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Why Iran Needs a War Economy

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Homajon

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Why Iran Needs a War Economy

By Ismael Hossein-Zadeh

November 6, 2018

Faced with the relentless U.S. economic war, Iran needs a war economy. Indeed, the plan of a war economy should not be very difficult for Iran to implement since it has a relatively successful experience of carrying out such a plan: during the 8-year war with Saddam Hussein’s Iraq, Iran embarked on an extensive state-guided economic management that effectively provided for both its military and civilian needs. Because of the revolutionary atmosphere of the time, and because of the corresponding spirit of generosity, selflessness, social cohesion, and national unity the country was able to effectively withstand both the military and economic wars launched against its territory and its people. Despite the extremely costly war, both in terms of blood and treasure, and despite the fact that Iran’s total output, or national income, at the time was only a fraction of what it is today, its people did not experience nearly as much economic hardship as they do today. Why? Mainly because its national resources were at the time distributed relatively equitably—unlike today where those resources are monopolized and plundered by a clique of financial oligarchs and economic mafias.

To embark on a war-economy route, Iran needs, first and foremost, to revive the real (value-producing) sector of its economy, that is, manufacturing and agricultural activities. These real-value and employment generating activities, which are the physical or material sources of the wealth of a nation, as the classical economist Adam Smith put it, have become dormant under President Rouhani—largely by a persistent and out-of-control barrage of imports, both legal and illegal.

To begin with, the government must embark on a large scale and affordable construction of housing facilities. In addition to reducing the cost of housing for low-income citizens, this would also revive many industries that tend to feed as well as feed-off this industry. It is estimated that there are nearly 200 industries that could be revived from an effective revival of the housing industry. Indeed, despite the largely unfair criticism by the Rouhani administration, the government-sponsored housing project that was carried out by the previous (Ahmadinejad) administration not only succeeded in keeping the cost of housing under control and, thereby, allowing 4.4 million low-income families to become homeowners, it also significantly contributed to economic growth and high employment rates of the time.

To revive its semi-paralyzed economy, Iran must also embark on a policy of import-substitution, combined with a policy of export-promotion. Import-substitution simply means curtailing imports that can be substituted by domestic products. Only those products that are essential for basic consumer and manufacturing needs (but cannot be produced domestically) should be imported. Such critically-needed foreign products must be imported directly by the government and distributed through the chain networks of consumer cooperatives or municipal retail stores at subsidized, affordable prices. Due to utter paralysis of market mechanism in Iran, the government must simultaneously contain the skyrocketing inflation by administrative means, that is, by strict laws against hoarding, price gouging, and speculative transactions. To make the administrative price control effective, the government must also restore the coupon system of pricing and distribution it used during Iran-Iraq war.

An export promotion policy means supporting exporters of domestic products, promoting their products abroad, standardizing and improving the quality of such products, thereby broadening their sales markets beyond national borders. In this connection, two important policy issues should be kept in mind. First, only those products that are above and beyond domestic consumer and manufacturing needs should be exported. Second, the export earnings of foreign exchange must be returned to the national reserves of foreign currencies.

Liberal-Neoliberal proponents of free trade would sneer at these proposals as schemes of a planned or command economy. These proponents forget or ignore the fact that proposals of these sort are no more than development strategies of a guided capitalist economy; that almost all the presently advanced capitalist economies, including the U.K. and the U.S., resorted to such protectionist strategies in the early stages of their economic development; and that even today the core capitalist country of the world, the United States, is protecting its non-competitive industries such as steel, aluminum, automobiles, and sugar against imports from China, Europe, Canada, South Korea, and Japan. It is altogether ironic that while the most advanced capitalist country in the world is resorting to protectionism and the erection of tariff walls to support its non-competitive industries, President Rouhani and his economic advisors are singing the song of free trade. These misguided Iranian champions of free trade tend to be more catholic than the pope!

Crucial to a successful implementation of a war economy is control of the country’s money and banking system, that is, of the financial sector. A radically-different management of the nation’s money and banking requires that the parasitic formation and growth of the shadow banks (or moasesat-e eatebari in Farsi), which are essentially based on Ponzi or Pyramid schemes, be terminated. It further requires that the commercial banks be prohibited by law from engaging in non-bank, speculative activities. This is, indeed, what the United States did in response to the Great Depression of the 1929-1933. That depression was blamed largely on commercial banks’ parasitic investment and speculative loan pushing, which created an unviable stock market bubble that eventually collapsed on October 29, 1929. To prevent the recurrence of such a destructive act of the banking system, the U.S. Congress instituted the landmark Glass-Steagall Act that prohibited commercial banks from engaging in non-bank activities, or speculative investments. Specifically, it prohibited them from participating in the investment banking business.

More importantly, the power of money creation and, therefore, control of money supply must be taken away from commercial banks and delegated exclusively to the publicly-owned Central Bank of Iran (CBI). Following the Anglo-Saxon model of fractional reserve banking, the power of money creation in Iran rests not so much with the government, or Central Bank, as it does with commercial banks. When commercial banks make loans or extend credit to their clients, in effect, they create money, which is called debt money, or credit money, or bank money, as opposed to sovereign or real money created by the government. Although in essence bank money is not real money, in practice it functions just as real money.

In theory, the ability of the banking system to create credit or debt-money is determined or limited by (a) the amount of savings or deposits they receive from households and businesses, and (b) the central bank regulation of these deposits—a regulatory mechanism which is called fractional reserve banking. In practice, however, the ability of the banking system to create credit, or bank money, is not much constrained by the amount of deposits they receive or by central bank regulation of money supply.

The ability of the commercial banking system to create money explains why the all-important power of controlling or manipulating money supply, of financing and, therefore, of influencing national economies in most capitalist countries has increasingly come to rest with commercial banks—often mediated by central banks and treasury departments that are frequently headed by the proxies of the financial oligarchy.

What has made the ability of the commercial banking system to create money—of course, debt or credit money—especially more dangerous in recent years is that, as the financial sector has systematically freed itself from traditional rules and regulations, most of the debt money they create is increasingly geared towards speculation, not production. This explains the exponential growth of parasitic finance in most capitalist countries. Parasitic growth of the financial sector in Iran represents an extreme case of this ominous development—a developments that has made the country’s economic landscape akin to a nationwide casino (for more information on this point please see here).

It follows that an effective cleansing of Iran’s economy of the poisonous effects of parasitic finance requires (a) ending the commercial banks’ ability to engage in speculative or non-banking activities, and (b) ending their ability to create money. Aside from the destabilizing and destructive economic effects, private banks’ ability to create money is also problematic on legal and/or constitutional grounds. As a critically important economic decision or policy of any nation, money creation is logically a sovereign prerogative, that is, a national right; it belongs to the public, not private, domain. The right of creating money ought to exclusively be granted to the publicly-owned central bank as the monetary authority of the state. This would replace sovereign money system for the currently corrupt bank- or debt-money system based on fractional reserve banking.

In brief, Iran needs a government that could guide, manage, monitor or control its international trade, its banking and financial markets, its foreign exchange market, its money supply, and its natural endowments, or gifts from nature, such as forests, water resource, oil, natural gas and other underground resource. It also needs to put a leash on the corrupt privatization of national resources and industries—a fraudulent practice that is used as a pretext for the looting of public domain properties, or national wealth. It further needs to embark on a state-guided extensive development or industrialization plan, along with a relatively generous social safety net program that would reduce inequality and economic hardship for the overwhelming majority of its people.

The funding sources of such an ambitious developmental and social safety-net projects are readily available—provided that there is political will and managerial ability. One such a source of financing could be provided by a reallocation of a larger portion of the oil revenue to such projects. Since becoming president, Mr. Rouhani has reduced the share of the reconstruction and development budget of the total national budget from over 20 percent less than 10 percent. By the same token he has drastically increased the share of the largely ceremonial and wasteful current expenditures. A re-allocation, or re-setting, of these two categories of the national budget to pre-Rouhani days could free a significant amount of funding for social and developmental expenditures.

A second, and more important, source of financing could come from government funding through the publicly-owned Central Bank of Iran (CBI). Instead of borrowing from abroad or from domestic private banks at interest, CBI could print money (as needed) and directlyspend it into the economy through social and developmental projects without going into debt and paying interest. Champions of neoclassical-neoliberal school of economic thought would scream at this suggestion, which is called deficit spending for productive investment, that it would be inflationary. But it does not have to be so. Whether it would be inflationary or not depends on the management of the funds thus created. If they are used for productive investment, they could lead to a rise of production, employment, economic development and social progress—not inflation. Indeed, all the core capitalist countries of the world, especially Germany, rebuilt their devastated economies by the Great Depression and World War II largely by virtue of deficit financing.

Strategies of a “resistance” or war economy along the lines suggested here are rather well-known both in theory and practice. As noted earlier, most of the advanced capitalist countries of today successfully utilized such protectionist strategies of industrialization in the early stages of their development. They switched from policies of economic protection and strategic trade to policies of free trade only after they became internationally competitive under protectionist strategies of trade and development. Also as noted earlier, Iran too resorted to similar strategies of economic protection and resistance during the 8-year war with Iraq, which enabled it to successfully provide for both its civilian and military needs. Even today Ayatollah Khamenei and a number of economists such as Ebrahim Razaghi, Ahmad Tavakoli and their co-thinkers have been calling for the implementation of a protectionist developmental strategy, which they call “resistance” economics.

The main economic problem facing Iran today is, therefore, not a lack of theoretical knowledge or practical experience; it is rather an absence of political will and managerial ability of implementing such a strategy that is crippling Iran’s economy. As I have shown in a number of previous essays (please see here,hereand here), President Rouhani and his economic advisors are too deeply wedded and/or committed to the doctrine of liberal-neoliberal economics to carry out a war or resistance economic policy. Implementation of such a policy, which is essential to the revival of Iran’s paralyzed economy, requires a different administration: an inward-looking administration that would rely on domestic resources, talents and capabilities; not an outward-looking administration that pins its hopes for economic development on Western capital, expertise and markets. Obviously, this implies the need for an altogether new, revolutionary government.


Ismael Hossein-zadeh is Professor Emeritus of Economics (Drake University). He is the author of Beyond Mainstream Explanations of the Financial Crisis (Routledge 2014), The Political Economy of U.S. Militarism (Palgrave–Macmillan 2007), and the Soviet Non-capitalist Development: The Case of Nasser’s Egypt (Praeger Publishers 1989). He is also a contributor to Hopeless: Barack Obama and the Politics of Illusion.

https://www.counterpunch.org/2018/11/06/why-iran-needs-a-war-economy/

If you have any questions, contact the author: Ismael.Zadeh@DRAKE.EDU


So basically, Iran needs another 1980's Khamenei!
 
One thing that should not be overlooked: The current situation in Iran is planned by Mr.Khamenei, as I already explained:

https://defence.pk/pdf/threads/iranian-public-opinion.542342/

Mr.Rouhani has to continue with his policy so that even the last Iranian is cleared of his illusions. The iranian people have to suffer, there is no other way! Mr.Rouhani has to rule for the full 8 years and continue with his policies, otherwise all 4 to 8 years another presidential candidate would come up and again start with brainwashing. Iran can only start to build a long term strategy for its future, when even the last Iranian stops to fantasize, and we are slowly reaching this point, as the polls show! The lefties are on their death march, and after 2021 they will be wiped out once and for all!

And even if Mr.Rouhanis policies are terrible, they will be reversible. Russia also recovered after the horrific 8 years of Boris Yeltsin, and what he did in Russia was much more disastrous than what is happening in Iran. Of course, if he could, Mr.Rouhani would do the same in Iran, but he won’t be able to do it because the IRGC exists. IRGC made mistakes in the banking sector (bonyad banks), they are not free of fault, nobody in Iran is, but it is the IRGC who are preventing Mr.Rouhani from the doing the Yeltsin on Iran, they will shield Iran, just as they always did:

https://www.huffingtonpost.com/ismael-hosseinzadeh/the-militarization-of-the_b_784193.html?guccounter=1


And of course there is also an old wise man who always prevented the top leading neo-liberal finance institutions from taking control of Iran :)



So we just have to show patience till mid 2021. Even the most naive Iranian is slowly awakening, as the polls show. And after that, Iran can build its future.
 
“The funding sources of such an ambitious developmental and social safety-net projects are readily available—provided that there is political will and managerial ability. One such a source of financing could be provided by a reallocation of a larger portion of the oil revenue to such projects. Since becoming president, Mr. Rouhani has reduced the share of the reconstruction and development budget of the total national budget from over 20 percent less than 10 percent. By the same token he has drastically increased the share of the largely ceremonial and wasteful current expenditures. A re-allocation, or re-setting, of these two categories of the national budget to pre-Rouhani days could free a significant amount of funding for social and developmental expenditures.”


Concerning this part, read the articles of Mr.Salehi-Isfahani, they also explain the catostrophic policies of Mr.Rouhani:

https://theforum.erf.org.eg/2017/11/19/energy-subsidies-universal-basic-income-lessons-iran/

https://djavadsalehi.com/2017/12/31/rouhanis-new-budget-aims-to-eliminate-cash-transfers/

https://djavadsalehi.com/2018/01/03/poverty-and-living-standards-of-iranians-since-the-nuclear-deal/

https://djavadsalehi.com/2018/01/15/does-economic-growth-in-iran-increase-income-inequality/
 
There is also another reason for a resistance economy: The coming financial world crisis:

https://www.nytimes.com/interactive/2018/09/12/business/the-next-recession-financial-crisis.html

https://www.stuff.co.nz/business/world/107137555/why-the-next-recession-will-be-bigger-than-the-global-financial-crisis

https://www.fairobserver.com/region/north_america/us-economic-crash-debt-dollar-value-china-trade-war-economics-news-16014/

https://www.dailystar.co.uk/news/latest-news/721346/financial-crash-global-economic-crisis-recession-us-news-trump-trade-robert-kiyosaki



This crash will not be like the one in 2008, it will be like the one 90 years, just in bigger proportions.

Iran already has one advantage: Its extremely low debt level.

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2079rank.html

For a country of this size, Iran basically has no debt, compared to the core capitalist countries and also many of the so-called emerging markets, whose wealth is built entirely on debt.

This lack of debt already will help Iran massively in the coming crises. And as the western economic model is currently failing, a resistance economy will further shield Iran from the horrific fallouts of the coming world crash!
 
Mr.Rouhani has to continue with his policy so that even the last Iranian is cleared of his illusions. The iranian people have to suffer, there is no other way! Mr.Rouhani has to rule for the full 8 years and continue with his policies, otherwise all 4 to 8 years another presidential candidate would come up and again start with brainwashing. Iran can only start to build a long term strategy for its future, when even the last Iranian stops to fantasize, and we are slowly reaching this point, as the polls show! The lefties are on their death march, and after 2021 they will be wiped out once and for all!


Khamenei planned the economic collapse in Iran so the people can realize that Rouhanis policy does not work? Are you kidding me? What drugs are you on? The more the Iranian people suffer, the more they will hate and blame not USA, not the current administration, but the whole Islamic Republic itself. People are not shouting death to America, they are shouting death to Khamenei and Islamic Republic. If Khamenei planned this, then the Shah planned the Islamic Revolution. The truth hurts sometimes, but, its better to swallow it, instead of creating alternative realities that makes you feel better.

The iranian people have to suffer, there is no other way!
Very brave of you to say this, when you live in Germany meanwhile your fellow Iranians dont have money for food
 
Khamenei planned the economic collapse in Iran so the people can realize that Rouhanis policy does not work?

Nothing is going to collapse, thanks to Khamenei and IRGC.

The more the Iranian people suffer, the more they will hate and blame not USA, not the current administration, but the whole Islamic Republic itself.

No they won't.

https://defence.pk/pdf/threads/iranian-public-opinion.542342/

Very brave of you to say this, when you live in Germany meanwhile your fellow Iranians dont have money for food

I should get a bravery medal.
 
Concerning debt:

I don't think what Erdogan did to Turkeys economy is good, I already explained why.

Turkey had a major economic growth, but it is built on the same foundations as the economies of the west: on debt!!!

https://www.ceicdata.com/en/indicator/turkey/external-debt--of-nominal-gdp
https://www.ceicdata.com/en/indicator/iran/external-debt--of-nominal-gdp

Turkey: 47% foreign debt
Iran: 2% foreign debt

And then there is also the public debt of the citizens:

http://www.theglobaleconomy.com/Turkey/household_debt_gdp/


https://www.nytimes.com/2014/02/28/business/international/credit-card-debt-threatens-turkeys-economy.html


https://news.sol.org.tr/54-million-turkish-citizens-live-debt-173237



When it comes public debt, the "moderate" Rouhani also wanted to follow the "successful" western model, and curiously enough in 2015, the year of the JCPOA when Iran was supposed to economically benefit, Irans public debt skyrocketed:

https://www.statista.com/statistics/294544/iran-national-debt-in-relation-to-gross-domestic-product/


(Fortunately in absolute numbers, it is still relatively low, and it also again decreased, but it once again shows what a mindset Rouhani has :disagree: )


So concluding, Iran should not follow the western model and build its economy on debt, so that future generations don't have to pay the price for the present generations comfort.

It is a neo-liberal growth:

https://www.global-labour-university.org/fileadmin/GLU_Working_Papers/GLU_WP_No.19.pdf


But in one area Erdogan made a fantastic job: After decades of suppression und plundering by the International Monetary Fund, Erdogan finally freed Turkey from IMF dictates on May 14th 2013

https://www.aa.com.tr/en/turkey/turkey-pays-off-the-last-installment-of-its-debt-to-imf/246440


After that, Gezi Park protests started...
 
Concerning debt:

I don't think what Erdogan did to Turkeys economy is good, I already explained why.


It is a neo-liberal growth:

https://www.global-labour-university.org/fileadmin/GLU_Working_Papers/GLU_WP_No.19.pdf


But in one area Erdogan made a fantastic job: After decades of suppression und plundering by the International Monetary Fund, Erdogan finally freed Turkey from IMF dictates on May 14th 2013

https://www.aa.com.tr/en/turkey/turkey-pays-off-the-last-installment-of-its-debt-to-imf/246440


After that, Gezi Park protests started...
Sis, I can't be agree more with you.
these pro west guys are losing ground to the other side, and they are leaving Iran in the masses.
Our problem is that we don't have achievable goal right now; the president Rouhani goal was normalization with west and all of his plans shape base on that.
the next Iran president goal would be progress base on local capabilities and I think people would accept this goal in the next election.
we are going to lose our hope on west day by day.
 
Sis, I can't be agree more with you.
these pro west guys are losing ground to the other side, and they are leaving Iran in the masses.
Our problem is that we don't have achievable goal right now; the president Rouhani goal was normalization with west and all of his plans shape base on that.
the next Iran president goal would be progress base on local capabilities and I think people would accept this goal in the next election.
we are going to lose our hope on west day by day.

Well, when I look at the recent ministry changes that Rouhani did, putting anti neo-liberal politicians in their place, it seems like someone desperately wants to prevent the total demise of the lefties :lol:
 
Sis, I can't be agree more with you.
these pro west guys are losing ground to the other side, and they are leaving Iran in the masses.
Our problem is that we don't have achievable goal right now; the president Rouhani goal was normalization with west and all of his plans shape base on that.
the next Iran president goal would be progress base on local capabilities and I think people would accept this goal in the next election.
we are going to lose our hope on west day by day.
Rouhani was a complete TWAT.:cuckoo:
For gods sake what sort of a fool would you have to be to have no plan B in reserve and be willing to gamble everything on the west?:oops:,and this joker was supposedly a 40 year career politician??!!:o:
 
*AIPAC funding alert* should be in the title of this video.
What an idiot. American interests... or Israeli interests?
The US should get the hell out if the ME. Someone should shut this Jew up...

At present , USA is acting according of this kind of "strategy" toward Iran .... so for us , if it is USA's interest or Israel's interest , doesn't matter ... we should face reality and react according of what USA acting against us ....
 
At present , USA is acting according of this kind of "strategy" toward Iran .... so for us , if it is USA's interest or Israel's interest , doesn't matter ... we should face reality and react according of what USA acting against us ....
American policies toward Iran always return to themselves like boomerang.
we should not play in their game, we must play our own game.
The Video, you posted say American wishes. Are they going to work ???? That is big question.
 
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