustained inflation rate of 10%, has resulted in poor growth, suppressed lending, and
diminished exports. Whereas most economists recommend running counter-cyclical fiscal and
monetary policies, maintaining high interest rates and budget surpluses in good times and low
interest rates and budget deficits in bad times, Iran has chosen to implement pro-cyclical policies,
maintaining a sustained interest rate of 13.6%. 16 In addition, and in part due to Iran’s restricted
access to the global financial system under the international sanctions regime, Iran has restricted
capital flows in and out of the country, which along with its pro-cyclical policies results in an
overvalued currency. 17
There are three major consequences for Iran based on this monetary policy: high interest
rates result in less bank lending to businesses that could benefit from the entrepreneurial boon of
the JCPOA; artificially valuable currency makes Iranian exports seem more expensive to
international buyers; and exchange rate manipulation requires large foreign currency reserves,
which the Central Bank of Iran must bolster with much of the unfrozen assets made available by
the JCPOA. Despite the potential benefits of lowering interest rates and encouraging pro-growth
and pro-lending economic policies, Iran has implemented modest rate cuts due to the desire to
curb inflation and prevent an increase in domestic consumer prices. Both of these factors
directly affect the quality of life for Iranian citizens and might therefore influence the outcomes
of Iranian elections.
16
Patrick Clawson, “Sanctions Relief is Not the Key to Iran’s Economy,” Washington Institute on Near East Affairs
(December 2015), Accessed 8 February 2016: http://www.washingtoninstitute.org/policy-analysis/view/sanctionsrelief-is-not-the-key-to-irans-economy
17
The Economist Intelligence Unit, “Iran Economic Outlook: Exchange Rate,” March 17, 2016, Accessed March 28
2016:
http://country.eiu.com/article.aspx?articleid=1124037296&Country=Iran&topic=Economy&subtopic=Forecast&sub
subtopic=Forecast+summary&oid=1124037296&aid=1
7
In addition to issues surrounding inflation and consumer prices, the entrenched interests
of Iranian domestic firms, especially those owned and operated by the IRGC, are a barrier to
Iranian economic reform. Major IRGC-operated financial conglomerates such as Khatam alAnbiya and the Bahman Group have been awarded no-bid contracts in the oil, transportation,
automotive, and construction industries, resulting in a near-monopoly on domestic supply due to
the previous sanctions regime. 18 That being said, domestic demand for foreign goods and
improved infrastructure will pressure Iran to make deals to increase imports and foreign direct
investment. Such expectations from Iranian consumers are already apparent in the recent drop in
consumer spending since the implementation of the JCPOA, under the belief that lower-priced
and higher quality goods with be forthcoming from the United States and Europe. 19
Apart from fiscal and monetary reforms, sustained low oil prices and Iran’s aging energy
sector infrastructure have the potential to affect the Iranian economy more significantly than
sanctions relief under the JCPOA. The $55 drop in oil prices since 2014 translates to $26 billion
less revenue on pre-JCPOA Iranian oil exports of 1.2 million barrels per day, for a country that
only spends about $65 billion a year, 80% of which comes from oil exports. 20 In addition, Iran’s
ambitious plan to increase oil production by around a million barrels per day is contingent on a
massive investment into the country’s oil industry. Although Iran hopes to receive upwards of
$30 billion from international oil companies towards this end, the web of U.S. and E.U. sanctions
unrelated to the JCPOA that remain in place are barriers to such investment. 21 This combination
18
Mehdi Khalaji, “Iran’s Revolutionary Guards Corps, Inc.” The Washington Institute on Near East Affairs (August
2007), Accessed 20 March 2016. http://www.washingtoninstitute.org/policy-analysis/view/irans-revolutionaryguards-corps-inc
19
Patrick Clawson, “Iran’s Post-Deal Economic Stagnation Challenges Rouhani,” Washington Institute on Near
Eastern Affairs (October 2015), Accessed 5 February 2016. http://www.washingtoninstitute.org/policyanalysis/view/irans-post-deal-economic-stagnation-challenges-rouhani
20
Clawson, “Iran’s Post-Deal Economic Stagnation Challenges Rouhani.”
21
Diane Munro, “Past Imperfect, Future Tense: Iran’s Oil Industry Post-Sanctions,” The Arab Gulf States Institute
in Washington (May 26, 2016), 3-4.
8
of sustained low oil prices and limited investment from foreign firms threatens the promises of
economic improvement that President Rouhani made to the Iranian people while promoting the
terms of the JCPOA.
Policy Options for the United States: Inspiration, Coalition, or Substitution
The United States has an opportunity to promote and protect reforms within Iran, much in
the same way as western powers sought to influence post-communist governments in the 1990s.
The challenges common to both are the means by which to strengthen forces amiable to reform,
convince other actors to accept these reforms, and prevent entrenched interest groups from
blocking or reversing the trend. 22 Using contemporary lessons from post-communist
interventions by external actors as a guide, a coalitional approach to U.S. foreign policy in Iran
would strengthen moderate elements of Iranian political society, while preventing more
conservative elements from stifling change.
While the United States could promote liberalization either through purely inspirational
means via the flow of ideas into Iran regarding political reform, or by theoretically substituting
the current Iranian government with an alternative, neither of these options pass common-sense
scrutiny. 23 The former lacks incentives for change and ignores historical animosities, and the
latter underestimates the legitimacy of the Iranian regime and would require a massive military
intervention that will likely not succeed. Although imperfect due to the inherent conservatism of
all Iranian politicians resulting from the structure of the Iranian electoral process, the most
feasible method of influencing Iranian political development is the success of moderate
22
Wade Jacoby, “Inspiration, Coalition, and Substitution: External Influences on Postcommunist Transformations,”
World Politics, Volume 58, Number 4 (July 2006), 625.
23
Jacoby, 628-630.
9
politicians. This movement is relying on economic improvement due to the JCPOA to show the
Iranian people that diplomacy is preferable to the hardline stance promoted by conservative
elements of Iranian society.
From a political-economy standpoint, an economic opening due to the terms of the
JCPOA provides the United States tools by which to build an informal coalition with moderate
Iranian politicians. Encouraging foreign direct investment by U.S. and European companies into
Iran’s energy, transportation, and construction industries would have the direct effect of
providing jobs and infrastructure improvement to Iranian citizens and the indirect effect of
decreasing both domestic and import prices. Making this investment contingent upon public
ownership of these industries, rather than under the auspice of an IRGC conglomerate, would
decrease the influence of conservative elements over the Iranian economy while promoting
interests aligned with moderate forces in Iranian society. Furthermore, the United States can use
the prospect of full membership in the World Trade Organization as an additional incentive for
fiscal and monetary reforms that bolster the Iranian economy and decrease the influence of the
IRGC, both of which translate into potential electoral gains for moderate elements in Iranian
politics. From the U.S. point of view, the success of these politicians is preferable to the
alternative reverse wave of conservatism that will likely result should the Iranian economy fail to
live up to post-JCPOA expectations. Such a result would have second-order effects on the future
of a cooperative relationship between the United States and the Islamic Republic of Iran.
10
Bibliography
Carothers, Thomas. “The End of the Transition Paradigm.” Journal of Democracy, Volume 13,
Number 1 (2002): 5–21.
Clawson, Patrick. “Iran’s Post-Deal Economic Stagnation Challenges Rouhani.” October 2015.
Accessed February 5, 2016. http://www.washingtoninstitute.org/policy-analysis/view/iranspost-deal-economic-stagnation-challenges-rouhani.
———. “Sanctions Relief Is Not the Key to Iran’s Economy.” 2016. Accessed August 25, 2016.
http://www.washingtoninstitute.org/policy-analysis/view/sanctions-relief-is-not-the-key-toirans-economy.
Dahl, Robert A. Dilemmas of Pluralist Democracy: Autonomy vs. Control. New Haven, Ct: Yale
University Press, 1983.
Dahl, Robert A. Democracy and Its Critics. 15th ed. New Haven, CT: Yale University Press,
1991.
Huntington, Samuel P. “Democracy’s Third Wave.” Journal of Democracy, Volume 2, Number
2 (1991): 12–34.
Jacoby, Wade. “Inspiration, Coalition, and Substitution: External Influences on Post-communist
Transformations.” World Politics, Volume 58, Number 4 (July 2006): 623–51.
Khalaji, Mehdi. “Iran’s Revolutionary Guards Corps, Inc.” 2007. Accessed August 25, 2016.
http://www.washingtoninstitute.org/policy-analysis/view/irans-revolutionary-guards-corpsinc.
Maloney, Suzanne and Emma Borden. “Iran’s Guardians’ Council Has Approved a Record-Low
Percentage of Candidates. What Will That Mean for the Upcoming Vote?” Markaz February
24, 2016: 1–6. Brookings Institute.
Munro, Diane. “Past Imperfect, Future Tense: Iran’s Oil Industry Post-Sanctions - Arab Gulf
States Institute in Washington.” May 26, 2016. Accessed August 25, 2016.
http://www.agsiw.org/past-imperfect-future-tense-irans-oil-industry-post-sanctions/.
Schmitter, Philippe C., Guillermo O’Donnell, and Laurence Whitehead. Transitions from
Authoritarian Rule. Baltimore: Johns Hopkins University Press, 1986.
11
Schmitter, Philippe C and Terry Lynn Karl. “What Democracy Is. . . And Is Not.” Journal of
Democracy, Volume 2, Number 3 (1991): 75–88.
Solutions, EIU Digital. “Forecast Summary.” March 17, 2016. Accessed August 25, 2016.
http://country.eiu.com/article.aspx?articleid=1124037296&Country=Iran&topic=Economy&
subtopic=Forecast&subsubtopic=Forecast+summary&oid=1124037296&aid=1.
Wehrey, Frederic, Jerrold D Green, and Brian Nichiporuk. The Rise of the Pasdaran: Assessing
the Domestic Roles of Iran’s Islamic Revolutionary Guards Corps. Santa Monica, CA,
United States: RAND, 2008.
12