The demonstrations—in which students raised slogans for the resignation of Ali Khamenei, commander in chief and supreme spiritual leader—were the biggest challenge to the right-wing Islamic regime since it came to power two decades ago.

The demonstrations flew in the face of Western stereotypes of Iran as a backward, medieval country led by reactionary mullahs (clergy) who ban music, oppress women, hate modernity—and hate most of all the “Great Satan,” the United States.

Iran has never been the Islamic monolith portrayed by the West. There has been resistance and struggle in Iran throughout the period of the Islamic regime’s rule. Although the regime allows no overt working-class organizations to exist, strikes and spontaneous protests have been commonplace. Short in duration, many have been crushed. But many have won economic concessions from the regime. Riots in poor neighborhoods have taken place with increasing frequency since 1992—an alarming fact for a regime that has based itself on the support of the “downtrodden and poor.”

Even the regime’s treatment of women gives a much more contradictory picture than presented in the West. Despite the Islamic regime’s brutal oppression of women, the economic and therefore social development of society has dictated a change in the position of women in Iran. “Before the revolution 35 percent of women were literate; now the rate stands at 74 percent. In the Shah’s time about a third of university students were women; now women make up fully one half of new admissions.”¹ Moreover, one out of three Iranian physicians today is a woman, while in the U.S. the number stands at one in five.²

The current faction fight between reformist forces around President Khatami and the conservatives around Khamenei may be the most decisive in the 20-year life of the Islamic republic. But it is hardly the first. Since its inception, the Islamic regime has been rife with divisions. Factions, representing contending classes in the Islamic regime, have duked out policy in vicious battles and lively debates that make a mockery of what passes as political debate and the “two-party democracy” in the U.S.

Balancing act

The new state formed after the 1979 revolution was the battleground for three main factions, all of which had played a key role in providing support for and consolidating the victory of Khomeini in the 1979 revolution. These three were:

The conservative faction. This included landowners, members of religious seminaries and, most importantly, clerics closely tied to the more well-to-do merchants in the Bazaar (the traditional center of commerce in Iran that controls most of the distribution and wholesale and retail trade in the country) and owners of small shops and workshops. These forces included “those members of the traditional privileged classes who fear losing out in the capitalist modernization of society.”³

This faction opposed the nationalization of industries and state regulation of foreign trade that took place after the revolution, and emphasized the “sanctity of private property, freedom of enterprise and commerce, [and] reduced government interference in the economy.”⁴ Its political leaders were older, higher-ranking clerics grouped around the Moslem Clerics Association (MCA).

The radical faction. This grouping represented the radicalized non-cleric middle classes, some of which came from religious families but had not received religious education. Most were either students or had received a college education and were professionals such as teachers, engineers or state functionaries.

During the revolution, it was this “Islamic intelligentsia” that formed the cadre that held the movement together. They were the organizers of the komitehs (local neighborhood committees) and street demonstrations. They provided the coordination between the local neighborhood groups and, in many cases, were commanders of the neighborhood militias, which later became the Revolutionary Guard.

The radicals supported state control of the economy to develop the country’s industry and agriculture. Organized mostly around the Mojahedin of Islamic Revolution (MIR), they advocated a populist program of “nationalization of all vital economic resources and institutions, drastic limits on property ownership, extensive reform in the direction of income redistribution and wealth-sharing, state control over foreign trade, central planning, price controlsÖand maximum national self-reliance.”⁵ Many members of this group, given their technocratic skills, became managers of state institutions or industries after the consolidation of Islamic power.

The radicals made no secret of their state capitalist program. Naming “commercial capitalism” as their main adversary, they openly expressed their hostility toward the conservatives, setting their strategy as “prevention of the Bazaar monopoly over the country,” according to a May 4, 1997 issue of Salaam.

Although known as the “radical” or “left” faction, they were vehemently opposed to socialist and working-class organizations. During the revolution, this faction saw its main task as neutralizing the influence of the socialist left and destroying left and working-class organizations on the one hand, and minimizing the control of conservatives and the Bazaar on the other.

The pragmatists. The third group gradually coalesced around Ali Akbar Hashemi Rafsanjani, the speaker of the parliament and then president from 1989-1997. Known as the “pragmatists,” they emerged out of the MCA with their own distinct economic and political program. They differed from the most backward elements of the conservatives in that they believed that economic and industrial development of the country was a priority. But unlike the radical faction, they believed that development should come through a program of free-market reforms and cuts in state spending rather than tight state control of the economy. They also favored easing up on anti-U.S. and anti-imperialist rhetoric and lifting tight restrictions on foreign investment in order to encourage the inflow of foreign capital.

Khomeini skillfully manipulated these three different factions. Throwing his weight behind one or the other, he was able to push through the programs he saw fit without ever allowing the complete exclusion of any faction—a situation that would have risked the breakup of his coalition.

Early years of the Islamic republic

The radical faction dominated the early years of the Islamic republic’s existence. They had been central to the organization of street demonstrations, building the networks of mass support for Islamic forces around Khomeini and consolidating his power during the revolution. They had taken over state institutions as the Shah’s regime crumbled. Moreover, they had been instrumental in creating new institutions for the Islamic state and building popular support for the new government among the poor.

After the revolution, MIR members and their radical allies took over key state institutions: radio and TV; the Bonyads (state foundations); the Revolutionary Guard (the regime’s armed militia, or the Pasdaran); and the Hezbollah (or “party of god”), which was composed of gangs of urban poor who were used to attack, terrorize and break up opposition meetings and demonstrations. They held the posts of president (1980-1981), vice president (1979-1980), prime minister (1980-1989), minister of the interior, minister of heavy industries, and the office of prosecutor general, among others. With their allies, they controlled numerous state agencies and held the upper hand in the Islamic Republican Party (IRP)—the sole legal party in the country.

The armed groups of MIR formed the backbone of the Pasdaran. MIR radicals were able to take control of the Pasdaran, and many MIR members and allies served as national and local commanders of the guards. The Pasdaran became a trusted military counterbalance to the regular army and the police. During their tenure in government, the radicals nurtured the Pasdaran from a ragtag group numbering 4,000 in 1979 to a military force of 350,000 troops with its own artillery, tanks, air power and submarines by 1986.⁶

After the 1979 insurrection, many owners of businesses and factories had escaped the country or were helpless in the face of the workers’ takeovers. For the radical faction, the takeover of these firms by the Bonyads served the dual purpose of removing them from workers’ control and also putting them under the control of the Islamic state. For members of the new middle classes who supported MIR, the state was the natural instrument to implement their goals. As professionals, engineers and government employees, they may not have owned any property, but as long as they “owned” the state, they could plan and manage the firms, industries and resources of the country that were taken over by the state. These firms and industries were centralized under the control of the Bonyads—such as the Bonyad Mostazafin, or Foundation for the Downtrodden, which by 1984 employed thousands and controlled some 150 industrial plants, 64 mines, 140 construction firms, 5,000 small productive units, numerous hotels and three of the country’s leading newspapers.⁷

The radicals had consciously steered away from any discussion of classes and had defined the differences in society in terms of the “downtrodden” or “oppressed” (Mostazafin) on the one hand and the “oppressor” (Mostakbarin) on the other. These terms were vague enough that a poor, homeless street peddler and a small shop owner, who might have been squeezed by the introduction of modern “Western-style” supermarkets under the previous regime, were both “oppressed,” while a factory worker who would dare to strike against the Islamic regime was helping the “oppressors.”

The Iran-Iraq war

The outbreak of war with Iraq in September 1980 helped consolidate MIR’s position in the government. The radical faction, under the government of Prime Minister Mir-Hussein Mussavi, made the most out of its position in the government. Not only did the war necessitate rationing and the planned distribution of resources, but also the mobilization of thousands of people for the war effort. The radicals used the rhetoric of fighting U.S. imperialism and “its agent the Iraqi regime” to ideologically prepare the population for war. But they also used the central rationing and distribution of food and other goods as a means to wed the support of the poor to the government. They controlled the neighborhood komitehs, and through them the distribution of the war ration cards for essential goods, as well as food coupons for the poor. Massive subsidies were introduced on essential items like bread, rice, milk and fuel—reducing their prices by as much as 75 percent.⁸

The regime built its strongest base in the countryside. Most poor farmers had never seen anything like the government assistance provided by the regime. The radicals organized a national campaign around the construction of infrastructure in the countryside, building roads and schools, and bringing piped water and electricity to the rural population. This campaign, organized under the auspices of the Jahad-e Sazandegi (Reconstruction Crusade), served a dual purpose—to build the regime’s popularity in the countryside and to scatter workers who might pose a problem for the regime.

Production at many factories had collapsed. In some areas, less than 30 percent of the productive capacity of industry was being utilized.⁹ The regime could ill afford to lay off thousands of workers and risk a political explosion. Labor laws were passed guaranteeing job security and making the firing of workers very difficult, thus averting a fight over layoffs. But they also made strikes and independent unions illegal. Still, the regime had to find a way to siphon off some of the thousands of workers who were technically “employed” but idle at work, their minimal salaries eaten away day by day by inflation rates of 25 percent or higher. The Reconstruction Crusade whisked away thousands of workers to remote rural sites, destroying the remaining networks of workers at their workplaces, isolating militants and leaving behind government-sponsored Islamic Associations as the sole “official” organizations of workers in factories and workshops.

By 1986, roads in rural areas had tripled and the number of water projects had quadrupled. The literacy rate in rural areas went up by 18 percent, the number of rural homes with electricity went from 24 percent at the time of the revolution to 53 percent in 1986, and the number of rural homes with piped water increased from 14 percent to 64 percent in the same period.¹⁰ Although religion did have a stronger hold among the rural and urban poor, it was the regime’s social programs that were decisive factors in cementing popular support in the early years of the Islamic republic. These real material gains, as well as providing the poor the ability to reach positions of power in the neighborhood committees, cooperatives and Revolutionary Guard, built their support for the regime.

This explains why the government was able to solicit thousands of volunteers to join the irregular units of the Basij (mobilization) for the war—drawn mostly from rural areas. Ranging in age from 10 to 70 years old, these Basij troops were willing to join the infamous human-wave attacks against Iraqi units. With nothing but a key around their necks—which was intended to open the doors of heaven when they were martyred—and at most a rifle in hand, thousands were slaughtered facing heavy Iraqi fire.

The emergence of crisis and opposition

The war killed more than 450,000 Iranians, caused massive destruction and produced more than a million refugees. Protest, especially among workers, resurfaced in response to the human and economic costs of the war. Between 1983 and 1985, a number of strikes and clashes took place in which Revolutionary Guards opened fire on workers. The most serious clash occurred at the Isfahan steel plant where 10,000 workers struck in December 1983, resulting in the execution of ten workers by the Revolutionary Guard.¹¹

Internal opposition was not the only concern for the radical faction and the regime. After all, internal dissent could be crushed by brute force. While the radical faction was building its base, it was also busy executing hundreds of socialists and leftist guerrillas who had been languishing in jails since the revolution.

But the country was also in serious economic trouble. The Iraqi attacks on Iran’s oil installations threatened to disrupt Iran’s oil production and exports. Oil was Iran’s main source of income, accounting for as much as 97 percent of the country’s foreign income.¹² The Iraqi attacks had reduced Iran’s production to 1.45 million barrels per day (bpd) in 1986—from a high of 7 million bpd in 1977. By 1986, oil revenue was more than $2 billion below the yearly costs of the war, ¹³ producing a budget deficit of $10 billion per year.¹⁴

Moreover, the conservatives were sabotaging the Mussavi government. They constantly attacked Mussavi’s system of ration coupons and government distribution of goods to the poor, since it undermined their own ability to use their networks of wholesale and retail trade through the Bazaar. Under the slogan “Couponism is Communism,” they had done their utmost to fight Mussavi’s welfare programs. But now they had a real opportunity to unseat Mussavi and his MIR cohorts.

In the middle of the war, the conservatives and the “pragmatists” around Rafsanjani, who together controlled the parliament, refused to approve Mussavi’s defense minister. And when the army command asked for more weapons for the Revolutionary Guard units who were fighting Iraq, it was bluntly told that “the Guards had to arm themselves by disarming the enemy (Iraq) only.”¹⁵

The conservatives and their supporters, the merchants and traditional capitalists of the Bazaar, refused to pay taxes to the government.¹⁶ In 1984, for example, Mussavi’s government was able to collect only 30 percent of all taxes due. The private sector paid only 2 percent of all tax receipts, while government employees—70 percent of whom lived below the official poverty line—paid 76 percent of all taxes.¹⁷

It was becoming clear that things could not continue along the same path. In 1985, Mussavi conceded to a new budget with massive cuts in social spending.

But the last straw for the government was the intervention of U.S. forces in the Iran-Iraq war. Iran found itself in a desperate situation. So, in 1987 it launched massive attacks with thousands of Basij volunteers against Iraqi forces in the south. Furthermore, it threatened to attack any oil tanker—Iraqi or not—carrying Iraqi oil. With the Persian Gulf oil routes under threat and the possibility of an Iranian victory, the U.S. threw its weight behind the Iraqi forces of Saddam Hussein.

Between March 14 and April 18, 1988, the Iraqi regime fired 189 scud missiles into Iran, 133 of them into Tehran. More than a third of the 10 million people living in Tehran left the city, seeking sanctuary in the surrounding area. This deprived Rafsanjani and the conservatives of the vote of the well-to-do who could afford to leave Tehran, and radicalized the poor who had to remain behind.¹⁸

The U.S. attacks on Iran and the Iraqi scuds ensured that the May 11 elections were a landslide for the radical faction. But it was clear that the war could not continue. Rafsanjani convinced Khomeini that the Iranian government had to cut its losses in the war. Appointing Rafsanjani as commander in chief, Khomeini “regrettably” accepted the United Nations (UN) Security Council Resolution 598, accepting a cease-fire and in effect conceding defeat on July 20, 1988. This was the beginning of the end of the radicals’ rule. They had mobilized their base around the slogan of “war until victory.” But now, with Iran’s defeat, it was Rafsanjani’s turn to step forward.

The radical faction had built a popular base among the middle class, the marginal urban poor and the rural population. But the radicals’ use of the state to subsidize a mass base of support had also created serious problems for the economy, causing slumping production and plummeting productivity. Since the revolution, nine out of ten jobs had been in the service sector, with the number of government employees increasing by 1.1 million, or 60 percent.¹⁹ Yet a 90 percent increase in service-sector employment had added little value to the economy and drastically reduced productivity.²⁰

Despite the rhetoric of support for the oppressed and the poor, Iran was by no means an egalitarian society. While the state expanded welfare for the poor, the traditional merchants and capitalists who had also supported the regime maintained and even extended their wealth. The Bonyads had funneled thousand of dollars into the pockets of those who controlled them, not into the purses of the poor. In 1988, the top 10 percent of Iran’s population owned 42 percent of the national wealth, while the bottom 20 percent owned only 3.8 percent of the wealth. This was a bigger disparity than existed in Turkey, Egypt and Israel—countries that the Islamic regime considered puppets of U.S. imperialism—and the U.S. itself.²¹

Iran after Khomeini

Soon after the end of the war, in June 1989, Khomeini, the leader and symbol of the Islamic Revolution, died. With his death, all moderation in the fight between the three main political factions was cast aside.

Rafsanjani’s pragmatist faction took control, moving to implement their five-year plan of “Reconstruction,” which was designed to downsize the government and increase investment and industrial growth. Rafsanjani and his conservative allies around Ali Khamenei declared an all-out war on the radicals. In 1989, Rafsanjani pushed through constitutional changes abolishing the post of prime minister and transferring all executive responsibilities to the office of president, which had previously been only a ceremonial position.

Rafsanjani easily won the election for presidency, and the conservative faction handily took over the parliament. Two staunch conservatives, Khamenei and Ali-Akbar Nateq-Nouri, were elected to the respective posts of supreme spiritual leader—the post Khomeini had held—and speaker of parliament. Rafsanjani’s victory marked a major shift in Iran’s domestic and foreign policy. Radical Islam was out, and the market was in.

Rafsanjani planned to open up Iran to foreign capital investment by easing trade regulations and toning down the regime’s anti-imperialist rhetoric. The plan included drastic downsizing of the government, cuts to subsidies and the privatization of hundreds of state-owned firms. He even planned to return some firms to their original owners, including supporters of the Shah’s regime and the monarchy.²² Free Trade Zones (FTZs) were established with incentives to investors such as no taxes, guarantees against nationalization, unrestricted transfer of profits, favorable banking terms and cheap labor to attract foreign investment and technology.²³ And lucrative terms were offered to foreign firms to develop the country’s oil and gas industry. Rafsanjani hoped that, through increased manufacturing and diversification of the economy by expanding non-oil exports, Iran could join the ranks of newly industrialized countries.²⁴

Downsize this!

But Rafsanjani’s promises of economic growth and job creation did not materialize. It was soon evident that, although the conservatives had sided with him to defeat the radical faction, they were not interested in Rafsanjani’s full program. Skillfully, they implemented parts of Rafsanjani’s program but blocked others. They favored easing regulations on foreign trade and cutting tariffs, which helped them make even more outrageous profits through importing foreign consumer goods. But they were against foreign firms entering the country, since that could undermine their lucrative import businesses.

They had been against any state intervention in the economy that threatened their profits, but supported state protection of their monopoly of foreign trade. They were against price controls on essential goods, but favored state subsidies on goods, which ensured that they got paid.

The radicals’ assessment of the pro-Bazaar conservatives had been correct: “This particular group does not believe in a one-product or a multi-product trade system because all in all it does not believe in investments in production. Instead, they stick hard and fast to the distribution where they make huge profits.”²⁵

The conservatives strengthened their position in the economy by forcing liberalization and deregulation of trade without the rationalization and investment that Rafsanjani had intended. For example, the FTZs “had failed not only to attract foreign investment in productive activities and encourage technology transfer, but had also failed to generate any income through exports,” according to Moterza Alviri, head of FTZ administration. “Far from acting as the window of opportunity for exporters, the FTZs had become a channel for imports of mostly non-essential consumer goods.”²⁶

Moreover, the conservatives were not keen on reducing the power of the Bonyads (foundations) or the Revolutionary Guard. After the radicals’ demise, conservative supporters had taken control of many of the state’s institutions, such as the Bonyads and the Revolutionary Guard, or had won the allegiance of those who controlled them.

The same system of subsidies and handouts to the poor that had been used by the radicals was simply taken over by the conservatives. They could now use anti-U.S. rhetoric to mobilize layers of urban and rural poor into Basij and Hezbollah organizations, providing them with food coupons and free housing and giving them a sense of power as the defenders of the religious order in society.

Far from reducing state spending and subsidies and increasing investment and productivity, pieces of Rafsanjani’s five-year plan, as implemented by the conservatives, exacerbated all of the economy’s problems. “The share of public firms in the budget had grown from 53 percent in 1989 to 67 percent in 1996, and their borrowing from banks had increased from 8 percent of all bank lending to 30 percent during the same period.”²⁷

Investment decreased even further while corruption was rampant in the Bonyads, which used up more than half of the government’s income. Oil revenues paid for massive subsidies, which lined the pockets of the conservatives and their allies in the Revolutionary Guard and Bonyads.

It’s the economy, stupid!

Today the economy is in serious crisis. Iran’s population has doubled in the past 20 years, increasing consumption dramatically. With no growth in the output of the economy (GDP), the standard of living of the population has been halved.

Half of the population, including 70 percent of government employees, lives below the official poverty line. Many have to work several jobs just to make ends meet.

Unemployment is estimated to be at 25 percent, and the future seems even bleaker. Every year 800,000 young people enter the job market. The government estimates that more than $100 billion needs to be invested in order to maintain today’s employment levels, while only $2.3 billion is currently allocated to job creation.²⁸

During the war the Iraqi attacks on oil installations and the resulting drop in oil exports had threatened to destroy the regime; now poverty, the ever-increasing subsidies and the expanding internal consumption threaten the regime’s survival.

With the growing population, domestic oil consumption has tripled in the past 20 years, rising to 1.5 million bpd. In the same period, oil production has been halved, dropping from 7 million bpd to 3.5 million bpd.

In 1998, fuel subsidies alone reached $11 billion per year—double the country’s development budget. Food subsidies on basic commodities such as bread, rice and sugar eat up another $2.2 billion per year. Together, these subsidies used up virtually all of the country’s $16 billion oil income for the year.²⁹

According to government estimates, if present consumption trends continue, Iran, today the world’s third largest oil exporter, will become an oil importer in the next fifteen years. ³⁰ It is no surprise that sections of the ruling class are increasingly worried. After all, if the conservatives and their allies aren’t weaned from their high diet of cash paid for by oil revenues, the economy will undoubtedly collapse.

Ayatollah Gorbachev

It is in this light that the May 1997 election of Mohammad Khatami as the new president should be considered. Behind his election are sections of the ruling class who are determined to end the stranglehold of the conservatives on the state and the economy.

These forces include not only Rafsanjani and his supporters, but members of the radical faction, such as Khatami himself, who have come to accept the necessity of market reforms, cuts and foreign investment as the only way out of the economic deadlock faced by the country today.

Khatami was elected by 70 percent of the vote in an election where 90 percent of eligible voters went to the polls. He soundly defeated the favorite candidate and speaker of the parliament, conservative Ali-Akbar Nateq-Nouri—a longtime ally of the Bazaar. Khatami won the election on promises of greater cultural and intellectual freedom, which made him popular with the intellectuals, students and much of the middle classes.

Their vote for Khatami was no surprise. They have long been shut out of the Islamic regime and had previously supported Rafsanjani as a lesser evil to the conservatives.

But what turned the tide in this election was the massive turnout of the poor and working class who, tired of poverty, corruption and repression, saw a vote for Khatami as a vote against the regime and status quo.

Since his election, he has advocated “freedom of debate” and appointed “liberals” to the posts of minister of culture and minister of the interior. Under their control, some 900 new publications have sprung up, and the interior ministry has allowed demonstrations and rallies to take place that would not have been tolerated previously. Most significantly, in January 1998, in a much-publicized CNN interview, Khatami raised the possibility of better relations with the U.S.

Despite his reputation as a liberal, Khatami is no outsider to the regime. He has been part of the Islamic regime since its inception in 1979. He has long been an ally of the radical faction, serving as minister of Islamic guidance and culture. During the Iran-Iraq war, he served as the head of joint command of the armed forces and as chair of the War Propaganda Headquarters. He counts among his supporters today figures such as Sadeq Khalkhali—the judge responsible for the summary execution of hundreds of Kurdish and leftist activists. He has the support of radicals such as Khoeiniha, the former prosecutor general and a key organizer of the takeover of the U.S. Embassy in 1979—who today is the editor of the pro-reform (and recently closed) newspaper Salaam.

However, like most of the radicals today, Khatami has come to accept market reforms, and seeing no other source of capital for the country, now advocates attracting foreign investment. His government is a coalition of Rafsanjani’s forces organized in the Executives of Construction group and the radical faction that he has belonged to his entire political career.

Today the conservatives control virtually all key institutions of state power, such as the police, the Guard and the judiciary. So it has been imperative for Khatami and his allies to build mass support as a means to loosen the hold of the conservatives on the state.

The radical faction has always understood the necessity of building a popular base to push through its policies. If the radicals were able to mobilize the poor around anti-imperialist and anti-U.S. slogans in the early 1980s, today they are using democracy, pluralism and freedom of the press as the rallying cry to mobilize the population against the conservatives. They seek to break the conservatives’ monopoly of power and push through their economic program of market reforms.

There have been comparisons made between Khatami and Mikhail Gorbachev. For both, the introduction of political debate—Gorbachev’s glasnost and Khatami’s “Civil Society”—is not an end to themselves. It was designed to mobilize public sentiment as a means to break the resistance of sectors of bureaucracy to the economic restructuring and market reforms that they planned to introduce. Chris Harman explains the outline of the project of glasnost and perestroika, which in general applies to Khatami’s project today:

In the course of 1986 most of the group around Gorbachev became convinced thatÖ[economic reform] could not be achieved without introducing changes of a political as well as economic nature. Conservative bureaucrats, it was said, were obstructing perestroika, and their efforts had to be countered by allowing the media to throw light on their activities through glasnost.

But the bureaucracy had always faced the danger that “[t]he pale promise of glasnost from above was enough to unleash a vast wave of glasnost from below.”³¹

In the early 1990s, the conservatives similarly blocked Rafsanjani at every turn. Moreover, his market reforms and spending cuts served to alienate an already poor and restless population that had endured years of war. His first attempts at rationalizing the economy led to riots among the poor and slum dwellers in 1992. Riots among the urban poor had broken out in five separate cities over the issue of housing.³² In April 1995, the cuts to fuel subsidies and resulting increase in bus fares sparked the largest rebellion to date against the regime in Islamshahr, a working-class suburb of Tehran, which involved some 50,000 residents and lasted three days.³³

But Khatami has skillfully combined the cuts to subsidies, the privatization of state firms and changes to labor laws—in short, market “shock therapy”—with the calls for liberalization of social and political rules to allow freedom of expression, freedom of the press and establishment of a “civil society.” As such, he has won the support of thousands who are tired of the corruption and repressive rule of the conservatives.

The mosque and the market

Khatami is fully committed to restructuring the economy. His government has already approved the privatization of 538 state-owned companies through auctions and stock sales, and plans on privatizing 2,000 more.³⁴ The newly appointed head of the Bonyad Mostazafin (Foundation for the Downtrodden), Mohammad Forouzandeh, recently stated, “Discipline, precision and speed is my motto. Decisions will be made based on logical and economic, not political grounds. We will make use of those with merit. Meritocracy is the criteria.”³⁵

Moreover, Khatami has approved a plan to overhaul the oil industry. The plan is to boost Iran’s sagging oil production from 3.5 million bpd to 6 million bpd in the next 10 years. ³⁶ This will require at least $120 billion in capital, which has to come from foreign sources. The recent discovery and development of Caspian Sea oil on Iran’s northern border has provided an opportunity for the Iranian government to try to attract international interest and capital after a 20-year hiatus. In the rush to bring the Caspian Sea oil to the market, numerous pipelines have been proposed. Even though the route through Iran is opposed by the U.S., Iran offers the shortest and the most cost-effective route to transport the oil.

Khatami has had some success attracting foreign investment. Playing on differences between the European Union and the U.S. on the issue of U.S.-imposed sanctions against Iran, Khatami has managed to attract numerous oil firms back into Iran. The French oil giant Total, Shell Oil and other British, Malaysian, Russian, Italian and Australian oil firms have broken with the U.S. sanctions and are involved in negotiations or oil exploration in Iran. Even BP-Amoco and Mobil, much to the chagrin of the U.S. government, have expressed their firm desire to include Iran in any plans for transport of Caspian Sea oil.

Iran has also repaired and developed warm relations with Saudi Arabia, the world’s largest oil exporter, to control and stabilize the price of oil through production quotas.

Yet there are differences in Khatami’s coalition. While Rafsanjani’s supporters, such as Iran’s Central Bank director Mohsen Nourbakhsh, and Tehran’s former mayor Mohammad Karbaschi, have been pushing to accelerate the pace of market reforms, Khatami and the radicals are much more wary of enacting the planned cuts too quickly.

Khatami has carefully steered away from economic issues, focusing on political reforms. He has been trying to use popular support to dislodge the conservatives from their position of power in the state before fully unleashing his cuts. He has been careful not to alienate the poor, or provoke the working class—which could cause him to lose his popular base—before he has weakened his opponents.

When legislation was introduced in the parliament in April to dismantle the State Employment Law, which provides job protection for thousands, workers forced the government-sponsored Workers’ House to organize May Day protests condemning the new legislation. Even though the legislation was pushed through, Khatami postponed its enactment by six months, buying crucial time.

Still, given his popularity and reputation as a reformer, he has managed to enact more cuts to subsidies in two years than Rafsanjani was able to push through in his eight-year tenure as president. Since Khatami took office, the price of bread and milk have gone up by 50 percent, and rice and fuel by 75 percent. Cuts that could have caused protests if enacted by the conservatives or Rafsanjani are forgiven by a population that sees Khatami entangled in a struggle against the hated conservatives.

Conservatives who stand to lose all of their privileges have targeted foreign businessmen, professionals and journalists. They have shut down pro-Khatami newspapers, and their supporters in the intelligence ministry were implicated in the murders of several prominent writers and intellectuals. The Revolutionary Guard has even threatened to “cut the necks and tongues” of “[l]iberals who have taken over the universities and youth who are chanting ëDeath to Dictatorship’ slogans.”³⁷

But despite repeated threats, Khatami’s popularity has prevented the conservatives from targeting him directly. This popularity, however, is also the source of the greatest threat to Khatami. With his promises of freedom and reform, Khatami has also raised the hopes and expectations of millions. While Khatami may want to use his popular support to pressure the conservatives, many people have taken the idea of challenging the conservatives seriously, organizing rallies, protests and even confronting the Hezbollah thugs with increasing frequency.

July days

This is exactly what happened with the demonstration at Tehran University in July of this year. What started as a carefully planned protest against tougher press laws, organized by a pro-Khatami student organization at Tehran University, ended up as six days of rioting in the capital city. What had been just the latest volley in the faction fight between the conservatives and the reform forces behind Khatami became a major challenge for both factions of the government.

When faced with mass mobilization from below and the radicalization of the demonstrations, Khatami was forced to wash his hands of the whole affair and condemn the protests. Khatami fears that mass mobilization and independent initiative from below will undermine his reforms. This is why, while he is anxious to constantly remind his opponents of his popularity and “the 20 million votes” he received when elected, he has refused to mobilize this popular support. He fears that any mobilization of the working class will get out of control and undermine his own plans for austerity and to attract foreign investment.

The July protests, in a mere six days, not only showed the weakness and vulnerability of the conservatives, but the timidity of Khatami and his supporters. Given the lack of any alternative to the regime, Khatami still enjoys great popularity. But there is no doubt that his condemnation of the July protests has led to the disillusionment of some with Khatami, thereby radicalizing a layer of activists and opening the possibility of organizing independently of Khatami’s forces.

Class divisions

For the first time, the protests also highlighted the different class interests of Khatami’s supporters. The liberal press, intellectuals and journalists criticized the rioters for destabilizing the “reform government of Mr. Khatami.” And some middle-class supporters condemned the active role the poor took in the riots.

Although the student demonstrations were pressing political demands, “the riots that followed centered around poorer neighborhoods with higher rates of unemployment, where students had less of a presence. Banks were looted and set on fire, and late model cars—a sure sign of affluence in Iran—were overturned and burned.”³⁸

As one reporter explained, “although sympathetic to the students’ cause, some of the middle classes were outraged by the riots—If that is their attitude—to burn cars and banks—then I hope they won’t succeed’ said an engineer in his mid-twenties.”³⁹

The Western media has focused much attention on Iran’s large young population—who make up more than half of the 60 million Iranians—and their desire for Western-style cultural freedoms. But there is a great divide between the desires of the well-to-do middle-class twenty-somethings and the interests of the majority of working-class and poor youth who live in miserable conditions.

The desire for satellite dishes and MTV is not the moving force for most of the youth in Iran. While the affluent may long for such luxuries, with 30 percent unemployment and extreme poverty, most young Iranians are concerned primarily with jobs, housing and food. That isn’t to say that workers and the poor do not seek freedoms like the right to assemble and to organize. But they need these to fight for aims diametrically opposed to those of Khatami and the Iranian bourgeoisie that supports him.

Iran at the crossroads

The road that Khatami has embarked on is one way. He can only maintain himself if he presses forward with his reforms. If Khatami stops his push for political reforms, he is surely doomed. Resting on the support of the population, any reversal in course will give the conservatives the opportunity to destroy him.

But this is also a road that will inevitably bring him into conflict with the working class. He will try to soften the blow of the coming cuts. In a Clintonesque “I feel your pain” manner, Khatami’s government has assured that they will carry out the privatization “in line with social justice.”⁴⁰ They will cut more gently—but cut they will.

The Iranian working class played a central role in the 1979 revolution that overthrew the previous regime. It still wields great power. While no independent organizations are allowed, the Islamic regime has not crushed the workers’ ability to fight back. A look at the real wages makes the point: while the standard of living of the population has halved over the past 20 years, the real wages of skilled workers involved in large manufacturing (oil, auto, steel) have not dropped despite horrendous inflation.⁴¹

Facing government repression, Iranian workers have not been able to form lasting organizations and unions. But they have managed to win wage concessions from the government. For example, in 1996, oil workers struck, demanding better pay and the right to form their own independent organization. When they sent some 200 picketers to the headquarters of National Iranian Oil Company to press their demands, the protesters were arrested. A few key leaders were kept in jail for months, and the whereabouts of some were never determined. But most of the 200 were released and their demand for better pay was met.

The government’s strategy for dealing with labor unrest—especially in key sectors such as oil—has been to focus on destroying the independent organization of workers: behead the movement by arresting the leaders, but give in to their economic demands.

However, this cannot last. Khatami’s government will be hard-pressed to argue for greater democracy in society while not allowing the formation of working-class organizations. Khatami’s call for political reform and freedom has already had an effect on workers, giving them confidence. In spring 1998, a wave of strikes and protests swept through workplaces, as many factories failed to pay the workers their traditional end-of-year bonuses.

Khatami’s government will undoubtedly try to channel discontent into its own organizations, the trade guilds, the government-run Khaneh Kargar (Workers’ House) and the newly formed Islamic Labor Party. But just as Khatami’s student organizations were unable to contain the struggle in July, there is no reason that pro-Khatami workers’ organizations should fare any better when faced with a much more formidable opponent—the working class.

With the new labor legislation due to take effect in a few months and the impending attacks on job security, Iranian workers could soon take center stage. Oil workers have immense power. Given Iran’s dependency on oil for its income, these 100,000 workers effectively feed the whole nation. They will again play a key role.

1 Fen Montaigne, “Iran: Testing the Waters of Reform,” National Geographic, July 1999, p. 18.

2QAmerican Medical Women’s Association (AMWA) Web site (http://www.amwa-doc.org).

3 Chris Harman, “Prophet and the Proletariat,” International Socialism 64, Autumn 1994.

4 Jahangir, Amuzegar, Iran’s Economy Under the Islamic Republic (London: I.B. Tauras & Company, 1973), p. 31.

5 Amuzegar, p. 37.

6 Nikola B. Schahgaldian, Iranian Military Under the Islamic Republic (Rand Corporation, 1987), p. 69. This was a Rand study for the Office of Under Secretary of Defense for Policy.

7 Amuzegar, pp. 100-01.

8 Asef Bayat, Street Politics: Poor People’s Movements in Iran (New York: Columbia University Press, 1997).

9 Amuzegar, p.51.

10 Ahmad Sharbatoghlie, Urbanization And Regional Disparaties in Post-Revolutionary Iran (Boulder, Colorado: Westview Press, 1991), p.98-99.

11 Bahman Baktiari, Parliamentary Politics in Revolutionary Iran: The Institutionalization of Factional Politics (Gainesville, Florida: University Press of Florida, 1996), p.121.

12 Anoushiravan Ehteshami, After Khomeini: The Iranian Second Republic (London: Routledge, 1995), p.94.

13 Ali Rahnema and Farhad Nomani, The Secular Miracle (London: Zed Books, 1990), p. 287.

14 Rahnema, p. 119.

15 Kenneth Katzman, The Warriors of Islam: Iran’s Revolutionary Guard (Boulder, Colorado: Westview Press, 1993).

16 Salaam, May 3, 1997.

17 Baktiari, p.123.

18 Baktiari, pp.147-48.

19 Ehteshami, p.121.

20 Amuzegar, p. 58, 64.

21 Entezami, p.121.

22 Baktiari, p.194.

23 Amuzegar, p. 318.

24 Ehteshami, p.119.

25 Baktiari, p.139.

26 Quoted in Ehteshami, p.117.

27 Djavad Salehi-Isfahani, “Labor and the Challenge of Economic Restructuring in Iran,” Middle East Report, No. 210, Spring 1999, p. 35.

28 Reuters, April 21, 1998.

29 Reuters, August 9, 1998.

30 Reuters, January 21,1998.

31 Chris Harman, “The Storm Breaks,” International Socialism 46, Spring 1990, pp. 53-55.

32 Bayat, p.107.

33 Bayat, p.98.

34 Reuters, March 11, 1999.

35 Reuters, July 29, 1999.

36 U.S. Energy Information Administration Web site (http://www.eia.doe.gov). U.S. Department of Energy, March 1998 report.

37 Reuters, June 4, 1998.

38 Balali, Mehrdad. Reuters, July 14, 1999.

39 Balali, Mehrdad. Reuters, July 14, 1999.

40 Quoted in evening daily Kayhan, Reuters, March 12, 1998.

41 Salehi-Isfahani, figure 2, p. 37. Although no independent unions are allowed, apparently Iranian workers have fared better than their U.S. counterparts who’ve seen their real wages decrease by about 15% over the same period.