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Governance and Development in Iran

Governance and Development in Iran
June 2019
Pooya Azadi
Stanford Iran 2040 Project

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Systematic analysis of governance and interactions among its constituent elements is key to understanding a nation’s development trends. This paper attempts to provide such an analysis by evaluating the quality of governance in Iran over the past half-century. To this end, a multidimensional framework is employed to describe the evolution of the state (the power-deploying institution within the system of governance), the rule of law and accountability (the checking institutions within the system of governance), and their relations with economic growth, the state’s legitimacy, and social mobilization in contemporary Iran. Four distinctive time periods have been considered in this analysis: the prerevolution period (1970–79), early stage of the revolutionary state (1979–89), the period known as reconstruction and reforms (1989–2005), and the period of governance deadlock and economic stagnation (2005–present). The main dynamics of governance in each period are discussed by focusing on the evolution of the above institutions and the interactions among them. The paper argues that Iran’s major challenges are rooted in its poor governance. Today, as a result of the low and non-inclusive growth of the past four decades, the signs of stress in the Iranian economy and society are multiplying. Widespread poverty and growing inequality, low labor force participation and high unemployment, human capital flight, declining productivity, banking and pension crises, high and rising public debt, loss of social capital, and serious environmental issues are among the challenges currently facing the country. In the meantime, corruption has become systemic and turned into a downward spiral that reinforces itself over time. Considering the poor outcomes of Iran’s state-dominated development strategy—which to some extent had hoped to copy the China model—the paper highlights the urgency of implementing a transformational approach to governance to reduce the discretionary actions of the political institutions, improve transparency and accountability, and allow for the establishment of a strong civil society. Without these changes, development in Iran is unlikely to proceed much further regardless of the prevailing political system in the future. Furthermore, given the extensive range and depth of Iran’s internal challenges—which will likely be exacerbated in the long term by exogenous factors (e.g., physical impacts of climate change, global efforts to move away from fossil fuels, and the diminishing potential of cheap labor as a driver of growth due to automation)—the window of opportunity for Iran to overcome its development logjam and avoid a dire future in the coming decades is closing rapidly.