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Iran’s Pursuit of the China Model

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by Nader Habibi

Struggle for political democracy in Iran took a leap forward in 1997, when Mohammad Khatami won the presidential election. His victory energized the liberal elements within the Islamic regime and raised expectations for a gradual transition to democracy. This was followed by a sweeping victory of reform-oriented candidates in the parliamentary elections in 2000. Notwithstanding full control of the executive and legislative branches, though, the liberals were unable to make much progress towards democratic reform. Their efforts were repeatedly blocked by the hard-line conservatives who controlled the judiciary and the Guardian Council. The latter institution used its veto power over parliamentary decisions to reject political reforms, while the judiciary coerced the media and the politicians who dared to criticize the conservatives—by arrests and imprisonment. After struggling for more than seven years, the liberals suffered a major defeat in early 2004, when the judiciary disqualified many of them from contesting the February 2004 parliamentary elections.

Despite heavy international and domestic protests, the 2004 elections were conducted with low voter turnout, which brought a new generation of conservatives into the parliament. This conservative “victory” has raised several questions about the direction of political and economic reform in Iran over the next four years. One strategy that has been mentioned several times by political analysts is the “China model.” Based on the experience of China after the violent suppression of the 1989 pro-democracy demonstrations in Tienanmen Square, the China model refers to a combination of political repression and economic liberalization that leads to rapid economic growth under a stable nondemocratic regime. Those who predict that Iran will follow this model argue that a group of pragmatist conservatives, headed by former president Rafsanjani, have gained the upper hand in the parliament. These pragmatists have already pledged to continue the economic reforms that began in the mid-1990s.

During Khatami’s presidency, until the February 2004 elections, the conservatives blocked or delayed many of the economic reforms that he and his supporters tried to implement. But this opposition was not due to ideological or policy differences. Rather, it was primarily part of the power struggle between the two camps. By blocking the reforms, the conservatives were trying to prove that the liberals were powerless and ineffective. Nevertheless, the government was able to implement some economic reforms. After more than two-and-a-half decades, the exchange rate was finally unified in 2001. Investment laws were modified, after several go-rounds, to pave the way for foreign investment. The tax code was partially simplified, and a new banking law paved the way for the establishment of private banks. However, the privatization of state-owned enterprises and the reduction of subsidies were only partly successful.

Now that the conservatives are in control of parliament, they are expected to support some of the reform measures that they had earlier opposed. Some prominent conservative leaders not only support domestic economic reforms, but are also interested in increasing Iran’s economic ties with Europe. There are also indications that “pragmatic” conservatives are interested in reducing the tensions between Iran and the United States. To the extent that these initiatives will help improve economic conditions and boost living standards, they can help the Islamic regime enhance its domestic popularity. These developments give some merit to the economic thrust of Iran’s pursuit of the China model. On the political front, the Iranian government is gradually imposing greater restrictions on its critics and opponents. Some independent and liberal newspapers have been closed in recent weeks. The government has also harshly cracked down on urban youth for wearing Western-style clothing and violating the Islamic dress code. These moves could be followed with greater political and social repression in the coming years. But international pressure in support of human rights might force the government to move only cautiously in this direction.

The Iranian government may be unable to fully follow the China model, though, for several reasons. The country is embroiled in several major foreign policy crises because of its nuclear energy program, as well as its support of militant Arab groups in the Palestinian-Israeli conflict. And the United State will likely continue to exert political pressure on Iran so long as these issues are unresolved. Indeed, Washington might even increase its support for opponents of the regime, both inside and outside the country. Such a policy would make it difficult for the conservative mullahs to maintain political stability and suppress their domestic opponents—as China has done over the past 25 years. Indeed, a key requirement for the success of the China model in Iran is a peaceful and non-hostile international environment.

Simultaneously, the United States might increase its economic pressure to reduce the resources available to the Iranian government. This could deter foreign investment and slow the pace of growth, making it more difficult for Tehran to achieve sustained economic growth. Since Iran is unlikely to abandon the key elements of its foreign policy and its nuclear development program, the country must brace itself for mounting international pressure over the next few years. This may force Iran to settle for lower levels of political stability and lower rates of economic growth than are generally associated with the China model—at least in the short run.


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