1

Neither East, Nor West: Islam, Politics and the Economy in the Islamic Republic of

Iran

Manuel Viedma

PhD Student, Department of Political Science, University of Chicago

1/15/2010

Abstract: After the 1979 Islamic Revolution in Iran, the clerics who accompanied Ayatollah Ruhollah Khomeini

to power found themselves at odds not only with their secular foes, but also with each other as they struggled to

give direction to the new Islamic Republic. The clerics positioned themselves as the true defenders of the faith

and the architects of a new Islamic society, but Islam rarely provided a clear cut answer to the pressing questions

confronting them in the early days of the new regime. The clerics clashed among themselves on many issues such

as land reform and the nationalization of foreign trade. This paper seeks to uncover the economic effects of the

regime’s efforts to create a true Islamic order. I argue that the clerics’ Islamic ideology created commitments to

the poor and the dispossessed that contributed to economic stagnation and decline. The clerics used Islam to both

support and undermine property rights, while parastatal organizations were created for charitable work but then

used for political purposes. All of this was done in the interest of the mostaza’fin (the oppressed). “Islamic

economics” allowed for a combination of populism and free-market principles that caused gridlock among the

clerics, leading to indecision, the creation of protected economic sectors, and the inconsistent protection of

property rights.

Working version, please do not cite or circulate without the permission of the author. Comments and suggestions

are most welcome. Please send comments to mviedma@uchicago.edu.

2

Introduction

In the decade preceding the 1979 Islamic Revolution, the last Shah of Iran presided over

unprecedented economic growth. Through state-directed development, the Pahlavi dynasty had

transformed Iran from a largely agrarian society into a modern industrializing state. Mohammad Reza

Pahlavi had a clear idea about the Iran he wanted to create and the policies necessary to achieve his

ends. This transformation was accompanied by the rapid expansion of the government and the public

sector, but the limits of the Shah’s ambitious modernization program which had begun with the White

Revolution soon became apparent. His final five-year development plans revealed shortages in

infrastructural facilities and increased inflation. The Shah had attempted too much, too soon.1 After the

Islamic Revolution, state-directed development continued under the ruling clerics, but unlike the Shah,

they had no set agenda as far as macro-economic policy was concerned. Whereas the Shah had well-

articulated five-year plans, the clerics eschewed careful economic planning for a more ideologically-

driven approach to the economy. Economic fragility had forced the new regime to nationalize many of

Iran’s assets, but no clear economic plan or even individual policies emerged after the revolutionary

turmoil had ended. The charismatic leader of the revolution, Ayatollah Ruhollah Khomeini, offered only

vague statements about the need to help the oppressed (mostaza’fin) against the oppressors

(mostakbarin). Businessmen, investors and everyone else participating in the economy had no idea what

to expect after the victory of Islamic forces over their liberal and leftist opponents after the revolution.

This situation had not changed after a decade of Islamic rule.

Since the revolution, the record of growth within the Islamic Republic has been uneven at best.

Throughout the first ten years of the regime there was economic decline and contraction. Gross domestic

product per capita fell dramatically, at an average rate of 4.25 percent,2 and has yet to recover

1 Amuzegar, Jahangir. 1993. Iran’s Economy Under the Islamic Republic. New York, NY: I.B. Tauris. pp. 10-11

2 World Bank. 2009. World Development Indicators and see Figure 1 in the Appendix

3

completely and surpass the levels experienced under the Shah in the 1970s. Real output and productivity

fell by average annual rates of 1.8 and 6.6 percent respectively, bringing productivity levels to what they

were in the 1960s.3 After 1989, the Islamic Republic opened a new economic era with the end of the war

with Iraq and the beginning of the Rafsanjani presidency. Ali Akbar Hashemi Rafsanjani, one of the

eminent political clerics in Iran after the revolution, brought with him a new economic outlook and a

five-year plan that had some initial success. However, the administration soon found itself mired in a

debt crisis and subject to populist pressures, forcing the planners to roll back their reforms and erasing

many of the plan’s initial gains. This again changed in the late 1990s as Iran, assisted by booming oil

revenues, broke out of its previous stagnation and experienced a period of sustained growth in nearly all

areas.4

The Islamic Republic’s economic record throughout the 1980s and early-1990s introduces a

series of questions. For example, what explains Iran’s uneven performance after the revolution? Did the

Islamic nature of the new regime affect its economic performance? If so, what role did Islamic

economics play? This paper cannot completely answer the first question since there are many potential

explanations for the initial economic decline experienced by the Islamic Republic. Iran fought a costly

war against its neighbor, was isolated internationally after the American hostage crisis, and faced

volatile crude oil prices. While these factors certainly did not help, there are other, domestic reasons

behind the uneven economic performance which we should pay attention to. I want to suggest that the

transition to an Islamic order, while keeping in place many of the statist policies of the ancien regime,

was accompanied by an economic ideology that de-emphasized growth in favor of a vague idea of social

justice. The Islamic commitments of the new regime would come to undermine investment.

3 Pesaran, M. Hashem. 2000. “Economic Trends and Macroeconomic Policies in Post-Revolutionary Iran,” in The Economy of

Iran: Dilemmas of an Islamic State. Parvin Alizadeh, ed. New York, NY: I.B. Tauris. pp. 64-65 4 Salehi-Isfahani, Djavad. 2009. "Oil Wealth and Economic Growth in Iran," in Contemporary Iran: Economy, Society, Politics.

Ali Gheissari, ed. New York, NY: Oxford University Press.

4

Unlike Timur Kuran, who argued that Islamic economics (a set of immutable economic rules and

institutions derived from the Koran and Islamic traditions) had no appreciable impact on economic

behavior because of its ambiguity and incongruence with social reality,5 this paper will argue that the

revolution and the victory of the clerics created new Islamic commitments for the regime that adversely

affected economic behavior. Kuran was drawing upon his knowledge of Pakistan when he claimed that

the new emphasis on morality within Islamic economics had no appreciable effect. While he recognized

the ambiguity within the notion of economic justice, he missed the fact that Islam’s very ambiguity

could have negative effects. According to some interpretations of Islam, absolute ownership belongs

solely to God, but private property is allowed because of humans’ trusteeship over the earth. However, if

property rights interfere with the realization of God’s will on earth then they may be suspended.6 Islamic

economics turns out be more than just interest and zakat (Islamic taxation), and extends beyond

doctrine. It has wider implications for private economic activity, especially in cases where Islam is given

definite political and economic meaning but terms like “trusteeship” and phrases like “interferes with

God’s will” are poorly defined. Nowhere is this truer than in Iran.

Politically, the Islamic regime in Iran erected religious institutions alongside its democratic and

popular institutions, which created, to some extent, a system of dual sovereignty. This meant the

institutionalization of the rule of the jurisprudent (velayat-e faqih)7 in Khomeini himself, as a second

head of state above the President. The clerics also set up a supervisory body alongside the popularly-

elected parliament (the Majles) to ensure that all legislation conformed to Islamic precepts.8 The factions

that emerged after the revolution used these institutions to expound their respective views and obstruct

5 Islam and Mammon: The Economic Predicaments of Islamism. 2004. Princeton, NJ: Princeton University Press, pp. 7, 34-35

6 Behdad, Sohrab. 1994. “A Disputed Utopia: Islamic Economics in Revolutionary Iran.” Comparative Studies in Society and

History, 36:4 (October), p. 784 7 The rule of the jurisprudent is Khomeini’s idea that the most just and learned of the clerics should rule Iran.

8 The political commitments of the new regime have been outlined and argued elsewhere. See Moslem, Mehdi. 2002.

Factional Politics in Post-Khomeini Iran. Syracuse, NY: Syracuse University Press and Arjomand, Said Amir. 2009. After Khomeini: Iran Under His Successors. New York, NY: Oxford University Press.

5

legislation, destroying any chance of compromise. In the economic realm, the Islamic Republic was

formally committed to the Islamic ideal of social justice and the formation of an egalitarian society. The

new regime sought to place the spiritual and religious development of its citizens ahead of the economic

growth, profits and the accumulation of wealth.

Practically, this commitment had two effects. First, it created an uncertain and ill-defined

concept of property rights. The ambiguous nature of economic rules within Islam resulted in rampant

factionalism among the leading clerics as they argued openly with each other as to what the correct

Islamic policy was regarding land tenure, and foreign trade and investment. Clerics fought extensively

over the boundaries of religiously acceptable property rights. Second, it led to the creation of parastatal

organizations (commonly called bonyads) with a mission to help those such as the poor and veterans of

the war with Iraq. The bonyads, themselves a symbol of the regime’s revolutionary ethos, play an

important role in credit allocations and employment. The state protects them from competition by

lavishing them with subsidies and taking on their debt if they became insolvent. In sum, the Islamic

ideology of the regime led to a commitment to the redistribution of wealth. This redistribution of wealth

was to be accomplished through legal means (i.e. redefining property and its limits) and bonyads. This,

in turn, led to an ambiguous definition of property rights and the creation of a state-protected sector

within the economy. Both of these factors undermined private investment and harmed growth over the

long-run.

A dominant theory within economics is that secure and enforceable property rights are the

cornerstone of economic growth. According to Douglass North and Robert Thomas, the establishment of

property rights that bring private rates of return close to social rates of return is the key to economic

growth and efficient organization.9 Without property rights, there is no incentive on the part of private

agents to channel their individual action into economically productive activity. If potential property

9 The Rise of the Western World. 1973. New York, NY: Cambridge University Press. pp. 1-2

6

holders see that that their investments will be difficult to secure or difficult to sell, then acquisitive

behavior will be inhibited, harming long-run economic growth. Threats to private property can come

from either the state or from private actors.10

In the case of Iran, the threat to private property came

squarely from the state, especially in the early days of the regime and under the left-leaning Prime

Minister, Mir Hossein Musavi (1980-1988). Private property was often threatened on religious and

populist grounds, and one of the expressed goals of the Islamic regime was to limit acquisitive behavior

in the interest of religion, as acquisitive behavior resulted in corruption and degeneration. Islamic

economics in Iran provided the clerics with justification for a populist economic agenda replete with

distorted exchange rates and consumer subsidies, and left the key question of property rights

unanswered.

The Economic Ideology of the Islamic Republic

After the overthrow of the Shah, there was some question about who would emerge to lead the

new regime. Revolutionary Iran was home to a number of diverse ideological trends. The three most

prominent were the liberal-democratic forces led by the Liberation Movement of Iran (LMI); the

Islamic-Socialists, most prominently the Mojahedin-e Khalq (MEK); and the Islamists, led by

Khomeini and the clerics who would create the Islamic Republic Party almost immediately after the

Shah left Iran.11

Of these three dominant strands the Islamists and Khomeini were the most ambiguous

in their post-revolutionary plans, making them the most likely to incorporate other revolutionary forces

and platforms, but they were poorly organized. Having no positive platform of their own aside from

reaffirming Islam’s centrality to Iranian identity and society, the Islamists were free to adopt virtually all

10

Frye, Timothy. 2004. "Credible Commitment and Property Rights: Evidence from Russia." American Political Science Review, 98:3 (August), 453-466. 11

For more on the LMI and the MEK, see Abrahamian, Ervand. 1989. Radical Islam: The Iranian Mojahedin. New Haven: Yale University Press and Chehabi, H.E. 1990. Iranian Politics and Religious Modernism: The Liberation Movement of Iran Under the Shah and Khomeini. Ithaca, NY: Cornell University Press.

7

and any political and economic proposals which they came across. They could agree with the need for

democratic institutions, which the LMI proposed (as well as its free market policies), and the radical

redistribution of wealth advocated by the MEK. Indeed, this ambiguity ensured that the Islamists could

appeal to nearly all sectors of society at once, provided those sectors were Islamic.12

This was an

invaluable advantage at the time.

The Islamic-Socialists led by the MEK were only one component of the leftist opposition to the

Shah. Also present on the left were the venerable Tudeh Party, which had existed since the 1940s, the

Feda’iyan and Paykar. These three organizations were secular, placing them at odds with the MEK at

times. Indeed, it was the Islamic orientation and the extensive organization of the Mojahedin that placed

them in an advantageous position during and immediately following the revolution. The MEK’s leaders

de-emphasized their socialist ideological foundations to gain the acceptance of Khomeini. However, this

Islamic orientation itself was a source of friction within the Party throughout its history. The MEK

attempted to combine the ideal of a just, classless society with a religious interpretation held by only a

minority of clerics. This attempt at syncretism not only led to schism within the organization but also to

a marginal role in the post-revolutionary period, as Khomeini eventually branded them religious

hypocrites.

The Liberation Movement of Iran (LMI) was an organization that, like the MEK, attempted to

combine a Western ideology (liberal democracy) with Islam, making it eligible for an alliance with

Khomeini. During the revolution and its immediate aftermath, the LMI also found itself in a favorable

position. Mehdi Bazargan, the LMI’s leader, seemed to enjoy the support of Khomeini. He began to

work closely with the Revolutionary Council, a clerical body Khomeini had created while he resided in

France before his return to Iran, which held real power after the removal of the Shah. The Council

12

Gene Burns has made the point that the very success of the revolution depended on the ambiguity of polysemous religious symbols that could come to mean many different things to different people. See “Ideology, Culture and Ambiguity: The Revolutionary Process in Iran.” 1996. Theory and Society, 25:3 (June), 348-388.

8

nominated Bazargan for the post of Prime Minister of the Provisional Government on February 3, 1979.

However, it quickly became clear that the Provisional Government faced insurmountable problems. The

people of Iran expected the Provisional Government to restore order while having no real power over the

khomitehs (regional revolutionary committees) or the newly operational Revolutionary Guards. In

addition to this, real decision-making power resided in the hands of the Revolutionary Council, a

parallel authority, which clerics loyal to Khomeini dominated. After the seizure of the American

Embassy on November 4, 1979, Bazargan resigned as Prime Minister, ushering in the period of the LMI

as loyal opposition.

This left power in the hands of the Islamist clerics aligned with Khomeini. Unlike the MEK and

the LMI, they did not have to reconcile either their Marxist or liberal leanings with Islam, but they did

have to determine what the new Islamic order would look like. To cultivate popular support, Khomeini

had avoided political and doctrinal issues, focusing instead on popular appeals and in the process

creating his own form of populism. What Ervand Abrahamian termed “Khomeinism” took shape after

the revolution as the term mostaza’f (the oppressed) entered Khomeini’s vocabulary and sociopolitical

issues became central to his thought.13

His populist turn allowed the clerics to undermine the left’s

ideological appeal for a more egalitarian society, but it was still unclear who the oppressed were or how

exactly the government should assist them.14

On the one hand, Khomeini accepted the right to, and the

sanctity of, private property and the division of society into classes with differing levels of wealth. But

on the other hand, he stated that the regime would stand with the poor to overcome the oppressors,

13

Khomeinism: Essays on the Islamic Republic. 1993. Berkeley, CA: University of California Press, p. 27, and Bayat, Asef. 1997. Street Politics: Poor Peoples Movements in Iran. New York, NY: Columbia University Press, p. 43 14

Sohrab Behdad points out in her article “A Disputed Utopia: Islamic Economics in Revolutionary Iran” that the term mostaza’f could have been applied to almost any social group at that time, including wealthy bazaari’s. Even as late as 1985, Khomeini was making contradictory statements saying that the bazaari’s and the state worked toward the same goals, while still advocating the redistribution of wealth. Ettela’at, 3 March 1985, p. 3

9

whoever they might be.15

Would the regime focus on economic growth or radical redistribution as the

means of helping the oppressed?

The clerics surrounding Khomeini chose radical redistribution and interpreted his Islamic

populism in a radical way. They actively sought to prevent the development of large inequalities in

society. In their view, such inequality was socially harmful and disrupted the overall development of the

individual. Following Khomeini, the clerics accepted the theoretical viability of private property, but

they rejected the accumulation of excess wealth and blatant profit-seeking. These sentiments were the

basis of the slogan “na sharq, na gharb, jomhuri-e islami” (neither east, nor west, Islamic Republic).

The Islamic Republic would be an improvement over the unbridled accumulation of the western

economic model and a rejection of the totalitarian tendencies of the socialist, eastern model. The

economic order that would emerge in the Islamic Republic would be one of social harmony and

equality. One of the most influential advocates of this viewpoint was Ayatollah Mohammad Beheshti,

the primary ideologue and organizer of the Islamic Republican Party, the only legal political party in the

Islamic Republic after 1981. Nearly all of the leading politicians were members of the IRP. He also

authored key articles of the new constitution.

Beheshti was a follower of Khomeini and an active organizer since the 1960s. He participated in

the Khomeini-inspired 15th

of Khordad revolt against the Shah in 1963. Afterwards he taught and

organized Muslim student groups in Germany until his return to Iran in 1970. In 1977 he created the

Association of Militant Clergy, but fearing this organization was too exclusive, he persuaded Khomeini

to consent to the creation of political party.16

Beheshti was much more practical than Khomeini during

this period. While Khomeini was repeating revolutionary slogans, Beheshti was busy organizing the

clerics and giving them a clear platform so that they could compete with other groups and social forces

15

Abrahamian, Khomeinism, p. 26 16

Ne’mati Zargaran, Morteza. 2005. Shahid Doktor Mohammad Javad Bahonar: mobarezat, mavazeh va didgaha. Tehran, IR: Entisharat-e markaz-e asnad-e enqilab-e eslami.

10

in politics. He attempt to give institutional form to Khomeini’s vague ideas. Despite all of his

organizational efforts, his most lasting contributions to the Islamic Republic were ideological. His

ideology was institutionalized in the platform of the Islamic Republican Party and in the constitution of

the Islamic Republic.

He, and the clergy he organized, fought vigorously against what they saw as left and right

deviations from true Islam and the path of the Imam (khatt-e imam). The problem with socialism,

according to Beheshti, was that it dissolved individual human identity into society, thereby subjugating

the individual to the system. He also disagreed with materialist conceptions of history which denied the

agency of rational human beings in social progress. Liberalism, he believed, had correctly rejected these

notions by providing man with freedom of action and choice.17

However, one of the problems with

Liberalism, according to Beheshti, was it’s contention that reason is the only means of attaining

knowledge. This belief denied the importance of divine revelation to human progress and deprived man

of God’s bounty.

More importantly, for our purposes, Liberalism also had dangerous economic consequences. The

economic problem with Liberalism was that, in its overemphasis on individual liberty and action, it

failed to take into account the restraints created by this freedom. Beheshti criticized was the notion that

unconstrained individual action would lead to social development through economic growth. In

Beheshti’s thought, Liberalism actually hindered small groups and individuals from participating in the

economy because of the enormous disparities in wealth which inevitably developed in this system. In his

words, “the concept of liberty endorsed by Liberalism is one-dimensional and will result only in the

bifurcation of the people into two categories: an affluent minority…and a deprived, starving and

17

Beheshti, Mohammad. 1986. Lectures. Majid Nekoodast, trans. Tehran, IR: Islamic Propagation Organization. p. 27

11

depressed majority.”18

Want and depravation pushed those in the majority to question and doubt God’s

grace and justice. Beheshti, and those around him, considered this religiously unacceptable.

Yet Beheshti did not seek to abandon the Liberal model entirely. In fact, he did not want to

abandon the merits of individual liberty and freedom. He stated that,

[W]e, too, believe in the expediency and supremacy of human liberty in facilitating the

growth of the human being. However, this liberty should not be exclusive to a special

group. Everybody, not a certain class, should be given the opportunity to explore his

talents and advance. In short, we can endorse freedom as advocated by Liberalism only if

it applies to all and does not transgress the limits set by Islamic laws.19

In practice, the clerics attempted to place limits on individual economic action to prevent grossly

unequal distributions of wealth. Faith, the law, and the Islamic precept of enjoining good and forbidding

evil were to impose limitations on economic, social and political liberties. This was not just the personal

philosophy of Beheshti; it was enshrined in the party program and in the constitution.

The program of the IRP uses more Marxist language than Beheshti used in his personal lectures.

Following Khomeini, the party supported private property, but this property was to be based on work

and service only. Ownership was not absolute, as only absolute ownership belonged only to God.20

Middlemen and interest were to be eliminated in order to control base profit-seeking and protect the less

fortunate by keeping prices low and fair. All exploitation of the proletariat by the owners of capital was

to be extricated; the true Islamic Republic being the only solution to the problem of exploitation.21

Most

importantly, the party explicitly rejected the domination of capital in the economic system of the Islamic

Republic. The authority of religion replaced the authority of capital.22

Beheshti’s and the IRP’s economic stances are echoed in the Constitution of the Islamic

Republic of Iran, which was ratified in November 1979 and written mostly by Khomeini’s clerical

18

Ibid, p. 28 19

Ibid, p. 29 20

Islamic Republican Party. n.d. Mavaz-e ma. Tehran, IR: IRP Publications. pp. 61, 57 21

Ibid, p. 57 22

Ibid, p. 58

12

supporters, including Beheshti.23

From the introduction, it was clear that this document was unlike any

modern constitution that had come before it. In its second paragraph, it stated that the basic

characteristic of the revolution was its Islamic and maktabi nature. The term maktabi connotes an

ideological view and acceptance of the Islamic tenets formulated by Ayatollah Ruhollah Khomeini and

his clerical supporters after the revolution.24

Among these tenets was the political concept of the velayat-

e faqih and a firm economic commitment to protect the oppressed. Further, the new state was an

organization established for the spiritual development of its citizens and its final goal was the movement

of society towards God.25

Explicitly the economy was now a means and not an end in itself.26

The

Islamic Republic’s economic program was to ensure that the fundamental needs of its citizens were met

so that they could fully develop their creative capacities in order to avoid the corruption and

degeneration that the clerics claimed was characteristic of both east and the west.

Examining the economic articles of the constitution one finds interesting contradictions

concerning economic sectors and property rights.27

Article 22 states that the dignity, life and property

rights of the individual are inviolate, except in cases sanctioned by the law. However, Article 47 states

that only legitimately-acquired property was to be respected, leaving the actual definition of

legitimately-acquired property undefined. Similarly, in Article 44, the drafters of the constitution

included the provision that ownership in the three sectors of the economy (state, cooperative and private)

was protected, provided it did not go beyond the bounds of Islamic law and did not harm society. All

23

Schirazi, Asghar. 1998. The Constitution of Iran: Politics and the State in the Islamic Republic. New York, NY: I.B Tauris, p. 35 24

Said Amir Arjomand defined maktabi as a doctrinaire who belonged to the school of ideological Islam. See The Turban for the Crown. 1988. New York, NY: Oxford University Press, p. 251 25

Matn-e kamil-e qanon-e asasi-e jomhuri-e islami-e iran. 1996. Tehran, IR: Mo’assasseh-e farhangi-e iran, p. 11 26

Ibid, p. 13 27

These articles were not revised in the 1989 Revisions. See Qanon-e asasi-e jomhuri-e islami-e iran ba akharin aslahat. 1996. Tehran, IR: Entesharat-e keyomars.

13

forms of monopoly, extravagance and wastefulness were to be outlawed. The problem was that nobody

knew what the bounds of Islamic law were.

Like property rights, the boundaries between the different economic sectors were ambiguous.

Article 44 also divided the economy into three sectors. In the state sector were major industries,

banking, energy and foreign trade. In the private sector were agriculture, industry and trade which would

supplement the state and cooperative sectors.28

But the state had the duty to provide all citizens with the

opportunity to work. Functionally, this meant that within the economy, the state was to play a

determining role in the allocation of labor and resources. Indeed, the ambiguities within the constitution

led to deep disagreements within the clergy as circumstances forced them to define which property

rights were protected and where the line separating the state from the private sector lay. The first two

Majles sessions would be dominated by these very issues.

What we find in the evolution of the Islamic Republic from the Revolutionary Council to the

drafting and adoption of the constitution was a large group of clerics led by Khomeini who benefited

from his vague and ambiguous pronouncements and slogans. The clerics used populist pronouncements

to undermine the appeals of their rivals both to the right and to the left. They repeated the slogan

“neither east, nor west, jomhuri-e islami” and constructed a novel Islamic state. Ideologically, the clerics

remained committed to assisting the needy and preventing the emergence of large inequalities. But in

executing this policy, the limitations of an ideological outlook became apparent. For evidence of this, I

now turn to the practical effects of the Islamic order on economic policy.

Islam, Land Reform and the Nationalization of Foreign Trade

28

The precise definition of the cooperative question was also extensively debated with no clear consensus emerging.

14

During the first and second Majles two issues in particular divided clerics in the Majles and the

Council of Guardians. One was the issue of land reform and the other was the nationalization of foreign

trade. The purpose of examining the history of land reform within the Islamic Republic is to demonstrate

that property rights were a salient and contentious issue. While agricultural output steadily increased

throughout the period,29

in part because of the new regime’s emphasis on self-sufficiency, the debate

over how agricultural land should be distributed revealed that some of the clerics were cognizant of the

importance of well-defined property rights for investment. This viewpoint did not make much headway,

though, as radicals who wanted a large role for the state in the economy controlled both the Majles and

the executive branch.

According to Shaul Bakhash, land ownership after the land redistribution of the Shah’s White

Revolution remained skewed, and after the Shah’s deposal, many of the poor invaded vacant land

hoping to increase their holdings.30

All told, almost one million hectares of land were seized, and to deal

with these new claims, Khomeini appointed a special committee which consisted of Ayatollahs

Meshkini, Montazeri and Beheshti.31

All three of these clerics were left-leaning and they soon came up

with a bill which would legalize the occupations and would even distribute more uncultivated land to

poor farmers. Beheshti claimed this bill, which the Revolutionary Council passed, was in line with the

revolutionary spirit of the time and expressed hope that the bill would be implemented as soon as

possible.32

The more conservative clerics within the ruling coalition resisted the passage and

implementation of the bill, some claiming that the bill was socialist.33

In time they defeated the bill and

29

See Figure 2 in the Appendix and Amuzegar, Iran’s Economy Under the Islamic Republic. 30

“The Politics of Land, Law and Social Justice in Iran.” 1989. Middle East Journal, 43:2 (Spring), 186-201. 31

Moaddel, Mansoor. 1991. “Class Struggle in Post-Revolutionary Iran.” International Journal of Middle East Studies, 23:3 (August), pp. 320, 322 32

Ettela’at, 27 March 1980, p. 1 33

Moaddel, “Class Struggle in Post-Revolutionary Iran,” p. 326

15

prevented the radical redistribution of land. Before the bill was suspended, though, the council had

redistributed 150,000 hectares, but had left another 850,000 hectares in legal limbo.

In the Majles, the first reform bill was submitted in 1981 and eventually passed the next year.

When the bill was introduced, the political leadership, at that time composed of Khamenei, Rafsanjani

and Musavi, all came out in support for the bill, claiming that it would defend the interests of the

oppressed.34

In the debate, however, a very different picture emerged as clerics within the IRP took up

opposing sides of the issue, many on both sides supporting their arguments with appeals to Islamic law

and traditions. Some, like Mohammad Yazdi, claimed that the bill was un-Islamic and unconstitutional

because it failed to determine the boundary between legitimate and illegitimate ownership.35

Supporters

of the bill hailed its revolutionary spirit and claimed that with its passage and implementation, the

Islamic Republic would become a beacon to the oppressed and the downtrodden throughout the world.

More interesting was Hashemi Rafsanjani’s retort to the opponents of the bill in the Majles. Then

speaker of the Majles, he claimed that Islam did not recognize absolute ownership and that “the

government that proceeds in the path of God…can always determine the limits and conditions of

ownership.”36

The implication was that because the government had the imprimatur of Khomeini, it

could essentially pass any legislation it wanted with regard to the economy.

After the initial passage of this bill, the Council of Guardians, which became a bastion of

conservative support, rejected the bill on the grounds that the radical redistribution of land was not

necessary in the Islamic Republic since the existing distribution of land was enough to meet the needs of

the country. A less-radical version of the bill was reintroduced in 1985 and had much more support

within the Majles, but the debate again revolved around the issue of property rights within an Islamic

state. Ahmad Kashani argued that the purpose of the bill was to undermine the principle of ownership

34

Ettela’at, 29 September 1981, p. 2 35

Ettela’at, 3 March 1982, p. 7 36

Ettela’at. 3 September 1981, p. 14

16

and others argued that the passage of the bill would harm long-term investment. Supporters repeated

their earlier statements that the bill would help the deprived and increase the equal distribution of land.

This bill would again pass, and the Council of Guardians would again reject it, this time based on

procedural grounds. Eventually, the issue was resolved by the third passage of the bill.

What the debate on land reform reveals is that each side in the debate had a strong religious

foundation of support with which to argue. The leftists within the Majles could appeal to the

revolutionary ethos of the regime and the populist statements of Khomeini. In their view, Islamic law

and tradition supported their position and called for the correction of all inequalities within society,

regardless of property rights. The notion of fairness was on their side. Conservatives, on the other hand,

argued that the proposed reforms would endanger property rights in the long-run and make it hard for

investors to do business in Iran in the future. They also had religious precepts on their side as they

appealed to sanctity of private property within Islam, which echoed similar statements made by

Khomeini. The conservatives also had the support of the clerics on the Council of Guardians, which

effectively gave them a veto over any piece of legislation they objected to. The conservatives carefully

attempted to avoid any identification with the affluent landowning classes, always claiming that they

were defending legitimate ownership.37

It was clear that the legislators and administrators within the

Islamic Republic needed a clearer definition of the boundaries between legitimate and illegitimate

ownership.

Ideas of property were also central in the debate over the nationalization of foreign trade, another

issue that confronted the clerics almost immediately after the passage of the constitution and the creation

of the Majles. Unlike agriculture, this was an issue that had negative economic effects if one looks at

industry and fixed capital formation, both indicators of domestic investment.38

From 1979 to 1989, the

37

Bakhash, “The Politics of Land, Law and Social Justice in Iran,” p. 196 38

See Figure 3 in the Appendix

17

economic record of the Islamic Republic on these indicators either fluctuated wildly or stagnated.

Undoubtedly, one of the reasons behind this record were the ill-defined boundaries between the state,

cooperative and private economic sectors and the state’s disregard for clear and absolute property rights.

Like the issue of land reform, the extended debate on the nationalization of foreign trade revealed major

disagreements between the clerics.

As was mentioned earlier, Article 44 of the constitution divided the Iranian economic system

into three sectors. The public sector consisted of major industries, banking and foreign trade. The private

sector was to supplement the public sector (nobody still had any clear idea of what the cooperative

sector was). Since the Iranian economy had been integrated into the world economy under the Shah,

with increasing levels of foreign direct investment, representatives in the Majles had to determine the

extent to which Iran would continue to allow investment from abroad. The first nationalization of

foreign trade bill was submitted in May 1981. With the submission of the bill, President Ali Khamenei

stressed the importance of transforming the dominant consumer culture which had prevailed under the

ancien regime into a more revolutionary and Islamic culture.39

Prime Minister Musavi saw an

opportunity for increasing the self-sufficiency of the Islamic Republic through the complete

nationalization of all imports and exports.40

The leftist supporters of the bill felt that it provided a

solution to the rampant inflation and the maldistribution of goods in the country, in addition to

representing the anti-imperial position of the regime. The real culprits behind the inflation, according to

the Bank Markazi, were the rise in the money supply, the sanctions placed on Iran, and growing

monopolies in production and distribution,41

but the radical representatives refused to see the problem in

this way. Instead, they pointed the finger at middle-men and profit-seekers within the domestic economy

for the price distortions. The bill was meant to accomplish two things: transform the economic culture of

39

Ettela’at, 2 November 1981, p. 21 40

Schirazi, The Constitution of Iran, p. 194 41

Quoted in Amuzegar, Iran’s Economy Under the Islamic Republic, p. 74

18

the Islamic Republic and create stronger, more direct bond between producer and consumer by giving

the state the power to allocate goods and services.42

The second article of the foreign trade bill contained the religious justification for the law, stating

on Koranic grounds that the bill was within the bounds of Islamic law because of the injunction against

the rule of non-believers over believers. The drafters of the bill thought that if the foreign trade remained

in private hands, it could be used to increase the dependency of Iran on outside forces. The supporters of

the bill found such dependence at odds with the slogan “neither east, nor west.” In their minds the

autonomy and independence of Iran had to be defended, even if that meant the rejection of foreign

investment and economic isolation. Despite the religious justification of the bill, the debate within the

Majles unfolded in much the same way as the debate over land reform. Some argued that the bill

conformed to both Islamic law and the constitution. In a sense they were correct; the constitution did

allow the government to nationalize trade. Opponents responded by claiming that the bill contravened

Islamic law because it refused freedom to the individual to engage in lawful trade.43

They argued that

the independence of the Iranian economy could be safeguarded by giving the state supervision over

trade, rather than full nationalization.44

The original bill passed but the Council of Guardians rejected it, much as they had rejected land

reform. The conservative Council based its rejection on the fact that the bill disregarded two permissible

and legitimate forms of ownership that were mentioned in the constitution by creating an effective state

monopoly over importing and exporting goods.45

This was an obvious victory, at least legally, for the

conservative merchants in industry and the bazaar. But the radicals within the Majles were not yet

finished with their attempt to provide legal cover for the burgeoning role of the state in the economy.

42

Ettela’at, 23 December 1981, p. 3 43

Moaddel, “Class Struggle in Post-Revolutionary Iran,” p. 327 44

Schirazi, The Constitution of Iran, p. 194 45

Ettela’at, 27 November 1982, p. 15

19

They resubmitted and passed the bill in 1984, this time with a less stringent monopoly of the state over

trade. The Council of Guardians again rejected the bill on Islamic grounds.

Although the nationalization bill never passed into law, the state’s involvement in the economy

increased dramatically in the decade. This was because of its regulatory role and its control over the

allocation of foreign exchange.46

However, the issue of government involvement in the economy was

never resolved in the way that land reform had been, and it continued to plague the Islamic Republic by

preventing the adoption of consistent policies. This state of affairs had a much larger effect on the

overall economic performance than land reform ever had. It will be recalled that in the debate for and

against land reform, the need for clear property rights was seen as way of encouraging investment. This

was a correct diagnosis, but was used in the wrong debate. Where property rights and the accumulation

of wealth really needed protection was in the realm of trade and domestic industry. The reason land

reform did not have as great an impact as the nationalization of foreign trade did, is that eventually a

land reform bill was passed, but it was not the radical redistribution envisioned by Beheshti, Meshkini

and Montazeri. It was far more conservative in its goals, seeking to legalize the land occupations that

took place after the revolution, or at least limit their damage. The ruling clerics inexplicably emphasized

productivity in the agricultural sector in a way that they resisted in other sectors. Agricultural

productivity meant that the country could feed itself, but unrestrained and unregulated productivity in

other sectors meant the re-introduction of inequality into the Islamic order. In this way, finance and trade

needed limitations, even if this did not mean complete nationalization. Influential clerics expressed these

sentiments even in the midst of a serious economic downturn.47

The effects of the nationalization of foreign trade and the uncertainty it engendered were more

far-reaching since they directly affected investment. Those engaged in agriculture knew they would be

46

Amuzegar, Iran’s Economy Under the Islamic Republic, p. 142 47

Ettela’at, 27 February 1985, p. 18

20

responsible for cultivation, and they received substantial support from the government across the board.

Investors in manufacturing and industry were unsure of the support they would receive from the

government in the form of subsidies. They also did not know if their industries would be nationalized or

undercut by other state-supported ventures. Not only did nascent private industries face threats from the

state, they were also threatened by economic organizations protected by the state because they were

charitable foundations.

According to Hassan Hakimian and Massoud Karshenas, the continued growth of the

employment in the face of stagnant industrial output caused the productivity decline mentioned at the

begin of this study. This phenomenon could only take place in public enterprises, or those receiving state

protection.48

The parastatal bonyads are one such sector because they operate with sizeable government

subsidies and are geared toward charity, rather than commercial profit. Essentially, they are

organizations which control huge amounts of resources in the Iranian economy and operate far beyond

their original charitable purposes. They are also quasi-public, since virtually all of them receive some

government support, yet they are independent from the central government and answer only to the

Supreme Leader. These "organizations which operate in the name of the 'deprived segments' of the

population have, in practice, developed into conglomerates oriented toward capital accumulation, with

their proclaimed ideological objectives distinctly subordinate, though never fully subsumed."49

The bonyads distort the economic behavior within the Islamic Republic through their virtually

unlimited access to subsidies. Because of their ability to provide extra employment, they receive cash

handouts from the central government, sort of a payoff for their ability to lessen the popular pressures on

the regime by providing employment to the underprivileged. For example, the Bonyad-e mostaza’fin va

48

“Dilemmas and Prospects for Economic Reform and Reconstruction in Iran,” in The Economy of Iran: Dilemmas of an Islamic State. Parvin Alizadeh, ed. 2000. New York, NY: I.B. Tauris. p. 40 49

Maloney, Suzanne. 2000. “Agents or Obstacles? Parastatal Foundations and Challenges for Iranian Development.” The Economy of Iran: Dilemmas of an Islamic State. p. 150

21

janbazan received a subsidy of nearly 400 billion rials in 1994.50

However, their role within the

economy, though they have decreased total productivity by employing more workers than they need, has

not helped solve the under- or unemployment problems of the regime, as unemployment has reached 16

percent since the revolution and continues to be a serious challenge for the regime.51

Bonyads also receive subsidized credit from the central government. Since the constitution

stipulates that banking is within the state sector, the state enjoys a monopoly over credit and finance,

which it uses for political purposes. With this control, it can direct credit to industries and enterprises it

wants to promote. Given the bonyads’ political benefits, it is only natural that they have been the

primary beneficiaries of these practices. The consequence of this is that the bonyads have favorable

access to credit, but they are not held accountable for the efficient use of these funds. If they face

insolvency problems, their shortfalls are passed directly on to the central government budget, a process

detailed by Hadi Salehi Isfahani and Farzad Taheripour.52

In short, these are religious foundations protected by the state that fit into the regime’s larger

ideology of social justice. They are charitable foundations, ostensibly created to help the oppressed,

living symbols of the revolutionary ethos. Khomeini supported them and other leading clerics sang their

praises for the services they offered to the poor and dispossessed.53

In this sense, they fit in with the

larger goals of the regime in establishing an equal society which then could concentrate on movement

toward God. Yet, the bonyads cause serious economic distortions within the larger economy because of

the manner in which they operate and the continued support they receive from the state. They provide

employment but they also undermine private enterprises because of their extensive advantages. The

50

Ibid, p. 151 51

Karshenas, Massoud and Hassan Hakimian. 2008. “Managing Oil Resources and Economic Diversification in Iran.” In Iran in the 21

st Century: Politics, Economics and Conflict. Homa Katouzian and Hossein Shahidi, eds. New York, NY: Routledge.

52 “Hidden Public Expenditures and the Economy in Iran.” 2002. International Journal of Middle East Studies, 34:4

(November), p. 698 53

Ettela’at, 2 December 1984, p. 3

22

Bonyad-e shahid, for example, contains almost 150 separate private enterprises.54

Many even participate

in foreign trade. With their protected position, they have no fear of expropriation, nor are they taxed.

The ideological commitments of the Islamic Republic, established soon after the clerics led by

Khomeini came to power, created an unfavorable environment for economic growth. This is not

surprising – the creation of an Islamic order, not growth, was the state goal of the regime. The clerics

translated this goal into the establishment of an equal society in which the basic needs of all citizens

were met and the unequal distribution of wealth would not impede the economic activity of the poor

majority. This interpretation of Islam, Liberalism and Socialism led to uncertain property rights and the

foundation of parastatal organizations that helped the regime in its political, religious and social

missions but caused economic distortions. Khomeini, though he supported individual property rights,

did not provide decisive support to either the clerics who supported private enterprise or to those who

wanted a large role for the state in the economy. While Mir Hossein Musavi was Prime Minister, the

statist policies prevailed, but with the revisions to constitution and the change of administrations in

1989, Hashemi Rafsanjani attempted to change the economic culture of the Islamic Republic.

The Iranian Economy under Rafsanjani and Khatami

The Rafsanjani presidency has been described elsewhere as the second Iranian republic since it

involved major institutional and personnel changes after the death of Khomeini.55

Revisions to the

constitutions eliminated the position of the Prime Minister. This meant that the statist, left-leaning

clerics lost a key supporter in Mir Hossein Musavi, whose office had exercised great influence over

domestic policy. Instead domestic policy and its execution moved to the office of the president, which

was held by Hashemi Rafsanjani. The new constitution also created the Expediency Council, a body set

54

Maloney, “Agents or Obstacles? Parastatal Foundations and Challenges for Iranian Development” p. 151 55

Ehtashami, Anoushiravan. 2002. After Khomeini: The Second Iranian Republic. New York, NY: Routledge.

23

up as a mediator between the Majles and the Council of Guardians. The disagreements between the

Majles and the Council of Guardians had slowed and interrupted the work of the government throughout

the first two sessions of the Majles and the Prime Ministership of Musavi. There were constant battles

between the two bodies, as shown in the preceding section. Almost all laws in the Majles dealing with

the economy experienced some obstruction in their passage, while the executive branch simply

implemented its own policy. In this situation, the Majles and the Council of Guardians could debate for

years over programs of nationalization, while the government effectively nationalized industry and

industrial development through regulation and its control of currency and credit. Though it was set up as

an arbiter between the two existing institutions, the Expediency Council would take on its own

legislative role later on (also under the guidance of Hashemi Rafsanjani).56

More importantly, the death of Khomeini and the end of the war with Iraq accompanied the

institutional changes. Ali Khamenei, a cleric without the credentials or the following of his predecessor,

succeeded Khomeini as supreme leader. Khamenei and Rafsanjani, both of whom were leading

members within the IRP before its demise, essentially shared power during this period before Khamenei

eventually became the predominant power in the entire system.57

However, despite their position at the

top, neither could change the ideological orientation of the regime as the construction of an Islamic

order continued. What became clear to Rafsanjani, though, was that the economic performance of the

regime up to that point had caused problems for further growth. Abandoning his earlier radical positions,

Rafsanjani became an advocate of reform. Instead of focusing on the equal distribution of the economic

pie, he wanted to increase the overall size of pie, in this way improving the lot of the poor and the

dispossessed indirectly through a general economic expansion. The new institutional arrangement

seemed to provide set the stage for Rafsanjani’s liberalization and reform.

56

Arjomand, After Khomeini: Iran under his Successors, pp. 45-46 57

Ibid, p. 38

24

As it turned out, the institutions and personnel were easier to change than the guiding

revolutionary ideology of the regime. To deal with declining standards of living and the chronic

deficiency of domestic investment, Rafsanjani’s reforms included mostly structural changes which

would have made the Iranian economy run more efficiently. Specifically, the new president and his

“cabinet of reconstruction” tried to increase both industrialization and investment through the

privatization of industry, the unification of the exchange rate, the encouragement of foreign direct

investment, and the ending of consumer subsidies. The implementation of these policies would lead to

the re-integration of Iran’s economy into the international capitalist system, a process that was all but

halted after the Islamic revolution.

This reorientation of the economy seemed to contradict many of the earlier goals of the regime

and directly contravened the spirit of “neither east, nor west.” To many, the reforms signified the

westernization of the regime. Supreme Leader Ali Khamenei even warned of increasing westernization

of the regime and the need to eradicate western culture and attitudes.58

This statement echoes his earlier

support for the formation of a new Islamic culture to replace the rampant consumer culture of the

previous period under the Shah. The Majles was divided over the reforms. Nevertheless, the reforms

found support among the merchants not closely tied to the regime. These private merchants could not

compete with the bonyads and welcomed the privatization and deregulation of markets.59

The Rafsanjani

administration passed the reforms, creating a brief period of growth.

However, the reforms resulted not in sustained growth but in macro-economic instability. In

addition to the debts passed on from the parastatal organizations, short-term loans financed the

consumer boom from 1989 to 1991. The needs of Iranian industry for intermediate goods and

58

Ehtashami, Anoushiravan. 1995. “The Politics of Economic Restructuring in post-Khomeini Iran.” CMEIS Occasional Paper. Durham, UK: Center for Middle Eastern and Islamic Studies, University of Durham. p. 15 59

Behdad, Sohrab. 2000. “From Populism to Economic Liberalism: The Iranian Predicament,” The Economy of Iran: Dilemmas of an Islamic State, Parvin Alizadeh, ed. New York, NY: I.B. Tauris, p.113

25

Rafsanjani’s encouragement of imports created the boom, but isolated, Iran had limited access to long-

term loans, making short-term loans the only option. The debt crisis forced the government to

reintroduce import controls, undermining any further liberalization.60

The attempt to unify the exchange

rates resulted in rising levels of inflation. Up to the time of reform, Iran had used a system of multiple

exchange rates which essentially operated as a method of subsidizing domestic industry and as a way to

stabilize consumer prices.61

It was obvious that the rial was overvalued and the government

experimented with floating its currency. This resulted in a marked devaluation of the rial, which

increased inflationary pressures by making imported industrial inputs more expensive, which

manufacturers then passed on to customers.62

By 1995 this experiment ended and the government

reinstituted the system of multiple exchange rates. The exchanges rates would not be unified until 2002.

The immediate implementation of these reforms caused severe instability within the economy,

but also provided a short burst of growth. Yet macro-economic instability could not be totally blamed

for the failure of the reforms. The changes also encountered resistance from key political leaders such as

Ali Khamenei, who worried about how the reforms would signal an abandonment of the revolutionary

tenets of the regime. The reforms required a stronger guarantee of property rights to stimulate domestic

investment and attract foreign investment, and thus a reinterpretation of the Islamic Republic’s

philosophical foundations. The economy became an end, instead of a means. The revised constitution

made no changes to the economic articles, but removed the preamble defining the goal of the state as

movement toward God. The Islamic Republic seemed to have moved on from its radical roots and

looked more pragmatically at its internal and external affairs. The reforms were a deviation from the

60

This process is described by Hakimian and Karshenas, “Dilemmas and Prospects for Economic Reform and Reconstruction in Iran,” pp. 49-51 61

What the government did was sell the foreign exchange it receives from oil sales to the central bank at a low rate. The central bank then uses these funds to pay off debts and sells the rest to public and private enterprises at a slightly higher rate, but still below the market rates. See Salehi Esfahani and Taheripour, “Hidden Public Expenditures and the Economy of Iran,” p. 702 62

Behdad, “From Populism to Economic Liberalism: The Iranian Predicament,” p. 118

26

path of the Imam and ultimately veered too close to the western model of society. But the Rafsanjani

administration made a crucial mistake; besides trying to reform the entire system at once, they tried to

carry out the reforms when oil revenues were falling. The subsequent Khatami administration did not

make this mistake.

Khatami came to power on a platform of political reform, but the economy under his

administration benefited from the increase in oil revenues, which recovered in the period from 1999 to

2002, allowing the regime to continue the Rafsanjani’s economic liberalization. Like Rafsanjani,

Khatami too realized the importance of stronger guarantees for capital and property.63

Unlike

Rafsanjani, the administration’s reforms proceeded at a much slower rate. The unification of the

exchange rate and the legalization of foreign trade were accomplished nearly five years after Khatami’s

election. Indeed, 2002 seems to be the year in which the economy shifted toward a more western model

as government even issued permits to private banks.64

However, it remains to be seen if this period of

growth will continue if oil revenues decline. More work also has to be done in order to determine if an

ideological shift away from the slogan “neither east, nor west” or the idea of limited property rights

accompanied these policies and reforms. Khatami did propose his development plans with the requisite

statements in favor of social justice and the equitable distribution of income.65

As far as development is concerned, the Islamic Republic has performed well since the

revolution. Overall, poverty has decreased and the levels of human capital have increased. While the

economy under the Shah had grown impressively, a growth in human capital did not accompany these

gains. Under the Islamic Republic, the economy has stagnated but child mortality has declined and

education has increased.66

Yet while poverty has declined, inequality has not. There is evidence that the

63

Ibid, p. 135 64

Salehi Isfahani, “Oil Wealth and Economic Growth in Iran,” p. 30 65

Quoted in Behdad, “From Populism to Economic Liberalism: The Iranian Predicament,” p. 135 66

World Bank. 2009. World Development Indicators.

27

distribution of income between urban and rural areas widened since Rafsanjani’s reforms.67

Perhaps

these trends can explain the re-emergence of populist politics under Ahmadinejad, which marks a return

to the revolutionary ideology of the earlier period.

Conclusion

Sustained growth was elusive in the first twenty years of the Islamic Republic. This paper has

attempted to explain this phenomenon through an examination of property rights in Iran since the 1979

revolution. It has found that the state has been the primary threat to stable property rights. The religious

foundation of the regime created certain ideological commitments that, while theoretically supportive of

individual property, outlined the need for limitations for the sake of the equal distribution of resources

and opportunities. It also created protected sectors within the economy which exploited their advantages

as charitable organizations for larger economic and political purposes, receiving extensive subsidies

from the central government. The combination of uncertain property rights and the protected bonyads

made it very difficult for private actors, both foreign and domestic, to do business within Iran.

Ultimately, this impaired long-term growth. I do not mean to suggest that Islamic economics will always

impair growth; what I do want to suggest is that as long as property remains undefined from an Islamic

standpoint, investment will remain uneven. Ayatollah Khomeini, as the undisputed leader of the Islamic

Republic, could have clearly formulated the limitations of property but chose not to for his own reasons.

The study of Iran’s economy highlights important aspects of the use of ideology and the ends of

the state. The ambiguous Islamic ideology of the clerics helped their efforts to take over the state and

defeat their rivals, but it offered no guidance for the actual management of politics and the economy.

The post-revolutionary situation forced the clerics and representatives within the Majles to confront

67

Salehi Isfahani, Djavad. 2009. “Poverty, Inequality and Populist Inequality in Iran.” Journal of Economic Inequality, 7:1 (March), pp. 10, 19

28

issues which centered on property rights. Religious sources offered little guidance as the clerics justified

opposing viewpoints with reference to Islam. There then emerged a standoff between property rights and

the necessity of transforming the society to reflect the religious need for more equitable distribution,

with potential investors caught in the middle. The institutional makeup of the state and Khomeini’s

reluctance to intervene decisively for one policy or another did not help the clerics either. In a sense,

ambiguous Islam was both a benefit and a hindrance.

A larger question the clerics had to confront was the ends of the state. In the earlier period they

unequivocally rejected the Lockean notion that the chief end of the state was the protection of private

property. In the thought of Beheshti and other clerics, God alone held absolute sovereignty and the

Islamic state could determine the limits of property. Instead, they adopted a more Aristotlian view of the

state as an association that persists for securing the good life and cultivating virtue. Khomeini made this

clear in his treatise on Islamic government in which he said that the solution to modern social problems

required faith and morals. The establishment of an Islamic state would create a just order and implement

the divine laws of the Prophet, allowing the citizens to pursue their spiritual development.68

The clerics

who wrote the constitution institutionalized this goal, eschewing individual freedom as the end of

government. The strict adherence to this goal encouraged inefficient economic behavior, but as the

Islamic Republic matured a more western view of the state emerged, allowing for the further integration

of the Iran into the global economy and causing a period of sustained growth. However, it is unclear

how much longer this view of the state will remain dominant. The Islamic Republic now faces internal

unrest and increasing isolation. The Ahmadinejad administration relies on populism and the belief that

the country has abandoned it revolutionary mission in favor of westernization and naked economic

68

Islam and Revolution: Writings and Declaration of Imam Khomeini. Hamid Algar, trans. 1981. North Haledon, NJ: Mizan Press, p. 37

29

growth to cultivate support. The days of “neither east, nor west” may not be completely behind the

Islamic Republic.

30

Appendix

Figure 1:

Figure 2:

31

Figure 3: