In this paper, the author evaluates the performance of privatization in IRI's first development plan. First, he outlines
some reason for nationalization of economic units and discusses
the reasons for expansion of government activities in IRI. Further in the article, he examines methods by which public enterprises
transferred to the private sector. Then, he compares the privatization plan with the government performance.
The theoretical argument for transferring economic activities
to private sector has its foundation in Classical thin ding. Classics believed in "Invisible Hand" in managing the economic affairs of
societies in such a way. Following 1929 Crash, Keynes' ideas were responsible for demise of Classical thinking and therefore arguments in favor of government intervention in economic
activities. In Europe, especially in United Kingdom, the second world war increased the government role in sphere of production
and distribution of goods and services. In 1970's, privatization in United Kingdom have begun; and in 1980's all over the world
governments have started transferring government activities to private sector.
In IRI after the revolution, government took over many firms that had large debts to commercial banks or owner of them has
acquired them in an illegal way. At the end of year 13 70, there were at least 1875 state or public firms with asset amounting to 400000 billion Rials.
In IRI, according to a decree of council of ministers, the goals
of privatization were said to be:
1. Increasing the efficiency of public firms;
2. Reducing the role of government in economic activities; 3. Bettel utilization of resources; and
4. Move toward economic equilibrium.
However, the primary objective of government privatization
plan that not mentioned in the law was reduction of government budget deficit. The primary method for privatization in IRI was pubic selling of stocks in Tehran Stock Exchange to the highest
private bidders. According to the mentioned degree of council of ministers, by the end of first five year development plan, i.e., end
of year 1372, government should have sold some 391 of the government owned companies to private sector. By the end of
second month of year 1372, that is 10 month to the end of first five year development plan, only 101 government owned
companies, were sold to private sector and some government organizations, notably the state-owned banks.
In 1371, government bought more stock than that sold to private sector, and this is transfers of stocks owned by private
sector to public sector. Some reasons for plan's failure are as follows:
1. Unrealistic objective;
2. Lack of comprehensive plan;
3. Privatization without restructuring; and responsibilities of government owned companies.
4. Insufficient expertise in privatization; and 5. Capital markets deficiencies.
To make the privatization successful in the second development plan, the author suggests the following:
1. Consistency of government fiscal and monetary policies with
2. Revision of labor laws and making it more consistent with privatization plan; and
3. Making Tehran stock exchange more efficient by changing the rules and regulations of the TSE.