Manufacturing, Blue Collar Workers, and the Urban Poor

A Growing Crisis: The Impact of Sanctions and Regime Policies on Iranians’ Economic and Social Rights

Manufacturing, Blue Collar Workers, and the Urban Poor

Perhaps nowhere are the results of the combined impact of sanctions and policies more plainly seen than in the dismal decline in the nation’s manufacturing sector, and, with it, the condition of Iran’s roughly 15 million workers,[119] along with their families and dependents. Since the conditions of the bulk of the nation’s workers are ultimately dependent on the performance of the manufacturing sector, we turn first to the impact that sanctions are exerting on Iran’s industrial base.

As discussed earlier, most of Iran’s manufacturing units had already become severely weakened due to the accumulated impact of government economic policies. The addition of the 2012 sanctions reduced access to and substantially raised the cost of the hard currency that manufacturers require for the purchase of indispensable inputs, raw material, spare parts, machinery, and capital goods. At the same time, by imposing restrictions on and increasing financial, transportation, and insurance costs to unprecedented levels, sanctions increased the operating costs of manufacturing units.

As Nigel Kushner, an attorney specializing in sanctions based in London, said in a Wall Street Journal interview, “even legal business activities become extremely difficult in such a tight web of restrictions.”[120] In the same article, David Cohen, US Undersecretary of the Treasury, agreed, but blames the Iranian government for its failure to clarify its nuclear intentions: “I don’t doubt there are businessmen in Iran who are facing difficulty in importing goods because of constricted financial channels in Iran . . . [but] that is an issue that the Iranian government has brought on its own people.”[121] Regardless of who bears responsibility, businesses, which are still operating and are in need of imports have to resort to unconventional means, such as switching from banks to sarafis (traditional money dealers), or going to Dubai with cash in hand.[122]

As one Iranian who owns an electrical contracting company noted in an interview with insideIRAN, the impact of sanctions is clear if one looks at the web portal of Iran’s national database of tender information, which tracks all international business transactions. Five interactions a day have now become about two a month.[123]

While all manufacturing units have suffered, small and medium-sized companies, particularly those in the private sector that are bereft of connections to centers of power, have been hardest hit. Meanwhile, the problems faced by manufacturers have become compounded by the extreme reluctance on the part of domestic banks to provide them with needed loans for sustaining their operations. Having been forced by the government to engage in loose lending (frequently to shady enterprises), Iranian banks have become saddled with a ten-fold increase in their non-performing loans during the past seven-and-a-half years.[124] As a result, banks have become far more cautious in extending additional loans. Concomitantly, as the government has grown short of cash, it has resorted to delaying payments to its contractors and sub-contractors in the manufacturing sector.[125]

The combined impact of mismanagement and sanctions has thus been devastating for manufacturers. Since the imposition of the 2012 sanctions, the number of bankruptcies, layoffs, plant closures, and delayed payments of salaries has substantially increased. In an interview with BBC TV on September 30, 2012, Mehrdad Emadi, an economist and advisor to the EU, stated that the rate of bankruptcy in Iran has tripled since three years ago, and that 40 percent of males in large cities have lost their jobs in the course of the previous twelve months.[126] In January 2013, a manager of an Iranian manufacturer of insulation sheets for rooftops told the Wall Street Journal, “From the owner to the line worker, no one is safe. . . . Our country is facing an economic disaster.”[127] Voicing the same sentiment, a businessman identified by his first name, Alireza, told Tehranbureau in late 2012 that “factories have been shutting down for some time now, unemployment is higher than ever. . . . [The question is] if there is enough time to save the economy from total collapse.”[128]

While all industries have suffered, and those still open are operating at 40-50 percent of capacity,[129] the textile, shoe manufacturing, petrochemical and food processing industries have been hardest hit.[130]

Manufacturing conditions have deteriorated so much that even the nation’s once formidable automotive industry, which had experienced a five-fold increase in production during the previous decade,[131] has stumbled badly. According to the Wall Street Journal, Iranian reports show that the country’s automotive industry, “the region’s largest with manufacturing plants from Afghanistan to Ukraine posted 60 to 80 percent production declines last year, leading to hundreds of thousands losing their jobs . . . [and] many manufacturers of spare parts are working at 40 percent capacity because of a shortage of cash and lack of raw materials, according to a statement by the industry’s union leaders.”[132] The importance of the automotive industry for Iran’s economy cannot be overstated. As reported by Radiofarda, Aziz Akbarian, Deputy Head of the Commission on Industries and Mines in the Iranian Parliament, noted that about 2 million workers were directly or indirectly working for the automotive industry prior to the closures and layoffs.[133] The crisis in the automotive industry has significantly exacerbated unemployment and poverty rates.

As difficult as the conditions confronting manufacturing in general and the automotive industry in particular are in Iran, they will worsen if Western countries and Iran fail to find a mutually acceptable solution to the Islamic Republic’s nuclear program. The rapid depletion and eventual exhaustion of the country’s foreign currency reserves[134] will largely choke off the capital goods and industrial inputs that the Iranian industrial sector requires in order to sustain its operations. This will result in the closure of an ever-larger number of plants and operations, and the impoverishment of ever-larger segments of the working population.

Already, the decline in manufacturing has brought about a commensurate plunge in the standard of living of blue-collar workers. According to the Majlis News Agency, which operates under the auspices of the Iranian Parliament, 67 percent of the nation’s manufacturing units are on the verge of closure.[135] Thus far, 30,000 Iranian workers have signed three separate letters of complaint (10,000 signatories per letter) addressed to the Iranian Minister of Labor and Welfare, Abdolreza Sheikholeslami. In the letters, the workers complain about the deteriorating living conditions, the frequent lack of timely payment of wages, layoffs, temporary contracts, job insecurity, and salaries that are well below the poverty line. They note the significant price increases in the course of the previous year, and ask for immediate across-the-board salary increases to compensate workers for the run-away inflation that has come about in part as a result of the subsidy rationalization program. Indeed, in light of the massive and continuing hikes in the rate of inflation, replacing subsidies with cash handouts has, instead of bringing about an upturn in the living standards of the urban poor, undermined them.[136]

The letters also noted that the minimum wage, which was set at 3,900,000 rials per month by the High Council for Labor at the beginning of the last Iranian year on March 21, 2012, is well below the poverty line. According to several of Iran’s official news agencies, even at the time of the determination of the minimum wage for the last Iranian year, the poverty line was above 10,000,000 rials per month.[137] It has since gone higher. Meanwhile, in November 2012, the Mehr News Agency calculated that the cost of workers’ consumption baskets had increased by 100 percent in the course of the previous year, while the value of their wages had plunged by 50 percent.[138] Moreover, the salary of roughly 80 percent of the 10 million workers eligible for the labor law is at or even below the minimum (monthly) wage of 3,900,000 rials,[139] and according to the Iranian Labour News Agency (ILNA), about 42 percent of workers do not even receive the minimum wage.[140] It should be noted that Article 41 of Iran’s Labor Law maintains that the minimum wage should be set on the basis of the rate of inflation as well as the ability of a typical household to make ends meet.[141]

Concomitantly, workers’ wages are being paid in an irregular and infrequent manner. Even before enforcement of the US/EU sanctions in 2012, Nasrollah Daryabeygi, executive secretary of the Worker’s House of the province of Mazandaran, told ILNA in April 2012 that some of the workers of the Mazandaran Textile Company had not been paid for 18 months.[142] Around the same time, Aghayar Hosseini, director of the Worker’s House in Khuzestan Province, told Fars News Agency that a large proportion of the 400 workers of the Khuzestan Pipe-Building Company had not received their salaries for the past 25 months.[143] In November 2012 (after the implementation of sanctions), Khaneye Mellat News Agency reported that, in spite of pledges by Ahmadinejad and several of his ministers, workers of the Ghaem Shahr Teaxtile Company had not been paid for the past 27 months.[144] Also in November, various reports published in the nation’s official news outlets and workers’ websites claimed that a large number of factories in the provinces of Mazandaran, Kashan, Khuzestan, Tehran, Arak, Fars, Yazd, Ghazvin, East Azerbaijan, and other parts of Iran were either unable to pay their workers or refrained from doing so.[145] Siamak Taheri, a journalist based in Tehran, maintains, as quoted by Radiofarda, that the inability of workers to receive their wages in a consistent manner is their most important problem: “Now the workers’ daily lives and their ability to survive is at stake. . . . [T]he simple task of eating with the miniscule salaries that the workers receive has become increasingly difficult.”[146]

The task of fulfilling such basic rights as food and shelter, let alone healthcare, has become even more challenging for the increasing ranks of unemployed workers. As early as April 2012, Faramarz Tofighy, a labor activist, told ILNA that “30 percent of workers employed in manufacturing plants [had] been fired since the start [of the Iranian new year on March 21, 2012].”[147] On December 1, 2012, the Rah-e Daneshjoo website quoted Fatollah Bayat, head of the union of contract workers, to the effect that not only is the condition of all workers deplorable, but that one million contract workers had been fired since the start of the Iranian new year.[148] In August 2012, Donya-e Eqtessad Newspaper published a report on the crisis affecting the nation’s industrial cities, quoting the deputy head of the Commission on Industries and Mines of the Chamber of Commerce of Tehran that “40 to 50 percent of the workers of the industrial city of Parand had been laid off in the current year.”[149] In the meantime, dairy, meat, and poultry, whose prices have risen astronomically in the course of the previous year, have disappeared from workers’ consumption baskets and, according to the Mehr News Agency, the 5 million workers who do not own their homes have to devote 50 to 100 percent of their income to rent each month.[150]

In July 2012, a housewife from a working class section of Tehran complained to a Tehranbureau correspondent that the price of lamb had doubled in a year: “‘I can’t make abgoosht anymore,’ she [said,] referring to a simple lamb stew that is a Persian staple. ‘My family eats bread and beans.’”[151] In a similar vein, a 45-year-old mother of two from a working class district in Tehran made the following statement to a Wall Street Journal reporter in telephone interview: “We’ve slowly scratched off milk, yogurt, cheese, and butter from our table. Prices are going up almost daily, and we can’t afford them.”[152] As reported in the Financial Times, Mohammad-Reza Esmaili, manager of the Dairy Industries Union, noted that the sale of dairy products has declined by 30% during the past year due to the increase in prices.[153] In the same article, Issa Kalantari, a former agriculture minister, noted that official figures from two years ago already suggested that about a third of Iran’s population could not afford to eat enough, and that this number had likely increased.[154] With the nation dependent on imports for about a quarter of its food requirements,[155] food inflation will undergo yet another surge if the government decides to remove meat and rice from the list of food items eligible for receiving the cheapest rate of subsidized currency of 12,260 rials to the dollar, as is reportedly being considered.[156]

Due to the deterioration in the quality of their diet, the workers’ right to health is also being undermined and is likely to be damaged further with the passage of time. According to a leading nutrition expert at one of Iran’s universities who was interviewed by the International Campaign for Human Rights in Iran (ICHRI), in the course of the previous year the nutritional value and balance of the consumption basket of the vast majority of Iranians has plummeted. This is especially true of the dispossessed, who are unable to afford meat, dairy, vegetables, and fruits. As a result, they compensate by relying almost exclusively on carbohydrates, which will degrade their health in the long run.[157]

The decision on the part of the Islamic Republic to counter the impact of the US prohibition on the sale of refined petroleum to Iran by expanding the country’s refining capacity through unconventional means has resulted in the production of dangerous gasolines, which are detrimental to the health of all Iranians living in the nation’s major cities. According to a report published by the Islamic Republic News Agency (IRNA), petroleum refined in Iran contains heavy substances that do not burn, and instead emerge out of the exhaust pipes of automobiles.[158] As reported in Radiofarda, Masoud Kashfi, a petroleum expert in Texas, maintains that Iranian refineries are not properly equipped to refine the heavy oil that is produced in Iran. The decision to do so has resulted in the production of gasoline, occasionally laden with lead, that are extremely harmful to the health of individuals.[159] The declines in environmental and food safety, caloric intake, and quality of diet have thus significantly degraded public health.

The combined effect of mismanagement and sanctions has been particularly disastrous for the poor. The rise in poverty and hunger rates has become so discernible that it is openly discussed in the officially sanctioned media. According to the Mardomsalari newspaper, Ayatollah Lotfollah Safi Golpayegani (a source of emulation who resides in the city of Ghom) in late 2012 declared, “it is not fitting for an Islamic system to have so many poor, dependent, and unemployed [individuals].” He requested that “the people and performers of noble deeds” take the initiative into their own hands and “resolve people’s problems—without waiting for the officials [to do so].”[160]

The same issue of Mardomsalari also reported on the number of hungry people in Iran. The report casts doubt on the official figure of 5 percent, or 3.75 million individuals, observing that “based on the reduction of people’s purchasing power and daily rises in prices of food in recent months, it can be postulated that the true figure is higher than five percent—and that with the continuation of current trends it would rise even further.” According to the newspaper, “if hunger is defined to include ‘malnutrition,’ then the statistics are quite worrisome.”[161] This “in spite of the fact that the government and government officials maintain that we do not even have one hungry person in the country.” Neither the Mardomsalari newspaper nor other newspapers, agencies, or officials provide exact figures or estimates about the current rate of poverty.

Significant increases in the rate of poverty, hunger, and malnutrition are alarming because they engender other negative repercussions. A report on the impact of sanctions on women by the International Civil Society Action Network (ICAN) warned that women and children are most likely to bear the brunt of the economic and social impact of sanctions. The report notes that women are being pushed out of the job market, and that growing unemployment will put a strain on families, which is likely to result in increased domestic violence.[162] Perhaps the most pernicious repercussions are the withdrawal of children from schools and the promotion of child marriages and child labor, with the brunt of these practices being born by young girls. According to Sussan Tahmasebi of the ICAN, who has studied the impact of sanctions on Iran and Iraq, families that are under economic pressure are more likely to prioritize the education of their sons over their daughters. They are also more likely to try to reduce the economic burden on their families by marrying off their daughters at an early age. Furthermore, poverty and economic difficulties can prompt females (and—though less frequently—males) to engage in desperate actions, including prostitution, in order to make ends meet.[163]

The continuation of current conditions will also result in the widening and re-emergence of the disparity between the literacy and educational levels of males and females. The re-emergence of a yawning gap, which the Islamic Republic had succeeded in narrowing in recent years, will strike a severe blow against gender equality, depressing the professional prospects of women for years to come.

Another consequence of the coalescence of mismanagement and sanctions has been the increasing polarization of Iranian society between the haves and the have-nots. Although the poor have suffered the most, the majority of the modern, professional, traditional, and entrepreneurial sectors of the middle class are also under pressure. In the words of a close observer of Iran’s political economy interviewed by ICHRI, “the disparity of wealth and income has never been greater in the 34-year history of the Islamic Republic.”[164] While those with access to capital, connections, and subsidized rates of foreign exchange have accumulated substantial fortunes, the lower echelons of the middle class have been or are on the verge of being wiped out, and those in the middle are struggling to make ends meet.

According to a Tehran-based businessman interviewed by ICHRI in September 2012, “smuggling has expanded by leaps and bounds. Products whose imports into the country have become officially prohibited are nonetheless brought using the most favorable rate of exchange. They enter the country without paying the slightest fees and customs duties and are subsequently easily distributed throughout the city.”[165] Only those with their own homes or investments in real estate, hard currency, gold, and art pieces have managed to preserve, or even increase (not in the case of property, whose level of appreciation has not kept pace with the inflation rate) the value of their assets. Nevertheless, the purchasing power of everyone’s wages is believed to have halved in the course of the past year. The situation has become so bad that, according to Iran Primer, a prominent member of the Iranian Majlis observed in November 2012, “in Iranian society today, people are either poor or rich. We no longer have a middle class of salary earners.”[166] Further anecdotal evidence supporting the increasing stratification of wealth and privilege in Iran is found in the fact that Porsche “sold more cars in Tehran in 2011 than in any other city in the Middle East.”[167]