Economic policymaking in Iran is suffering from major weaknesses, denying the potential of the economy a level of growth commensurate with the spent resources; there’s no doubt in this regard.
Everyone acknowledges that Iran has unique potentials and opportunities for growth and development, however, the expected growth and development have not been realized. Finding the roots of this shortcoming in the performance of economic policymaking is the focus of this write-up.
Here, I intend to point to only one factor. I do not claim that this factor is the only factor or even the dominant factor in explaining this situation, but I believe this aspect has been effective in shaping ineffective economic policies.
Ali Sarzaeem, an economist, prefaced his write-up for the Persian daily Donya-e-Eqtesad with this note. A translation of the text follows:
Iran’s political system has ideological dimensions. These dimensions value the defense of workers against employers, help raise tariffs, control prices, suppress foreign currency exchange rates, avoid interest rates and pursues import substitution, regardless of their functions.
We have two groups of economists. The first group defends the market economy to streamline economic activities and regards this mechanism as the best approach for allocating resources. They believe that this mechanism helps the promotion of growth and prevents the squandering of resources. The second group of economists is state-oriented and believes that government intervention in different matters is useful and necessary. The problem of the country started when the state-oriented economists won the competition to convince the policymakers and politicians and managed to imbed their ideas in the government structure better than their rival.
For example, there will be a heavy social pressure on the politician when the country faces a foreign currency crisis and currency speculation attacks. This is where the state-oriented economists recommend that their solution can end the economy’s reliance on and impact of the exchange rate called “de-dollarization of the economy”.
The politician, who is under social pressure, is delighted to hear this promise and thinks this so-called solution will lift the burden weighing on his shoulders. On the other hand, when market-oriented economists tell politicians that fighting the exchange rate is not advisable and that they should accept the market reality, the politician becomes bitter. If you had to choose between a sweet and a bitter meal, which one would you opt for?
Pragmatic Solution
For a myopic politician, a sweet promise is preferable; he can convince himself that he is trying to solve a problem, but a smart politician reviews the past experiences, is not short-sighted and prefers bitter promises because he understands that punching the wall is not only useless, but also wastes the country’s resources and dents his credibility.
A wise, pragmatic politician opts for the bitter solution, but if the politician has non-scientific preferences, he is likely to opt for the sweet solution. The reason is that the politician thinks that the depreciation of local currency is synonymous with an economic failure in the fight with the global superpower.
State-oriented economists know this type of politicians and are familiar with their way of thinking. They tell the politicians that they have the prescription that reduces the vulnerability of the economy in the face of the superpower. It is clear that the politician is eager to hear such news.
I believe that market-oriented economists should go for rebranding and show that market mechanism is capable of making the economy more resilient to external pressures, and that market economy reduces corruption, creates more jobs and increases the motivation for investment and entrepreneurship. In other words, the persuasion of politicians should be done according to their mood; when this type of politician is the client of an economist, arguments must be expressed in accordance with their preferences in order to make them acceptable. Otherwise, no matter how successful the ideas of the market economy, they will fail in the contest. Think of a better product that fails in the market in a competition with a subpar product due to its poor packaging and advertising.
