Ladies and Gentlemen,

Thank you very much for having me before such a distinguished gathering of business and political leaders, concerned with the well-being of all people in a rapidly integrating world. I would like to focus my remarks about my homeland on the political and economic risks of dealing with the Islamic Republic. But first an assessment of the current situation in Iran:
For seven years, the so-called reformist movement made believe that free and fair elections were the issue in Iran. They ignored the fact that elections are not important where the elected cannot legislate: where they can only propose laws to theologians who embody sovereignty in a theocracy.

Six months ago the ruling theologians disqualified prominent reformers from running for Parliament and brought the curtain down on all pretence to democracy. Noting their desperate economic condition, they now want to follow the Chinese economic model, because it is the only one that can work without democracy, or so they think! Of course it is ironic that theocrats could only find godless communism as the example to emulate, but the real problems of copying China lie elsewhere:
Decades of social regimentation and strict hierarchy in government provided the Chinese with tools that Iran's revolutionaries do not have. China's artificially low exchange rate contrasts against Iran's, which is propped up by oil income and inflates the cost of domestic production. Social liberalization that normally attends economic take-off is not abhorrent to communist leaders, but it does undermine theocracy.

Even these general considerations do not explain the unique and fundamental problems of the Islamic Republic with growth in the age of globalization. To understand these, let us pretend for the moment that we are advising the Islamic Republic on a Direct Foreign Investment project to expand factory capacity, to create employment and produce something saleable in the world - an issue that China deals with every day.

The law firm representing such a foreign investor, and its advisors, will be required to answer questions on (1) Clarity and stability of laws, (2) Standards of enforcement, and (3) Reliability of applicable economic data, particularly the costs of doing business in Iran.

To satisfy the first requirement, we will have to tell the Islamic Republic it must get rid of conflicting sources of legislation. As I mentioned before, the Islamic Parliament cannot make laws, but only propose them to an unelected Guardian Council that must approve them before they become law. If there is a conflict, it goes to a third authority called the Expediency Council. For years, questions as vital as powers of the President and his cabinet have been stalemated between these bodies, which represents interests of different cliques.
To meet the second requirement, we must ask the Islamic Republic to replace religious courts with secular ones. Where a religious judge has the rank of Ayatollah, he can render judgment based on his own "fatwa", or decree, which is often at variance with the judgment rendered by another court. No court of appeals, no higher authority can change the fatwa of an Ayatollah. For you see, in traditional Shiism, the authority of an Ayatollah is binding on those who choose that particular Ayatollah as a source of emulation. Someone else may choose to follow another Ayatollah with a different opinion on the same subject matter. The system works very well in the personal domains of faith and moral guidance. It wreaks havoc when you bring it into government. How can a business enter contracts when its rights could be judged by one standard, and its obligations by another unpredictable measure?

The third requirement requires transparency. This is the Islamic Republic's worst nightmare. No foreign army scares the Islamic Republic more than KPMG or PWC 1. For you see, close to 70% of Iran's non-oil Gross Domestic Production is controlled by so-called revolutionary "foundations". Much like crime syndicates of yesteryears, these economic behemoths operate above fiscal laws and under a blanket of secrecy.

The "foundations" grease the friction points between powerful cabals, they subsidize incomes of officers of the regime's armed repressive apparatus, but above all they distort the national economy beyond any hope of repair. Their more flagrant privileges have ranged from access to foreign exchange at grossly advantageous rates to purchasing factory production at controlled prices, which are often a small fraction of market prices.

In the absence of normal audit requirements, no one knows exactly where the "foundations" benefits accrue, but we know one thing: There will never be transparency, as long as the foundations feed Iran's handful of billionaires and the armed thugs protecting their regime.