Pahlavi’s economic vision for a future Iran needs refinement

Last week, exiled Iranian Crown Prince Reza Pahlavi outlined his vision for a prosperous Iran post-revolution, but it requires further refinement and expansion to address key aspects of the country's political economy.

As the keynote speaker at the "Iran Conference 2024," hosted by NUFDI, a US-based nonprofit promoting democracy and human rights in Iran, Prince Reza Pahlavi addressed several key economic challenges that any post-Islamic Republic government must confront.

The presentation began with a comparison of Iran's economy to other developing nations, both past and present. Pahlavi explained how Iran's economy has deteriorated since the inception of the clerical Islamic government and how the Islamic Republic has worsened the lives of Iranians, before outlining 10 principles for rebuilding the economy after the potential fall of the current Islamist government.

In his "Iran’s Prosperity Project" vision, while Prince Pahlavi outlined missed opportunities and the path forward, he offered little on the dominant economic role of the government and military, which have stifled private sector growth and investment.

In discussions on Iran’s economic revival, it is essential to consider the governance system and social structures shaping the current economy. Key areas for analysis should include the role of state-owned banks and companies, resource allocation, subsidies, and the impact of a state-controlled economy on social capital—factors that greatly influence the feasibility and sustainability of economic reforms.

Breaking down Pahlavi’s 10-principle plan

The ten clauses outlined by Pahlavi in this project fail to address these fundamental questions, as they overlook the elephant in the room.

The plan needs to be enhanced by clear ideas on how to finance a smaller government, and how to distribute huge potential revenues from oil and gas, once a more capable government is able to remove sanctions and expand its vital fossil fuel sector. Should the government continue to keep energy export revenues and finance development projects, or find ways to involve the private sector in a liberal economy?

Where does the national income come from, and how is it spent? How can the most pressing concerns of the Iranian people—waste, corruption, and incompetence—be effectively addressed?

The following outlines the ten principles mentioned in Pahlavi’s remarks, along with their key issues:

1. "Trusting citizens to make decisions based on their interests"

The crucial question of how remains unanswered. The most effective form of trust would involve depositing national income directly into people's pockets. How can individuals make decisions based on their own interests if they lack access to their own resources?

2. "Creating opportunities by the government for all citizens to thrive"

What does "opportunity for all" really mean? It refers to giving individuals the ability to invest directly in retirement plans, college funds, the stock market, and businesses—rather than having economic affairs controlled by state-run companies managed by government-appointed officials. With these opportunities, people would be more motivated to invest in their children's education, stocks, and retirement, fostering greater personal financial empowerment.

3. "Policies to empower individuals by fostering personal responsibility and innovation"

Individual responsibility is impossible without active participation in the economy. While innovation and responsibility are essential, they cannot be achieved without access to banking resources and national income.

4. "Respect for private property"

Genuine respect for private ownership requires enabling its practical implementation. The centralization of national resources and their revenues under government control presents a significant barrier, limiting the development of a robust private ownership framework.

5. "Market mechanisms guiding economic transactions"

Market mechanisms cannot function effectively when the state controls over 80% of the nation's resources. A key question is how this figure could be reduced to 60% or even 40%, which would require significant structural reforms.

6. "Removing barriers and fostering conditions for domestic entrepreneurs and a business-friendly environment"

Entrepreneurship is not possible if aspiring entrepreneurs cannot rely on people's accumulated capital in banks or expertise. What mechanisms could funnel capital to new enterprises?

7. "Inflation control with financial discipline and an independent central bank"

The independence of the central bank cannot be guaranteed when 80% of the economy is controlled by the state. With such dominance, the government inevitably turns the central bank into a tool for advancing its monetary policies. True independence is driven by the circulation of money within the private sector, which compels the central bank to make autonomous decisions. This independence cannot be assured merely by orders or legislation.

8. "Eliminating barriers to women's participation in the labor market"

Women cannot start small businesses without access to capital. To address the centuries of inequality resulting from unequal inheritance and low female employment, a portion of public income should be allocated directly to women.

9. "Productivity driven by enhancing human capital and adopting technology to fuel economic growth"

Productivity and human capital diminish under a large, and therefore corrupt, government. Reducing the government's and military's role in the economy leads to greater human capital development and lower levels of corruption.

10. "Rejoining the global economy and attracting foreign investment"

Government-controlled economies that retain most resources and lack a strong private sector struggle to attract foreign investors. In contrast, foreign investment flows more readily into economies with a reduced government presence and a more robust private sector.

Three major issues in Pahlavi's economic vision

Based on Pahlavi’s proposed plan, three clear conclusions emerge.

If the plan is to be implemented one day, then it is impossible with a state-controlled economy. The proposed policies can be easily ignored in practice, yet still repeatedly included in five-year economic plans without any real intention of implementing them.

Without a clear strategy to prevent the government from monopolizing resources, even a national framework risks funneling wealth into the hands of a small, insider elite—leading to corruption and the formation of mafias. Curbing this by limiting government spending through taxation offers a crucial safeguard.

Finally, if the true goal is prosperity and public welfare, revenues from national resources should be directed to individuals, rather than being funneled into the treasury. Large development projects do not need to be controlled by government bureaucracies. Although the government can offer loans financed by taxes on oil and gas exports, development projects can be funded primarily through bonds and private bank investments.

Editorial note - Opinions expressed by the author are not necessarily the views of Iran International