Cronyism stifles Iran's economy, ex-minister says

Iran’s former communications minister has sharply criticized the government-controlled economy, arguing that a system favoring insiders stifles creativity and productivity.

“The reality is that in an economy built on rent-seeking, where wealth depends on political connections, creativity has no place,” Mohammad-Javad Azari-Jahromi, who served as telecommunications minister under the Rouhani administration, told a gathering of fintech experts in Tehran.

As Iran’s oil-dependent economy has plunged into crisis over the past five years, local economists, some media outlets, and politicians have increasingly criticized the underlying system while also attributing the downturn to US sanctions.

The term “rent-seeking economy” is increasingly used in Iran to describe a system where politically influential individuals and entities secure economic privileges—such as government subsidies, lack of oversight, and market monopolies—to generate profits without contributing significantly to productivity.

A clear example is the Revolutionary Guard receiving over 30% of Iran’s crude oil for export, rather than relying solely on government budget allocations.

Jahromi implicitly referred to that when he said, “Certain entities can obtain oil under the pretext of bypassing sanctions and then decide whether or not to bring the revenue back. This approach is far easier than putting in the effort to create markets and provide services.”

The former minister explained that “In this rent-seeking environment, there is no incentive for individuals to pursue creativity. Ultimately, the system operates through intermediaries.”

Nearly all of Iran’s banks, automakers, petrochemical plants, steel producers, and various other industries are either government-owned or quasi-public, managed by a politically connected elite. Despite their inefficiency and mounting debts, these industries are deemed essential and remain heavily reliant on continuous government support.

Jahromi noted that banks use their capital to engage in the real estate sector instead of helping new industries. They also own many companies and lend money to their own enterprises instead of others.

“The economy is facing fundamental and obvious obstacles. In this situation, the workforce is migrating, and investment is scarce due to the high level of risk involved,” Jahromi said.