China, not America, will decide the fate of the planet

But its coal addiction and authoritarian system mean it will struggle to take a global lead

Gideon Rachman

Chinese Coal Dragon
© James Ferguson


Donald Trump has become the pantomime villain of the climate change story. At the World Economic Forum in Davos last week, the US president played the role to perfection, denouncing climate activists as “prophets of doom”, while Greta Thunberg, the teenage campaigner, watched on from the audience.

However, if you look at the numbers — as opposed to the theatre — it becomes clear that the battle to control climate change now depends much more on what happens in China than in America.

According to the Union of Concerned Scientists, China now accounts for 29 per cent of global carbon dioxide emissions generation — compared with 16 per cent for the US, about 10 per cent for the EU and 7 per cent for India. Even on a per-capita basis, the Chinese now emit more greenhouse gases than Europeans and have done so since 2014.

As the Trump administration likes to point out, America’s greenhouse gas emissions actually fell last year — albeit only by 2.1 per cent. This is largely because coal-fired power generation in the US has dropped sharply and is now back to the level that it was in 1975. China, by contrast, continues to open new coal-fired power plants.

Nonetheless, the Trump administration’s climate scepticism (denialism, if you prefer) still matters. The US has led in the construction of most of the important international institutions and agreements that have shaped the current world order. If it opts out of the global effort to combat climate change, others will have to provide the leadership to achieve an international deal.

China’s coal addiction and authoritarian system mean that it will struggle to provide a global lead on the climate. The Europeans are passionate on the subject but probably lack the organisation and the international heft to take charge. The EU’s discussion of imposing a “carbon border tax” — essentially taxing imports from heavily-polluting countries — could also lead to bitter trade disputes that will make it even harder to achieve an international agreement.

But somebody is going to have to provide leadership quickly, because the coming year will be vital to international efforts on climate. In November, the UK will host COP26, the latest UN summit on climate change. This will be a particularly important meeting because the participating countries are expected to recognise that the pledges they made under the Paris climate accord of 2015 are insufficient to meet the goal of containing global warming. At November’s Glasgow summit, they are meant to commit to more ambitious and detailed goals for the reduction of greenhouse gases.

But COP26 will open just six days after the US presidential election. If Mr Trump is re-elected, it will confirm that the US has essentially opted out of global efforts to combat climate change.

On November 4, the day after the election, the US is also scheduled formally to withdraw from the Paris accord. That, in turn, will ratchet up the pressure on the EU, China, India and the UK (as hosts) to keep alive the effort to combat climate change through co-ordinated global action.

Adam Tooze, a Columbia University professor who is writing a history of international climate politics, says that November 2020 will be a “key moment in global history”.

One of the striking things about the climate debate in Davos was the way in which the topic seemed to hover over every session — even those that were ostensibly devoted to other subjects.

Particularly striking was Ashraf Ghani, the president of Afghanistan, saying that his biggest fear is environmental degradation — even more than the long-running conflict that still has the country in its grip: “We used to have a drought every 100 years, now it is more like every five years”.

African politicians in Davos made similar points about the increase in droughts in the Sahel region and the way in which the changing climate is driving conflicts over land and water, and displacing populations.

After a day of conversations like that, I needed a drink. So I headed to a wine-tasting, only to meet a German winemaker who told me that climate change had prompted him to start planting vines in Norway.

The bad news for the planet is that the continued growth of the Chinese and Indian middle classes will increase demands for cars, electricity, meat and foreign travel, all of which will generate more greenhouse gases. The good news is that the Chinese government has said repeatedly that it understands that climate change and pollution are direct threats to China’s future, causing droughts, water shortages and rises in sea levels that threaten major cities, such as Shanghai.

President Xi Jinping has also demonstrated some commitment to environmental action, through his efforts to improve the air quality in major cities such as Beijing. The Chinese government has also poured money and expertise into the development of renewable sources of energy.

In the months ahead, the Chinese and the Europeans are going to try to work together to develop new international goals for the reduction of greenhouse gases. If they succeed, the next UN conference on climate change may preserve the hope that an international community can still come together to tackle a common threat to humanity — whatever happens in the US election.

The New Coronavirus

New Coronavirus Has Likely Already Spread Globally

The new Covid-19 virus will inevitably spread around the world and there's little anyone can do to stop it, epidemiologists increasingly believe. What's more, far more people have likely been infected with the virus than previously thought. But it's not all bad news.

By Veronika Hackenbroch und Fritz Schaap 

    Health workers check travelers' temperatures at Kotoka International Airport in Accra, Ghana.
Francis Kokoroko/ REUTERS


Two white-clad figures, their faces concealed behind facemasks, wait for a plane full of passengers from Nairobi, Kenya, to disembark at Brazzaville airport in the Republic of Congo. They are both epidemiologists, and while one of them aims a pistol-like thermometer at every person getting off the plane, the other jots down their temperatures with a concerned look on her face. Afterward, they squirt hand sanitizer into each passenger's palms.

The new coronavirus, the World Health Organization (WHO) fears, could spread at any moment from China to Africa. Perhaps it has already arrived and is spreading, since many infected people only show mild symptoms. Maybe it's already making its way through a hospital, a market or an extended family.

"Africa has so many close connections to China, it is hard to imagine that there are no cases in Africa yet," says Peter Piot, the director of the London School of Hygiene and Tropical Medicine, which cooperates closely with scientists in Africa. The fact that no infections have yet been identified there "is really of big concern for me."

On Friday, a first case of the disease was identified in Egypt. But there still have been no cases reported in WHO's Africa region. Egypt is officially part of the Eastern Mediterranean Region.

Many countries in Africa are not sufficiently prepared for SARS-CoV-2, the pathogen that causes the respiratory illness Covid-19, the name given by WHO this week to the condition that has already claimed more than 1,350 lives in China. As of Thursday, there were only 17 laboratories testing samples sent to them from the 47 countries within the WHO's "African region" -- far too few to cover all suspected cases.

"Without diagnostic testing," Piot says, it's impossible to know the extent of the spread of the virus and "the infection may remain hidden for a while. Then you don’t have a chance to intervene early, because you don’t know where the problem actually is."

Many Unreported Cases Worldwide

It is becoming increasingly apparent that the number of confirmed cases reported to the WHO has been seriously understated in some places around the world. Even in Germany, the number of infections could be higher than the official tally of 16.

"It's conceivable that smaller, limited clusters [of infected people] exist that don't register on health officials' radar, even in Germany," says Gérard Krause, a renowned epidemiologist and department head at the Helmholtz Center for Infection Research in Braunschweig, Germany.

    IVDC China CDC HANDOUT/EPA-EFE/REX


Just how incomplete the pool of data is, has been shown in China, where the system for registering new cases is completely overloaded. In the hardest-hit Chinese region of Hubei, authorities changed the way they counted new cases of Covid-19. Instead of only classing cases that have been confirmed by lab results, like they've been doing for the past few weeks, patients with chest infections revealed in CT scans are now also being counted.

This resulted in the number of coronavirus infections jumping by 14,840, while the number of deaths rose by 242. The improved statistics give an idea of the degree to which the epidemic has been underestimated so far.

The official number of cases reported outside China is most likely inaccurate as well. The epidemiologist Moritz Krämer from the University of Oxford, who uses computer simulations to predict the spread of epidemics, is working with colleagues to comb through the websites of public health authorities around the world, making sure to take into account where infected people had traveled prior to being diagnosed.

"One in three infected people had traveled when they were already showing symptoms," Krämer says. "That means thousands of sick people spread the virus around China and the world."

Low Chance of Zero Infections

The fact that Indonesia, for instance, a very densely populated country with close ties to China, has not had a single confirmed case of Covid-19 is all but impossible, according to epidemiologists. The same goes for Thailand, where epidemiologists from the Harvard School of Public Health say that cases have almost certainly been overlooked.

A number of new infections in Singapore have also alarmed experts, according to the Wall Street Journal. Authorities were unable to determine how those affected contracted the disease.

"When something like this happens more often," Krause says, "it shows us that we've been unable to stop the virus' spread."



Singapore of all places, which has been very by-the-book in its efforts to stem the epidemic, could become a hub of sorts for the virus' spread. On Wednesday, 300 employees of the bank DBS had to be evacuated after one of their colleagues was revealed to have contracted Covid-19.

From Wednesday to Thursday, the number of infections in Singapore jumped by 16 percent, according to the local Ministry of Health. By Thursday evening, there were 58 confirmed cases, seven of whom were being treated at intensive care units.

A British businessman brought the new coronavirus with him on a ski vacation in France after picking it up on a work trip to Singapore. From there, he carried it home to Great Britain. He ultimately managed to infect 11 people, including a doctor. Later, a health-care worker in the department of accidents and emergencies at Areal Hospital in West Sussex was also found to have contracted the virus.

"It is concerning that two health-care workers have been infected in the UK," says Tom Frieden, the former head of the U.S. Centers for Disease Control who now heads the global public health organization, "Resolve to Save Lives." A study published in the medical journal Jama a week ago showed that the Covid-19 pathogen -- similar to the SARS and MERS viruses -- can spread in hospitals exceptionally quickly.

The upshot is that epidemiologists increasingly doubt that the spread of the new coronavirus around the world can be prevented.

"At some point, the moment will come when we are forced to give up our containment strategies and focus on mitigation and minimizing the effects of an epidemic, such as through the medical treatment of the seriously ill. If we wait too long, we could wind up with too many resources in the wrong places."

Africa Is Most Vulnerable

How exactly a pandemic would unfold is unclear. It's possible that Covid-19 could turn out to be like any seasonal flu -- with the notable difference that no vaccine exists.

But experts have shared new findings that give cause for hope. Unlike the pathogen of the respiratory disease SARS, Covid-19 pathogens don't only reproduce in the lungs, but also in the back of the throat, like flu viruses.

That's why the new coronaviruses are able to spread more easily than the SARS pathogens, but it's also why they're less deadly, according to Christian Drosten, the director of the Institute of Virology at Berlin's Charite hospital. "For most people, it's probably more like the common cold, and children are seldom affected."

Meanwhile, the fatality rate of the new coronavirus is difficult to determine. Some experts assume a rate of 2 to 3 percent, while others say it's likely less due to the probability of as-of-yet-undiscovered cases -- somewhere closer to 0.2 to 0.3 percent. "We're missing the basics," Frieden says. "It is really important that the WHO team that is now traveling to China looks very closely at all the data."

Krause, the epidemiologist from Braunschweig, wants to study people's natural defenses as part of the largest-ever health study conducted in Germany. "We want to find out whether a part of the population is partially immune to the new pathogen due to previous exposure to other coronaviruses. This could explain why some people have only gotten a little sick."

At the same time, Krause says it's imperative that the population and public health officials begin preparing for the situation to worsen.

"We should not have a false sense of comfort," Frieden says. "I think back to Ebola, when only a couple of cases in the U.S. almost overwhelmed us. This novel virus is very challenging."
A pandemic, however, would be far worse for Africa.

During a meeting at the WHO's headquarters in Brazzaville at the beginning of the week, one thing was clear: Only eight of the 47 countries in the WHO's African region were adequately prepared for a true emergency.

In many other countries, there's a shortage of intensive care units, respirators, medical personnel and even facemasks.

The Next Big Development Challenge

New strategies for reviving growth in emerging markets will have to be indigenous, rather than coming from Western institutions. But where will such strategies come from, and who will provide the intellectual leadership?

Arvind Subramanian , Josh Felman

subramanian17_ipopbaGetty Images_globeconnectionslines


CAMBRIDGE – We have suddenly arrived at a tricky stage in global economic development. Emerging markets are losing their dynamism, after a remarkable three-decade-long run during which they caught up rapidly with advanced economies. Moreover, rekindling this vigor requires a new economic strategy. But where will such a model come from, and who will provide the intellectual leadership?

The latest economic forecasts from the International Monetary Fund and the World Bank are sobering, pointing to protracted slowdowns across the board in China, India, Sub-Saharan Africa, and Latin America. Of course, alarmism about the “end of growth” might be as overblown as past hype about emerging markets’ unstoppable rise. But policymakers in developing countries are genuinely concerned and are grappling with how to revive flagging dynamism.

In the past, governments had a ready intellectual solution: the so-called Washington Consensus, a term coined by John Williamson of the Peterson Institute for International Economics, which advocated a broad strategy of macroeconomic stabilization, privatization, deregulation, and globalization.

Some questioned whether and to what extent the strategy worked. But the fact is, there was a template – created by leading Western academic and policy institutions – that was seen as useful by developing-country policymakers. And the high noon of the Washington Consensus coincided with developing countries’ strong performance.

Two of the current strands of thought that might replace the Washington Consensus also originated in the West. The first represents a reaction against the neoliberal approach and is motivated by several disturbing long-run trends: weak growth, rising inequality, an increasingly beleaguered middle class, and collapsing social mobility.

This emerging post-neoliberal consensus questions the primacy accorded to markets. It advocates a larger role for the state, both to generate better market outcomes (for example, via minimum-wage increases and stricter enforcement of antitrust policies) and to correct inequitable outcomes via aggressive redistributive policies. This approach also calls for more proactive fiscal and monetary policy in the short run.

The second strand of thought is associated with Abhijit Banerjee and Esther Duflo, both winners of the 2019 Nobel Prize in Economics. Banerjee and Duflo argue that economic growth is not really influenced by policy changes, or at least not in ways for which we have strong evidence. They therefore advocate a strategy of “going small”: focusing on measures, such as distributing free malaria bed nets and deworming children, that clearly seem to be effective and will produce localized benefits.

But it is not obvious that either approach is of much help to developing countries. The post-neoliberal consensus almost entirely reflects concerns in advanced economies: secular stagnation and unconventional monetary policies are not high-priority problems for governments in poorer countries. Moreover, emerging markets are still growing, not stagnating. And even inequality, which is a common concern, takes a very different form, and requires very different solutions, in developing economies.

Perhaps the biggest drawback of the post-neoliberal approach is the dichotomy that it poses – or, perhaps, presupposes – between states and markets. The reality in developing countries is that both states and markets are weak – the very definition of underdevelopment. So, a policy agenda that focuses on increasing the role of the state may well be unrealistic.

In addition, climate change is a new and critical aspect of the post-neoliberal consensus that is likely to prove increasingly problematic. On one hand, the overwhelming scientific evidence of global warming is a clarion call to action. On the other hand, policies aimed at promoting rapid decarbonization raise deep concerns in developing countries, because such measures could easily clash with the needs of their energy-deprived citizens.

Similarly, many developing-country policymakers simply cannot afford the luxury of a narrow agenda, making them unlikely to take seriously any advice to focus on the “small and certain.”

They have no choice but to strive to achieve rapid growth, which has been a prerequisite for all successful development transitions. Moreover, the experience of the 1980s and 1990s shows that this objective is not a chimera, and that growth can indeed be increased by appropriate policy reforms.

Mahatma Gandhi famously said: “I do not want my house to be walled in on all sides and my windows to be stuffed. I want the culture of all lands to be blown about my house as freely as possible. But I refuse to be blown off my feet by any.”

Do developing countries today have the capacity not to be blown off course? Do policymakers have the intellectual and cognitive wherewithal to absorb and assess the new thinking on economic development, adopting what is appropriate to their situation and rejecting what is not? And do they have their own new ways of thinking about the development challenge?

Consider the situation in the two largest developing countries, China and India. China has the intellectual capacity, but is facing the breakdown of its economic model. Chinese policymakers now need to find another approach that both encourages growth and ensures that the Communist Party of China remains in control – all the while preventing the extraordinary build-up of debt from triggering a crisis. It’s not obvious to anyone how they can do this.

Meanwhile, India’s current inward economic turn appears to reflect a broader inclination to be walled in and prevent foreign winds from blowing freely. And this intellectual nativism seems to be more about harnessing technical expertise for political objectives than about valuing it for its own sake.

What is clear is that solutions to the new growth and development challenges in emerging markets will have to be indigenous, rather than coming from Western institutions. Building and maintaining among national policymakers the sort of open, self-confident intellectual capacity that Gandhi espoused could well be the next development challenge.


Arvind Subramanian, a former chief economic adviser to the government of India, is a non-resident senior fellow at the Peterson Institute for International Economics and a visiting lecturer at Harvard's John F. Kennedy School of Government. He is the author of Eclipse: Living in the Shadow of China’s Economic Dominance.

Josh Felman is Director of JH Consulting.

Michael Pento: Trillion-Dollar Stocks And The Coming ETF Disaster

by John Rubino


The latest from Michael Pento:

There are a handful of stocks in which institutions and individual investors have recently piled into. This behavior is emblematic of all bull markets once they begin to hit the manic phase.

Wall Street falls in love with a few high-growth darlings and takes their valuations up to the thermosphere.

If you add up the market capitalizations of just four stocks, Google (Alphabet), Apple, Microsoft, and Amazon, their combined worth exceeds $5 trillion. If you throw in Facebook, you get the top 5 biggest firms by market capitalization, and they compose an amazing 18% of the S&P 500.

Another way of looking at this is that the market cap of a full 282 companies in the S&P 500 now equals the same as the top 5 behemoths.

Again, this is not dissimilar to what has occurred in past blow-off tops. Recall the NASDAQ internet craze in the late ’90s and the Nifty Fifty bubble mania of the late ’60s and early ’70s. In the 694 days between January 11th, 1973, and December 6th, 1974, the Dow Jones Industrial Average lost over 45% of its value, but many stocks in the Nifty Fifty fared much worse. The Dot.com disaster was even more dramatic. It caused 5 trillion dollars of equity to vanish and wiped-out nearly 80% of market value.

The Nifty 50 stocks were the fastest-growing companies on the planet in the latter half of the 1960s and became known as “one-decision” stocks. These were viable companies with real business models but became extremely over-priced and over-owned. Investors were lulled into the belief they could buy and hold this group of stocks forever.

By 1972, the overall S&P 500 Index’s P/E stood at 19. However, the Nifty Fifty’s average P/E at that time was more than twice that at 42. When the inevitable crash arrived, stocks that were part of the Nifty Fifty fell much more than the overall market. For example, by the end of ’74, Xerox fell 71 percent, while Avon and Polaroid plunged by 86 percent and 91 percent, respectively.
The years 1994 to 2000 marked a period of massive growth in the adoption of the internet, leading to a massive bubble in equities surrounding this technological revolution. This fostered an environment where investors overlooked traditional metrics, such as the price-earnings ratio. During this period, the Nasdaq Composite Index rose 400%, as its PE ratio soared to 200.


It’s always the same story: near the end of a massive bull market, a relatively small number of stocks get taken to incredible heights by a public that is thirsty for some story to justify such lofty valuations that are far above fundamentals.

This can be clearly proved by viewing the Market capitalization of the Wilshire 5000 as a percentage of GDP. Stock valuations have now reached at an all-time high. In fact, they are nearly twice as high as the historical average and even higher than the NASDAQ bubble peak!

Stocks to GDP Pento ETFs

Stocks to GDP Pento ETFs


Not only this, but there are a record number of IPOs that don’t make any money, and a near-record number of U.S. listed companies that are spewing red ink—just like in past bubble tops.

This particular iteration of a massive equity bubble has seen a huge turn towards passive investments and a surge of money going into ETFs.

A paper done by the Federal Reserve explains that passive funds in 2018 now account for 39 percent of the combined U.S. Mutual Fund and ETF assets under management, up from just 3 percent in 1995 and 14 percent in 2005. According to the paper, passive investing is pushing up the prices of index constituents and there is a risk that rising prices can lead to more indexed investing, and the resulting “index bubble” eventually could burst.

The Potential Problem with ETFs

This brings us to a potentially huge problem with the overall market. A study done by Factset shows that in some instances of the largest market cap stocks that are held within ETFs, they represent more than 30 days of the average daily trading volume of the individual security that is traded on the exchanges.

This means, for example, if only 10% of ETF holders decide to sell the security on any given day, it will represent three times the entire volume that is traded on the NYSE. Therefore, what we have is a condition where investors have become overcrowded in a few positions–just like what has occurred in previous market tops.

However, this time around the situation is compounded by an influx of new money that has piled into ETFs. These same investments have doubled down on the doomed strategy of piling into a handful of winners.

In 2008 there was just $700 billion invested in ETFs; today, there is just under $5 trillion. ETFs have greatly exacerbated market directions in the past. Their existence tends to propel bull markets higher but, on the flip side, they also have led to flash crashes.

To fully understand the dangers associated with buying and holding ETFs—and the overall market in general, especially in a bear market–you have to understand the process of creation and redemption units and how Authorized Participants (AP) function.

APs are the only entities that are allowed to directly interact with an ETF provider in order to create and redeem units. During a bull market, an ETF often trades at a premium to the underlying securities held by the index it tracks.

In this case, an AP can buy the individual shares on the index at a discount and exchange them for a new ETF that is trading in the market at a higher price and then sells the ETF in the market for a profit. This process is known as creation, which adds to the supply of ETFs. And, it perpetuates the bull run.

Conversely, during market panics, an ETF will often sell at a steep discount to the shares trading on the index. In this case, an AP can buy the ETF in the market and exchange it for the individual shares on the index from the provider that is trading at a higher price. The AP can then sell the individual shares on the open market. This process is called redemption, and it reduces the number of ETF units.

However, this process has also exacerbated crashes in the past by adding more selling pressure on to the individual shares of the index, which in turn leads to more panic selling for the less liquid ETF market.

Who are these very few lucky and privileged Authorized Participants? You may have guessed it, large banks such as; JP Morgan, Goldman Sachs, and Morgan Stanley.

This is just one more reason that validates the necessity of having a process that identifies when the epoch bear market begins before one occurs…because the next bear market should be one that makes the Great Recession of 2008 seem benign in comparison.

domingo, febrero 16, 2020

WHAT AWAITS IRAN? / GEOPOLITICAL FUTURES

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What Awaits Iran?

By: Hilal Khashan


Shiite clerics have always played an active and essential role in Iranian public affairs. Safavid shahs (1501-1736) found them extremely useful in proselytizing Persians from Sunnism into Shiism. They also extended political legitimacy to Qajar shahs during most of the 19th century.

Clerics in Shiism are more involved than Sunni counterparts in the lives of their religious communities. Shiite Muslims, following their religious doctrine, need continuous guidance from senior clerics; otherwise, they would go astray.

Toward the end of the last decade of the 19th century, a revered ayatollah rose to the center stage of Persian politics upon the urging of nationalist and clerical compatriots.

Shiite Clerics Pioneer Iran's Political Development

In 1890, Nasir al-Din Shah issued the Tobacco Concession, which granted a British company the right to monopolize the country’s tobacco industry. In response to widespread public grievances against the humiliating terms of the concession, Ayatollah Mirza Shirazi issued a binding religious edict that banned the sale and consumption of tobacco products. Shirazi’s decision emptied the concession of its meaning and coerced the shah to annul it.

Then, in 1901, Mozaffar al-Din Shah authorized the D’Arcy Concession, which gave exclusive rights to a British company to prospect for oil in Iran. Even though William D'Arcy’s company struck oil in commercial quantities in 1908, the Iranian people, led by the clergy and Bazaaris (the merchant class), disapproved of the deal since it overlooked the country’s national interests.

The shah and corrupt Qajar bureaucrats were only interested in cash and personal gains. The Tobacco and D’Arcy concessions paved the way for a national movement that demanded the establishment of a National Assembly and creation of a constitutional form of monarchy. The move, known as the 1905-1911 Persian Constitutional Movement, failed because of Russian military intervention and British withdrawal of support for it.

In 1921, the Persian Cossack Brigade under the command of Reza Khan staged a military coup with British backing to defeat Bolshevik-supported ethnic forces who wanted to seize Tehran. He blunted their objective and became prime minister. In 1925, he established the Pahlavi Dynasty and assumed the name of Reza Shah Pahlavi.

He saw himself as a modernizer and was impressed by the secular approach to the modernity of Turkey’s Kemal Ataturk. He stopped short of adopting Ataturk’s secularist approach because he feared backlash from Iran’s powerful clerical establishment.

Reza Shah’s contributions to Iranian economic and cultural domains, including the emancipation of women, clearly demonstrated Ataturk’s influence on him. Reza Shah’s anti-British sentiment and Anglophobia, and preference for Nazi Germany, led Britain to force his abdication in 1941.

Iranian civil society thrived during the years of British occupation of southern and southwestern Iran. Political parties functioned freely, and independent media publications increased. In 1951, the Iranian Majlis (parliament) voted to appoint Mohammad Mossadeq, who immediately moved to nationalize the Anglo-Iranian Oil Co.

His nationalist and social secular stance alarmed the U.S. and Britain about his possible linkages to Iran’s communist Tudeh Party. In 1953, the army staged a coup that overthrew Mossadeq, and the U.S. and Britain colluded to reinstate Reza Shah.

The Accidental Success of Khomeini’s Islamic Revolution

The Iranian people did not forgive the shah for returning to power as a result of an Anglo-American conspiracy. Interaction with these two countries, in addition to Russia, did not favor Iran, which succumbed to their superior military power.

The shah’s legacy did not stop them from seeking to modernize Iran and transform it into a significant military force. In 1963, he unleashed the White Revolution to accelerate the process of economic development.

Industrialization increased the demand for labor and set off a massive process of internal migration from rural areas into Iranian cities. The new urban dwellers, who arrived with their spiritual guides, found shelter in slummy neighborhoods. Hostility to the Pahlavis did not matter much in the countryside, which lay on the margins of Iranian politics.

The death of pacifist and politically quietist Ayatollah Borujerdi in 1961 ushered in the rise of Ruhollah Khomeini, who loathed the shah and waited for an opportunity to challenge his policies.

The White Revolution presented itself as an opportunity for Khomeini to condemn the shah’s Westernization as an attack on Islamic principles and way of life. The shah ordered the arrest of Khomeini, who went into exile in Turkey in 1964. Khomeini then settled in Najaf, Iraq, until 1978, when he moved to France to continue his anti-shah activism.

Low-intensity demonstrations opposing the shah started in 1975 and gained momentum right after the Rex movie theater arson attack in Abadan in August 1978, which killed more than 400 people. Influenced by Khomeini’s description of the shah as an American and Israeli lackey, streets in Iranian cities became full of anti-Zionist and anti-imperialist slogans.

Opposition to the shah’s repressive policies and aversion to U.S. foreign policy dominated the course of the 1979 revolution. Despite police repression and torture of political activists by secret police, the regime found itself unable to stop the rebellion.

The shah fled Iran in January 1979, and Khomeini returned triumphantly to Tehran two weeks later. Khomeini’s rule by the jurisconsult religious theory, which amounted to an ideological coup in the doctrinal history of Twelver Imami Shiism, has governed the country ever since.

Khomeini took advantage of his public support to tighten his grip on state institutions without any opposition from the new religious ruling elite, who did not take the idea of the modern state seriously. Khomeini realized the importance of creating political and military institutions to protect the regime against the possibility of a counterrevolution, especially at a time when its Arab neighbors and the United States were contemplating ways to abort the revolution. He wanted the guardians of the Islamic Revolution to operate outside the jurisdiction of the state to oversee its activities and ensure their conformity with Khomeini’s religious doctrine.

Khomeini took advantage of the 1980-88 war with Iraq to eliminate leftist and nationalist opposition to his regime. Many Iranians grew discontented with the revolution because it failed to improve their standard of living and suppressed their freedom of expression. The reformists emerged as a counterforce to the conservatives in the aftermath of the 1997 presidential elections in which Mohammad Khatami won a landslide victory. Protests simmered afterward mainly by moderate parliamentary aspirants whose candidacy was disqualified by the Guardians Council.

The protests peaked in 2009 over the outcome of the presidential elections. They occurred mostly in Persian cities such as Tehran, Isfahan and Tabriz. They pitted reformists against conservatives over rigging the presidential polls that enabled Mahmoud Ahmadinejad to win a second term in office.

Reformist candidates Mehdi Karroubi and Mir Hossein Mousavi did not seek to dismantle the revolution; they demanded only the removal of the temporal powers of Ayatollah Ali Khamenei, who lacked Khomeini’s charisma, and restriction of his powers to spiritual matters.

The Basij volunteer militia ruthlessly crushed the protests that came to be known as the green movement. The green movement fell short of a revolution because it sought to reform the events of 1979 instead of phasing them out. Subsequent protests did not take off because of political differences.

But today, ordinary people are finding it even more challenging to make ends meet, as demonstrated in 2017-18 over the sharp increase in food prices. In 2019, demonstrators took their anger to the street to protest sudden oil price increases. In the two spates of protests that turned violent, Iranians chanted “Death to Palestine,” and “Help us, not Gaza,” to register opposition to squandering scarce Iranian financial resources on foreign adventures. The Basij had no mercy on the protesters.

State-controlled media outlets now accuse foreign countries of perpetrating the violence targeting private and public property. Iran’s protests do not seem to have a political leadership to give them direction and momentum. Activists who could provide a powerful boost to the demonstrations have fled the country to escape the Islamic Revolutionary Guard Corps’ harsh, oppressive measures.

The conservatives hope to use the protests to topple the government of President Hassan Rouhani, who, in turn, expects them to cause the demise of the supreme leader’s rule.

Rouhani’s long-shot goal is to extend his authority to the institutions of the supreme leader that dominate the Iranian economy, especially the Khatam al-Anbia Construction Firm, which belongs to the IRGC.

The Fate of Khomeini’s Revolution

The reformists are increasingly winning over the public at the expense of the conservatives, who are rapidly losing popular support. Mousavi’s Green Path of Hope front has succeeded in rallying a broad coalition of opposition groups ranging from leftist reformists to centrists.

Demography is working against the conservatives; the majority of Iran’s population is young.

More than 70 percent of Iranians are under 35 years old, and many of them neither relate to Khomeini’s revolution nor know what slogans he raised. Young Iranians remember Khomeini for meddling in foreign affairs and provoking Iraq to start an eight-year war against the Islamic Republic that decimated its economy and inflicted more than 1 million deaths.

Iran suffers from prolonged and torturous sanctions that are becoming unbearable.

The currency has become worthless, and necessities are expensive and unaffordable. The past two years’ demonstrations over food and fuel price hikes differ from previous waves of discontent in at least two respects. People are no longer making demands for political reforms, but regime change. Of equal importance is that protests cut across Iran’s diverse ethnic composition.

Iran is not yet, however, ready for a new revolution that ushers in a new political system on the ruins of wilayat al-faqih (guardianship by an Islamic jurist) because the IRGC does not allow protesters to question the authenticity and legitimacy of Khomeini’s religious revolution.

The unfortunate shooting down of the Ukrainian aircraft in early January enraged the Iranian people. It shifted the focus of the Iranian people from the condemnation of the U.S. killing of Qassem Soleimani into anger and frustration against the regime. During the most recent protests, demonstrators chanted, “The enemy lies within us.”

Frequent droughts are increasing the pace of internal migration from rural areas into Iranian cities and overburdening their antiquated infrastructure. The new urban poverty belts are capable of initiating Iran’s counterrevolution.

The Iranian people’s mood during the past 150 years has vacillated between demands for reform (both bureaucratic and political), nationalism and anti-imperialism. Iranians today yearn for freedom and are unmoved by Khomeini’s revolutionary slogans. Foreign countries need to avoid prodding Iranians to revolt against the regime because it would legitimize a harsh crackdown.

Since U.S. President George W. Bush in 2003 encouraged Iranian demonstrators to bring down the government and introduce a democratic order, Iranian reformist leaders have eschewed sponsorship of the protests lest they be labeled treacherous. Israeli Prime Minister Benjamin Netanyahu’s hope that Israel and Iran could restore their amicable relations after overthrowing the regime does a disservice to Iranian protesters.

Political change in Iran is bound to be painful and delayed. The Iranian revolution has created deep roots in the country, and it will not collapse because of protests, since the authorities are determined to do whatever is necessary to crush the opposition. In previous demonstrations, they unleashed thugs to destroy property in order to justify Basij retaliation and intimidate peaceful protesters against taking their anger and frustration to the street.

The success of the 1979 revolution owes much to the Iranian army, whose commanders chose to maintain neutrality. The IRGC, however, is highly unlikely to take a neutral stance since its survival is at stake. The best course of action for the U.S. is to keep the sanctions in place because they are working, while Iran’s economy of resistance is not.

The Iranians no longer tolerate empty ideological mobilization that does not put bread on the table. The Iranian political system is anachronistic and will atrophy in the end, but there is no quick fix.