THE RISE OF THE SUBCONTRACTOR STATE: POLITICS OF PSEUDO-PRIVATIZATION IN THE ISLAMIC REPUBLIC OF...

Int. J. Middle East Stud. 45 (2013), 45–70doi:10.1017/S0020743812001250

Kevan Harris

THE RISE OF THE SUBCONTRACTOR STATE:

POLITICS OF PSEUDO-PRIVATIZATION

IN THE ISLAMIC REPUBLIC OF IRAN

AbstractSince 2009, analyses of Iran have stressed the centralizing takeover of the country’s economy by asingle state institution, the Islamic Revolutionary Guards Corps. At the same time, however, Iran’sfactionalized political elite uniformly advocate for rapid privatization of state-owned enterprises.Underneath this puzzling contradiction is a complex shift of economic ownership away from thestate toward a variety of parastatal organizations including banks, cooperatives, pension funds,foundations, and military-linked contractors. The result is not a praetorian monolith but a subcon-tractor state. This article draws on interviews conducted in Iran during 2009 and 2010, primarydata from parliamentary and governmental reports, and secondary sources to show how intraeliteconflict and nonelite claims have structured the process of privatization. Framed comparativelywith privatization outcomes in other middle-income countries, Iran’s subcontractor state can beseen as a consequence of the way in which politics and society shaped the form of capitalism thathas taken root in the Islamic Republic.

In the wake of the contested 2009 presidential elections in Iran, a popular consensushas taken shape among scholars, commentators, and Western government officials onthe immense role in the Iranian economy of a single government organization: theIslamic Revolutionary Guards Corps (IRGC). Abbas Milani, for instance, states that theIRGC, an elite branch of the Islamic Republic’s armed forces, is akin to a “militaryjunta” and controls “minimally about 60 percent of the economy.”1 Said Arjomanddescribes the situation as a “military-industrial-commercial complex” with the IRGC’s“economic empire” at its commanding heights.2 And at a speech in Riyadh in February2010, U.S. Secretary of State Hillary Clinton expressed her government’s belief thatthe IRGC was, “in effect, supplanting the government of Iran” and “moving toward amilitary dictatorship” with firm control over the economy.3 In this view, often informedby scandals in the Iranian press, accusations by opposition elites, and boasts by formerGuards members themselves, the IRGC’s praetorian status in the country’s postrevolu-tionary order has allowed it not only to consolidate its political position within the statebut also to centralize the domestic economy under its charge. The relative institutional

Kevan Harris is a Postdoctoral Research Associate in the Department of Near Eastern Studies, PrincetonUniversity, Princeton, N.J.; [email protected]

© Cambridge University Press 2013 0020-7438/13 $15.00

46 Kevan Harris

cohesiveness of the IRGC, compared to other state agents, is assumed to transfer to theeconomic sphere.4

In contrast to this interpretation, which perceives the main tendency as centralizationof economic control under a militarized state apparatus, the popular consensus amongpolitical elites within the Islamic Republic, no matter where they lie on the ideologicalspectrum, is that massive and rapid privatization of state-owned assets is needed as aneconomic panacea for the country’s woes. �Ali Khamenei, Iran’s leader and supremejurist, decreed in 2006 that 80 percent of the public sector should be privatized, declaringthe effort a “kind of jihad.”5 Since the pronouncement, Iran’s government has claimedthat this is precisely what is occurring. A glossy report for foreign investors, entitled TheBusiness Year: Iran 2011, announced that Iran had “conducted one of the most effectiveand wide-ranging privatization efforts seen in the region in recent years.” In 2010 alone, itstated, more than 300 state-owned enterprises (SOEs), including petrochemical plants,banks, fuel refineries, airlines, insurance companies, automobile manufacturers, andagricultural conglomerates were either transferred out of state hands or promised by theofficial Iranian Privatization Organization to be transferred soon.6

In December 2010, however, an Iranian parliamentary commission on privatizationreported that, out of seventy billion USD worth of assets of SOEs divested since 2006,only 13.5 percent of the shares had gone to the private sector (defined as any firm or agentoutside of the public, cooperative, or nongovernmental public sectors).7 The remainderwas transferred to what is often called the pseudo-state or parastatal sector: banks,military firms, state-linked investment and holding companies, endowed foundations,pension funds, and President Mahmoud Ahmadinejad’s dividend program of “justiceshares.” This report points to a process contradicting both of the assessments outlinedpreviously. The Iranian economy has become neither centralized under the control of asingle entity nor privatized in the normally understood sense of the term. A handful ofIranian economists have derided the outcome as “pseudo-privatization” rather than “realprivatization.”8 Yet, by the sheer scale of capital involved, an economic transformationhas surely taken place. While scarcely a monopolization by any one actor, this process ofpseudo-privatization raises critical questions for contemporary understandings of Iranianeconomy and society.

In this article, based on interviews conducted in Iran during 2009 and 2010, primarydata from parliamentary and governmental reports, and secondary sources, I argue thatwhile the IRGC’s presence in economic activities is substantial, the existence of suchactivities in conjunction with those of other subcontractor firms, investment funds, andstate-linked economic actors needs to be situated within a larger analytical field. Ratherthan a praetorian state with a cohesive institutionalized actor dominant in the economy,the Islamic Republic resembles a subcontractor state that has decentralized both itseconomic and its social responsibilities.

The article proceeds as follows. First, drawing from literature on privatization inthe global South, I bring the “social” back in by highlighting the typically tenuousrelationships between state elites, social pressure, and successful privatization outcomes.I then detail the process by which the fractious political elite of the Islamic Republic,whose formation was steeled in revolution and war, gradually developed a homogenousdiscourse of economic liberalization and privatization. Next, I assess the nature anddegree of privatization in Iran, comparing programs of previous administrations with the

The Rise of the Subcontractor State 47

more radical efforts of the Ahmadinejad government. I argue that protracted intraelitestruggle after the Iran–Iraq War (1980–88) constrained the state’s ability to sharplychange the direction of economic policy. In addition, the state remained embeddedwithin a variety of social groups with opposing interests, contributing to the inability tofully implement real privatization. In other words, to understand Iran’s political economy,we need to look at how “the social” has operated as a check on maneuvers by the politicalelite. The economic prominence of the IRGC and parastatal organizations is not a signof their militaristic takeover of the state. Like the state itself, these organizations areconstrained by 1) the legacy of a decaying, war-forged social compact that promiseda wide array of welfare benefits to citizens in various social classes and status groupsand 2) political infighting between elites who use economic policy as a battleground forfactional struggles.

Finally, I reframe Iran’s economic transformation by utilizing three ideal types ofcapitalist development in middle-income countries in eastern Europe and East Asia:capitalism from without, from below, and from above. Successive periods of Iran’spostwar history (1989–present) roughly correspond to each of these ideal types. The riseof the subcontractor state, I contend, should not be confused with the logic of militarism.Instead, the subcontractor state is an outcome of the way in which politics and societyshaped the form of capitalism that has taken root in the Islamic Republic.

PA R A D OX E S O F P R I VAT I Z AT I O N I N T H E G L O BA L S O U T H

Much commentary in Iran, as in other low- and middle-income countries, tends toattribute the many distortions, failures, and unintended consequences of economic lib-eralization to the persistence of state intervention in the market. Yet a central paradoxof economic liberalization in the late 20th century, especially when such reforms wereperceived to have succeeded, was that the reduction or elimination of statist policiesinvolved the intervention of the state.9 The “myth of the market” is that economies oper-ate free of state institutions. In reality, processes of commodification and marketizationdemand a robust state with high regulatory capacity, which Michael Mann identifiesas “infrastructural power.”10 Scholars such as Kiren Chaudhry forcefully argue thatcompetitive markets are not simply created by “smashing” the state but rather that “theinstruments of the state must be redeployed to perform the much more difficult taskof indirect regulation and administration.”11 In other words, successful privatization ofSOEs, often built up during years of import-substitution industrialization conducted intandem with state formation itself, requires a state capable of initiating and carryingthrough such a major transformation. The paradox of privatization is that, as Haggardand Kaufman contend, “for governments to reduce their role in the economy and expandthe play of market forces, the state itself must be strengthened.”12

Successful privatization needs high state capacity. But perceptibly “strong” states donot always privatize, even if privatization is desired by policymakers, since elites canblock policy change from within or without the government. Scholars of economic pol-icy have identified the presence of “relatively autonomous” technocratic organizationswithin the state, or “insulated change teams,” as a key variable of success.13 The conceptof relative autonomy, though, has traveled a long theoretical distance. Originating inMarxian debates over whether states could be independent of capitalist elites, later

48 Kevan Harris

usage of “autonomy” within development studies shifted toward a Weberian frameworkto analyze whether states could be sufficiently independent of social pressure to carryout structural transformations in the economy.14 For example, SOE privatization usu-ally requires state autonomy from public sector groups such as workers, often throughdismantling or overcoming former corporatist linkages with labor.15 The responses ofdomestic business elites to state efforts at liberalization can also depend on how state–business relations have been previously structured during eras of high tariffs, infantindustries, and other protectionist policies.16 In sum, to act autonomously in relation topowerful social actors, including state and business elites, that could lay claim to publicassets, governments need to carve institutions out of the state apparatus that are uncon-strained by such linkages. Explaining well-managed privatization via such autonomousstate organizations therefore entails an examination of the social and political context inwhich opportunities to transfer public goods into private hands may emerge.17

Moreover, the social function of SOEs can vary widely. As Chang and Grabel write,“Often SOEs are charged with serving too many objectives (e.g., social goals, industri-alization, and the provision of basic services), and the relative importance of each goalis unclear.”18 One might expect such overloaded SOEs particularly in states that dependheavily on natural resource commodity exports for government revenue, especiallywhen trade-offs between capital accumulation and social distribution are not sharplydemarcated. For instance, under the administration of President Hugo Chavez, Petroleosde Venezeula, S.A., the national oil company of Venezuela, renegotiated contracts withprivate domestic and international actors and expanded direct expenditures on newsocial services for the urban and rural poor. This was a shift away from the company’sstrategy in the 1990s to fashion itself a multinational corporation operating in globalmarkets. Critics argued that the incorporation of expanded social objectives could harmthe company’s firm-level investment opportunities.19 However, as Steffen Hertog hasshown, Gulf states have produced profitable SOEs in lieu of substantial privatization. Inthe United Arab Emirates, Saudi Arabia, and Qatar, this was an outcome of “decadesof nonpolitics”—an absence of social pressure from below, which allowed for extensivestate autonomy in economic policy making. Populist measures, in these Gulf cases, werenot required for successful state-building projects. SOEs were relieved both from pres-sures of bureaucratic predation and expectations of redistribution. Firms’ managementcould be directed and incentivized toward rationalized market calculations, formingsmall “islands of efficiency.”20 As a result of historically contingent political and socialformations, such as a relatively small citizenry and a large migrant working class,such states developed “embedded autonomy” in relation to themselves. The “resourcecurse” of state capture and patrimonial linkage, often attributed to easy access to naturalresources, is likely due more to politics than petroleum.21

In Iran, politics also determined how, to whom, and over what networks economicresources flowed during the process of restructuring domestic firms and markets. Stateformation after 1979 was embedded within and constrained by an array of social actors.To understand why, we first need to place Iran’s seemingly haphazard economic policieswithin the political drama of revolution, war, and postwar reconstruction. Throughout theentire postrevolutionary period, a factionalized and fractious state elite prevented the co-alescing of a unified apparatus that could fully apply the technocratic blade to the publicsector. The flux of competition among political entrepreneurs, electoral and otherwise,


relied upon popular mobilizations of a variety of social bases and status groups. Attimes, intraelite conflict provided opportunities for market activity by domestic privatesector actors, as in the banking industry in the early 2000s. In subsequent years, though,state transfer of public sector companies was mostly channeled toward organizationswhose member constituencies had been produced alongside the state itself, whether largepension funds for the formal labor force, “justice share” cooperatives for “revolutionary”status groups, or the military’s growing network of subcontractors that provided avenuesfor upward status mobility among war veterans. While states that construct autonomyfrom protected elites and other powerful social actors are best poised to carry out “realprivatization,” Iran’s postrevolutionary trajectory embedded the state deeply within thedomestic social arena. The result has been the rise of the subcontractor state.

NAT I O NA L I Z AT I O N B Y N E C E S S I T Y

Article 44 of the Iranian constitution, the legal basis for SOE privatization since itsamendment in 2004, has a remarkable history. According to �Izzatullah Sahabi, a memberof Khomeini’s 1979 Revolutionary Council, it was placed into the second draft of theconstitution by ayatollahs Bihishti and Alviri and Hujjat al-Islam Bahunar and approvedby popular referendum in October of that year.22 Originally, Article 44 stated:

The state sector is to include all large-scale and mother industries [i.e., large downstream oiland gas production], foreign trade, major mines, banking, insurance, power generation, damsand large-scale irrigation networks, radio and television, post, telegraph and telephone services,aviation, shipping, roads, railroads and the like; all these will be publicly owned and at the disposalof the state. The cooperative sector is to include cooperative companies and institutions involvedin production and distribution that are established in urban and rural areas in accordance withIslamic precepts. The private sector consists of agriculture, animal husbandry, industry, trade, andservices that supplement the economic activities of the state and cooperative sectors.23

The spirit of Article 44 was partly a move to bolster the left-leaning credentials ofthe Khomeini-led state and partly a recognition of the circumstantial nationalizationthat had already taken place amid revolutionary collapse. In 1979, year one of therevolution, a segment of Islamic liberals backing provisional government head MihdiBazargan was content with keeping a large private sector intact in order to ensurecontinued domestic investment. Bihishti, however, was more concerned with the successof Khomeinist forces. Secular leftist groups in the 1979 revolutionary coalition insistentlycalled for nationalization of major industry as part of a socialist transformation of Iranand possessed a formidable social base that competed with Khomeini loyalists. AsKhomeini’s “lieutenant,” not to mention a political genius in the mold of Trotsky, Bihishtimoved to outflank the leftist competition through the use of language such as that inArticle 44. In reality, most of the antipathy toward the private sector by the revolutionariesremained directed at those elite families connected with the old regime or Western-linkedcapital. The new state, therefore, did not expropriate all factory owners and landholdersbut ended up in control of the economy mostly by exigency rather than plan.

After war with Iraq began in late 1980, state control over production and distributionwas strengthened. Bazargan’s original intentions for boosting the private sector weresidelined. This stemmed, however, more from need than ideology. By the fall of 1981,

50 Kevan Harris

Khomeini loyalists had occupied the state’s commanding heights, and a new five-yearplan was drafted to commence in 1983. The plan stressed common Third Worldistpieties such as self-sufficiency in production and unshackling the Iranian economyfrom the “dependent development” of the shah’s rule. In reality, the document wasmerely a codification of the war economy. Its lofty goals were never implementeddue to the country’s ad hoc governance.24 As the public sector expanded in the wareconomy, parastatal organizations that had initially formed as Khomeinist auxiliariesduring the postrevolutionary struggle—the IRGC, the volunteer basıj militia, the ruraldevelopment agency Construction Jihad, and the welfare organization Imam KhomeiniRelief Committee—became crucial to operations both on and off the front lines. Theseincluded not only military logistics, supply transport, and recruitment efforts but alsoemployment and welfare provision. As Kaveh Ehsani notes, “Public sector employmentmore than doubled after the revolution, from 1.7 million in 1976 to 3.5 million in 1986.According to one estimate, within three years of the revolution, one in six Iranians abovethe age of fifteen belonged to one state and revolutionary body or another.”25

Even during the war, however, the private sector employed the majority of the laborforce in agriculture, services, and small-scale manufacturing. Such private sector activ-ities often competed in the economy with newly formed state-sponsored cooperativesand revolutionary organizations.26 After a recession induced by the oil slump in 1986,the government gradually shifted some activities in trade and commerce, especiallynonoil exports, to private hands, effectively utilizing the robust black market in order tomeet consumption needs during the crisis years of the war. Capitalists outside of suchpreferential networks invested in the most available and inflation-protected assets: realestate and construction. Again, however, this process was facilitated by the state, whichfreed up urban land for use and made housing loans with low fixed interest rates easilyprocurable. As the economist Kamal Athari has noted, the housing sector has alwaysbeen the backbone of private sector development in Iran. From 1980 to 1986, even aswar and political uncertainty upended other economic sectors, there was a housing boomin urban areas.27

Meanwhile, latent ideological differences were emerging within the new politicalelite. A self-described “radical” faction, with members such as Prime Minister MirHusayn Musavi, Bihzad Nabavi, and Ayatullah Muhammad Musavi Khu�iniha, pushedfor more statist intervention: taxes on commerce and income, labor regulation, landredistribution, import substitution, and increased scrutiny of private property.28 In reality,the postrevolutionary economic debate between prominent elites in the 1980s neverquestioned the sanctity of private property per se but rather concerned the suitable balanceof state and market. The radicals’ measures, passed in the parliament, were doggedlyrejected by a conservative faction based in the Guardian Council, a de facto House of(clerical) Lords enshrined in the 1979 constitution with veto power. Khomeini frequentlysided with the populist radicals until his death in 1989, though little coherent economicpolicy emerged from the intraelite strife during his tenure as leader and supreme jurist.

T H E L I M I T S O F L I B E R A L I Z AT I O N

After the war ended in 1988, a “third way” faction coalesced under President Ak-bar Hashemi-Rafsanjani (r. 1989–97) whose members self-identified as pragmatists or


“constructionists.” This faction was the first to broach the issue of SOE privatizationin the public sphere. Politically, Rafsanjani saw himself as an updated version of themodernizing 19th-century Qajar bureaucrat Amir Kabir, whose biography he had writtenas a young cleric in the 1960s. The technocrats Rafsanjani brought into his governmentpublicly ridiculed the visible lack of scientific knowledge and economic expertise duringthe war years. Mas�ud Nili, an economist at the Planning and Budget Organization duringthe late 1980s and a main author of Rafsanjani’s first Five-Year Plan (1989/90–1993/94),boasted that during this period, Islamic leftists and radicals believed in a dirigiste econ-omy, and Islamic conservatives believed in a “traditional” market economy (commerceand trade through mercantile networks with a night-watchman state), while a new self-described “expert” faction under Rafsanjani recognized that a “modern” and competitivemarket economy was the correct path for the country.29 Technocratic expertise was tosupplant revolutionary fervor.

Rafsanjani’s first Five-Year Plan aimed to reduce state control in the economy, market-ize the distribution of consumer goods, borrow capital on international financial markets,and reform the country’s multi-tiered currency exchange rates. It was bitterly attackedby the radicals—solidly entrenched in parliament in the late 1980s with Mihdi Karubias speaker—in print media such as Salam and Bayan. They accused the government ofcapitulating to Western capitalism, favoring industry over agriculture, and relying onforeign debt. Stung by his critics, Rafsanjani repudiated the claims, asserting that his planwas for a “mixed, Islamic economy.”30 Yet Rafsanjani and his aides then strategicallyallied with conservatives in the Guardian Council to disqualify members of the radicalfaction from running in the 1992 parliamentary elections. The Khomeinist “left” waseffectively purged from the political field, and Rafsanjani was compared to Gorbachevand de Klerk in the international media. Iran’s “perestroika,” however, was short lived;a balance of payments crisis ensued due to an oil price collapse in 1993 and 1994,unemployment and inflation reached untenable levels, and protests broke out in severalmajor Iranian cities. Rafsanjani reluctantly backed off from his reforms.

The political infighting of the early 1990s affected the SOE privatization process.Out of 770 public companies, the government identified 391 that could be privatizedaccording to the constitutional language of Article 44. In practice, SOE sales becameprotracted and mostly occurred through direct negotiations with interested buyers insteadof through public auctions. As privatization proceeded, critics from both the left andright claimed it was riddled with corruption and that it effectively handed over thestate to a new and undeserving aqazadih—the “sons of the elite.” In interviews withbusiness actors who possessed decades of private sector experience during 2009 and2010, I inquired about this early privatization effort in the Islamic Republic. Severalrespondents provided anecdotal evidence that many companies were known to be lossmaking. Skittish private capital was not convinced of the government’s promise ofsecure and profitable investment outlets. Indeed, in 1994, parliament, now controlled byconservatives, prohibited government sale of SOEs through negotiated transfers. Instead,transaction houses were created to preferentially sell companies’ shares to large endowedfoundations (bunyadha) whose beneficiaries included war veterans, families of martyrs,basıj members, and other “devotees” of the revolution.31 The parliament’s move blockedthe transfer of SOEs to private entities and established an early precedent of “pseudo-privatization” into the hands of these and other parastatal entities.32 By one calculation, of

52 Kevan Harris

the 331 companies that were fully or partially transferred under the name of privatizationbetween 1989 and 1994, half of the shares went to parastatal organizations.33 Theremaining SOEs were told to become self-sufficient in their operation costs, but hardbudgets were rarely enforced by the state due to these companies’ social function aslarge employers and their easy access to preferential foreign exchange rates.

As the Rafsanjani administration grappled with the conservative-majority fourth par-liament (1992–96), radicals such as Khu�iniha and Karubi slowly moderated their viewsand eventually declared themselves as “reformist” politicians. The transformation ofmost of the Khomeinist left to political liberalism has received much scholarly attention,but their gradual acceptance of economic liberalism is less noticed. One reason isthat Muhammad Khatami, Iran’s minister of culture from 1982 to 1992, did not offermuch of an economic plan during his 1997 presidential campaign. Once elected, heproposed an economic reorganization plan in 1998 and then the third Five-Year Devel-opment Plan (2000–2005). While also emphasizing the goal of a universal social welfaresystem, the plans continued earlier efforts at economic liberalization—which was notsurprising since most of Khatami’s economic team was retained from the Rafsanjaniadministration.34 By no means did the reformists entirely recant their earlier stanceson economic policy, since many of them continued to lambast Rafsanjani’s approachwell after the election of Khatami. Nevertheless, the ideological shift was underway.Leftists gingerly moved toward economic liberalism, while economic liberals appealedfor political reforms. As Nili recalled in 2002, “The [plan] managers that had statist eco-nomic orientations are today implementing plans oriented towards a modern competitiveeconomy and support of the private sector.”35

This was a practical marriage of political convenience, however, not a necessaryoutcome of Iran’s postrevolutionary development. Reformist elites publicly rethoughttheir precepts of the revolution but mostly in the realm of politics, not economics.Stressing concepts of civil society and a deideologization of the public sphere, themovement found a popular champion in Khatami, who seemed to promise an IslamicRepublic with a human face. The reformists who did accept Rafsanjani’s project ofeconomic modernization attempted to reverse his top-down approach, arguing that itcould only come to pass once political modernization had begun. The most significanteconomic successes achieved in Khatami’s administration, after years of foot-draggingfrom the conservative-controlled Guardian Council, were the 2002 unification of tieredexchange rates and a floating peg of the Iranian rial to the dollar. Yet economists closeto Rafsanjani had first suggested this reform in the late 1980s, signaling how slowlythe state machinery of the Islamic Republic has operated when it comes to economicliberalization.

P R I VAT E S E C T O R G ROW T H W I T H O U T P R I VAT I Z AT I O N

In the late 1990s, a curious process began that economist and former MP AhmadMaydari called “private sector growth without privatization.”36 As mentioned, privatecapital never fully disappeared in postrevolutionary Iran. Some Pahlavi-era industrialistsand merchants, looking for new opportunities, reinvested their capital in the country.Others, such as mid-level bureaucrats and provincial figures, amassed small fortunesduring the 1980s via land grabs in an unsettled legal environment.37 Bazarıs who lacked


political clout to obtain coveted import licenses or foreign currency allotments turnedto speculation in black and grey markets.38 Beginning in the early 1990s, Tehran mayorGhulamhusayn Karbaschi (r. 1989–98) encouraged speculative capital to further moveinto housing and commercial construction projects, extracting “fees and taxes frommerchants and developers in exchange for exemption from zoning laws and protectionfrom political pressure.” Private investment in the city’s construction sector from 1987 to1997 increased by a factor of fifteen, funding Tehran’s “growth machine” as the capital’shigh-rise skyline and ringed highways took the shape recognized today.39

Private capital soon found another outlet. Facing a staunchly conservative GuardianCouncil that eagerly vetoed down any reform too far reaching, Khatami’s administrationwas well aware of the political limitations on privatization, Rafsanjani-style. As analternative, the government began to grant licenses for establishing private companies insectors where these were justifiable under Article 44’s language. In 2009, one Tehran-based small-business owner told me that the best year for “entrepreneurs” over thepast two decades in Iran was “definitely the second year of the Khatami government[1998–99].” First occurring in banking and insurance, licenses were later extended to thesubsidiary oil, power plant, construction, airlines, telecommunications, and postal sec-tors. As a result, new enterprises emerged and flourished in sectors formerly dominatedby quasi-monopolies. For example, in the 1990s, only a few SOEs produced all industrialdairy products in Iran. By the late 2000s, over twenty private companies were activein the field along with the original SOEs. Instead of transferring public monopoliesto private hands, Khatami’s government allowed the private sector to compete withpublic and parastatal firms for market share. In fields such as banking, this competitiongenerated consumer-friendly innovations such as electronic accounts, internet banking,and ATMs, all of which state banks eventually adopted.

Banking exemplified Iran’s rising private sector during this period.40 In 1999, three ofTehran’s housing construction magnates formed the Housing Credit Institution, whichwas allowed to provide housing and auto loans only. To attract middle-class householdsavings, it paid higher interest than state banks, advertising with the slogan “two percentmore.” Also in 1999, a former Tehran stock market manager, a Central Bank official, andseveral Pahlavi-era textile and plastics industrialists founded Saman Credit Institutionwith a start-up capital of 1.1 billion tomans. In 2001, it became Saman Bank witha capital stock of twenty billion tomans. By the late 2000s, Saman was valued at 300billion tomans (about $300 million USD), with large public pension funds in the steel andcopper sectors as major shareholders. One of Saman’s founders stated that two changeshad made its growth possible: consumer credit for goods such as autos, appliances,and computers; and innovations in electronic banking services. A former industrialistwith good relations to the Ministry of Industry founded Karafarin Bank, whose otherinvestors included top members of SOE conglomerates. Parsiyan Bank, whose advertcampaigns lavishly recalled ancient Persepolitan friezes, grew out of the investmentarm of automobile SOE Iran Khudraw. Parsiyan soon became the country’s third largestbank and the largest listed on the Tehran stock exchange.41 As a final example, themajor shareholders of Iqtisad-i Nuvin Bank, which advertised itself as “Iran’s firstprivate bank,” had been active in light industry and construction.

By 2009, with only 4.7 percent of Iran’s branches, private banks held 34 percent ofthe country’s total long-term deposits and 25 percent of its short-term deposits.42 As

54 Kevan Harris

the stories of these banks illustrate, private sector growth without privatization duringthe Khatami era did not arise from a vacuum. Instead, a particular form of capitalistdevelopment, in which private entities coexisted with public ones, emerged out oforganizational networks linked to previous state-building efforts in the industrial sectoras well as networks of diaspora and domestic capital. This would not have been possibleif the private sector had been completely wiped out after the revolution. Furthermore,just as nationalization during the war years was a mostly ad hoc response to politicalexigencies and elite factional competition, this new growth in the private sector emergedout of a makeshift solution to constraints imposed by intraelite political strife during the1990s.

Khatami’s administration did attempt to push ahead on SOE privatization withoutbreaching Article 44. The Third Development Plan (2000–2005) stipulated that publicownership would be broken up except where “the state has a natural monopoly.” Agovernment commission indicated that only 128 out of 724 firms needed to remainstate owned; in addition, it recommended that more than 1,000 parastatal companiesbe privatized, including those controlled by large foundations and related institutions.43

But the Guardian Council loudly attacked Khatami’s plan as antithetical to Article 44’snationalist spirit, partly echoing (without crediting) the former radicals’ earlier critiqueof Rafsanjani’s liberalization agenda. In 2004, however, the Rafsanjani-chaired Expedi-ency Council released a long-awaited and binding interpretation of Article 44 that clearlysupported the Khatami administration.44 The ruling disallowed further protest by theGuardian Council, amending Article 44 to oblige the government to divest from majoritycontrol in heavy industry, downstream oil and gas refineries, mining, power generation,banking, aviation, shipping, insurance, infrastructure, and telecommunications sectors.By then, however, Khatami’s second term was nearing its end, and conservative intransi-gence in other state branches limited implementation of his administration’s privatizationgoals.

In short, while discussed far less than the debate over democratic pluralism in theIslamic Republic, much of Iran’s political elite has undergone an ideological transfor-mation on economic matters. Yet this shift in thought is not unique. In Iran, as in othermiddle-income countries in the 1980s and 1990s, privatizing the assets of an ossified,semi-authoritarian state was perceived as a radical position. It was not surprising thenthat many of the left-leaning Khomeinist elites found themselves, twenty years after the1979 revolution, extolling the state-tempering properties of market discipline. Only onefaction remained outside the consensus on privatization: the conservatives. While duringthe 1980s, they took a relatively laissez-faire position on private ownership, conserva-tives had never presented private sector growth as the main pathway for developmentalsuccess. Furthermore, conservatives stood to lose if SOE privatization reordered theelite and brought in newcomers as potential challengers. They were unwilling to cedethe commanding heights of the Iranian economy in an uncertain political climate wherenew and unknown owners were feared. As Muhammad-Riza Bahunar, a high rankingconservative MP, bluntly stated, “Article 44 of the constitution was the place for the dis-putes between left and right groups within the country’s political system that had begunduring the government of the Sacred Defense [Iran–Iraq War] and continued for twentyyears.”45 After the election of Mahmoud Ahmadinejad, however, the conservatives’stance on the issue shifted significantly.


PA R A S TATA L S E C T O R G ROW T H T H RO U G H

P S E U D O - P R I VAT I Z AT I O N

As neither a septuagenarian nor a member of the �ulama�, Ahmadinejad was not Iran’saverage conservative. Running on a platform of pious competence, his image as aneducated, technocratic engineer was strategically cultivated to resonate with Iranianstired of a seemingly useless state apparatus. To his advantage was an apathetic Brezh-nevian air surrounding the reformist movement, which had descended into infightingonce conservative obstruction stalled Khatami’s sociopolitical agenda. Ahmadinejad’sallies deftly took advantage of the stalemate between reformists and the old conservativefaction, calling themselves, at first, “developers” and then also “principlists.” The latterterm originated during the 1990s as an emblematic counterpoint to reformists, whoconservatives argued had diluted revolutionary principles. Campaign slogans cleverlyinjected symbols of Iranian nationalism into the visage of a proletarian-cum-statesman.Ahmadinejad and his circle countered the reformists’ faded discourse of civil society andpolitical pluralism with a rehashed critique of the perceived corruption of Rafsanjani—who was running for president yet again—and a vague promise of income redistribution.Old-guard conservatives looked on warily. Yet they also envied Ahmadinejad’s plebisc-itary success and so hitched their wagon to his rising political clout.

After his 2005 second-round electoral victory against Rafsanjani, Ahmadinejad didwhat most good politicians do: he stole his opponents’ ideas. SOE privatization was tomove forward, he announced, but with the benefits distributed to the people via a pro-gram entitled “Justice Shares.” This plan sounded oddly similar to the 2005 presidentialcampaign manifesto of Rafsanjani, which proposed that every Iranian family would re-ceive stock shares of divested companies. Private sector boosters—including the IranianChamber of Commerce, Industry, and Mines and the Tehran Stock Exchange—had imag-ined that “popular” share divestment would dilute and diversify stock ownership, therebyincreasing the demand for further privatization.46 Supreme Jurist �Ali Khamenei’s inter-vention and public support for privatization, in a May 2005 announcement and a July2006 executive order, provided a legitimating push against conservative holdouts. Withthe Leader’s blessing, no one could claim privatization belonged solely to a reformistagenda. Ahmadinejad, however, put his own spin on the plan. Article 44’s revision underthe previous president’s watch mandated that the state sell or transfer majority ownershipto all nongovernmental sectors, defined as “private, cooperative, and non-governmentpublic sectors.” The last category is the legal definition of most of the parastatal sectorand includes public pension funds, military contractors, and endowed foundations notunder the purview of the national budget.

Ahmadinejad followed the article’s new language to the letter. The Justice Shareprogram created a system of provincial committees that oversaw the formation and ad-ministration of investment cooperatives for these shares. By using cooperatives, anotherinstitutional layer was added between the private and public sectors. Originally, it wasannounced that the lowest two income deciles of the population—about thirteen millionpeople—would be given justice shares, at half the share’s face value, payable over tenyears. The third to sixth income deciles would be permitted to purchase justice sharesat full price, also payable over ten years. Justice Share dividend payments would allowindividuals to eventually pay back share ownership costs. Investment cooperatives could

56 Kevan Harris

exercise their new power as minority shareholders in divested companies, but govern-ment bodies were barred from appointing new company and cooperative managers.47

During implementation of the program, however, various status groups in addition toincome clusters received shares: low-income villagers and nomads (seventeen millionshares), public sector retirees (thirteen million), beneficiaries of the Imam KhomeiniRelief Committee and other welfare organizations (8.5 million), families with martyrstatus (1.3 million), seminary students and clergy (178,000), and, curiously, over 15,000journalists. Other groups announced to be eligible soon were carpet weavers, Qur�anicscholars, young addicts in treatment, construction workers without labor contracts, andbus and taxi drivers.48

These status groups were not chosen randomly. They represent already existing cat-egories of beneficiaries within the fragmented yet broad Iranian welfare system thatdeveloped after the 1979 revolution. By 2009, the government stated that forty-one mil-lion people—over half of the population—had applied for and received justice shares.The Central Board of Justice Share Distribution includes the president and severalkey ministers as well as the head of the Martyrs and Veterans Affairs Foundation, thecommander of basıj forces, and the head of the Imam Khomeini Relief Committee. Theprivate sector was kept out of the loop.

Ahmadinejad’s push for privatization from 2006 onward allowed his government tobrand its efforts as “performance execution” of the sort earlier administrations failedto enact. Privatization was hardly a secret; rather, it formed a strategic component ofthe president’s public relations campaign against his critics. While reformist elites hadbeen effectively sidelined from most state institutions after 2005, preventing the exerciseof countervailing force against such policies, left-liberal opposition was also defangedbecause there was no effective ideological argument remaining in their arsenal. In late2009, Iranian Privatization Organization (IPO) head Ghulamriza Haydari Kurd-Zanganihannounced that the government had divested 800,000 billion rials (around eighty billionUSD) and more than 370 companies. This huge divestment, far larger (in real terms) thanthe amounts divested during both the Rafsanjani and Khatami administrations combined,took three main forms. First, SOEs were sold through the Tehran Stock Market, publicauction, or negotiation. Private-sector firms, including private banks and investmentcompanies, as well as the “nongovernmental” parastatal sector have been active in thistype of SOE privatization. Second, SOE shares were transferred out of the public sectorunder the category of Justice Shares, which placed those assets in the cooperative sector.Third, due to the 2006 changes in Article 44, government debt owed to parastatal pensionfunds and other nongovernmental organizations could be settled, in lieu of cash pay-ments, via direct cash-to-equity divestment of SOE ownership. In Table 1, using the IPO’sown data, I compare these three forms of SOE divestment and their relative size from1991 to 2011. This table shows that the Ahmadinejad government has divested far moreSOE assets than its predecessors. Including justice shares, the scale of transfer is overeight times higher than all earlier efforts combined, even though the current president’ssecond term is still incomplete. According to IPO data, the largest amount of divestmentoccurred in the oil, chemicals, metals, electricity, and telecommunications sectors.

During previous administrations, SOE divestment had generated its share of notoriousscandals. In the late 1990s, for instance, an upstream management company namedPetropars was created to act as the main supervisor for subcontractors in Iran’s natural gas


TABLE 1. Value, Recipients, and Methods of State-Owned Enterprise Transfersin Iran 1991–2011 (Constant Billions of Rials with Base Year 2011)

President and YearsPrivate and NGO

SectorsaCooperative

SectorbNGO

Sectorc

Share of TotalTransfers

1991–2011CompaniesTransferedd

Rafsanjani admin.1370-6 (1991–97) 54,438 4.1% NDe

Khatami 1st term1377-80 (1998–2001) 26,913f NDe

Khatami 2nd term1381-4 (2002–05) 63,766 664 6.9%g 364

Ahmadinejad 1st term1385-8 (2006–09) 322,819 510,916 182,316 376

Ahmadinejad 2nd term1389-90 (2010–11) 116,606 0h 50,169 89.0%i 278

Note: Persian calendar years begin on March 20. Figures adjusted for inflation using the ConsumerPrice Index of the Central Bank of Iran to base year 1390; 10,000 billion rials ≈ U.S. $1 billion. NGO,nongovernmental organization.aStock market, auctions, and negotiated transfers.bJustice shares.cTransfers in lieu of debts owed by government.dFull or partial divestment of shares.eThe number of divested companies before 1381 is not available in IPO data, although figures forRafsanjani-era transfers are given in the text of this article.fBecause there is a break in Iranian Privatization Organization (IPO) data after 1380, this table uses twoseparate IPO data files to compare amounts over the entire time period.gRefer to both terms of Khatami’s presidency.hAdditional justice shares have not been distributed after the first two rounds.iRefer to Ahmadinejad’s presidency through 2011.Source: Iranian Privatization Organization (www.ipo.ir).

sector. Registered in England, Petropars was majority owned by the National Iranian OilCompany’s pension fund. Conservatives in the parliament accused President Khatami’soil minister, Bizhan Namdar Zanganih, of favoritism and covert deals, especially withBihzad Nabavi, by then an outspoken reformist MP who also held a position in Petropars.Nabavi eventually resigned the post amid factional wrangling, but technocrats defendedthe overall privatization process. Longtime Rafsanjani supporter and former deputy oilminister �Ali Hashimi stated, “If there is corruption, it lies in the subcontracting.”49

In 2009, amid post-election street demonstrations and international media attention,far larger divestment scandals made the front pages. Tehran’s spacious InternationalExposition Center, where the popular Annual Book Fair is held, was transferred inJuly to the Armed Forces Social Security Organization as payment for governmentdebt. In September, 51 percent of the Telecommunications Company of Iran (TCI) wassold to a conglomerate linked to the IRGC Cooperative Foundation, a large investmentcompany and service contractor. The conglomerate, Itimad-i Mubin, denied that theIRGC’s military command would have any role in managing the newly privatized TCI.Yet the opaque auction of over eight billion USD in shares had been limited to twobidders, with the other reportedly linked to a basıj investment cooperative.50 In essence,

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two military parastatals were competing for a major share in the lucrative domestictelecom market. Of course, all of these transfers, whether debt cancellations or blockshare sales, are included in the IPO’s definition of privatization. When criticized by MPswho were IRGC veterans themselves, IPO head Kurd-Zanganih and others pointed outthat pension funds invest in similar types of holdings in countries around the world andare legally allowed to do so in Iran under Article 44.51

In July 2009, one of these MPs, Hamid Riza Fuladgar, head of a special commissionon privatization, candidly spoke to I�timad newspaper. When asked about the possibilityof SOEs crowding out private sector investment, he stated:

This is not the only problem. There are many quasi-governmental companies: companies the bankscreated, the Social Security Investment Company (SHASTA), investment companies formed byministries, retirement funds . . . all of these have assigned duties. Of course, the officials in theseorganizations say they are working within the law. And they are right—these companies areestablished according to the commerce law, but they now stand as a barrier against the privatesector. Article 44’s aim is not only to transfer companies. . . . Shares are only being shifted, andit is not happening in the private sector, and new investment is not taking place. The capital thatis circulating is the government’s itself. Was it not our goal to add new capital to the country’sproduction sector? Was not this the [new] vision for Article 44?52

Fuladgar is no reformist. The Isfahan MP and former Construction Jihad member is alliedwith political elites such as Tehran mayor Muhammad-Baqir Qalibaf and parliamentspeaker �Ali Larijani, both former IRGC members. Alif, a news website published byconservative MP and former labor minister Ahmad Tavakuli, protested in similar terms:

The honorable government has limited the implementation of the general policies of Article 44 andrelated laws to the transfer of large government corporations to semi-governmental institutions. . . [therefore] it is difficult to find a company in the private sector that can expand in a logicalway based on its work, innovation, and entrepreneurship.53

In other words, rather than quietly fostering centralization of economic activities un-der IRGC control, important members of the conservative political elite who sharedthe IRGC’s worldview were vociferously attacking the pseudo-privatization process inwhich IRGC-spawned contractors and public sector pension funds were participating.Full divestment, not centralization, was their demand.

Criticisms from within the political elite mounted. In November 2009, the ParliamentResearch Center, headed by Tavakuli, issued the report “Transition from the State to thePseudo-State Economy.” The document calculated that 264 SOEs valued at fifty-fourbillion USD had been divested between 2004 and 2009. Of this total, 68.5 percent wentto justice shares, 12.5 percent went to debt cancellations, and only 19 percent was soldor negotiated through the stock market. Yet even SOEs sold on the stock market didnot all go to the private sector. Within these sales from 2007 to 2009, eighty-two firms’shares were given to the nongovernmental public sector, worth 3.7 billion USD. Twosuch entities, the Social Security Investment Company (SHASTA) and Iranian MihrIqtisad (a basıj-linked cooperative turned bank), obtained 46 percent of these shares.Other major parastatals that acquired SOE assets were IRI Shipping Lines and severalpublic industrial joint-stock companies.54

In late 2010, Fuladgar’s special parliamentary commission released four reports onprivatization outcomes. These stated that 70 billion USD in over 300 companies had


been transferred since Ahmadinejad’s first term, including shares in automakers IranKhudraw and Saipa, Sadirat, and Tijarat Banks, Asia Insurance, and the aforementionedTCI. After deducting justice shares, debt cancellations, and transfers to parastatals andcooperatives, only 13.5 percent was transferred to the private sector.55 Critics arguedthat SOEs underwent “a kind of relocation” but not to the private sector.56 A 2012report by the Judiciary’s Inspection Organization contended that the transfer processhad sacrificed “quality for quantity.”57 In sum, conservative elites who had long stymiedearlier administrations’ attempts at SOE privatization were forcefully attacking theAhmadinejad government for not privatizing far enough.

This intraelite struggle over the structure of the economy is difficult to understand ifwe assume a priori that the elite operates as a military junta or centralized praetorianruling apparatus. Instead, postrevolutionary dynamics of elite conflict need to be embed-ded in broader processes of state formation that reshaped the elites themselves. Iran’spolitical field narrowed considerably between 2003 and 2009, as reformist politiciansin parliamentary and presidential elections were disqualified, harassed, and sidelined.Concurrently, state ministries underwent a major bureaucratic reshuffling, as older gov-ernment staff retired and new loyal cadres rose up the ranks. As Mehrzad Boroujerdihas shown, these new individuals were predominantly not clerics. Instead, they wereeducated in technical fields that emerged within Iranian higher education organizationsfounded to populate revolutionary institutions with trustworthy staff. Most of them holdengineering degrees and thus possess forms of cultural capital different from those gainedin seminary training. As with the first generation of post-1979 cadres, who used newrevolutionary credentials to upend hardened networks of local elites from the Pahlaviera, this second-generation “new class” came from Iran’s provincial peripheries, notthe seat of power in Tehran. They are indebted to the state for social prestige garneredthrough participation in both the Iran–Iraq War as well as the postwar administrationof provincial rule.58 Akin to the “red engineers” of postrevolutionary Russia or China,these individuals ascended through the bureaucracies of the Islamic Republic.59

Ahmadinejad himself governed a northern province before he became Tehran’s mayor.He and his close aides emerged from peripheral circumstances and were able to transformbureaucratic loyalty into a usable set of credentials. Reformists, older conservatives, andIranian urbanites may lampoon these credentials—educational as well as cultural—assub-par, but they are not useless. Men with provincial biographies, stationed outsideTehran for years, now populate the IRGC’s top ranks. This experience enables the manysubcontracting companies that today are staffed with IRGC retirees in the private sector,for example, to adeptly navigate the provincial waters teeming with homegrown urbanelites, each with a localized “economy of favors.”60 Older conservatives fear cedingany more political ground to members of this “new class,” who can convert their localknowledge and stored accumulation of favors into economic capital. Mimicking thereformists, these now self-described “moderate” conservatives had hoped that “real”SOE privatization would empower countervailing forces outside of the state’s risingcadres.

Ahmadinejad loyalists, however, do not dominate the IRGC, basıj, and other high-prestige bureaucratic organizations. Instead, this “new class” has mostly internalized andreproduced the self-dividing tendencies of the first postrevolutionary generation, albeitwith a key difference. In the first decades of the Islamic Republic, prestige and status

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could best be garnered by maneuvering within the government. Once the entire politicalelite fell behind an ideological consensus of shrinking the state through privatization, ahost of new opportunities opened within the multiplying and cross-cutting networks ofthe subcontractor state.

So far, this article has focused on the elite level. Significant nonelite actors withinIranian society have also shaped the contours of pseudo-privatization: pensioners, the“deserving” poor, military cadres and retirees, civil service workers and bureaucrats,villagers, and occupational categories. These overlooked status groups all laid claim toa complex and entrenched postrevolutionary social compact, one that the state couldnot easily jettison. Pseudo-privatization was not simply a top-down elite-driven projectbut also structured by claims from below. These demands and expectations were borneout of the country’s postrevolutionary formation of a new and broader welfare system.In the Islamic Republic, intraelite conflict prevented the state from extracting itselffrom social linkages that state organizations had fostered and relied upon during thepostrevolutionary decades in order to generate basic capacities for governance. As thestate subcontracted out a wider range of its social welfare and economic functions,pseudo-privatization became the method of least resistance.

A H U N D R E D PA R A S TATA L S B L O S S O M

Rather than a discrete entity, Iran’s parastatal sector contains numerous organizationsthat do not make up a single distributional coalition. Tension and opposition of interestsis the norm because the postrevolutionary state has been embedded in a diverse set ofnonelite status groups and social actors at different historical junctures. This occurrednot only because of intraelite conflict that forced political factions to cultivate strongsocial bases but also due to revolutionary mobilization and recurring contention frombelow, institutions of war mobilization and their organizational legacies, and nationalistprojects of economic development amidst geopolitical isolation. In this section, I dis-cuss how pseudo-privatization responded to and enlarged particular constituencies viathree different pathways: the Social Security Organization’s (SSO) investment companySHASTA, the Justice Share Program, and the IRGC’s economic contracting activities.

Pension Funds

SHASTA is one of the largest pension fund investment companies in the country anda major recipient of divested SOE shares. Iran’s main social insurance funds coverhealth insurance as well as pensions, varying from occupational funds where employ-ees contribute a share of monthly premiums to funds for low-income households andspecial-status or occupational categories where the state fully pays enrollment andcoverage costs. In Table 2, these main funds and their estimated coverage levels arecompiled.61 This table’s coverage levels are undoubtedly misleading, since householdscan be enrolled in multiple funds. Other households remain inadequately covered dueto the incomplete implementation of universal insurance. Estimates of the uninsured inIran range between 5 and 9 percent of the population.62 Nevertheless, as the table shows,two organizations are responsible for the vast majority of health insurance coverage. TheMedical Service Insurance Organization operates under the supervision of the Ministryof Health and Medical Education, while the SSO is under the Ministry of Cooperatives,


TABLE 2. Main Health Insurance Funds andCoverage in Iran (2008)

Fund Name Estimated Population Covered

Social Security Organization 38.50%Medical Service Insurance Organizationa 50.49%Army Medical Insurance Organization 6.22%Imam Khomeini Relief Committeeb 2.77%Other fundsc 0.69%

aOversees funds for civil servants, rural households, and smaller funds forparticular occupational/status categories such as university and seminary students.bGovernment-linked foundation that covers eligible low-income households andother status groups defined as vulnerable.cSpecialized public insurance funds for banking, oil, petrochemical, electricity,municipal, airlines, TV and radio, auto, rail, and steel sectors.Source: Ibrahimipour et al., “A Qualitative Study of the Difficulties in ReachingSustainable Universal Health Insurance Coverage in Iran,” Health Policy andPlanning (2011): 486.

Labor, and Social Welfare. The SSO’s beneficiaries are mostly located in the formallabor force—that is, middle- and working-class occupations in the public and privatesectors with formalized wage and benefit contracts. The nongovernmental SHASTA, asthe SSO’s investment arm, is mandated with growing and maintaining the asset poolsthat pay the health and pension costs of these beneficiaries.

As with pension funds worldwide over recent decades, SHASTA has shifted its ac-tivities into what Robin Blackburn has labeled “grey capitalism.”63 Pension fund assets,accumulated to support workers as they “grey” into retirement, are being increasinglyinvested in riskier, more volatile, and insecure “grey” financial assets that promise higherreturns but conversely can be wiped out by economic crises. Before the revolution, theSSO held workers’ pension contributions mostly in fixed long-term deposits. In 1989,nearly 80 percent of SSO’s investment portfolio was still in these low-risk deposits.By 2000, this share had decreased to 10 percent, while 70 percent of its total portfoliowas composed of direct and indirect investments in the Iranian economy. In that year,SSO-held companies produced 43 percent of pharmaceutical and hygienic products, 36percent of cement, 35 percent of televisions, 25 percent of fireproof products, 31 percentof refrigerators and freezers, and 35 percent of rubber in Iran.64 In 2012, after a furtherdecade of expansion, SSO’s investments in the economy amounted to over 15 billionUSD (about 3.5% of GDP) in over 150 companies.65

In 2003, the World Bank criticized Iran’s pension benefits, in comparison to those ofEuropean and other Middle Eastern countries, as overly generous. Fiscal pressure pushedthe SSO to become more active in the acquisition of SOEs, both on the Tehran StockMarket and in negotiations over government debts to the fund. In 2001, for example,the government transferred assets worth 400 million USD to the SSO to cover con-stitutionally mandated obligations to pensioners. The SSO also purchased governmentbond issuances and financed public infrastructure projects.66 In January 2010, SSOhead �Ali Zabihi stated that over 27.5 million Iranians lived in SSO-enrolled householdsand warned that, even with high returns on these investments, future commitments

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to pensioners would surpass incoming revenues.67 These fiscal pressures have beenexacerbated. In 2011, SSO officials claimed the fund was owed nearly 24 billion USDby the government.68

Iran’s pension fund financialization shares characteristics with global trends. In theChilean model of privatized pension fund associations, the pension system for formalsector workers is also utilized as a method of SOE privatization. In South Korea’s nationalpension scheme, public pensions invest in both public sector bonds and financial sectorassets.69 The Turkish army’s pension fund invests in over sixty Turkish firms, and SaudiArabia’s general social insurance fund holds stakes in the country’s growing industrialsector.70 The United States contains the largest low-risk bond-holding pension fund inthe world as well as California’s public employees’ retirement system, which investstwo-thirds of its assets in global equities. As Blackburn writes, “Those who dislikeand distrust pension-fund capitalism must reckon with the fact that it is already hugelyimportant and likely to become more so.” Descrambling the private–public mix ofretirement funds, if even possible, would “scarcely be supported by those who holdfunded pension entitlements.”71

Given these types of institutional investors in wealthier countries, SSO officials defendthe presence of pension funds in the market. Due to starkly reduced birth rates, Iran’scurrent “baby boom” generation of working adults will not likely be replaced in full.Pensioners would hardly accept a selloff of SHASTA’s investment portfolio to theprivate sector without major guarantees of future entitlements by the state. Pensionfinancialization in the Islamic Republic has therefore created a sizable interest group forpseudo-privatization—the Iranian middle class and formal labor force. Funneling publicsector companies to the SSO and other pension funds is one method of subcontractingthe state’s direct welfare obligations to the parastatal sector. As with “grey capitalism”more generally, however, this strategy precariously rests on contradictory pressuresof generating high profits against maintaining employment and wages in these samecompanies.

Justice Shares

If SHASTA is pension fund capitalism for Iran’s middle strata, could the Justice Sharesprogram operate as “popular capitalism” for poorer classes? The reformist newspaperI�timad claimed that “justice shares are shares without profit,” and conservative MPsquarreled that payouts to nine million shareholders on the eve of the 2009 presidentialelections were an illegal form of electioneering by Ahmadinejad with no regard to thecompanies’ balance sheets.72 Government supporters, however, assert that companiesowned by justice share cooperatives are mostly profitable, and share values have substan-tially risen over the past several years. Finance Minister Shams al-Din Husayni statedthat buyers of privatized SOEs must sign contracts agreeing to maintain medium-termemployment levels and claimed that his ministry’s investigation of twenty-eight suchfirms showed that nearly all increased employment levels.73 Another inquiry showed,however, that in eight divested SOEs profits that previously had been reinvested orsent to the treasury were mostly paid out as justice share dividends.74 Parliament’sreports on Article 44 also conveyed numerous violations: companies divested withoutparliamentary approval, shares distributed by status and occupational categories instead


of income deciles, loss-making companies divested without attention to existing debts,and no accounting for the sources of share dividend profits.75

In other words, justice share-divested companies are torn between fiscal profitabilityand social prerogatives. In sectors where reinvestment is crucial, this could lead tobankruptcy or collapse. Provincial justice share cooperatives could eventually act astrading entities on the stock market, adding powerful institutional investors to a diversemix that may rationalize domestic industries toward more profitable activities.76 Thiswould also empower provincial elites in these cooperatives, generating new networks ofinfluence linked to the heterogeneous “revolutionary” status groups and other householdsthat possess these shares on paper. The outcome of this type of financialization isunpredictable. A common critique of Iran’s Justice Shares program harkens back toRussia’s 1990s privatization voucher program. Now seen by many of its citizens asa Ponzi scheme that led to the emergence of an oligarchical industrial class, Russia’sversion of “popular capitalism” allowed vouchers to be freely traded upon receipt. Asjournalist David Hoffman wrote, “Millions were immediately exchanged for a bottle ofvodka or sold for a song.”77 Currently, Iran’s justice shares cannot be sold by the originalrecipients, many of whom I interviewed. Some of these households expressed unease indeclaring income levels to the government for purposes of receiving shares—a commonview in middle-income countries where tax collection is haphazardly enforced. Yet Ialso found that these households were well inserted in Iran’s complex welfare system.Depending on residence, income, and occupation, they already were receiving benefitsor subsidies through a variety of social policy institutions. These individuals perceivedthat justice shares were simply one more linkage between state and society generatedover the past thirty years.

A Russia-style scenario is not unfathomable in Iran’s future. The former director ofthe stock market, Allahvirdi Rajai-Salmasi, now a managing director of Saman Bank,argued that selling and buying individual justice shares would increase liquidity in Iran’scapital market and create a “culture of investment.”78 If shares do become tradable, viacooperatives or individuals, new market actors could quickly take over SOEs, whetherin the private or parastatal sector. The experience of Russia, though, where state linkageswere never absent from the new capitalist oligarchy, illustrates that even privatizationfully designed to shift assets to a “real” private sector can lead to a form of pseudo-privatization.

Parastatal Subcontractors

Cooperatives, firms, and investment conglomerates affiliated with the IRGC and paras-tatal bodies do not signify a creeping militarization or “revolutionary” ideologicalsubordination of Iran’s economy so much as they characterize the commodificationof bureaucratic privilege and status held by individuals in these organizations. Theengineering arm of the IRGC, Khatam al-Anbiya, is often mentioned in media storiesand reports detailing the firm’s large infrastructural projects funded by the Ahmadinejadgovernment.79 Yet, in essence, it is run as a private entity that often contracts out activitiesto other domestic and foreign companies.80 The organization first emerged during theIran–Iraq War, but the use of military engineering contracts for development stems fromPresident Rafsanjani’s decision to involve the IRGC in postwar reconstruction efforts.

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This was done partly to keep hundreds of thousands of Revolutionary Guards cadres em-ployed and partly because a new generation of engineers and managers had been trainedwith useful skills. As Rafsanjani stated in May 1993, “In this way [IRGC members] earnan income, which they can use to maintain and repair their [military] machinery, whilethey are adding to the country’s capacity for contractual work.”81 Over the past decade,the firm and its subcontractors have replaced foreign companies in the developmentof oil and gas fields, pipeline projects, and highway and tunnel construction. Indeed,economic sanctions against foreign companies doing business in Iran, led by the UnitedStates, have hastened this process. Yet Khatam al-Anbiya seems to have no qualm withforeign capital itself. Its entities previously worked with European companies, as inthe construction of Gudar-i Landar dam, and more recently with Chinese, Indian, andRussian firms on gas and oil projects.82

As with the 2009 sale of Iran’s main telecom company, many of these constructioncontracts are inked in murky, no-bid deals. The revolving door between contractingexecutives and government posts adds to suspicions of patronage politics.83 This canbe seen as either IRGC proficiency in capturing state largesse or the exercise of tech-nocratic legitimacy amid a dearth of competitors in management and development; it islikely both. Still, even while IRGC contractors argue that they alone have the necessaryeconomies of scale and accumulated technological experience to carry out thousandsof development projects at costs lower than foreign firms brought in by local actors,they also boast that they subcontract out “sixty to seventy percent” of their projectsto the “private sector.”84 While this figure seems exaggerated, it is still telling. Theoverall structure of these parastatal contractors more closely reflects a proliferation ofnew networks of influence peddling via the breakup of the public sector than a transferof infrastructural power and organizational capacity to the IRGC.

Parastatal subcontractors and investment houses are increasingly active in the domesticeconomy, to be sure, but they still end up competing with the economic activities ofendowed foundations such as the Foundation of the Oppressed or the Imam Reza ShrineFoundation. These entities inherited Pahlavi-era industries, lands, and companies, actingas economic agents as well as minor social welfare organizations. Zam-Zam Soft DrinkCompany, for example, which belongs to the Foundation of the Oppressed, originatedin the confiscation of pre-1979 Coca-Cola factories. Several major hotels in Tehranthat formerly belonged to the Hilton Corporation also belong to this foundation. Yetprivate sector enterprise, including subsidiaries of foreign capital, still developed inthese sectors. Pepsi and Coca-Cola soft drinks eventually were licensed for productionand sale in Iran, sitting alongside Zam-Zam in corner grocery stores. Such parastatalforms of economic activity are common to middle-income countries under a variety ofguises, and they do not necessarily crowd out private capital even though they may beuncompetitive outside of a protected domestic market.85

Taken as a whole, then, the rise of the subcontractor state in Iran increasingly corre-sponds to the post-Soviet trajectory of many Eastern European countries, where scholarssuch as Katherine Verdery have argued that privatization often produced “new states”alongside the actual states. There, apparatchiks and firm managers easily convertedthemselves into “entrepratchiks.” The valuation of public sector firms was “shot throughwith politics,” and those who benefited the most were “the former bureaucratic and man-agerial apparatus of the party-state.” These individuals could “create parasitic companies


on the side” to siphon off assets and then leverage political connections for maintainingadvantageous economic positions.86 Yet, unlike the one-party states of eastern Europe,a wide variety of social actors still exist within Iran’s parastatal sector with opposing aswell as overlapping interests in the distribution and privatization of state resources. TheIslamic Republic remains embedded in these groups for a set of historical reasons—political factionalism, popular mobilization, postwar welfare policies, and projects ofnationalist legitimation—that are intertwined with its postrevolutionary state formation.To put it another way, these distributional conflicts underpin a decades-long struggleover what form of capitalism will become dominant in Iran.

C O N C L U S I O N : I N I R A N , C A P I TA L I S M F RO M W H E R E ?

As Nazib Ayubi argued two decades ago, privatization in Middle Eastern states hastended to produce “grey areas” between public and private sectors—spheres of activityseparate in Western liberal thought, if not practice. Ayubi noted that it is common towitness “private businesses cream off public resources and public officials ‘parachute’on private companies.”87 For Iran, framing such activities under an overarching no-tion of praetorianism—of a neopatrimonial, sultanistic, or militaristic type—mistakenlyoverlooks the turbulent and zig-zag political processes that characterize the country’spostrevolutionary history. To more fruitfully situate the narrative outlined previously ina broader comparative framework, we can use the three ideal types that Ivan Szelenyiand his collaborators have created to compare processes of capitalist development withinpost-Soviet eastern Europe and socialist East Asia: capitalism from without, above, andbelow.88

In Poland, Hungary, and the Czech Republic, a technocratic class within the stateallied with reformist intellectuals and strong working classes to overpower preexistingsocialist bureaucracies. Easy access to Western capital and the implementation of ne-oliberal prescriptions resulted in a “capitalism from without,” whereby privatization waspursued along relatively Weberian rational–legal lines, and former apparatchiks weremarginalized from the political means to manipulate the transfer of the public sector. Inthese countries, neoliberalism formed the “ideological cement” of the alliance betweentechnocrats and dissident political entrepreneurs, but the existence of countervailingworker protest constrained new governments from enacting the most radical of antis-tatist measures. The result by the late 1990s was a liberal democratic state, a fair amountof economic dynamism, and export-oriented, foreign direct investment-based methodsof capital accumulation.

In Russia, Ukraine, Romania, and Serbia under Milosevic, a patrimonial bureaucracyretained power and used the privileges of its offices and clients to amass private wealth.This is a “capitalism from above” that relies less on market exchange and more onpolitical exchange. Communist officials turned private owners were less likely to pursueentrepreneurial activities in favor of maintaining patrimonial links with their businesspartners, while communist ideologies were abandoned in favor of extreme nationalistlegitimation of new states. Rapid privatization without the bureaucratic-legal institutionalsetting for stable ownership rights led to a high degree of “asset stripping” of the SOEsector. The state remained large, but its capacity to regulate the transition was almostnonexistent. The emerging financial-industrial sector was parasitical in its relationship to

66 Kevan Harris

the market, with little economic dynamism and few available public goods. The politicaloutcome of capitalism from above was a multiparty authoritarian state with unfree andunfair elections.

In China and Vietnam, a technocratic class gained hegemony over economic policyand allied itself with a sui generis domestic bourgeoisie, but a state bureaucracy re-tained political power. This “capitalism from below” featured a class of small investorsoriginating or reappearing in new spaces next to and within the interstices of a large state-owned industrial sector, often beginning in agricultural or petty commodity production.The bureaucracy and the technocracy checked each other’s excesses toward extremepatrimonial or neoliberal policies, resulting in a hybrid system of capital accumula-tion and mixed forms of property (such as China’s township-village enterprises). Thebalance of political power allowed space for a high amount of economic dynamismamong nonelites, including workers and peasants. Patron–client relations still existedwithin market operations, but they did not prevent a state-led development that balancedthe provision of public goods and infrastructure, technological upgrading of remainingSOEs, and selective utilization of foreign investment. The political outcome was ahigh capacity state that partially and gradually liberalized its authoritarian structures ofgovernance.

These are, of course, ideal types. Yet they help us to frame the previously discussedshifts in Iran’s postrevolutionary economic trajectory as well as to compare it with MiddleEast and North Africa neighbors. Rafsanjani’s technocratic project, later allied withthe reformists’ dissident liberalism, was an attempt to construct an Iranian capitalismfrom without. These elite factions saw no problem with allowing foreign capital in tohelp structure and rationalize a process of economic liberalization. This strategy waschecked by fragmented state bureaucracies and oppositional elite factions, channeledinto parastatal activity, and further curtailed by U.S.-led sanctions from the mid-1990sonward. This period in Iran stands in contrast to Turkey’s Justice and Development Party,for instance, whose rise to power in 2002 after a long phase of political factionalismresulted in unprecedented privatization of Turkish SOEs to foreign capital.89

The temporary outcome of the stymied reformist project in Iran was, surprisingly,capitalism from below, as entrepreneurs in private sector banking and consumer goodsindustries spawned a dynamic and competitive market expansion that coexisted withthe public sector. This was reinforced because the Iranian petty bourgeoisie was neverfully expropriated after 1979, so a dormant entrepreneurial habitus could reemerge inthe 1990s once avenues for capital accumulation in goods and services opened up. Ofcourse, most of these entrepreneurs had public connections themselves, but they utilizedthese networks of privilege within the private sector to outcompete public companiesthrough organizational and market innovations. As in Tunisia or Kuwait, this economicpluralism did not result in a sustained push for democratization. Private capitalists inIran had little structural power to break the factional deadlock of the political elite nordid they exhibit much inclination to try.90

Iran after 2005, however, most resembles capitalism from above, as wide and dispersedpatrimonial networks have come to dominate the technocratic agencies. Like the Egyp-tian state in the 1990s, privatization played an important “accumulative role . . . amongthe acting and former members of the bureaucracy.”91 The result is not centralizationaround any one state organization but rather parasitic asset stripping of the public sector,


on the one hand, and the emergence and expansion of subcontracted “new states” underthe guise of parastatal and cooperative entities, on the other hand. On the ideologicalplane, instead of technocratic neoliberalism, a resurgent nationalism rules the roost.If this process continues, the economic dynamism of these hybrid forms of propertyownership, even within the parastatal sector, will likely exhaust itself. This will haveprofound consequences on the subcontracted welfare functions of the parastatal sectorunless the state constructs a more universalized welfare system in its place.

In sum, the politics of privatization in Iran, through a variety of agents and a wide arrayof recipients, were enmeshed within post-1979 internecine struggles among the politicalelite. Yet mass politics was also forcefully present, since various social classes and statusgroups formed the constituencies of competing parastatal organizations. This was thecritical reason why the state never acquired the sufficient political insulation from belowusually needed for technocratic liberalization. Even though all factions came to speak thesame language of privatization, the structure and restructuring of political competitionprevented the formation of an autonomous state apparatus that could implement sucha plan, whether in clerical or military form. On the contrary, by subcontracting outits social and economic responsibilities, the Islamic Republic has neither achieved itsprivatization dreams nor enhanced its state capacity for other, equally transformational,projects.

N OT E S

Author’s note: My thanks to Ben Scully, Dan Pasciuti, Sahan Karataslı, Farideh Farhi, and Ali Reza Eshraghifor comments and suggestions on this article. The research was assisted by a fellowship from the InternationalDissertation Research Fellowship Program of the Social Science Research Council, with funds provided bythe Andrew W. Mellon Foundation.

1Abbas Milani, “Taking Tehran’s Temperature: One Year On,” panel at the Carnegie Endowment forInternational Peace, 8 June 2010, transcript at http://carnegieendowment.org/files/0609carnegie-tehran.pdf(accessed 22 June 2011).

2Said Arjomand, After Khomeini: Iran under His Successors (Oxford: Oxford University Press, 2009),60.

3Glenn Kessler, “Clinton Says U.S. Fears Iran Is Becoming a Military Dictatorship,” Washington Post, 15February 2010.

4See Elliot Hen-Tov and Nathan Gonzalez, “The Militarization of Post-Khomeini Iran: Praetorianism2.0,” Washington Quarterly 34 (2010): 46–59. In Political Order in Changing Societies (New Haven, Conn.:Yale University Press, 1968), Samuel Huntington uses the concept of “praetorianism” to signify a distortedpath of Third World political development wherein a “modernization gap” between mass mobilization insociety and low institutionalization in politics creates political “decay” and “disorder,” allowing for morehighly institutionalized organizations—most often militaries—to assume a direct political role.

5Tehran Times, 20 February 2007.6http://www.thebusinessyear.com/publication_detail.php?publication=9 (accessed 7 March 2011).7Khurasan, 26 December 2010.8See, for example, I�timad, 13 November 2011.9Miles Kahler, “Orthodoxy and Its Alternatives: Explaining Approaches to Stabilization and Adjustment,”

in Economic Crisis and Policy Choice: The Politics of Adjustment in the Third World, ed. Joan Nelson(Princeton, N.J.: Princeton University Press, 1990), 33–61.

10Michael Mann, The Sources of Social Power, vol. 2 (Cambridge: Cambridge University Press, 1993).11Kiren Chaudhry, “The Myths of the Market and the Common History of Late Developers,” Politics and

Society 21 (1993): 245–74, 249.

68 Kevan Harris

12Stephan Haggard and Robert Kaufman, eds., “Institutions and Economic Adjustment,” in The Politicsof Economic Adjustment: International Constraints, Distributive Conflicts, and the State (Princeton, N.J.:Princeton University Press, 1992), 3–37, 25.

13Peter Evans, Embedded Autonomy: States and Industrial Transformation (Princeton, N.J.: PrincetonUniversity Press, 1995); John Waterbury, Exposed to Innumerable Delusions: Public Enterprise and StatePower in Egypt, India, Mexico, and Turkey (Cambridge: Cambridge University Press, 1993).

14See Dag MacLeod, Downsizing the State: Privatization and the Limits of Neoliberal Reform in Mexico(University Park, Penn.: Pennsylvania State University Press, 2004).

15Adam Przeworski, Democracy and the Market: Political and Economic Reforms in Eastern Europe andLatin America (Cambridge: Cambridge University Press, 1991).

16Melani Cammett, Globalization and Business Politics in Arab North Africa: A Comparative Perspective(Cambridge: Cambridge University Press, 2007).

17Steven Heydemann, ed., “Networks of Privilege: Rethinking the Politics of Economic Reform in theMiddle East,” in Networks of Privilege in the Middle East: The Politics of Economic Reform Revisited (NewYork: Palgrave Macmillan, 2004), 1–35.

18Ha-Joon Chang and Ilene Grabel, Reclaiming Development: An Alternative Economic Policy Manual(London: Zed Books, 2004), 90.

19See Thad Dunning, Crude Democracy: Natural Resource Wealth and Political Regimes (Cambridge:Cambridge University Press, 2008), chap. 5.

20Steffen Hertog, “Defying the Resource Curse: Explaining Successful State-Owned Enterprises in RentierStates,” World Politics 62 (2010): 261–301.

21See Michael Herb, “No Representation without Taxation? Rents, Development, and Democracy,” Com-parative Politics 37 (2005): 297–316; and Stephen Haber and Victor Menaldo, “Do Natural Resources FuelAuthoritarianism? A Reappraisal of the Resource Curse,” American Political Science Review 105 (2011):1–26.

22Bahman Ahmadi-Amui, Iqtisad-i Siyasi-yi Jumhuri-yi Islami (Tehran: Gam-i Naw, 2003), 42–43.23As translated by Arang Keshavarzian, Bazaar and State in Iran: The Politics of the Tehran Marketplace

(Cambridge: Cambridge University Press, 2007), 149–50.24Ahmadi-Amui, Iqtisad; Sohrab Behdad, “The Political Economy of Islamic Planning in Iran,” in Post-

Revolutionary Iran, ed. Hooshang Amirahmadi and Manoucher Parvin (Boulder, Colo.: Westview Press,1988), 107–25.

25Kaveh Ehsani, “Privatization of Public Goods in the Islamic Republic,” Middle East Report 250 (2009):26–33.

26Anoushiravan Ehteshami, After Khomeini: The Iranian Second Republic (London: Routledge, 1995),95.

27Kamal Athari, “The Housing Sector in Iran: Market or Planning?,” in The Economy of Islamic Iran:Between State and Market, ed. Thierry Coville (Louvain, Belgium: Peeters, 1994), 253–60.

28Shaul Bakhash, “The Politics of Land, Law, and Social Justice in Iran,” Middle East Journal 43 (1989):186–201.

29Ahmadi-Amui, Iqtisad, 271–74.30Jahangir Amuzegar, Iran’s Economy under the Islamic Republic (London: I. B. Tauris, 1993),

137.31If 80 percent of the company’s new shareholders belonged to preferential groups, then 10 percent of the

value needed to be paid in cash and the rest in installments over five years. If shareholders did not fall intothese categories, 40 percent of the shares were to be bought with cash and the rest delivered within threemonths.

32Ahmad Maydari, “Sharayit-i Siyasi va Sakhtar-i Malikiyat dar Sih Dahih-yi Akhir dar Iran,” Guftugu 56(2010): 29–47; interviews by author, Tehran, fall 2009.

33Bihnam Muradi, “Ab�ad-i Khususisazi va Asar-i an bar Sarmayihguzari-yi Khususi (Mutali�ih-yiMawridi-yi Iran),” Itila�at-i Siyasi-Iqtisadi 213/14 (2005): 180–99; also see Firouzeh Khalatbari, “The TehranStock Exchange and Privatisation,” in Coville, The Economy of Islamic Iran, 177–208.

34See, for example, Barnamih 365 (1998): 8–15.35Ahmadi-Amui, Iqtisad, 272.36Interview of Maydari by author, Tehran, spring 2010; also see Maydari, “Sharayit.”37Regulatory laxity in housing and land is satirized in Dariush Mihrjui’s 1986 film Ijarih-nishinha.


38Arang Keshavarzian, “Regime Loyalty and Bazarı Representation under the Islamic Republic of Iran:Dilemmas of the Society of Islamic Coalition,” International Journal of Middle East Studies 41 (2009):225–46.

39Ehsani, “Privatization,” 29–30.40This paragraph draws from interviews with private sector consultants, Tehran, fall 2009 and spring 2010;

also Maydari, “Sharayit.”41In 2010, preparing for privatization itself, Iran Khudraw reportedly sold off its remaining shares in

Parsiyan to the IRGC Cooperative Foundation.42Maydari, “Sharayit,” 39.43Bijan Khajepour, “Domestic Political Reforms and Private Sector Activity in Iran,” Social Research 67

(2000): 577–98.44Atiyih Newsletter, October 2004.45Dunya-yi Iqtisad, 27 June 2010.46Maydari, “Sharayit.”47Justice Share bylaws are on the Iranian Privatization Organization’s website, http://www.ipo.ir48Ibid., additional details from Maydari, “Sharayit.”49The Economist, 12 July 2001. Petropars was sold in 2009 to a consortium of investors including Mashhad’s

wealthy Imam Riza religious foundation. Jam-i Jam, 28 April 2009.50I�timad, 28 September 2009.51I�timad, 7 October 2009; IRIN Channel 2, 29 November 2009.52I�timad, 4 July 2009, emphasis added.53Alif, 27 September 2009.54I�timad, 25 November 2009.55Khurasan, 26 December 2010. Fuladgar’s Article 44 reports were obtained from http://www.

asl44.mefa.gov.ir (accessed 1 March 2012).56Dunya-yi Iqtisad, 27 June 2010.57Ayinih-i Bazrasi 61 (2012): 6–7.58While yet unpublished, Boroujerdi’s findings are summarized at http://pomed.org/blog/2010/03/pomed-

notes-analyzing-the-political-elite-of-the-islamic-republic-of-iran.html (accessed 1 June 2011). On the provin-cial origins of 1979’s new class, see Kaveh Ehsani, “The Urban Provincial Periphery in Iran: Revolution andWar in Ramhormoz,” in Contemporary Iran: Economy, Society, Politics, ed. Ali Gheissari (Oxford: OxfordUniversity Press, 2009), 38–76.

59See Stephen Kotkin, Magnetic Mountain: Stalinism as a Civilization (Berkeley, Calif.: University ofCalifornia Press, 1995); and Joel Andreas, Rise of the Red Engineers: The Cultural Revolution and the Originsof China’s New Class (Palo Alto, Calif.: Stanford University Press, 2009).

60See Alena Ledeneva, Russia’s Economy of Favors: Blat, Networking, and Informal Exchange (Cambridge:Cambridge University Press, 1998).

61Hossein Ibrahimipour, Mohammad-Reza Maleki, Richard Brown, Mohammadreza Gohari, Iraj Karimi,and Reza Dehnavieh, “A Qualitative Study of the Difficulties in Reaching Sustainable Universal HealthInsurance Coverage in Iran,” Health Policy and Planning 26 (2011): 485–95.

62Jam-i Jam, 19 January 2011.63Robin Blackburn, “The New Collectivism: Pension Reform, Grey Capitalism and Complex Socialism,”

New Left Review I/233 (1999): 3–65.64World Bank, The Pension System in Iran: Challenges and Opportunities, 2 vols. (Washington D.C.:

World Bank, 2003), 25–26.65Sharq, 4 April 2012.66World Bank, Pension System, 35. Most Iranians are unaware of the role of the SSO in the economy, even

while millions of them benefit from SSO monthly checks and health insurance coverage.67I�timad, 7 January 2010.68BBC Persian, 8 June 2011.69See Hugo Fazio and Manuel Riesco, “The Chilean Pension Fund Associations,” New Left Review I/223

(1997): 90–100; Chang Lyul Jung and Alan Walker, “The Impact of Neo-liberalism on South Korea’s PublicPension: A Political Economy of Pension Reform,” Social Policy & Administration 43 (2009): 425–44.

70The National, 19 October 2010; Bloomberg News, 14 February 2012.71Blackburn, “New Collectivism,” 25.

70 Kevan Harris

72I�timad, 18 July 2009; Khabar Online, 26 May 2011.73Iran, 30 October 2011; Khabar Online, 21 March 2011.74Maydari, “Sharayit.”75Sharq, 29 November 2010.76Dunya-yi Iqtisad, 23 July 2011. Justice Share officials claim that the program’s goal is to make sure these

companies become profitable in the long run, which is why relatively few dividends have been distributedover the period of 2006 to 2012. Yet in most cases, provincial investment cooperatives still hold less than 50percent of companies’ total shares. See Dunya-yi Iqtisad, 6 August 2012.

77David Hoffman, The Oligarchs: Wealth and Power in the New Russia (New York: PublicAffairs, 2002),196.

78Jumhuri-yi Islami, 17 September 2009.79See Frederic Wehrey, Jerrold Green, Brian Nichiporuk, Alireza Nader, Lydia Hansell, Rasool Nafisi,

and S. R. Bohandy, The Rise of the Pasdaran: Assessing the Domestic Roles of Iran’s Islamic RevolutionaryGuards Corps (Santa Monica, Calif.: The RAND Corporation, 2009); and David Thaler, Alireza Nader,Shahram Chubin, Jerrold Green, Charlotte Lynch, and Frederic Wehrey, Mullahs, Guards, and Bonyads: AnExploration of Iranian Leadership Dynamics (Santa Monica, Calif.: The RAND Corporation, 2010). Thesemostly rely on anecdotes but, if read thoroughly, illustrate that the IRGC is hardly the singular economic actorthat is often claimed.

80Bernard Hourcade, “The Rise to Power of Iran’s ‘Guardians of the Revolution,’” Middle East Policy 16(2009): 58–63.

81Daily Report, Near East & South Asia, FBIS-NES-93–103, 1 June 1993, 59.82See the analysis of military contractors in International Crisis Group, Iran: Ahmadi-nejad’s Tumultuous

Presidency (2007).83During Ahmadinejad’s tenure, Parviz Fattah went from minister of energy to deputy commander of

Khatam al-Anbiya and head of the IRGC Cooperative Foundation, while Rustam Qasimi inversely went fromthe top post in Khatam al-Anbiya to become minister of petroleum.

84ISNA, 13 December 2011.85Conceptually, large bunyadha are a form of what Ben Ross Schneider calls “diversified business groups”

common to middle-income countries. See Schneider, “A Comparative Political Economy of DiversifiedBusiness Groups, or How States Organize Big Business,” Review of International Political Economy 16(2009): 178–201.

86Katherine Verdery, What Was Socialism, and What Comes Next? (Princeton, N.J.: Princeton UniversityPress, 1996), 212–13.

87Nazib Ayubi, “Political Correlates of Privatization Programs in the Middle East,” Arab Studies Quarterly14 (1992): 39–56.

88This conclusion draws from Gil Eyal, Ivan Szelenyi, and Eleanor Townsley, Making Capitalism withoutCapitalists (London: Verso, 1998); and Lawrence King and Ivan Szelenyi, “Post-Communist EconomicSystems,” in The Handbook of Economic Sociology, 2nd ed., ed. Neil Smelser and Richard Swedberg (NewYork: Russell Sage Foundation, 2005), 205–29.

89On Turkish SOE privatization, see Mehmet Guran, “The Political Economy of Privatization in Turkey:An Evaluation,” in The Political Economy of Regulation in Turkey, ed. Tamer Cetin and Fuat Oguz (New York:Springer, 2011), 23–50. On how the Justice and Development Party constructed a neoliberal “capitalism fromwithout,” see Cihan Tugal, Passive Revolution: Absorbing the Islamic Challenge to Capitalism (Palo Alto,Calif.: Stanford University Press, 2009).

90Eva Bellin, Stalled Democracy: Capital, Labor, and the Paradox of State-Sponsored Development (Ithaca,N.Y.: Cornell University Press, 2002); and Pete Moore, Doing Business in the Middle East: Politics andEconomic Crisis in Jordan and Kuwait (Cambridge: Cambridge University Press, 2004).

91John Sfakianiakis, “The Whales of the Nile: Networks, Businessmen, and Bureaucrats during the Era ofPrivatization in Egypt,” in Heydemann, Networks of Privilege, 77–100, 79.

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