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Iran's Protests and Economic Realities

Interviewee: Suzanne Maloney, Senior Fellow, Brookings Institution
Interviewer: Roya Wolverson, Staff Writer, CFR.org
February 22, 2011

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Iran's hardline regime has cracked down on opposition protests in the wake of sweeping regional protests following revolutions in Egypt and Tunisia. Internal economic and political pressures, as well as a new wave of international sanctions against Iran, have prompted questions about how long the Iranian regime can hold onto power. But the Brookings Institution's Suzanne Maloney says a number of factors work in the regime's favor, including the Iranian military's greater ability to repress the public and its allegiance to the regime; an ability to block the public's access to technology; and opposition leaders' loyalty to the idea of preserving an Islamic Republic. International sanctions have also increased domestic political support for needed economic reforms that may actually strengthen the Iranian regime's hold on power, she says. Maloney notes that, unlike in Egypt, heavy reliance on public sector jobs has dampened public support for political upheaval. "When your job comes from the state, it's much more difficult to go out to the streets because you risk losing your livelihood as well as endangering your own safety."

There have been a flurry of comparisons between Egypt and Iran. Considering these, is Iran also ready to fall?

What made Egypt a successful and relatively blood-free revolution was the presence of a large, mobilized, well-prepared young population that had access to technology and had a very coherent, tactical plan for driving an opposition movement. They were also disconnected from the interests of, or need to bargain with, the government. You don't have those factors in Iran today. The Iranian regime is deeply paranoid and watching the youth because they played such an important role in the 1979 Iranian Revolution. Their access to technology is frequently constrained and the surprise factor that facilitated some of the stumbles of the Egyptian and Tunisian regimes simply isn't present.

There is also a much greater repressive capacity and fear factor in the population's relationship with the military. The Egyptians saw the military as potentially an honest broker, which wouldn't happen in Iran.

Finally, Iranian reformists Mehdi Karoubi and Mir Hossain Mousavi have yet to disavow the Islamic Republic as a model, even as they press for greater democracy. And so their involvement makes it more likely that what you will see in Iran is a sort of pacted transition, rather than a full-scale upheaval. In Egypt, so much of the change was driven by those outside the political establishment.

Crisis Guide: Iran

Why don't Mousavi and Karoubi go the extra step to fully challenge the regime?

They are full-fledged opposition figures. But they are still identified with the regime. They still have decades of history with the supreme leader and the political establishment. For them to disavow the regime altogether is a more complex and dangerous act. It doesn't necessarily make for a worse transition, but it alters the parameters for opposition.

We don't know the extent to which there is a new generation of leadership emerging in Iran, as emerged in Egypt and Tunisia. Young people were armed with technology and able to evade the restrictions of the regime, capable of thinking tactically to outfox even the regime's repressive capabilities. If those people exist, we won't recognize what they're up to until we see it play out on the streets. It's an opposition movement we can neither orchestrate nor anticipate. Because of the restrictions they must function under, they have to operate in a very opaque fashion.

How does the youth bulge in Egypt and elsewhere in the Arab world differ from Iran?

Iranians have shifted their demographic policy in a fairly radical fashion. [Iran has experienced the fastest decline in fertility (PDF) of any country over the last two decades due to government-led family planning measures.] As a result, the youth bulge has a termination point for Iran. At a certain stage, Iran is going to be facing a sort of Japan problem where they have a very old population with a much smaller number of young people to support it. Right now, Iran is at the height of its youth bulge. But they've already been shuttering elementary schools that are no longer needed, because they had built for the widest part of the bulge. It changes the level of activism and the potential for a long-term pressure compared to Egypt and elsewhere in the region.

How long can President Mahmoud Ahmadinejad buy public support with cash payments to poor Iranians before the economy reaches a crisis point?

It's remarkable that the regime has been able to implement (NYT) the [cash payments and subsidies removal] program as widescale as it has. This has involved setting up bank accounts for millions of people, transferring funds, raising prices, and dictating the prices of a number of domestic products, consumer products. It's also remarkable that there has been so little public reaction (NYT). Funds are now going into the pocketbooks of average Iranians, which enables them to make their purchasing decisions. They can continue to spend on the same basket of goods, in particular gasoline. Or they can reorient their purchases, save some of the funds, invest in small businesses. There's some anecdotal evidence that that's actually having a very positive effect on the economy. If Iran is able to make this transition successfully, and eliminate some of the very costly subsidies that have been a drag on the economy, it would have a very powerful effect on the economy and on the political stability of the regime.

"International financial pressure has produced some rationalization of the Iranian economy and may in the end help improve the economy's performance, which is not the intention of the sanctions."

Shedding some of the costs of subsidies and reinvesting them in productive sectors of the economy also helps insulate the regime from sanctions and from popular pressures of a citizenry concerned about rising prices, as we've seen elsewhere in the Middle East. So there is a positive dimension of this program for the Iranian economy and, paradoxically, for the regime. What drew the political sector together despite objections to the reform program was the looming spector of international sanctions and financial pressures on Iran. International financial pressure has produced some rationalization of the Iranian economy and may in the end help improve the economy's performance, which is not the intention of the sanctions.

Haven't sanctions also helped Ahmadinejad channel more economic power into the hands of Iran's Revolutionary Guard?

The Revolutionary Guard is primarily benefitting from the exclusionary effect of sanctions, as international firms have left the Iranian marketplace--particularly in the oil sector, but also in other major dimensions of the economy. The Revolutionary Guard is best positioned to move in and appears to be receiving some degree of preferential treatment when it comes to building on projects and obviously access to capital and technology. So, they are a privileged sector of the economy. This isn't unique to the Islamic Republic. Militaries across the world have an economic dimension to them. And particularly in this part of the world, in the Middle East, militaries have sought to become self-sufficient and sought to involve themselves in all varieties of sectors of the economy. But the concerns about the Revolutionary Guard's role come from its increasingly political dimension. The extent to which the Revolutionary Guard is a political power with an economic capital unto themselves makes it a really independent power center within Iran and evokes concerns from across the political spectrum, and of course from average Iranians as well.

Are targeted sanctions against the Revolutionary Guard having the intended effect?

"It isn't the economy that drives people to the streets. The economy has been a persistent issue within Iran, but it is one that Iranians have become somewhat emured to."

U.S. officials are generally pleased when they see the Revolutionary Guard expanding its role in the Iranian economy because it has been a major focus of targeted sanctions over the past several years, and because there is widespread international concern about its role and about its perspective. It makes it easier to gain international support for sanctions where you see the Revolutionary Guard taking a stronger role. But this is one of the areas where we have to be concerned about unintended consequences. If what we're driving is a military takeover of the Iranian state, the long-term consequences for the Iranian people are not going to be positive. In effect, what we've done is to force the regime to rely more on the Revolutionary Guard, which is ultimately more problematic for the United States.

Can Iran's growing trade relations with countries like China ultimately insulate the regime?

We're already seeing some problems with the approach of trying to use China as a substitute for European firms and European investors. There are political constraints: a lot of backlash by Iranian merchants to the overwhelming role of Chinese products that have come into the marketplace and to the quality of those goods. There's been outcry in the press about sectors of the economy that have been shut down by low-cost, low-quality competition from China. And there have been moves to ban a number of goods coming in from China because of quality concerns.Those concerns as well as the political relationship--for example backlash about Chinese support for intensified sanctions on Iran in mid-2010--produced some calls for a change in relationship between the two countries from various parts of Iranian poltical establishment. So this won't be a perfectly untroubled relationship.

Of course, the Iranians value the extent to which the Chinese are disinterested in political issues in their business dealings. They're unlikely to express concerns about human rights and about democracy, a major sticking point in the expansion of trade relations with Europe.

Will Iran's economic woes be the downfall of the regime, as was the case in Egypt?

It isn't the economy that drives people to the streets. The economy has been a persistent issue within Iran, but it is one that Iranians have become somewhat emured to. Unless we see some sort of dramatic deflation, dramatic change in the status of the Iranian currency, then it's unlikely, in part because so many Iranians have an economic connection with this regime. Or if we saw the price of oil drop to somewhere in the $20 to $40 a barrel range, which would impose severe constraints for the Iranian economy. And that's unlikely because of the worldwide demand for petroleum now. The public sector has ballooned under the Islamic Republic, and many other Iranians are in some way interconnected with a private sector that really isn't private, but is a kind of crony capitalist or parastatal sector. And when your job comes from the state, it's much more difficult to go out to the streets because you risk losing your livelihood as well as endangering your own safety.

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