The Rationalist.(Mohammad Tabibian)(Essay)

Not long ago, I visited the office of a financial consulting firm on a quiet dead-end street just north of the commercial center of Tehran. Several flights up, amid bare but light-filled rooms with worn nineteen-fifties-era office furniture, I met Mohammad Tabibian, Iran's foremost free-market economist and--though he is virtually unknown in the West--one of the country's most important reformers.

In the strange, tumultuous story of Iran's thirty-year-old Islamic Republic, the battle over free speech has captured the world's imagination, but the debate over free markets goes just as deep. Since the revolution, most industries in Iran have been owned either by the state or by enormous Islamic foundations that are connected to the ruling oligarchy and exempt from government oversight and taxation. While the Iranian government points to rapid economic growth, inefficiencies are rampant, and the traffic in exports, other than petroleum products, is anemic. Even traditional Iranian products like carpets have done poorly on the international market in recent years. (Between 1979 and 2003, the value of Iranian carpet exports dropped by more than half.) Iran's economy is sustained almost entirely by oil, which accounts for eighty-five per cent of all government revenues, and in the past five years this money has kept the country afloat as the price of crude reached record highs. Now that oil prices have fallen steeply, a crisis looms.

Since the early eighties, Tabibian and other trained economists have advised the government to dismantle trade barriers, drop price controls, and force companies such as Iran Khodro--the troubled state-backed automaker--to compete or perish. But the government, in its various incarnations, has not listened. The current President, Mahmoud Ahmadinejad, who was elected in 2005 on a promise to distribute Iran's oil wealth downward, has shrugged off expert economic advice in favor of grandiose gestures toward the poor. Upon taking office, he promiscuously handed out grants and subsidies; when these were not approved by the state budget office, he simply ordered the banks to issue more currency. He injected billions in oil revenues directly into the economy, dipping into the country's savings to do so. Liquidity increased by nearly forty per cent in the space of a year. Iranians, lacking incentives for investment, used this cash to buy imports, which buried local industries and sent prices soaring. Already on the rise worldwide, inflation in Iran skyrocketed. Within a year of Ahmadinejad's election, the inflation rate was the fourth highest in the world, after Zimbabwe, Uzbekistan, and Burma; by the summer of 2008, it topped twenty-eight per cent. Meanwhile, Ahmadinejad slashed interest rates, a move that encouraged lending, pushed the country's fragile banking sector to the edge of ruin, and contributed to a surreal housing bubble in Iran's cities. For each of the past two years in Tehran, real-estate prices have more than doubled.

Tabibian, who was trained at Duke University, has little patience for economic policies driven by demagogy. "You can't find the things we are doing in Iran anywhere in the world," Tabibian said. In 2006, he says, he became the first professor to be purged by the regime from Iran's educational system. Other academics have been fired for demanding democracy or human rights; Tabibian was "retired" for supporting free enterprise. Critics have argued that his proposals undermine Iran's revolutionary principles, but Tabibian remains steadfast in his belief that a free market can co-exist with social ideals.

A solidly built man of sixty, with a round face and a trim gray mustache, Tabibian speaks fluent English with a lucidity and a directness that is startling in a culture marked by allusiveness and elaborate courtesy. In Iran the spectrum of economic thought, Tabibian joked, "runs from left to left." The economic populism of so-called conservatives, like Ahmadinejad, is not fundamentally different from that of reform-minded leftists: both factions talk of redistributing Iran's wealth, not of restructuring its economy. "The right elsewhere normally has to have a deep commitment to orthodox market principles," Tabibian explained. "That's not true here. Conservatives in Iran want the government to interfere in economics, to give them certain privileges in importing, exporting, banking, credit, government contracts, purchases. They are not free-market people at all. They are more like mercantilists." Tabibian's own thinking lies off this map entirely: he believes that markets are more trustworthy than the governments that try to control them and that the liberalization of Iran's economy is a necessary precondition for political freedom.

Free-market ideas--anathema at the time of the revolution--are finally becoming mainstream in Iran, Tabibian says, as the Islamic regime has repeatedly failed to find workable alternatives. This is happening, of course, at a time when the rest of the world is in retreat from the excesses of the unregulated market. Tabibian told me that he was not bothered by the negative example unfolding in the West. "We are on two different sides of the spectrum," he said. "You need more regulation and government intervention in financial markets to avoid moral hazard; we need less regulation and less government intervention to avoid moral hazard. You need, maybe, to increase public spending; we need to reduce public spending. You need to reduce the rate of interest; we need to increase it."

Tabibian, who was born in 1948, grew up in an impoverished town outside Isfahan, in central Iran. At that time, under Shah Mohammad Reza Pahlavi, Tabibian recalls, "poverty was a rule, well-being an exception." Tabibian and his family were among the exceptions: they owned considerable property. His parents were schoolteachers, who died in a car accident when Tabibian was sixteen.