In Western discourse, Iran is customarily associated with its nuclear arms programme, detention of foreign nationals on controversial charges of espionage, or hostility towards the United States and Israel. Some observers also mention its use of proxies to advance the regime’s foreign policy objectives and deliberately reinforce the image of Iran as encircled by existential adversaries that helps authorities maintain their grip on power. As a consequence of these discussions, one significant dimension of the Iranian state is often overlooked – the economy. Endemic unemployment and corruption, soaring inflation, and an inherently flawed governance structure are stymying development. These factors should not be excluded from discussion, and Western critics of the Islamic Republic stand to benefit from a broader recognition of their complicity in Iran’s oppressive political environment.

Remembering the historical context of the 1979 Islamic Revolution, Iran’s economic failure is unsurprising. Even before Shah Mohammad Reza Pahlavi was toppled, severe economic mismanagement had resulted in 17% inflation and 30% unemployment and forced Iran into borrowing $500 million from overseas and imposing restrictions on public consumption to combat financial duress. Those who gained power in 1979 represented a diverse coalition of Marxists, religious scholars, and small entrepreneurs, which prevented them from reaching consensus on how to run the state. Correspondingly, the country remained caught between bottom-up populism and economic liberalisation over the ensuing decades. The populists were triumphant in the 1980s, forcing the government to implement food rationing and conduct mass nationalisation of industries, while the capitalists gained predominance under the outgoing Hassan Rouhani administration in an effort to court foreign investors.

This ambivalence continues to guide Iran’s economic outlook. Although the Islamist authorities had managed to generate some positive results and cut the national poverty rate from 25% in 1979 to 10% in 2014, the economic conjuncture within their state need not be misconstrued. Thus, the Iranian stock boom should be understood not as an indication of resurging foreign investor interest, but as a cause for concern. The Tehran Stock Exchange index has more than quadrupled since 2018, but this happened at the same time as the Iranian rial was depreciating vis-à-vis most other currencies and as inflation was reaching 35%. Because of this, Iranians prefer investing in the stock market to depositing their earnings in a bank account and watching them evaporate, which exposes them to even greater economic risks.

However, this brewing crisis pales in comparison to the profound problems and inconsistencies that populate Iran’s institutional framework and contribute as much to its economic ruin as international sanctions. Its most conspicuous failure is the unchecked existence of bonyads – parastatal charitable trust foundations that receive government funding, but remain immune from public oversight, submitting financial statements, and filing taxes. These entities were first established by the Shah, but took advantage of the asset expropriation following the Revolution to usurp control of anywhere between 20% and 80% of the Iranian economy. One of them, the Mostazafan Foundation, accounts for 20% of Iran’s textile production, 40% of the beverage sector, and almost 70% of its glass manufacturing capabilities.

One does not require an economics degree to infer that ordinary Iranians reap minimal benefits from the proliferation of these kleptocratic organisations. Bonyads undermine private sector competition by making it impossible for entrepreneurs to elicit a comparative advantage against them. As fewer business owners carve out a niche in the market and more emigrate, fewer professional opportunities are available for young generations. Indeed, unreasonably low employment creation has long been recorded across the country, which added only 300,000 jobs between 1996 and 2000 and fewer than 70,000 jobs between 2006 and 2011. Furthermore, there have been instances of bonyads getting away with taking over profitable firms and forming monopolies within select economic sectors.

Worse still, their privileged fiscal status chips at the government’s ability to collect sufficient taxes to support poverty alleviation and expand state enterprises to accommodate meagre job creation in the private sector. Of the 300,000 richest Iranian institutions, more than 50% are exempt from taxation and contribute nothing to such crucial welfare initiatives as healthcare and secondary education. Although bonyads were envisaged as charities, evidence suggests that this function is unevenly fulfilled: as many as half Iran’s low-income households reportedly enjoy no government or non-government assistance. Evidently, those made redundant by bonyads are subsequently denied essential financial support by these organisations.

Tehran is more than content with this status quo, since it suits the revolutionary agenda. The Islamic Development Organisation of Iran (IDOI) – a government agency dedicated to protecting the values of the regime – customarily emphasises the importance of confronting Western cultural influence, and poverty facilitates this endeavour by ensuring that a much smaller proportion of the Iranian population could afford to access it. Moreover, several bonyads have been sanctioned for sponsoring terrorist groups and the Islamic Revolutionary Guard Corps (IRGC). The latter conducts military operations on behalf of the Iranian government abroad, and is considered responsible for the deaths of multiple American peacekeepers in the Middle East and Afghanistan. By virtue of being opaque and linked with individuals and entities loyal to Ayatollah Khamenei, bonyads could also serve as mechanisms for the Shiite revolutionary elites to reward their associates at the expense of the Iranian public.

The international community should not circumscribe its criticisms of Iran to gross human rights violations or the nuclear threat that it undeniably poses. Mentioning Iran’s aggressive behaviour is likewise important, but – just as the previous two arguments – it may struggle to make most Iranians trust Western governments, which could be crucial if the West wishes to court Iranian public opinion as a tool to challenge the regime in the future. Appealing to them presupposes a more comprehensive affront on the Islamic Republic, one that understands and prioritises the needs and concerns of its people. Focusing on its flawed economic policy is where foreign pundits and policymakers ought to begin.