Iran’s industry [and the economy in general] has vanished in the Bermuda Triangle of poor policymaking for years now, taking along with it “economic governance”, “quality of diplomacy” and “social and cultural imperatives”. It is impossible to see real added value in the industrial sector. Many of the country’s economic players and independent analysts see as inevitable and imminent the weakening of the economy’s productive structures. These were stated by Hossein Selahvarzi, the deputy head of Iran Chamber of Commerce, Industries, Mines and Agriculture, in an article for the Persian-language daily Donya-e-Eqtesad. A translation of the full text follows:
Poor Economic Governance
The foreign currency control policy has challenged the competitive advantage of national industries in international markets for years. During the subsidization process, intergenerational resources were turned into low-value consumer goods; Iran’s production capacity has fallen victim to demagogic, superficial and reactionary welfare policies. Interventions in the foreign exchange market has discouraged exporters from official economic activities and turned exports into a field for unofficial and irresponsible business; the only motivation exporters have is to exploit the privileges that governments grant in the name of “production support loans” financed by the country’s intergenerational resources.
Mandatory pricing and structural interventions in production and trade have drowned the sound of the “productivity signal”, especially in the industrial sector, and thus closed the doors of value creation for Iranian industrialists.
The governments’ financial and monetary indiscipline has imposed a crushing inflationary tax in the form of unbridled growth of money supply on the economy. Now winning short-term price battles (and not optimizing productivity) is the lead actor in regulating relationships in Iran’s production and trade ecosystems. The dominance of this strategic approach over the behavior of economic players for about five decades has deprived the Iranian industry of responsible human capital, paving the way for rent-seekers and opportunists.
Severe weakness in the rule of law [especially in the form of not fulfilling one’s responsibility on the part of public sector and at the cost of the private sector], along with the lack of effective support for the legal execution of commercial contracts, has made scalability of Iranian businesses impossible.
Poor Diplomacy
The basis of industrial value creation in today’s world is the relative advantages coming from the division of specialized work. In such a situation, we can say “a product that cannot be exported is not worth making.”
In addition to overcoming executive, technical and management challenges that all economic players face on the global front, Iranian producers have to overcome a hurdle simply for being an “Iranian citizen”. This hurdle is the outcome of poor diplomacy; it has practically isolated Iran’s economy in the international arena during the past two decades.
Besides sanctions imposed by the United States and compounded by the risk-avoidance approaches employed by other global economic actors, lack of access to international financial services, risks, uncertainties and the high cost of trade imposed on Iranian industrialists, as well as the impossibility of establishing strategic and long-term ties with regional and global partners [again due to sanctions], have restricted the scope of Iranian manufacturers’ activities in the global market.
Cultural and Social Conditions
About two to three decades ago, entrepreneurship and creative destruction were viewed as a privilege in economic activity. Today, they are undoubtedly essential components of competitive production and trade.
[Creative destruction can be defined as the decay of longstanding practices, procedures, products or services followed by more innovative, disruptive ones. It is based on the principle that old assumptions need to be broken so that new innovations can benefit from existing resources and energy.]
It is sad to note that a majority of entrepreneurs prefer to migrate and continue their careers abroad under the current social and cultural conditions of the country. With the loss of entrepreneurial capital, the chances of value-creation and competitive industrial production decreases.
In short, as long as policymakers see the market as a factor for the management of logistics and the industrial sector as the use of machinery and turn a blind eye to the role of macroeconomic, political and cultural factors, there would be no hope for the improvement of industry.
The first step to revive and salvage Iran’s industrial sector is to fix the Bermuda Triangle of poor governance; Iran’s future will become promising only if there was a serious determination to get rid of this Bermuda Triangle.
