Iran’s special economic conditions and its government’s misguided policies in recent years have given rise to deal-making and all-round middlemanship.
The economy has now transformed into a safe haven for middlemen, says Nasser Zakeri, an economic analyst, in an article for the Persian daily Shargh. A translation of the text follows:
A parliamentarian representing Lahijan [in Gilan province] recently said traders are selling rice at twice the purchase price paid to farmers. A deputy attorney general has also said that the gap between cost price and retail price is too large; the middlemen inflate prices to line their pockets.
News outlets are aflush with similar comments made by other officials. One complains about the price of red meat and the other laments the orchestrated effort to increase the price of domestically-produced rice. Under the circumstances, it is not an overstatement to say that Iran’s economy provides a safe haven to middlemen. Speculative practices create astronomical profits.
In the early 1980s, one of the main concerns of economists eager to serve the national economy was the traditional mechanism of distribution. This system would benefit intermediaries and middlemen the most while shortchanging producers. Profits generated from speculative practices send this misleading message to all economic players that they should invest in trade rather than production.
The unrestricted rise in money supply and the easy access of unproductive sector to banking resources have given middlemen a high purchasing power and an opportunity to decimate the national economy and shut out producers
The bitter reality back then was that out of 100 units of money paid by consumers for an agricultural product, only 15 units would go to the farmers and the rest was grabbed by middlemen. Farmers would sell their products at low prices to wholesalers and they would supply the products when the prices were at peak levels.
Policymakers then proposed the idea of establishing farmers’ syndicates. In doing so, farmers could supply their products directly to consumers; they would have needed less of the “services” provided by intermediaries. Also, by taking out cheap loans, they were not forced to supply their products at low prices during off seasons.
Giving support to the expansion of the network of local consumer and producers cooperatives in the agriculture sector in the 1980s and then launching an extensive network of fruit and vegetable markets in Tehran and later in other cities as well as the establishment of large chain stores in the early 1990s were measures taken to reduce the profit margins of the middlemen and increase producers’ share of added value, while keeping in check the retail prices and protecting consumers’ rights to boost national production.
Today, in retrospect, you can notice that the share of productive sector in added value is still minimal; the middlemen and intermediaries take the lion’s share. To be more precise, measures such as those mentioned above were not effective in limiting the middlemen’s control over the country’s macro-economy.
In recent years, Iran’s special economic conditions and misguided policies have not only failed to curb speculative practices, but also helped promote the growth of the unproductive sector and the expansion of speculative activities.
The unrestricted rise in money supply and the easy access of unproductive sector to banking resources have given middlemen a high purchasing power and an opportunity to decimate the national economy and shut out producers.
On the other hand, decades-long inaction on the part of the government has given the middlemen the safe margin to expand their speculative practices. Here, any new measure taken by the government to curb speculative activities backfires and even turns into a means for the middlemen to inflate their profits.
Rumor has it that large chain stores are playing a key role in increasing the prices of rice through bulk purchasing during the harvest season and hoarding in warehouses. In other words, institutions that were established with the aim of reforming the traditional distribution system and create welfare for producers and consumers have now ironically turned into agents of hiking rice prices, thanks to rentier policies dominating the economy.
A look at four decades of policymaking in commerce and distribution of goods shows short-term measures and policies cannot fix the economy. If the government intends to reform the national economy and support the production sector, it should draw up a detailed, comprehensive roadmap and avail itself of the scientific acumen of experts to treat the ailing economy and turn the middlemen’s safe haven into one for producers and consumers.
