Tyranny of numbers

Remembering Mehdi Samii (1918-2010), the Good Banker

Posted in Education, General, Macroeconomy by Djavad on September 18, 2010

Mehdi Samii, who died in Los Angeles, California, a week after his 92nd birthday on July 30, 2010, was Iran’s most prominent banker of the twentieth century.  His career in Iran spanned the period between the second World War and the Islamic Revolution.  He was an influential banker and a leading figure among a small group of dedicated Iranian technocrats who helped build the foundations of a modern economy in Iran, one that produced the miracle growth period of the decade before the oil boom of 1973. 

He occupied the commanding heights of economic policy making in Iran, beginning with the Central Bank, which he helped establish in 1960 and later led during 1963-68 and again in 1970-71, and later at the helm of the Plan Organization (1968-70).  Before that he had turned down two earlier ministerial appointments for agriculture and commerce.  He helped establish the Industrial and Mining Development Bank of Iran with financial backing from major US banks, and acted as its co-director for several years.  After leaving the Central Bank, he was appointed the director of the Agricultural Development Bank, where he stayed until 1979.  Mehdi Samii was a rare breed of Iranian managers and policy makers who combined personal integrity with intelligence and professionalism.  In his brief but eloquent biography of Samii, Abbas Milani describes him as “the chief architect of Iran’s rapid economic and industrial growth of the 1960’s” (Eminent Persians, p. 760). 

Samii’s impeccable reputation as a banker of high professionalism and integrity brought international credibility for Iran’s development effort.  In the 1960s, before the big inflow of oil money, when Iran needed to borrow from abroad to finance its “miracle growth”, Samii’s signature was considered collateral.  The Shah recruited him for various tasks as well, from negotiating arms purchases from the United States to managing his coronation celebrations in 1967 to forming a new party in 1972–the latter he did not end up doing.  His served the Shah loyally but not blindly; he even refused to kiss the monarch’s hand or kneel before him, as was required of all officials (Milani, Eminent Persians).  After the oil boom, when the Shah felt less in need of competent and honest managers, Samii was marginalized.  He was briefly arrested after the revolution but was set free, saved by his reputation as a man of high integrity.

Samii and the group of technocrats around him came under pressure when, in 1973, the Shah was hell bent on spending his way to the gates of the “Great Civilization.”  He was displeased with the technocrats in charge of budgeting and planning who refused to quadruple the budget of the freshly prepared Fifth Five-Year Development Plan (1973-78), from $17 to $54 billions.  Samii had left the Central Bank earlier and was increasingly marginalized.  Soon followed a team of able economists and planners associated with him, such as Khodadad Farmanfarmaian and Reza Moghadam, who left the Plan and Budget Organization preferring to give up their promising careers in public service rather than carry out polices that they considered destructive.  Milani quotes Moghadam as having warned at the time that revising and inflating the Plan would lead to “social and political explosion”, (Eminent Persians, p. 758).  And the rest is history.

Thus, as fate would have it, several years before the revolution, and from the margin, Samii would watch as the golden period of economic growth to which he had devoted his career came crashing down at the gates of the Shah’s Great Civilzation.  Added to his disappointment must have been how the events that followed –the revolution and the war — set back the professions in economics and finance that he had worked to promote.  It is no exaggeration to say that Mehdi Samii, in close collaboration with Farmanfarmaian, are responsible for the presence of the few eminent Iranian economists on the global stage today.  Among the beneficiaries of the scholarship program that they (at the helm of Iran’s Central Bank in 1960s) instituted you will find some of the most successful economists of their generation, Hashem Pesaran, Firouz Gahvari, and Essie Maasoumi, as you will many former “Bank Students” in high places in finance, accounting, banking, and insurance.  For several years, the Central Bank scholarship program that sent top students abroad right after high school became the main vehicle for redirecting the best and the brightest of Iran away from engineering and toward new professions in finance and economics.  

I had the pleasure of meeting Mehdi Samii in London in 1983, a few years after he had left Iran for good.  I went to visit him him in part to meet the man who had played a role in my education (I was a Bank Student) and in part to interview him for a research project that at time I was engaged in, on the role of credit subsidy in the transfer of oil riches to the private sector in the 1970s.  The question that interested me at the time (still does today) was the extent to which credit allocation depended on political connections that benefitted the sections of the bourgeoisie that was closer to the Pahlavi family and foreign capital and discriminated against those out of favor–for example, those with nationalists and religious leanings.   My conjecture was that when interest rate on development loans turned negative in the 1970s, as inflation reached 50%, and borrowing became the fastest way to riches, especially for those with access to investment in real estate,  lending behavior by the banks alienated the latter group.  I was keen to understand why the upper middle class had helped overthrow a system that seemed to serve their interests.  (The paper I wrote on this topic was eventually published in 1989; it is also available here).

When I asked his opinion on these issues, Samii seemed reluctant to admit that under the Shah credit allocation had been less than professional, perhaps even corrupt, but years later on indicated as much to Milani (see his description of Samii as fealess when the well-connected and nefarious industrialist, Hozhabr Yazdani, tried to bring pressure from his backers at SAVAK and the Pahlavi court to obtain a loan from Samii’s bank, Eminent Persians, p. 1114).   Apparently, pressuring bankers to lend to powerful individuals was common practice in the 1970s.

It may come as a surprise to some that decades –and a revolution — later similar practices are again fueling political and social tensions in Iran.  What should not come as a surprise is that political connections continue to be strong indicators of creditworthiness, and, as in the 1970s, high inflation prior to 2009 plunged the real interest rates into the negative territory (reaching as low as minus 10 percent in 2008).  My conjecture is, as for the earlier period, that the opportunity to borrow cheap and invest in real estate brought strong pressures on banks to lend to well connected borrowers.  When, in 2008, the real estate bubble burst there must have been many large borrowers who were unable to pay back their loans, loading the banks with bad loans.  One may be tempted to conclude that, as the saying goes, plus ça change, plus c’est la même chose, but this time there is one important difference.  Unlike in 1979, when the Pahlavi regime collapsed and the largest borrowers fled the country and were never called to account, this time the collapse has been limited to the real estate market and the borrowers are still around.  Political tensions remain high as one hears demands for the government to name names.  Perhaps the political pressures emanating from the most recent lending crisis will force a solution to the uneasy relation between the banking system and the private sector in Iran.  In the meantime, credit remains tight, which makes it very hard for the economy to climb out of the big hole dug by the financial crisis.  After the last crisis there was the revolution which meant that all bets were off.   This time the question is whether there is the political will and the technical skills to deal with the underlying issues. 

Although the economics profession inside Iran has greatly expanded in the last decade or two, for reasons that are not hard to understand their best and brightest continue to leave the country.  Two programs with a similar purpose to the scholarship program set up by Farmanfamain and Samii have continued to attract top engineering students into economics, thanks to the efforts of a new group of visionaries, such as Alinaghi Mashayekhi, Mohammad Tabibian, and Massoud Nili.  These program –at the Institute for Research and Planning in Development, attached to the Management and Budget Organization (both still existing with different names and identities), and the Faculty of Management and Economics at Sharif University– did not involve sending students abroad; the fact that many did end up abroad was not part of their plan.  It is sad that most of their graduates leave Iran and do not return, but it is also encouraging to notice the high level of loyalty they display toward their mentors and the institutions that enabled them to choose a career path that seems to better fit their tastes and talents. 

In 2006, a group of about 40 former Bank Students gathered in London to honor Mehdi Samii and Khodadad Farmanfarmaian.  The connection between the founders of the scholarship program and its architects has remained strong.   Farmanfarmain once told me that the scholarship program was one of the three accomplishments in his life that he was proud of, and the one that continues to bear fruit. Unfortunately, Mehdi Samii could not make it to the London gathering because of illness, but, expressing his pride, told me on the phone that he had wanted to send talented Iranians abroad to study the new disciplines critical for building a modern Iran because he himself had been the beneficiary of a similar program by Iran’s National Bank (Bank Melli) some 30 years earlier.  Indeed, several students who were sent abroad in the 1930s returned later to become notable architects of Iran’s “miracle” growth period in the late 1960s.  So long is the gestation period for the seeds of human capital to bear fruit.

Next month, the Conference on Iran’s Economy, to be held at the University of Chicago, October 15-16, will honor Mehdi Samii during a session on Iran’s economy during the 1960s.  At a time when in Iran trust in public officials is at an all time low, visionaries are in short supply, and bankers worldwide are symbols of greed, it is important to remember Mehdi Samii, the Good Banker from Iran.

17 Responses

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  1. tino1001 said, on August 28, 2016 at 11:27 am

    If men of immaculate integrity such as Khodadad Farmanfarmaian and Mehdi Samii had had a say in the politics of the 1970s, instead of the sycophantic apple polishers abound then, the revolution might have been averted, at least its brunt of pathological and criminal elements of hypocrisy and bigotry.

  2. Jamshid Dashtgard said, on December 20, 2014 at 11:07 pm

    I am one of the very first group of students sent abroad ( England) to study Chartered Accountancy. I distinctly remember May 12, 1963 when seven of us went to Samii’s Office in Bank Markazi to say good-by. Our group were followed by several other groups of seven to ten. I am very sad to say that of all those groups ( myself included) none is left in Iran to serve. Why? Because pull of ABROAD ( in my case England) was very strong and many of us got married, got a job, became comfortable amidst foreigners. This same conditions exist today only stronger. What did Iran gets out of the Program Of Student Scholarship ? Little! I believe a student trained in Iran to even to 50% of foreign standard is better than ZERO when they do not go back to serve Iran. Iran would be a lot better off to bring foreign publications and apply them to local needs by same talented students rather than pay them for years only to become absorbed by foreign country.
    Time has come to rely on Iranian talent to pave the way for its progress.

    • Djavad said, on December 21, 2014 at 3:18 am

      Many thanks for your note, Jamshid. I agree with you that it would have been much better if trained Iranians expatriates would return to Iran, and am sorry that so many of the Bank students ended up abroad. On the other hand, some who live abroad, like your classmate (?) Hashem Pesaran, are highly valuable for Iran and are celebrated there. I think in his and several other cases that I know of, the investment in their education has had the highest return for the country.

      I hope that one day Iran would want to induce them back. It is never too late to “serve the country” …..

      From: Tyranny of numbers <comment-reply@wordpress.com> Reply-To: “comment+2i1eh_sdh4u7ui_0cyzz41up8@comment.wordpress.com” <comment+2i1eh_sdh4u7ui_0cyzz41up8@comment.wordpress.com> Date: Saturday, December 20, 2014 at 10:07 PM To: Djavad <salehi@vt.edu> Subject: [Tyranny of numbers] Comment: “Remembering Mehdi Samii (1918-2010), the Good Banker”

  3. name said, on November 21, 2010 at 3:15 am

    kharejaki neveshti ki

  4. نصرالله said, on November 16, 2010 at 3:57 pm

    با عرض سلام خدمت “djavad” ان شاءالله در تمامی مراحل زندگی موفق باشی به وبلاگ ما هم سر بزن در پناه حق یا علی خدا حافظ.

  5. One whose anger has bad reasons said, on October 9, 2010 at 2:00 pm

    Anger doesn’t have a good reason? Maybe. Would you be willing to let go of half of your salary for the rest of your life and endure periods of unemployment, not to mention career dissatisfaction, for the sake of the bank account of those already rich?

    No? I didn’t think so either.

    I think there is a big misconception of what Iran needs. Who in their right mind thinks Iran will be saved by university degrees? What Iranian society needs is a basic acknowledgement of rights, e.g. property rights. This requires us not to violate each other. How about “no lie” rule? How about not dismissing others’ real suffering as …yeh some collateral damage? and why not listening before claiming moral superiority by dismissing the anger?

    What Dr. Samii did was an honest and transparent effort which benefited those involved. Dr. Samii did not make a dime giving scholarship for economics. What is happening right now is a fraud sold to degree-obsessed blind crowd and ignorant young people. I want to give you the benefit of the doubt and say you don’t know the details of what is happening. but then any effort to justify the clearly fraudulent marketing is ……….. let’s just say it is not right. Good conscious shouldn’t allow it.

    Sad sad situation, where Iranians of all ranks have lost their sense of right and wrong.

  6. Djavad Salehi said, on October 9, 2010 at 8:10 am

    Thank you for all your comments on this post. Although the evaluation of the IRPD program was not the main purpose of my post, the development of the economic profession in Iran is an important topic in itself. I am sorry to read some angry exchanges on this subject, though. As Benjamin Franklin said, anger always has a reason, though seldom a good one.

    In a country that attaches low prestige to economics, and where the students with the best quantitative talent tend to do engineering, using the words “system” and “engineering” in a program designed to attract these students to economics is clever and has a good purpose. There are actually programs like this — Stanford used to have a graduate Engineering-Economic Systems program, and may still do, as does Japan’s Tsukuba University (where my former colleague, the famed game theorist Mamoru Kaneko teaches).
    The IRPD program did well by many students, especially those now doing PhDs in the top US economics departments. The program facilitated the establishment of the graduate Economic program at Sharif University, which is much in demand. I believe that their graduates will play leading roles in the Iranian economics profession in future. That is quite an achievement for the IRPD program. some might argue that all this would have happened anyway, but I disagree. Things do not happen by themselves. There is always someone somewhere that has an idea and puts it to work.
    On the other hand, there has been some collateral damage, as evidenced by our deeply disappointed anonymous friend here. We have to acknowledge that too, but then move on.

  7. Ali Mahdavi said, on October 7, 2010 at 12:53 pm

    Hi ,

    well i am systems engineering myself, i have studied systems engineering in north america in a respected school.
    This program Socio economic systmes engineering or whatever its called is not a credited program at least not under the systems engineering discipline, simply because such program must be approved by International Council on Systems Engineering. In other words such program in sharif university is academically speaking worthless however if you consider a masters program the way one must; in oder words as a program to learn in greater depth such program may hold some values.

    • Ali Mahdavi said, on October 7, 2010 at 12:56 pm

      I apologizes for my grammar mistakes above. I am still getting used to iphone

  8. Think for a sec said, on October 5, 2010 at 10:48 am

    O pleaaseeeeeeeeeeeeee”world class study in Economics”!!! Apparently all you learned was to market the same fraud. How was it “a world class study”? How could possibly a program whose founders can not recognize a communist title be a “world class program”?
    i am not gonna even talk about the content of the program.

    How is it OK to sell something under a different name, just to attract customers? have you tried to explain to any body what “social economic systems…..” is??

    • yaser said, on October 5, 2010 at 11:35 am

      I didn’t say it is a world class program; however, clearly it is the road. An average student in the program can take a position in under-50-ranked PhD programs in economics and we have had placements in MIT, Harvard, and LSE.

      I understand you. Your problem is common among some of the students. But, I want to mention again that it is their fault. There is not anything secret and everyone can find what the program looks like, even from faculty’s web site.

      • Think for a sec said, on October 5, 2010 at 12:57 pm

        AJAB! AJAB! It amazes me that I am unable to get a simple point across. Let me try another approach here:

        1- You studied economics, right? You claim it was “wold class study” whatever that means. OK. Please answer this question: what does “socio economic systems engineering” mean? What is the history of this term?

        I mean this is the minimum I can expect from a university graduate, to explain in one paragraph what is it they can do.

        2-Sharif students get PhD’s . That is what they are learned to do and that is why they have done in the past 40 years and that is how Sharif University markets itself. SO WHAT?!!! if you demolish any Sharif department and build a new department , still students go there and some end up getting a PhD somewhere and then marketing the same track for others to make a living. ENOUGH OF THIS MARKETING SCHEME! Let’s count how many graduates are happy and satisfied with their degree and consequent life? how many are successful ? how many are not? how many people curse at that institution every day? What was the REAL productivity? how many real economists came out of the program? one? two? I don’t know any.

        It is funny how iranians measure anything with the number of degrees.

        3- Do you understand when you say “some students have problems”, what does it mean? have u met the graduates and seen their lives? their difficulties? many wasted their engineering studies for what they thought better, but it wasn’t?

        don’t you feel they have a right to complain of the fraud or is this a dictatorship?

        4-in every transaction there are two sides. Buyers bear some responsibility and sellers too. A fraud is a fraud. MBA for the most part is a fraud, specially in Iran: a bunch of unrelated un- applicable and in some instances pure garbage so called managerial courses.

        ok, so it was our fault trusting old people with white hair and tons of money back then. but now can we talk about our experience? or not?

  9. Hojat said, on September 19, 2010 at 7:52 pm

    Thanks very much for the post.

  10. Not to be revealed said, on September 19, 2010 at 12:27 pm

    In regard to Mr. Samii and the role of credit howlers in political turmoil, this is worthy post.

    BUT wait a second here! Every time I hear somebody giving any sort of credit to the Mashayekhi and Nili for their unfair marketing of phony degrees and education, I get very upset. Do you have any idea how many students wasted their youth obtaining phony degrees such “SOCIO ECONOMIC SYSTEMS ENGINEERING”? Do you know what percentage of them regret falling into this trap? Do you know how many of them essentially went back to engineering jobs of sort sorts ? Do you know how difficult it has been for them to secure jobs, even though they could have very sucessful in their science and engieering fields?

    Do you know Mashayekhi still teaches something called “System Dynamics” , which destroys the academic disciplines and ruins careers? Do yo know it is a fraud? Do you approve of the current MBA frauds (cheap immitations of the worst aspects of American schools), marketed relentlessly by Mashyekhi and Nili? They know whole heartedly it is a fraud and they still go at it to accumulate even more wealth, despite being quite wealthy.

    OK, either you don’t know , or you don’t care (belonging to the same market). This is a problem with national utilitarian talks of “helping the country”. Nobody helps any country. Everybody thinks of their pockets.

    Do you think I am wrong? then please I’d like somebody to explain the meaning of this title “SOCIO ECONOMIC SYSTEMS ENGINEERING” and its validity as an academic program. I mean the 1st condition of academic integrity is the freedom of discussion and love of reason, so let’s talk about this, shall we?

    Only Tabibian , among those mentioned, was honest enough to separate himself from this travesty.

    Perhaps, you do not understand my anger until you lose as much time and career as me and my friends did.

    • Yaser said, on October 5, 2010 at 8:31 am

      It is clear that “SOCIO ECONOMIC SYSTEMS ENGINEERING” in Sharif University is designed to be a short cut for talent engineering students toward a world-class study in Economics and the there is no different between contents of the program and M. Sc. of Economics, in the faculty. It was your duty to do a research about the program, as I did, before been enticed by brand of “Sharif” and applying for the program. Therfore, you have to blame yourself!

    • Mohammadreza said, on November 23, 2010 at 2:53 am

      What do you mean by this?
      “Do you know Mashayekhi still teaches something called “System Dynamics” , which destroys the academic disciplines and ruins careers?”
      Look at this:

  11. حسین said, on September 18, 2010 at 9:07 pm

    Thanks. I enjoyed it a lot.

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