- The Washington Times - Wednesday, August 28, 2002

TEHRAN The sprawling bazaar in the southern part of this city is where opposition to Shah Mohammed Reza Pahlavi, the last Iranian monarch, sparked the Islamic revolution in 1979. The bazaar merchants opposed the shah's permissive culture and favored a government of religious clerics or mullahs.

But it was the shah's economic policies that ignited the revolution. Merchants were outraged by his attempts to open Iran's economy to the global market and foreign competition.

Now, some of those same people who toppled the shah are desperately trying to pull Iran's economy into the 21st century.

That's because many of the major policies the mullahs initiated since the 1979 revolution have failed. But the government may not be able to improve its economy without dismantling the revolution that put it in power.

The country's economic problems are broad, deep and numerous. Everyone complains about not being able to make ends meet. According to government statistics, the average family earns $3,125 a year; but spends $600 more than that.

More palpably, Iranians eat 20 percent less food and 30 percent less meat than they did 10 years ago.

Hassan Fallahi, a taxi driver from southern Tehran with five children. says times have gotten tougher and tougher.

"A kilogram of meat that cost $2 last year costs $3 this year," he said. "Foodstuffs have gotten more expensive, clothes have gotten more expensive. But your salary stays the same."

After the revolution, the Ayatollah Ruhollah Khomeini urged Iranians to bear many children. Go forth, he said, and breed a new Islamic order.

Well, they did. Now Iran faces a huge demographic crisis: 800,000 to 1.2 million new jobs are needed every year for people entering the job market.

But the country can only create 400,000 jobs in a good year. The official unemployment rate is at 13 percent, but most independent analysts peg it at 20 percent. One minister recently called unemployment a national threat.

Mohammed Hussein Adib, an Iranian economist, predicts unemployment could rise to 30 percent in the next four years. "The biggest challenge for Iran might be finding enough sidewalks for aimless young men to mill about upon," he joked.

The mullahs taught illiterate people to read and put universities in every small town. The result has been an educated youth with high ambitions but few opportunities. Unless they go abroad. Since the mullahs took charge of Iran, they have tried to impose seventh-century religious values on the population. They banned pop music, alcohol, discos and many forms of modern entertainment.

So the modern-minded are leaving. Late last year the International Monetary Fund named Iran the world's No. 1 victim of brain drain, with 150,000 to 180,000 of the country's best educated moving out each year to contribute their talents to the West.

In managing the private sector, the government has fared even worse. When the clerics wrested control from the shah, they grabbed all his properties and those of his friends and put them in the hands of the government and various religious foundations.

Those organizations with names like the Foundation for the Oppressed and the Foundation for War Orphans now control vast tracts of the Iranian economy, stifling the growth of the private sector and scaring off foreign investors. Few entrepreneurs dare risk facing a fatwa for underselling Iranian sofas or cereals.

Iran's former president, Ali Akbar Hashemi Rafsanjani, started a move to privatize state-owned industries bur that just made the problem worse, said Nasser Hadian, a Tehran University political scientist now teaching at Columbia University.

"Many of those corporations were given to many of the friends and relatives of the politically important people," he said. "After they assumed ownership of the corporations and organizations, many of them in fact dismantled, disorganized these corporations and sold [the pieces] in the market for a higher price."

In the big cities, the mullahs decided to invest in mosques rather than subways. As a result, Iran has grown into a car-dependent country. Iran's increasing domestic consumption is eating into sales of its primary export: oil.

Most economists agree that foreign investment and a general opening up of the economy would do much to alleviate Iran's troubles.

But because the clerical regime tried to export its revolution to other countries, supporting militant movements in Lebanon and the Israeli-occupied Palestinian Territories U.S. sanctions remain in place.

Other potential trade partners remain suspicious. Egypt, for example, won't restore full relations with Iran until it renames a Tehran street now dedicated to the assassin of President Anwar Sadat.

Because of the U.S. sanctions, the country made a series of rotten business deals with European companies. They agreed to develop Iran's oil fields in exchange for free oil. The bills have come due, and Iran has to fork over millions of barrels a day to the Europeans.

The clerical government in Iran is now stuck economically. But economists say that unless it takes drastic measures, Iran's government could follow in the steps of the Soviet Union and collapse under the weight of its own economic mismanagement.

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